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Full interview. (10:47)
 

Tavis: Tonight, though, we continue our "Road to Wealth" series with Michael Shermer, founding publisher of "Skeptic" magazine and executive director of The Skeptics Society.

He is also a bestselling author whose latest book is called "The Mind of the Market: Compassionate Apes, Competitive Humans, and Other Tales from Evolutionary Economics." (Laughs) Michael, nice to have you on the program.

Michael Shermer: (Laughs) Sounds like a wild ride.

Tavis: Yeah, yeah. I want to go to The Skeptics Society in just a second, have you explain that. But first of all, this subtitle, since we laughed at it, means what?

Shermer: Well, that we are primates, of course, and like all primates we have these sort of competing motives. That is, we are selfish and self-centered and we want to better ourselves and our families. And yet we also have an instinctive urge to be a good fellow group member, to be pro-social, cooperative, altruistic, and give to others.

So we have this constant tension, and the rub here is how do we structure a society, a liberal democracy, a market capitalism is what we have, and how do we mix the amount of freedom to give people the opportunity to better themselves individually and yet also have a broader sort of social goal? And so what I'm arguing in "The Mind of the Market" is that market capitalism is the best tool ever devised for lubricating the trade between individuals that are strangers.

That is, the breaking down the natural animosities in our natural tribalisms between strange groups. We can understand from an evolutionary perspective why people are nice to one another who are related or know each other, kin and kind, but what about total strangers? And so over the last 10,000 years, what's evolved is this trading mechanism, beginning with, like, feasting - the potlatch, things like that.

It's a way of breaking down natural fears and animosities of strangers, the other groups that we naturally are worried about, and make those part of our in-group, and trade is the best way to do that.

Tavis: I'm not convinced as yet, and I've gone through the -

Shermer: You're skeptical?

Tavis: Yeah, exactly. (Laughter) We'll come back to that in a second. I've gone through the text and I'm just not convinced of your point now, and I want you to unpack it so I'll let you explain it, why you think that to do all of that, which has to be done if we're going to relate to each other as humans - I get that part. But why you argue that market capitalism is the best way to do that. I can give you three other examples I think are better than that. But tell me why you think that's the best.

Shermer: Well, because markets are fairly efficient. When somebody owns something, they have a greater incentive to be more efficient at doing it than, say, a government. This isn't to say that everything can be better done with markets, just that most things can be. And so again, I go back to, like, the basic studies on hunter-gatherer groups and how they fight a lot, but once they begin to trade, that breaks down those natural animosities.

So for example, what's the first thing two nations do when they start not getting along? One of them usually imposes economic sanctions on another one. We've imposed economic sanctions on Cuba, North Korea, China, on Iraq, which we've now stopped; Iran now, changed it with China. So where goods do not cross frontiers, armies often do. So where goods do cross frontiers, armies often don't. So it's an international principal.

Tavis: But there's so much evidence - for every country you give me where that has worked, I could throw one back at you where it hasn't worked, even in our own hemisphere. There are so many examples where that doesn't work, though, which is why I think I'm challenging you on that, respectfully.

Shermer: Well, okay, fair enough, because so much of what we have is a mixed economy and there's so much politics involved in trade, where we support certain dictators that are - he's a bastard, but he's our bastard. President Johnson, yeah, okay, well. So the pure theory on the left or right is actually practiced. So fair enough but I guess one of the things that I talk about here is that what trade does, the key element here is trust.

So the reason we - I also endorse liberal democracy. We need a rule of law, we need a justice system that's fair to all people, we need an infrastructure that's reliable, a banking system, people can count on their money being in the bank, you don't have to put it in the mattress, things like that. All those have to be in place before trade can happen because without trust, the trade doesn't work.

Tavis: Now you're going where I want to go. In the absence of all of that - it's like I say all the time that whether we're Black or White, Republican, Democrat, liberal, conservative, certainly in this election season, I think as Americans, we all want the same thing. I talk about this in my speeches all the time. We all want the same thing, which is to live in a nation that is as good as its promise.

That's all we want. Nobody's asking for more, nobody ought to settle for less, to live in a nation as good as its promise. So that America is not yet a nation as good as its promise, which takes me back to your point that if all of those things were in place - that liberal society you think we ought to have - if all that's in place, then maybe I buy the argument that you're trying to make. But so much of that is still not operational.

Shermer: Oh, it's true. And to be fair on your side, that businesses get far too much what Ralph Nader called corporate welfare. They get too many free handouts and special favors and protection against foreign producers and so on, and they get these tariffs put on products that they have to compete with. That's not a free market either.

So in "The Mind of the Market" I argue that we have not realized Adam Smith's revolution. Adam Smith, yes, Mr. Lassaiz-faire but no, not pro-business, always. Businessmen will connive to fix prices and use the government to compete against other producers, and that's not right either. So we have to be fair on both sides.

Tavis: I guess the question is whether or not the trend is moving in the direction that you and I think, you certainly, since you wrote the book, you think it ought to move or whether the evidence mitigates against that happening?

Shermer: Well, the pendulum swings back and forth. I think we've been in a trend since Reagan to have more free markets, although even Mr. Lassaiz Faire Reagan himself bailed out the Harley-Davidson Motorcycle Company. I remember, because I rode a Yamaha motorcycle and a Honda, and the price of them went almost double for the first five years of the tariffs.

That's not free trade either. So that's still economic tribalism. That's mercantilism. Our Harley-Davidson producers have to be protected against those evil Japanese tribal motorcycle producers. No, no, that's not right either. That's still that tribalism. And when Mitt Romney was in Michigan last week and talking about I will protect Michigan automobile producer jobs -

Tavis: Bring back all of your jobs.

Shermer: Yeah, well, that sounds great, our tribe versus those Japanese automobile tribe makers. No, no, but at what cost if the American consumers now have to pay more? The wealth of a nation, Adam Smith said, is in all the people. Not the producers, but in the consumers. The consumers are boss. We're boss. You and I, we tell these companies what to do.

Tavis: How does what you write in this book, "The Mind of the Market," get impacted by or impact our relationship with a growing power and a growing economic power like China?

Shermer: Yes, well, if there's any country we need to open up those borders and start getting in on lubricating the wheels of trade, it's China. There's a billion potential customers there. But back to the politics, I know Google had to make sacrifices to get into China, yes, but the free flow of information across borders is the best way to defeat fascistic, communistic, and dictatorships.

If you want to be a dictator, to control the people, you have to control information. I call this my Google theory of peace, where information is free to cross borders, armies won't. That is, it's harder to control people; it's harder to fight other nations when you don't control the information. So the free flow of products and the free flow of information is the best way - again, liberal democracy, market capitalism - the best way to make more people part of our in-group.

So back to that tribalism thing. We're still very tribal, but if you take the long road of, say, the last 500 years, more people in more places have more freedoms and more liberty and more rights and civil liberties and prosperity and wealth than ever before. The curve is always going up. Lots of little dips, yes, like the stock market now.

Right, goes down, then it'll go back up - hang in there. The curve is always going up, and just in the last 30 years the number of liberal democracies around the world has, like, quadrupled. So the trend is positive and the more free market exchange we can have, the more it makes it possible to have a liberal democracy. So trade with Iraq is an important thing for us to establish.

Tavis: Our conversation on some level has been a bit heady, and some of the concepts in the book are heady, but you also do a good job of breaking it down for what it means for everyday people, so let me just ask that question head-on. What does an everyday person watching this program right now who doesn't get or doesn't care about the tribalism and the trade between nations, but wants to know what's in this "Mind of the Market" book for me?

Shermer: Well, thank you for saying that. Yes, well, the bullet points are in there about, like, how to invest money. For example, there's like, all of these subjective psychological effects. You go to a store to buy an iPod for $100 or whatever, and somebody says, "Hey, four blocks down the street it's on sale half-off, $50." Would you make the walk? Sure.

You're in the same store, $1,000 flat screen TV. Someone says, "Four blocks down the street it's on sale, $50 off, $950," would you make the walk? Most subjects say, "Nah." Why? It's the same $50. Well, because we frame the value of something based on relative to what it is. And so knowing that, you can sort of know that okay, I'd better watch out for those kinds of effects, the psychological effects.

We know from studies on happiness that money doesn't make people - once you're above the poverty line, you have three squares a day, a roof over your head, and so on, making $100,000 and doubling it to $200,000 a year. That doesn't make people happier.

Tavis: Money can't buy me love.

Shermer: No, it can't. But what does is a relationship, being in love, a marriage, whatever, a lasting relationship, family, social circle, extended family, meaningful work and purposeful work, and then something like spirituality, religion, something that takes you out of yourself. So knowing that, you can say, "Okay, it's fun to make more money, but really, I should vest some of my time in my family and social circle."

Those are sort of take-home messages there. The stock market, by the way, again, take the historical perspective. The last 70 years, it's going up. And yes, there's lots of little - like the global warming curve it goes down, but it goes back up and it's going that way. Real estate market's going that way. So don't bail now; too many people are bailing now.

Now, if anything, it's a good time to buy. Stocks are cheap. But we tend to be short-term thinking because we evolved in a resource-poor environment in which you'll have so few items.

Tavis: Next time you come back we have to talk more about The Skeptics Society. We'll do that next time on your visit. The new book from Michael Shermer is "The Mind of the Market." "The Mind of the Market." We just scratched the surface on how psychology impacts your financial choices, but you'll learn a lot more about that by reading the new book, "The Mind of the Market," again, by Michael Shermer. Michael, nice to have you here.

Shermer: Thank you, Tavis.