0:33 Intro. [Recording date: May 9, 2016.] Russ: Before today's interview I want to remind listeners that we've added a new feature at EconTalk.org, the Extras--opportunities for further discussion or ways to check your knowledge of an episode. I also encourage you to follow me on Twitter. My handle is @EconTalker, if you'd like to know about upcoming episodes or the opportunity to read books in advance. And finally I want to say that EconTalk is now on SoundCloud. It's been on Stitcher for a while, if that is useful to you.

1:03 Russ: And now for today's guest, Leif Wenar.... Our topic for today is the world trade in oil and the moral and political and economic consequences of that trade that you discuss in your very provocative book, Blood Oil. And I want to parents listening with children that we may explore some of the more brutal elements in the world trade for oil, so be prepared if you are listening with your children. I want to start with the Resource Curse. What is it? Guest: So, Russ, think about some of the big stories that we've been hearing from overseas in our lifetimes. I mean, now we've got ISIS (Islamic State in Iraq and Syria) and Bashar al-Assad dropping barrel bombs on his own people, Syrian refugee crisis; Vladimir Putin going into Syria and also Crimea not so long ago. A little further back, Muammar Gaddafi and Saddam Hussein; Al Qaeda and 9/11; the Saudis spreading this extreme strain of Islam worldwide. If you are as old as I am, you can remember the Soviet surge ahead of us and nuclear arms race, the Iranians' incessant spreading of terrorism around the world. All of those stories that we've been hearing all of our lives have one thing in common. All of those threats and crises come from states that export oil. And that is a big part of the Resource Curse. Russ: Now, you take a provocative turn, twist on that curse. It's usually focused on the people who have the resources. So, you make a really wonderful analogy, I felt, between drugs and alcohol on the one hand, and oil on the other. So, talk about the range of relationships, just like drugs and alcohol, that people can have with oil, and why and how it varies across countries. Guest: So, an oil-producing state is a little bit like a person who is addicted to alcohol or drugs. And as we know, it's very dangerous to be addicted to alcohol or drugs. If you take a lot of them, then you are really risking trouble. Now there are, in our history, some individuals who have been addicts and have done great at their jobs. You can think of Winston Churchill, for example, the 'greatest Briton', as they call him. Or John F. Kennedy, who was addicted to various kinds of painkillers. Those addicted people are unusual in that they did very well by their addictive substance. But in most cases, addiction to alcohol or drugs can be really dangerous to a person's constitution. Similarly, exporting a lot of natural resources can be really dangerous to a country. So, for example, think of the resource-rich states that we know of that have run into such trouble--not only the ones that I've mentioned in the Middle East, in Iran, Iraq, Saudi Arabia, and also Russia; Sudan and Syria. Think about the terrible war in the Congo over these metals that go into our cellphones or our laptops. Or those terrible Blood Diamonds that came out of the war in Sierra Leone that went into our engagement rings and our earrings. There is something about exporting a lot of resources which can cause real difficulties in the politics and the economics of the country. Russ: We understand that because it's a prize, in essence. And the person or people who control that prize have a lot of power and a lot of wealth. And yet, as you point out, there are countries that have lots of resources that manage to somehow do well by their people. Norway is an example. Botswana is an example. The United States would be an example. So, what's different about those countries relative to the little more depressing cases you mention? Guest: Here's the big difference. And this is what people can think of about natural resources: Is the government accountable to the people? So, if a government is accountable to the people, when all this resource money starts to come in, well then the people can make the government use that money for public goods. So, you mention Norway; it's a great case. They got lots of money from their oil. And the government is accountable to the people there. So the people have made the Norwegian government save that money for the future and their pension fund--the equivalent of our Social Security. It's funded for decades in advance. If the money comes in when the government is accountable to the people then it makes the people better off. But: if the money goes to an authoritarian ruler, it gives that ruler a chance to rule without being accountable to the people at all. And in fact to oppress them. And if it goes to a rebel group or an armed group--as we see, for example in Iraq or as we saw in Libya--then the group can use the money from the resources to buy more weapons and to cause more chaos in their country. So, the big question is: Is the government accountable to the people, when the oil money comes in, when the diamond money comes in, if yes, then good; if no, then real trouble might be in store. Russ: So, one of the examples that you talk about at length is Saudi Arabia. Which, on the surface, you could argue is a fairly benevolent place for its people. Somewhat benevolent, in certain dimensions at least. There is government provision of health care, education, per capita income is very high--and of course it's often high in these countries it's very unequally distributed, so the average or per capita is a very bad measure of the wellbeing of the people. So, one extreme we might have, Saudi Arabia, which seems like some of that oil money is going toward the people. The other extreme we might have, Equatorial Guinea, which is a horrific example of how the leader has abused his people and taken that money; and of course, it's always a risk in a dictatorship and authoritarian regime. So, there's a lot of terror spread often by the leader to his own people just to keep that prize in his own hands. But talk about those two extremes and whether we should make a distinction between them--say, Equatorial Guinea on the one hand, which is absolutely horrific, and Saudi Arabia, which is perhaps somewhat horrific, but in both cases you argue--excuse me: In neither case do the people control the resource. And yet you could argue Saudi Arabia is not so bad. Push back against that, as you do in the book. Guest: It's a key point here, is that the people should ultimately control the resources. So, if the government is accountable to the people, things go well. If it's not accountable to the people, you get real trouble. The country ultimately belongs to the people; and people should have the ultimate say, what happens to the resources of their country. So, you can imagine the two different cases of an authoritarian regime and the two extremes of strategies that authoritarians use oil to stay in power, take advantage of. On the one hand there is the terrible African dictatorship of Equatorial Guinea, where the President stays in power by using his oil money--mostly for coercion. The prisons are terrible and he locks up any dissidents, and notorious torture in the facilities in that country. So, there, it's mostly coercion as a strategy of divide and rule. In Saudi Arabia, the strategy is partly coercion. The Saudi security forces, the religious police, are extremely vigilant and severe. But Saudi also spends a lot of money dividing its people by paying them off, essentially: putting them into useless government jobs where they hardly even have to show up, and paying them essentially just to be quiet. Now, we don't actually know much about how the Saudi people like this deal. The Saudis, as far as we can tell do seem to think that the Saudi people own the resources of their country. And it's not really possible to ask them how they feel about this deal, where the royals take all of the oil money, then spend a huge amount of it on themselves, and decide to give some fraction of the rest to the people, to keep them quiet. That strategy has been effected so far. But let me just mention: The Saudis have done another thing to keep in power, besides coercion and patronage, which is to really insist on this extreme, intolerant version of Islam, not only within their own country, to get their own people to support the regime; but they've been spreading it around the world for decades--perhaps the biggest ideological campaign of all time. The Saudis have been funding medrassas and mosques and study centers around the world. And there's very intolerant, anti-Christian, anti-Jewish, anti-other strains of Islam versions of Islam that they've been insisting on, has bedded down around the world. And that's the version of Islam that we now see mutating into jihadi extremism, not only in the Middle East, and in Asia, but also in prior[?] Paris, and Brussels, and perhaps even here in the United States.

10:49 Russ: So, the question then, is--well, first of all, I guess the question would be, should we do something about that? Should we care about it? One of the powerful parts of the book is that, of course it's not just that. There have always been dictators who don't treat their people particularly well. There's always a question of what should be done about it, if you are on the outside; if there is anything to be done. Of course, there's the law of unintended consequences, which rears its head very badly, unfortunately or not in these foreign policy situations. So, one view says, 'Well, there's these bad places around the world. And there's really nothing to be done about that. Effectively it's hard to do anything real about it.' The part that's depressing, that you chronicle so well, is that you and I are funding it. I go down to the pump and I fill up my car. And sure, most of the gas comes from the United States; it's consumed in the United States. But we still import quite a bit. And of course, that world trade in oil keeps the price in the United States low, so we benefit financially from the trade in oil around the world. And, still, that trade itself, and the price of gasoline, is funding really horrible things that people are doing to their people. So, again, it's one thing to say, 'Well, maybe the people of Saudi Arabia deserve more of their own money than they are getting.' But the real part [?] is that you and I are keeping those regimes in place. And we don't want to confront that, do we? Guest: That's right. It's a fact that's been hidden for a while; but once you see it, it's hard to miss. So, it's true, in a sense, that there will always be dictators; there will always be poverty. But there's something really special about these oil states, in particular. So, let me just mention one fact: Think about all the progress that the developing world has made since 1980--[?] rise, India's rise. The oil states as a group in the developing world are no richer, no freer, and no more peaceful than they were in 1980. And that's remarkable. All the money going into those countries has not made the countries richer or more peaceful. And why is that? It's because our money is going to authoritarian rules and rebel groups. And that's the key to the Oil Curse. It's the rule that we use for deciding to who to buy oil from that's causing this trouble. So, when we go to the pump, we might be putting Saudi oil or Angolan oil or Equatorial Guinean oil into our pump. And our money--and our cars--I'm sorry--and our money will be going back to those men to help them maintain their repressive rule and to buy more torture chambers and helicopter gunships, and so on. It's our money that are keeping the men of blood in power in foreign countries. Our money is actually making those men stronger. That's the problem we need to address. Russ: And, you make a very powerful analogy with slave trade: that, even though the world, many parts of the world that traded in slaves or traded in the products that slaves created, benefited materially from that trade. The moral case was overwhelming: people said, 'I don't care. It's wrong.' And so the question is: Can you make the case--obviously most of us benefit tremendously here in the United States and the Western world and much of the world--benefit tremendously from the current situation with the world, or particularly right now, when the price happens to be relatively low? So it's really unpleasant to think about having to give some of that up to stand up for the principle of not cooperating with tyrants. And, we'd also have to confront the question--which we will--well, is it actually going to help the people we are talking about here? Because that's the question I care about a lot as an economist. But if we just think about the moral question of whether we should be complicit in this activity, it's a lot like slavery. Guest: It is. In fact, it's the same rule that we are using now for oil that we used to use for slavery. So, let's go back 300 years ago. Back then, in this very violent era, the rule for almost all international affairs was the rule of Might Makes Right: violence created legitimate power. So, back then, our rule for human beings was, whoever can seize them by force can sell them to us. And that was the rule that made the Atlantic slave trade legal, under which 12 million Africans were forced through the terrible Middle Passage, where they were bought legally as property here in the Americas. So, Might Makes Right used to be our rule for human beings. And we've abolished that rule, now. But Might Makes Right is still our rule for the resources of other countries. Our rule for the resources of other countries is: Whoever can seize the resources by force can sell them to us. And that's the rule that puts us into a business relationship with the men of blood abroad. Now, of course this rule makes no sense from a basic market perspective. Our rule is that violence overseas will create legal property rights in the United States. And that is a violation of central market norms. I mean, imagine that in your cellphone is a small piece of the Congo that was extracted at gunpoint by one of those vicious militias in the Congo that have been doing such horrible things to women over the last dozen or so years, in an effort to keep themselves in power in a chaotic region. Well, if that piece of the Congo is in your phone, you still own every molecule of your phone, 100%, under the laws of the United States. Violence there creates property rights here. That's an anti-market rule that we still use. And that's the rule that's causing the trouble. Now, if I can go back to one other thing you just mentioned, a very intuitive point that we benefit from, this violation of market norms in getting stolen goods all the time: It might seem like we are getting a good deal, just like it might seem we are getting a good deal by buying a stolen car from a car jacking instead of going to a showroom. Sometimes it seems cheaper to violate property rights. But, go back to those first examples I gave about the Oil Curse. Look how much trouble the Oil Curse ends up causing the world, ends up causing us. Best estimate we have is the United States spends about $67-68 billion dollars a year on our military protecting the global supply of oil. And the latest estimate for how much we spent in the most recent war in Iraq is [?] $2.4 trillion. That's serious money. That is serious money that we spend to try to keep oil--cheap. And we have to add that price on to what looks like a lower price at the pump.

18:14 Russ: So, I have to say--I'm a free-trader, and I'm a pretty hardcore free-trader; and I'm not particularly sympathetic to Fair Trade ideas. And these are somewhat what we are going to talk about what we're going to talk about with these issues that you've raised, or have some relationship to Fair Trade. They are basically saying: Well, you don't always just trade with countries; you don't always freely engage, even if it might seemingly make you better off. It might not, really. But we don't--maybe we shouldn't just trade freely. Maybe you should restrict some kinds of trade. And I was talking to my 18-year-old son about the ideas in your book and how provocative and persuasive some of them were; and he said, 'Dad, that's the least [?]thing I've ever heard you say.' Because, what you force--it's a very clever rhetorical device to say this is anti-market. Because it's forcing us to basically acknowledge theft, you are suggesting, as part of global trade. But the real question is: Having made the case that foreign trade in oil is making us both complicit with really evil people, some of them, and possibly hurting us more than we fully imagine in terms of its overall consequences, that leaves us with the question then of what is to be done about it. Because I think, when you tell people these kind of things, there's a temptation to say, 'But that's just the way the world is. There's really nothing practical to be done about it. Sure, maybe I should feel a little guilty that I'm funding a vicious dictator who tortures people in order to keep power. But really, it's just bad things in the world. There's nothing really to be done.' And it's true that 'might makes right' doesn't seem so right in 2016; but we don't really have a better idea of how to get there from here. So: What are you recommending? What would you suggest we do, to do this? I just want to make one more point. Because, you know, in my lifetime there have been many suggestions to boycott various products, various countries' trade--whether it was China for its so-called slave labor, whether it was grapes when migrant workers were allegedly poorly treated. And when I am confronted with those, I always ask the question: Does this help the people you claim to be worried about? So, in the case of China, you know, if China actually had slave labor making its products, I'd be very uninterested--I wouldn't want to--that's the wrong word: I wouldn't want to trade with them. So, I don't want to be complicit in slave labor, on purely moral grounds. I don't consider low-wage workers slaves. And I think our trading with them actually makes them better off. So, I always, actually find myself wanting to suggest the opposite of many of these international campaigns: 'Let's buy lots of stuff that migrant workers pick.' Like grapes. Because that will increase the demand for their services, push up their wages. 'Let's buy lots of Nike shoes that are made in Indonesia or Vietnam or wherever.' And the evidence is that a lot of these people who make these low wages actually have been improved over time by trade. Not by not-trade. And it's not always clear that not-trade is a way to make them better off. So, my question is: In this particular case: You make a pretty good case that there is some actually slavery here, effective slavery. So, what am I to do about that, if I, as an individual, say, 'Well, I'm not going to buy gasoline from Equatorial Guinea'? I can't really do that. And that's the problem you try to confront in the book, in terms of trying to find solutions. Correct? Guest: That's true. And you've raised a lot of points. So, let's take those three and separate them out. First is the really interesting, fundamental point about the foundations of economics, about property rights and theft. And the second is whether our trade makes people better off overseas. And then the third is what we could possibly do about this problem. And I'm so happy to talk to you and your listeners about the first point, because I know that you are a student of history and Adam Smith and the philosophy of the market. And I did my Ph.D. with Robert Nozick on property rights, and I edited a book on F. A. Hayek. This fundamental point is really important to me. The question is: Do we have a free market in oil today? Really, just on a basic level. And that might seem obvious: we do. But let me ask about this first: Did they have a free market in human beings 300 years ago? Now, there were human beings who were sold across borders. And money changed hands. And property rights certificates were traded, too. Russ: Prices emerged and weren't under anyone's control. Guest: That's right. So they had a market in people. But, we now believe they were selling things that they ought not have the right to sell. Human beings should not be property. So they actually shouldn't have been sold. It's not the case that everything that can be sold should be sold. Think about passports or nuclear weapons. So, there was a market because they had a wrong idea about who had the right to sell human beings. In today's world, we have something of the same situation. There's nothing wrong with selling oil as such. But who is getting the right to sell of the oil of a country? Why does the Saudi regime, or that terrible dictator in Equatorial Guinea--why do they get the right to sell off the resources of their country? Now, your first thought is that they are the head of a recognized government. But that's not the answer. Because as I said before, when a rebel group takes over the wealth, well, we'll buy [?] from the rebel groups like we did from Libya or even from ISIS in the early days, before we put sanctions on. So, our rule really is: Might Makes Right. And I'm claiming that from a basic market perspective, that makes no sense. I mean, look at it this way, Russ: If you and I got some [?] and went down to the Exxon station at the corner and took over the Exxon station, no one thinks that the law should say that we can sell off the oil and keep the money. But if you and I got some guys together with guns and overthrew the government of Equatorial Guinea tomorrow, then the next day, the world wouldn't [would?] say we have the right to sell off the oil of that country and keep the money. So, on the basic philosophical level, we don't have a free market in oil. We have guys with guns selling off the oil of the country that belongs to the people of the country.

25:04 Russ: But they are not under our jurisdiction. Right? And we don't have international law in the sense of a one-world, global set of property rights. And so this fact that jurisdictions have limited power only within their borders raises a very knotty question. The other knotty question--that's with a 'k-n,' not an 'n-a-u-g-h'--is: If I'm only trading with morally upright countries, who can I trade with? I mean, can't you make the same argument about the United States? We stole--a lot of our oil right now is coming out of Oklahoma and Texas, Pennsylvania, South Dakota--a lot of fracking going on. Those are regions that were once held by Native Americans that we exploited and took their stuff; and now we call it ours, whatever that means. Where do you stop? Who can you trade with morally? On one level, it opens a terrible can of worms. Guest: Good, well, worms are not so bad, all the time. Let's go back to that first question. So, it's absolutely right that there is not international body that determines the rules for trading oil. And we have no jurisdiction over other countries. That's all true. So, who is it that decides who we buy oil from? There's no international law about it? Well, we are also a sovereign state. In fact, we decide our own rules about who we'll buy oil from. It's entirely a decision of every sovereign state to decide who will have the right to sell the oil of other countries to them. Right now, we like every other country, use the rule of Might Makes Right. That goes against our basic principles. I mean, our basic principles are in the other direction. Abraham Lincoln said in his first inaugural address that a "country belongs to its people." That's what we believe as Americans: Every country belongs to its people. So, we're still using this bad old rule from the 17th century to decide who to buy oil from. But that's totally our decision; and we could make our own laws aligned with our own principles and say that we're only going to buy from actors who could possibly have the authorization of the people to sell off the oil. Now, that doesn't mean we should only buy oil from Norway. Goodness. Just think about it. What would it mean if we decided only to buy oil from those who could possibly have the authorization of the people? Well, it would just mean that the government would have to be accountable to the people about resources. Can the people find out who is selling the oil? How much they are getting? And if the people don't like what the government is doing it, can they protest it without fearing for their safety or their lives? And will the government policy change if the majority of citizens strongly don't like what the government is doing? So, we are just talking minimum, bare-boned civil liberties and rights. That kind of accountability to the people is fairly widespread in our world. If you divide it up, about 50% of the world's oil is sold by governments that are accountable; and 50% of the world's traded oil is--literally, by our own principles--stolen from the people of their country.

28:21 Russ: Let's talk a little bit about that idea of what you call 'popular sovereignty' and this issue of the people having a say, the people owning the oil. Of course, a government can "own the oil" and keep it for itself or it's leaders. It can own the oil and give property rights to the oil, to its own citizens in very direct ways. It can sell them off to the highest bidder, and give the money from the auction to the people in various ways. One of the challenges all these ideas face is that the will of the people--population sovereignty is in many ways not well defined. So, you can argue in certain situations--let's take Mexico. Does Mexico have control--is Mexico a popular sovereignty? Does Venezuela? Does Russia? What's different about those cases, if any, between them and the United States? Guest: Good. That's a really important question. Let's say we took Lincoln's principle seriously: A country belongs to its people. And let me just say that this is not a Left Wing principle or a Right Wing principle: This is just an American principle. I mean, George W. Bush stood up in the middle of the Iraq War and said that the oil of Iraq belongs to the people of Iraq. And George W. Bush is not a Socialist. Russ: Well, now you've named two Republicans--Lincoln and Bush. And those are nice statements: The oil of Iraq belongs to its people. What does that mean in practice? That's the tough question. Guest: Good; and let me just mention someone from the other side of the aisle: Senator Bob Graham of Florida said, 'The oil off our coasts is the property of the American people.' So, it's a bipartisan principle, oil belongs to the people. And as you said, all this means is that oil ultimately should belong to the people. The government can make decisions about what happens to that oil. The government just has to be minimally accountable to the people when it does so. So, in this country, the oil, for example, in the Gulf of Mexico is auctioned off to private bidders, and is privatized, and the money goes into the national Treasury. That's fine, because if the people wanted a different regime in place for their oil, they could get one. The government is minimally, at least minimally responsible to the people's will. If 100 million Americans were willing to vote and march and go on general strike until we have a different system for the auctions of oil in the Gulf of Mexico, then that would happen here. But it's not like that in other countries. In other countries, individual citizens really would risk their lives to stand up and say, 'The oil belongs to the people, and the President or the Princes can't have any of our money until we give them permission.' That would be a very risky thing to do. So, let's go through the countries that you mentioned; and whether the people have popular sovereignty or whether there are resources in these countries. Well, Mexico, they do. I mean, Mexico is in no way perfect: there are a lot of problems in Mexico, for sure. But the people there do have minimal, bare-bones, civil liberties and political rights, consolidated democracy, that if they really disagreed with what the government is doing with their oil, then the government's policy would change. Russia, I don't think so. I mean, Russia has changed quite a bit, even in the last 15 years. But now, I think an individual Russian would be brave if he tried to get together with his fellow citizens and say, 'The regime is taking our oil and keeping the money; we don't like what they are doing with it; and we insist that the government change its policies.' That would be a courageous thing to do. I think you'd probably end up in prison. So, Mexico, yes; and Russia, no. If you are worried that it's just me making these kinds of decisions, let me mention that there are well-established metrics that have been around for a long time that measure the civil liberties and political rights in every country. And these metrics are the kinds of things we can use to decide who we would buy oil from. Russ: Of course, the political system is a rather opaque box. When we think about sovereignty--as you talked about--people marching if they didn't like the United States selling off oil rights in the Gulf, I couldn't help but thinking--and you mention Senator Graham of Florida--I couldn't help thinking of the fact that there are at least 100 million Americans who would probably prefer to have the market price of sugar be untainted by the quotas that we use in the United States to keep out foreign sugar. Most Americans don't know about that. That's a feature, not a bug, for the people benefiting from it. But if you asked, if you did a poll and said, 'Should the handful of families who make huge amounts of money by keeping out foreign sugar, should they be allowed to?' most people would say 'No.' But the political system isn't listening to that. Now, your point, I guess, would be that if they got really mad and they marched on Washington for cheap sugar and to stop the exploitation of consumers by this handful of farmers who grow sugar cane and sugar beets, that we could do it. So, in that sense, there is some sovereignty over trade policy in the United States. But it's a very--it's a loose connection there. Wouldn't you concede? Guest: I do. And it's good that it's a loose connection. Because a tighter connection would be difficult. I happen to agree with you on the sugar issue. I'm glad we can agree on that. But here's the way I think of it: the people own the country's resources much in the same way as shareholders own a company. I mean, there's nothing unusual about shareholders who don't know much about or don't keep track of what's happening with the governance of the company they own stock in. But, it would be very unusual and very bad if shareholders could not, could not do anything to influence the actions of the governance of the company. And that's the situation in oil-cursed, resource-cursed countries are in.

34:35 Russ: Well, Leif, I think actually we agree on a lot. So, I'm just pushing back. Because I have to, um--I find one of the things I find most fascinating--first of all, it's my job as host. But also because I love the way this issue forces you to confront the intersection between political economy, morality, principles about, say, trade or peace or legal rights. It's a very rich book and we can't do justice to it in an hour. And I recommend that readers on various ideologies grapple with ideas in the book. But it's very appealing to me--again, I'm making the contrast with Fair Trade--it's very appealing to me to say that trade in oil is an enormous source of wickedness in the world, and it is perhaps not morally legitimate. And we, by buying gasoline and natural gas from certain regimes, are complicit in their wickedness. And I think that's something that a thoughtful person has to confront. So, let's turn to the question of what could be done about it that could actually make it better. And I don't--as I said earlier--I don't have any problem with arguing: 'I'm just not going to be involved in this; I'm going to ride a bicycle all the time and I'm going to heat my phone with wood that I chop myself from my backyard. And I just don't want to be a part of this.' Most of us would find that very difficult, practically. And--but so the question is, though, the key question is: Is there something to be done about it that would make the situation better? As opposed to just keeping my hands clean? The cover of your book is two hands covered in bloody oil. And [?] I'm not saying this very well. What I'm trying to say is that I understand the argument that I don't want to dirty my own hands, so I'm stepping back. There's another argument that says: If I step back, do I improve things for the people I care about? And I want to hear the case for: What can we do practically as a nation, either politically or as individuals, to reduce the harm that's caused by trade and oil in today's world? Guest: Good. And I'm so glad to be able to talk with you about these things, Russ. Because you and I are engaged in the same process of going deep into the foundations of economics and politics and philosophy and trying to bring these lessons forward. I mean, your book How Adam Smith Can Change Your Life, is just such a terrific example of this kind of thinking. So, we're trying to do the same kind of thing; and my line is you can tell, is that we are every day involved in this trade in blood oil, and we just can't step back from it. Because oil is not only in our cars when we drive: it's everywhere. The oil is used to transport almost everything we buy. And it's also used to make so many things we buy. Basically, it's plastic. It's oil, and we smear oil on our face in the morning with cosmetics; and it might be in your waistband, it might be in your shoes or my glasses. Oil is just everywhere. And so all the time, when we buy things, whatever it is, we may be sending back money to men who consider us to be their enemies. And, this trade that we're involved in does not tend to make people better off. This is why it's a malfunction in the trade system. Unlike the usual case of trade which is win-win, when it comes to trade using Might Makes Right, our money tends to go to make people worse off. So, take that fact I[?] mentioned the oil states are no richer, no freer, and no more peaceful than they were even in 1980, and then think about other cases, about where our money is going: the genocide in Darfur, this terrible world war in the Congo; blood diamonds, Sierra Leone and Angola. About 40% of the resource-rich world lives in severe poverty, and their governments tend to be more corrupt. You [?] think of a place like Nigeria, corruption around oil there. So, in this case, our money is going to essentially who has the most guns, instead of to the people of the country; and the guys with the guns are not making life better for the people of the country as trade should in the normal case do.

39:04 Russ: So, it's a great thing to write a book that says, 'Hey, you're really doing some awful stuff when you fill up your car. You didn't realize it. Congratulations. Sleep badly at night.' And the book does that very well. In fact--I just want to read a little bit of a paragraph here from the book because it's so eloquent and provocative and it makes you face this. It says, It makes perfect sense for an undergraduate in Manhattan to wake up on a warm Saturday, put on a few clothes and some earphones, and go for a run in Central Park--to move in close proximity to hundreds of thousands of many races and creeds--with every expectation of returning home safe and heading to the library. Contrast this with a woman of the same age in the eastern Congo, who has heard rumors of a dozen men with guns near the village, who must calculate whether it's safe enough to go to the well to get water--and who wants very much not to be assaulted, but even more wonders who will take care of the children if she does not return. Across modern history, identities have changed to make more of the world like Manhattan. So, that's the good news: the world is getting a little more peaceful--at least that's the trend. It's a little safer, but there's still this wickedness in the world--which, again, we all understand. But the idea that that wickedness is funded by oil money is something that should make us sleep badly at night. So the question then--it's one thing to raise the alarm, and say, 'This is a bad thing,' just like people did about slavery. What's to be done about it? What is your proposal for how we might move forward, besides raising consciousness that this is not as attractive as it might seem? Guest: I'm so glad to be able to tell you this point; and I'm tremendously optimistic that we can actually fix this problem. I'm tremendously optimistic that we can and we will get ourselves out of business with these terrible guys abroad. So, I'm in Washington right now, as it happens; I'm going to go over to Capitol Hill after this and try to convince people on Capitol Hill that the United States should pass a bill that just says: We will no longer buy oil or other natural resources from authoritarian regimes or failed states. America will pass a law that we taper off all our imports of blood oil or conflict minerals from foreign countries. And we can do that: we have enough energy now in the free countries. We don't need conflict minerals from foreign countries. We can get ourselves out of business, as a country with these men of blood overseas. It's too hard for us to do this as individuals. We just can't figure out which of our shopping is involved more with blood oil, and so on. That's too complicated. And the markets are too opaque. We have to do it as a country. It's a political problem and needs a political solution. And, the political solution, luckily, is waiting right here for us to take it. It sounds like a big ask, for us to stop by authoritarian oil. But as I mentioned, we don't need that oil any more. And, the principle that we would be using, to replace Might Makes Right here, is one of the deepest principles of American political morality: all countries belong to their people. And, better still, that principle, that countries belong to their people, resources belong to their people, is now deeply embedded in primary documents of international law. So, if you look at the two big human rights treaties that almost every country has signed, they just say in Article I: All peoples shall for their own ends freely dispose of their natural wealth and resources. So, this is a principle that not only America but the world has signed up to, on paper. Everybody knows that Might Makes Right is a crazy, anti-market rule; and everyone has agreed on the better rule for resource trade. We've just got to summon the leadership and the political will to move from the bad, old rule to a better and modern rule and get a genuine free market in natural resources. Russ: So, let's make the parallel with, say, Fair Trade. Should we also have a law that we shouldn't trade with countries that--and many people advocate for this--pay their workers poorly, or less than a certain civilized wage. Maybe it's not our minimum wage but let's start with that: Any country where workers earn less than the U.S. minimum wage, to trade with them is to exploit them and we're not going to be a part of that. Do you think that's a good rule? Or is it different from what you are proposing? Guest: There's different views on that. And, people like you tend to think that it does a lot of good to trade with countries where, for example, there's sweatshop labor. Very controversial issue. We have seen a lot of countries that have gone through their industrialization period with sweatshop labor, and now are much better off. So, that issue of Fair Trade and labor standards is different from natural resources because at least with sweatshop labor, you have laborers who are voluntarily getting out of the field and going into those terrible factories. The problem there is exploitation; and people have different views on whether exploitation is a necessary part of development or whether it's just too morally tainted for us to do business with. Russ: Well, the other problem is that there are people here who would benefit with our not trading with them; and so they push this agenda. It's what we call a Bootlegger and Baptist issue here on EconTalk, from Bruce Yandle's work, right? That there's certain people who take the moral high ground--it's terrible to trade with exploited workers--and other people who say, 'Yeah, it is terrible' because they actually benefit from restricting trade with foreign countries. This case seems a little different, your case. Guest: That's right. Russ: It seems to be mostly Baptist--mostly people who are claiming the moral high ground by not trading with dictators. But then, the next response--and you deal with this in the book with quite a lot of detail--is: Well, it's a nice gesture. Suppose we pass that law, and the United States stops trading--and it's effective--which is a separate issue. Let's say that it's an actual--we have to determine what's a dictator, what's an authoritarian government; we use some kind of index, as you suggest. And we stop trading with Equatorial Guinea, with other places that are evil, where the leaders are evil. And that's nice. We've cleaned our hands. But we are actually going to reduce the power, the span of control of those people by this, some kind of law like that. Guest: That's right. We will. And let me just say that this policy will have tremendous soft power. Imagine the day where the United States of America actually does the right thing and says that it will no longer be in business for oil with authoritarians. That will put pressure with authoritarian regimes, in itself, to reform. There's reformers waiting outside the palaces--often waiting inside the palaces--to make these kinds of reforms to give people basic civil rights and political liberties; they've been saying they are going to do it for a long time. If the United States up and did the right thing, it would be a tremendous movement in the right direction. And let me also mention just from the national security side: If the United States stood up and said we're going to get out of business with those who are attacking and oppressing the peoples of other countries and affirm the rights of all peoples, we would defuse that victimization narrative that jihadis are now using to recruit extremists. That would be the end of this narrative. We would no longer be in business with people that we claim we don't agree with in terms of governance that are very powerful. Russ: But, as you point out, if not every nation in the world accepts this argument--which they won't, at least in the short run, maybe in the long run--what difference does it make? They are just going to sell their oil--the wicked people will sell their oil to people who are willing to buy it. Our hands will be clean, but there will be no real impact. They'll just sell more oil to those countries that don't have this moral concern. Guest: That's right. And I do want to make a strong moral argument. But I also want to make a strong, hard-headed national interest argument, both for us and for other countries. So, the moral argument we've seen a lot. But look at the national interest argument for us. We're spending a huge amount of money on our military trying to keep oil flowing around the world. And if we stopped buying oil from those countries we wouldn't have to spend quite so much on our military. As you say, if we don't buy that oil, well then the Chinese might be tempted to buy it instead. And that's correct: they probably would, at first. But let's look at Chinese national interests. Do the Chinese want to send their money into a destabilizing Middle East and depend on the Middle East to provide their primary energy imports? Basically, does China want to buy oil from ISIS 2.0 in five or ten years? That's not in their long-term national interest. They don't want to be energy dependent on the Middle East, which they can see as well as we is really getting much worse. So the Chinese, purely for national interest reasons also has the incentive to announce--and I only mean announce--that at some point in the future they will no longer be importing blood oil, like we won't. If the Chinese make that announcement, well then the game really will be up for the authoritarian regimes in the Middle East. If they see their customers are disappearing, then there will be reforms in those countries. The people will be given more rights over the resources of their country.

48:54 Russ: But in the meantime, as you point out, while we might not be importing oil from Equatorial Guinea, we'll be importing Chinese toys made from oil from Equatorial Guinea. It's just oil in a different shape. And you actually suggest that we should put tariffs on those products and create a trust fund with the money from those tariffs to refund at some point to the people of Equatorial Guinea, because they are not getting the money right now. Do you think that's a viable proposal? Guest: I do. It's just a mechanism to protect property rights. As you can tell, this proposal is all about property rights. Let's say we actually did believe that the people of this African country, Equatorial Guinea, own the oil of that country. What could we do? Because if we don't buy that oil, as you say, the Chinese will; and then we'll import Chinese toys which are made out of oil, and we'll be buying that oil second hand. Well, we can put duties on Chinese goods as they come into the United States. So, let's say China buys $3 billion worth of oil from Equatorial Guinea. Then we'll put $3 billion worth of duties on Chinese goods as they come into the United States, and we'll save that money in a bank account for the people of Equatorial Guinea and give it back to them once they've got a minimally decent government in place. That will protect their property rights: that will give them the value of the oil that was stolen from them. And it will also give everyone in the world an incentive to improve governance in Equatorial Guinea. Russ: So, I'm not a big fan of that. Just because I see it as a mechanism that would be abused in all kinds of creative ways by people who would benefit from those tariffs direct, not just from the moral case. The issues we were raising earlier. So I want to propose a different focus. It's not your focus, but I want to get your reaction to it. So, you've proposed a centralized solution--a U.S. government basically saying to me, I, Russ Roberts, am not allowed to buy, to be part of the trade with Equatorial Guinea. Because it would be very difficult for me to make that moral decision on my own. And so you are going to make it for me, in the form of some type of legislation that would try to keep those products out of the U.S. part of the oil market. I'm thinking about abolition, again. So, abolition in slavery began as a moral crusade alone, right? And the first steps of it weren't--I guess it was a dual track. There was a political track all along, and then there was the moral outrage track. So, I wonder: Is it imaginable that the moral outrage could ever be loud enough that individuals, such as Exxon or Sunoco and others would decide not to trade, not to be part of this business for reasons that would--because they wouldn't be successful for their own business? That is, could an oil company based on the moral outrage that you could create from books like this and testimony and other things--website, which we'll put a link up to--could an oil company offer its products as free from wickedness as a way of gaining market share and put competitive pressure on its competitors who were not doing that? Guest: Well, it's funny: I've actually helped the oil companies out a little bit there. So, in a couple of weeks you'll be seeing on my website, Cleantrade.org, will be an index of major oil companies and which ones are doing more business with authoritarian regimes. So, if individuals out there do want to take action on this problem of blood oil, they can decide where to buy gas based on which company is doing more business with authoritarian regimes in the world. Now, when I talk to people in the oil industry, I don't tend to make the moral case, because these are businessmen and their job is not particularly to respond to philosophy professors like me. Their job is to do their business; and I make a business argument to them. I just ask them, 'How's it going for your bottom line? How much money have you made in Iran since 1979? How are you feeling about your assets in Iraq? How are you doing since you were chased out of Sudan in the 1980s? How do you feel about Algeria in the medium term? How's it going for you in Libya?' These are really big oil-producing countries. And our companies are not able to do a lot of business in these countries because of the instability that's coming from the oil curse. They are as oil-cursed as we are. And simply from the business perspective, they should favor a change in the law that will bring stability to these terribly unstable countries in the Middle East and North Africa. Russ: I think you are making the right marketing strategy in trying to convince them. But I do think that no CEO (Chief Executive Officer), no employee, no manager, no--down to the lowest level in those companies--wants to think that they are helping people be enslaved or tortured or raped or mutilated as often as is the case in these examples. So, there is a moral--I understand they mainly care about profits. But I think you could make the moral case sufficiently loud, which I think you do very effectively in the book. Loud enough to get this free-trader, just might think about this as a legitimate cause. I think you could make an impact there. And it's an interesting idea of how that might play out. Guest: Good. Let's work together on that. I'll make the business case; you make the moral case. We'll convince them together. Russ: Well, I'm glad that you mentioned Iran, because I couldn't help thinking of a friend of mine who was at a conference--it was a conference related to the post-Iran deal that was recently made to open up Iran a little bit to the Western world. And how western companies were champing at the bit I think is the correct phrase to get at that market. Oblivious, of course, as I have to concede, to the fact that Iran is not a particularly free country. It has many, many unattractive statements coming out of its capital about how people should be treated elsewhere, and we can debate whether that's a response to other problems that they're--that we've created in the United States. But the reality is, is that those companies are just racing to do business. It's a huge, attractive opportunity for them, and they are going there. Guest: Yeah. You know, the oil curse is like poison ivy. In the short term, there's a really strong desire to do what will make it worse in the long term. It's the same for our governments. We are always tempted to do business with authoritarians. And, how did it work out? How did it work out when we were supporting the Shah of Iran? Or Muammar Gaddafi? Or Saddam Hussein? Or now the Saudis? How is that working out? It's tough to say that in the long run U.S. national interests or corporate interests are furthered by sending our money to whoever has the most guns. I'm going to say something controversial. I actually think that the American people are closer, culturally, to the Iranian people than they are to, for example, the Saudi people right now--and the Saudi regime is our ally. I have hopes that Iran could one day become a country where the people control their own resources. And I look forward to the day, actually, where the Middle East is a region where the people are sovereign and the countries are at peace. That's not going to happen if we keep sending hundreds of millions, billions of dollars to whoever has the most guns. Looking to the long term, the right thing to do and our national interest point in the same direction: Get out of business with the men of blood. Affirm the rights of people in all countries.

57:04 Russ: So, here's the irony that I struggle with. I love the sentiment, again. But we boycotted--the United States has boycotted Cuba, put sanctions on Cuba, forbidden trade with Cuba, since the 1960s or late 1950s--I don't know when it started; maybe you know. But it's been about 50-something years. And recently President Obama has liberalized that, or at least taken steps to begin a more open relationship with our two countries. And while I despise the Castro regime and have nothing good to say about, say, the health care of Cuba or the education in Cuba, the apologies that people make for their repression, I think the sanctions and the failure to trade with Cuba has allowed Cuba to blame the United States for its economic situation, rather than its own policies. It's created a demonization potential to mislead people, as they control the press and so on. So, how is it that not trading with these countries is going to help them be more free? Is it not the case, even though I'm not a big fan of Iran, is it not the case that by having Western companies there we have the potential to create a more liberal Iran down the road? Guest: So, I just have to say, again, natural resources are special. There really is a resource curse. And trading in resources does not tend to make the people richer or more free. And it does tend to stimulate civil war; and sometimes it also empowers wars between countries. Resources are highly concentrated sources of economic value; and they are big trouble if they are in the control of authoritarians and armed groups. So, resources are special. And, we are not going to be imposing sanctions on countries. Sanctions are punishments. We're just going to be saying, 'Look, who rules in foreign countries is none of our business. But right now, by our deepest principles, is authoritarians and armed groups qualify for none of our business. We don't believe we have the right to buy resources from you guys, because we believe your people own the country.' Now, unlike sanctions, this is not something that authoritarian regimes can easily turn into a propaganda victory. This is the United States standing up, doing the right thing, and saying, 'We are on the side of the people now. We are no longer going to send our money to the guys who are oppressing and attacking you.' Russ: So, in response to that--again, I salute the moral clarity of that--but in response to that is Mr. Obiang, the leader of Equatorial Guinea, who has this grip on power in a desperate way, been quite successful for a long time in abusing his people and profiting from the resources that he has: Is he going to say, 'Well, I guess I better do better on that Freedom House Index so that I can sell my oil to the United States.' Is that likely? Is that going to be his response? What do you hope for his response to be? Guest: So, this guy, Obiang, has been in power for a long time. He is one of Africa's longest-serving leaders. He's been around since 1979. He just won a fake election last week with 93% of the vote. And as I said, his regime is terribly, terribly repressive. Imagine the day when Obiang can't sell the oil of his country off because his customers believe that the oil belongs to the people. That's going to be a tough day for him. I'm not sure that he himself has it within him to reform any more than, say, Mugabe, who also came into power around the same time has the power to reform himself. But there's another generation of governors coming up in that country. The question for us is: Are we going to keep trading with Equatorial Guinea from the next generation just because the next generation can keep the people from the next generation living in fear and poverty? Or, are we going to say, 'Someone in the next generation has to come up who minimally represents the people and is accountable to the people for the sale of their primary national asset?' Russ: And I guess the other argument would be that if you lower the value of the prize of those wells, the willingness of people to kill other people and brutalize them to get access to that will be reduced. That would be a big plus in my book.