0:33 Intro. [Recording date: November 14 2016.] Russ Roberts: Today we are going to talk about the past and present economic situation of native Americans and Indian nations. Terry, welcome back to EconTalk. Terry Anderson: Always great to be with you, Russ. Russ Roberts: Now, how did you come to be interested in this topic? Terry Anderson: I grew up in Montana and lived, oh about 50 miles from the Crow Indian Reservation. As a result, once in a while we would travel through the Reservation or in high school you might be on a sports team that played a team from the Crow Reservation. And one thing we knew is that Indians were poor, and that somehow they were separated from the rest of society onto these pretty remote places in the rest of Montana, and of course elsewhere in the West. And then when I was, oh, 12-14 years old, my uncle managed a large ranch on the Blackfeet Reservation near Glacier Park; and I spent my summers there, every summer, and got to know many of the Blackfeet people who worked on the ranch; and I always say my favorite cowboy was Francis Calf-Looking. He was a Blackfeet tribal member who was the head of all the wrangling of horses and moving of cows, and asked me to work cows with him. And he really taught me all I know about horseback riding, which really isn't much. But, in those two experiences I left as a child thinking these are different people, they live on these remote reservations; and they are poor. And never thought any more about it until economics warped my mind. Russ Roberts: The scope of the population is something I really didn't have an awareness of until I read some of your essays on the topic. How many reservations are there in the United States and what's the Native American population on those reservations? Terry Anderson: Well, there are over 500 reservations, some of which are quite small. Some are quite large. I was recently on the Fort Peck Reservation in northeastern Montana: 2.1 million acres. The Navaho is a huge reservation. And then you have others that are postage stamps. And they are generally in urban areas; and they are the ones where there are casinos. There are almost 3 million American Indians registered as tribal members. That's roughly the population of Kansas. So, it's an easily-ignored minority for two reasons: It's not a huge minority; and they are scattered around in these remote places. Russ Roberts: In the remote places--and let's talk about the West, which where the reservations are much larger--talk about the population density and what life looks like. I confess, I've never been on a reservation. Would I see a small town? Would I see homesteads scattered around? What's the--is there a way to generalize? Maybe there's no way at all. Terry Anderson: Well, I might ask: Have you ever been in a Third World Country, in a small town? And if your answer is yes, you have a pretty good picture of what these reservation towns are like. Let me start with the Crow Agency. It's the headquarters for the Crow Tribe, and south-central Montana. I was there this summer visiting with the Crow Tribal Chairman and touring their big coal mine. Crow Agency is a run-down community with substandard buildings. The tribal headquarters is a bureaucratic-looking building, was probably built in the, oh, perhaps 1950s. When you walk inside it's the old metal desk that you'd think of in old bureaucratic buildings and that you'd think you'd find in Cuba today. There are many people just milling around. The town itself, it has a couple of little tiny grocery stores; and of course bars and liquor stores, which is--we can come back and talk about some of the problems with alcohol and drugs. But so it's amazing just how poor these places are. After my childhood experience on the Blackfeet Reservation I went to a little town called Browning--probably when I was 50. So a different set of glasses on at that point. And I was just shocked at how much more run down it was compared to my memory. There were stray dogs everywhere. So there just--you know, they are really run down. And then if you talk about how scattered is the population: If you drive around a reservation, you find these individual parcels that came out of a law in 1887, the Dawes Act, or the Allotment Act. And this allotted small parcels of land to individual Indians, starting, most of them, 160 acres. They are held in trust by the Bureau of Indian Affairs, so they are not really like you own your house. They are like your parents left you a trust fund but you have a trustee who tells you whether you can spend it or use it. So, there are these small parcels. They have incredibly run-down structures on them. The land isn't very productive, because there's no way to invest in it. You drive along; and on the Reservation there are some privately owned, fee-simple lands. And as you drive through, you will come to a fence line; and one side will be what I just described: this small parcel, a hovel for a house--and I'm not being pejorative here. I'm simply describing. There might be 4 or 5 wrecked cars. And then on the other side of the fence can be a beautifully cultivated field with an irrigation system, a barn, a tractor, nice house. And it just captures the contrast between what I see as islands of poverty in a sea of wealth.

7:15 Russ Roberts: What kind of economic life is there on the Reservation right now? Is there a way to generalize--outside the casinos, where, I assume, some significant portion of economic life is driven by the casino. But again, in Western lands, some of which are quite large, is there economic activity? Is there work? What's the nature of the economy? Terry Anderson: The juxtaposition between casinos and Western Reservations is dramatic indeed. People in the East have probably more experience with going into these large casinos, and they generate a lot of income. Casinos in the West of course are in remote places where there is nobody to gamble. So they don't generate much income. The typical life on a Reservation is for people to be unemployed, milling around. Their unemployment rates are incredibly high--68% of American Indians on Reservations have household incomes that are significantly below the U.S. average. Twenty percent of households make less than $5000 annually--compared to 6% for the overall U.S. population. Twenty five percent is below the poverty level; 15% for the nation as a whole. It's just amazing how much unemployment there is. And you see it on the streets. I was on the Fort Peck Reservation recently, in the little town of Wolf Point. And young teenagers just hanging around, as you might find in more ghetto areas in the urban United States. The people are poor. And there's not much hope of jobs. When there are claims of economic development, it's a government grant that has subsidized the creation of an electronics firm on a reservation--I use that example again, the Fort Peck Reservation in Northeastern Montana. This is 7 hours from where I live, that's how far and remote it is. Here was an industrial park with streets running in every direction; one building in the middle of it, and it was an electronics firm. I have no idea what they even produce. And they start. And they fold. And that's kind of economic life on these Western reservations. One exception, and we can chat more about this, is energy. The Navaho, the Southern Ute, the Crow to a large extent, have huge energy reserves. And if they can develop those, then it provides jobs; it provides income for the tribal government, and provides royalties to individual tribal members. So, that's an exception on the reservations that have oil, gas, and coal.

10:19 Russ Roberts: So, let's go back to the--we will come back to the present, but I want to start now with the past. Before Europeans arrived in North America, what kind of economic institutions did Native Americans have? There's a lot of romance about the Native American population and I think a lot of ignorance, which certainly I have. But I tend not toward the romantic in this area. So, tell us what we know about those populations and how they interacted with each other and across tribes. Terry Anderson: My interest in reservation economy started with more modern times. But, as an economic historian I couldn't help but look back at every turn and ask: How was it before? And how was it before the government entered into wars with Indians? How was it before Indians were put on reservations? How was it before Columbus arrived? And each of those backward looks taught me just how innovative Native Americans were and how well they created and adapted institutions to fit their resource constraints. There's a wonderful book by Charles Mann--he's perhaps been interviewed by you--called 1491--I recommend it to all listeners--looking back at the New World. Obviously, the year before Columbus arrived. And he documents much of this. But let's start with the Eastern Seaboard. Most of the tribes on the East were sedentary. They had well-defined property rights to land. It was clear which family or clan owned a piece of land. They cultivated that land; they grew their corn; they grew their grain crops; they grew their various pumpkins and [?]. And they were very productive that way. If you move to the West Coast, the tribes on the West Coast had a fascinating case of clam gardens. I read a book by an anthropologist who studied how Northwest Coast Indians actually manipulated the rocks on sand and beaches to create more clam production. And these clam gardens were, again, owned by a family or clan. They had every incentive to take care of it. And they were very productive. Many of the smaller salmon streams on the West Coast were owned by clans and families. And, interestingly, what happened on those is when the salmon came up to spawn, they took the small salmon and let the large ones go up to spawn, reckoning that there would be bigger fish later on. And to this day, some of those streams that had private ownership, if you will, still produce bigger salmon--because they had bigger salmon stock to start with. Bruce Johnson at George Mason has done some wonderful research on this topic. Switch to the Plains Indians: They were nomadic; they moved around; they didn't have property rights to land. They had some property rights to hunting territories, but they had very clear property rights to their personal property. Teepees were individually owned; bows and arrows individually owned. And this reflects the kind of investment that had to go into producing these pieces of personal property. I'm an archer and I have a very, very expensive, $1000 bow that shoots carbon arrows that cost about $25 each, steel tips on them. And I like to think of how that compares to the cost of a bow to a Plains Indian who had to go out and find the right kind of wood and maybe laminate it with other woods and use rattlesnake skins to add resilience to it; find a straight piece of wood for an arrow and chip a point out of a piece of obsidian. And you imagine that kind of investment: clearly they had private property rights to reward the person who made that investment. They also had specialization. Some people were better at making arrowhead points and some were better at making arrows. And they traded. So they had institutions that worked very well. Coming forward even to the reservation age: The Blackfeet were a nomadic tribe. They herded their horses, when they got them--and again, this is of course after the Europeans--they herded their horses communally. It made no sense for each person to herd 3 horses, so it would be your night to watch the hundred horses in the herd or whatever. So, when they were put on the Blackfeet Reservation, they said, 'Well, let's do that with cattle: each get a few cows, and the cows will belong to us individually; but we'll herd them communally.' They started to become productive; they exported beef to the Great Northern Railroad which was being built at the time right along their reservation. So they--Native Americans were incredibly innovative when it came to producing institutions that worked for them. Russ Roberts: And I think you quote--I think it's from Lewis and Clark's expedition--their report to Thomas Jefferson, that they found the Indians to be very entrepreneurial, very interested in trade. Tell the story of the axe and how it got ahead of them. It's fascinating. Terry Anderson: Well, one of my favorite stories, actually pointed out to me by good friend Bill Yellowtail, a Crow tribal member; and he loves this story, too. Well, first, the Lewis and Clark expedition spent its first winter in the Mandan Villages in what is now North Dakota. The Mandan Villages were a trading node[?]--they were kind of the Singapore, the New York City, a place where people congregated to do trade. So people all the way from the West Coast would come to the Mandan Villages with seashells and dried salmon to trade with Minnesota Indians who had beautiful pipe stone they could use to make their smoking pipes. And when they came together in these trading places, they understood trade amongst themselves, but Lewis and Clark recognized, 'Well, this is a possible way of making contact' with the people they would see. So, Lewis and Clark had a blacksmith along; and he built trade axes. This is quite common for the traders in the West in the early days, to have goods that were marked with their symbol--in this case, the Corps of Discovery, its symbol marked onto these axes. They traded these axes for other things that they needed: food, horses, and so on. So, now we ratchet forward. That's the first winter. They spent the next spring, summer, and fall, trying to get from the middle of North Dakota all the way to the West Coast. And they finally arrive on the West Coast in the late fall. And they get to what is now Fort Clatsop at the mouth of the Columbia, and lo and behold, there's one of the trade axes there. It wasn't delivered by Fed Ex. But it was a matter of that trade axe, finding its way, probably from one person to another, until it beat them all the way across the area they were discovering.

17:58 Russ Roberts: That's so cool. So the point of all of that is that the Native Americans, in advance of the European arrival, certainly had institutions of trade, specialization, private property--the things that associate with the potential for economic growth and their--they of course did not have all the technology that the West had. They didn't have everything that the West had. But they had what appears to be a thriving economic system. Terry Anderson: Absolutely. And, you know, there were a few tribes that were really quite poor. There was a band of Shoshonian in the area around Yellowstone called the Sheep Eaters, and all the early photographs of them show them as being quite poor. They depended on Big Horn Sheep--hence the name. But think about the art. If you've ever been to a museum and looked at beaded moccasins and or the ledger art, which Indians were famous for. Ledger art was an art form on the reservations after they had to no hides to paint: They would collect ledger books from the local trading posts and tear pages out and do their drawings. And their ledger art is spectacular. Same with the beautiful decorations on their parfleches--they are called--essentially, suitcases. So, you know, they had enough wealth to have time invest in art. And I think that alone suggests that they were a prosperous economy. They were--when they got the horses, they were the people who made the horse what it is today in the West. And they did it by training; they did it by selective breeding. So, you know, by all accounts they were a sophisticated people. Of course, with different institutions. As you went from East to West it went from sedentary to nomadic; it went from--take the Southwest, where very arid country: there they had fantastic irrigation systems. And the fields were privately owned; but the irrigation systems were owned collectively, and everybody had to contribute to investing in making these, digging these ditches and delivering the water communally. And then dividing the water up as it came along to the various fields. So, if you backed away and described this and said, 'Where do you think this is?' most people wouldn't see it as a pre-Columbian picture. They would see it as a more modern one. And I think it suggests again what a rich institutional history Native Americans had.

20:40 Russ Roberts: So, let's go from Thanksgiving, the first Thanksgiving--which, we are coming up on the holiday. This episode will probably air just after Thanksgiving or a few weeks after. But Thanksgiving, when I went to school, was this love-fest between people with buckles on their shoes and goofy hats--the Pilgrims--and the friendly, primitive Indians who brought their maize, their corn, and swapped with the Pilgrims--or at least, actually not swapped--shared and created this beautiful communal meal. We went from that to gruesome war. And death. Lots of death. And essentially the exclusion of the American Indian, from, certainly much of modern life, but even, of course, their own past. So, what happened there? We don't have 16 hours, but give us a quick thumbnail of why, of what's relevant about that history for the present. Terry Anderson: Well, being an economist like you I think of it as benefits and costs of interactions with people. So, try to imagine you are one of the first Pilgrims to step off the boat. You are just thankful you made it across the ocean. You are now on land--well, are on a rock. And you meet up with these natives--who, maybe, are a little bit hostile or certainly skeptical. They've never seen anybody quite like you. You are going to be pretty nice to them. And you are going to give them things. Trade with them if you need to. But you are going to be very nice to them. And they look at it from their side and say, 'Ah, well, it's just a couple of people getting off a boat. They are pretty strange, but there's no reason to be hostile towards them.' And so you get the Thanksgiving picture. And I think that captures a good portion of the early history of not many Europeans showing up; lots of land available; good reason to engage in cooperation. Time goes on, however, and you get more and more of these boats arriving, and more and more people, more pressure on the lands. And sure, there's a whole continent out there, but that's not very relevant when you are on horseback with a wagon, perhaps, and you are trying to cut a swath through the woods. So, the rest of the Continent isn't open to you. And so there began to be some potential conflicts over who got to use the land. Most of that, in the 1600s and 1700s was resolved by people saying, 'Can we buy some land from you?' And there are documents after documents, showing these trading of property rights to land for other things. And some people would move to places that weren't settled. So, this was clearly a cooperate kind of arrangement. And furthermore, if you think about benefits and costs, if you were going to fight the Indians, you had to get together with your uncle, your sons, a few of your neighbors, and say, 'Let's take them on.' But they knew that land--the Indians did--they had far superior weapons. A bow and arrow compared to an old blunderbuss was hardly a match. An Indian can shoot 25 arrows before you could reload. So, most of the early era, as Fred McChesney, a friend of yours and mine, an economist, law professor: We wrote about it in the context of raid or trade. And we argued that the early part of this history was one of trading. But something happened, obviously, in the 19th century when we went from this trading and relatively peaceful engagements between the Europeans and the Indians to raiding. And the argument Fred and I have, and document with data, is that the big turning point was the creation of a standing army after the Spanish-American War, and then it specially with the Civil War. Once you have a standing army, the costs and benefits of raiding versus trading change. Now you don't have to get your sons, uncles to fight. You call on General George Armstrong Custer, noting, however that he was really a Lieutenant Colonel and the General rank was a Brevet rank he was fighting--first in the Civil War and then later fighting Indians. And so, what Fred and I find is that the number of battles--hence the Indian Wars of the late 19th century, were really the result of the standing army that was looking for something to do. And you imagine you have been sent out to Fort Kehoe in Eastern Montana and you are living in this dusty hot place, in the summer. You are bored. You are 20 years old. You are pretty full of testosterone. And you are looking for something fun to do. And somebody says, 'Hey, the Indians burned a homestead over there.' And so off you go. So it was the standing army that really made the change. Of course, with the Gatling gun, repeating rifles, and so on arriving, it meant that the standing army was able to defeat these Indians. And the rest is, as they say, is history. They were put onto reservations. And land was taken from them right and left as their territories were whittled down.

26:10 Russ Roberts: And those Reservations were--well, let me ask a more basic question. In 1890, what rights did a Native American on a Reservation have? Could they vote? Could they leave the Reservation freely? Could they move? Could they buy land somewhere else, property? Do you know? Terry Anderson: Yeah. Great, great question. And the simple answer is they had very few rights in 1890. Once the Indians were defeated, they were brought into these Reservations. They were usually rounded up and put into villages near a fort. Eventually that fort would become a headquarters for a Reservation. And they were told, 'Stay here.' Of course, you know, the Plains Indians in particular had been hunting buffalo, and now you're stuck in one place: you are not going to get much buffalo meat. So the army supplied the food. And we all know the stories of blankets infested with smallpox that killed huge numbers of the Indians at that time. And back to the Blackfeet, for example, some of the Indians said, 'Well, what are we going to do?' And the Blackfeet said, 'Well, let's get some cattle.' But many of them had no tradition of cattle raising, so that wasn't a possibility. And they couldn't move. If they moved the concern was, 'Oh, it's an Indian uprising.' So the cavalry would round them back up and put them on reservations. So, they basically had no rights. The one thing that happened, though, in the late 19th century, 1887, the passage of what I mentioned before, the Dawes Act or Allotment Act. And this was ostensibly an effort by Congress to make American Indians good Jeffersonian yeoman farmers. 'We'll give them each 160 acres on their reservation. That will be their little piece, their little homestead, if you will; and they'll live there and they'll learn to farm. We'll send people out to teach them how to farm.' But the argument was--they're not my words; they're words in the legislation--'They're not competent yet.' 'And so we'll hold this land in trust for 25 years until the Indian is deemed competent by the Bureau of Indian Affairs.' Just imagine those words applied to any minority group; and yet that law persists. And if an Indian were to try to get his or her land out of trusteeship, would have to have the government deem him or her competent. Incredible. So they got these little pieces of land. And along came white settlement; and white settlers said, 'Well, some of that's pretty good land. We'd like it.' And two things happened. One, they would go to the IA (Indian Affairs) Agent; he would say, 'Okay, this member of the Crow tribe is deemed competent.' And then that member would sell the land to the white settler--not having a good clue of what was going on because they had no experience with land ownership. So, huge amounts of land transferred out of Indian ownership, still within the confines of the reservation; but became fee-simple land owned by non-Indians. Russ Roberts: That's your uncle's ranch, right? Terry Anderson: Yeah, exactly. Parts of it. But not all the ranch was fee-simple. There were these individual trust lands out there where they leased them from either individuals or the tribe. The Fort Peck Reservation I keep coming back to because it's so fresh in my mind was 2.1 million acres. There were hardly--I don't know what the population of the Reservation was when it was created in the late 1800s, but if you allotted 160 acres to all of the Indians, there was a lot of land left over. And it was declared surplus and thus open to homesteading. So more than half of the Fort Peck 2 million acres is privately owned. And it was homesteaded by people who were coming out following the railroads. So many reservations, almost all the big western ones, looked like a piece of Swiss cheese where each of the holes is a piece of trust land and the rest of it is privately owned. And that land is incredibly productive. It's growing wheat; it's growing corn, sugar beets, and so on. So, the tribal members ended up with ownership of some of the land, but certainly not all of it. They lost millions and millions of acres over time. And it's really conditioned how they worry about opening their land up to any kind of ownership by other people to this very day. If you look at what happened to the reservations in that period of time, they went from millions and millions of acres to just a few million acres. And that really has conditioned the way American Indians think, today. I just was looking at my book for a couple of the numbers. If you look at total acres today on reservations, it's just a fraction of what it was, of what is the entire reservation area.

31:45 Russ Roberts: And, in those situations where white settlers bought land from or acquired land from the Indians, they live peacefully next to each other? Who is in charge? Is it the tribe? Is it the Federal government? Is there a police force? Is it the National Guard? I just don't have any idea. I'm pretty ignorant--as this podcast is revealing. Terry Anderson: Your question reveals the complexity of the institutions on reservations today, and the difficulty of moving forward out of this complex set. So, first: Do people live peacefully next to one another? Sure. There may be an occasional conflict of somebody trespassing or some such offense, but by and large, you're sitting there on one side of the fence with your fee simple, and the Native American is on the other side in this little parcel that may have multiple, multiple owners. That's another problem with these allotted trust lands: They can't be inherited other than equal shares to all heirs. Some of these lands now have literally thousands of owners, and they are 160 acres. So, pretty hard to get everybody to agree what to do. Russ Roberts: One sec, Terry. When you say, 'fee simple'--that's really what you and I in modern times would call property. My house is fee simple--meaning, I own it; I can keep people off my property; I can sell it. I have all the normal rights that we associate with property. Correct? Just for listeners, not necessarily [?] that term. Terry Anderson: Yes. That's how I came to know about this. I was visiting an Indian on the Flathead Reservation here in Montana and we were taking some Swiss people to visit this person; and I was explaining to the Swiss people that it's likely to be a substandard house, poor care of the land, and so on. We arrive; it's a beautiful home, nice car, library. And ultimately I said to the member of the Salish-Kootenai Confederated Tribes, 'This is an anomaly. How do you explain it?' And he leaned on his elbow and said, 'I own this place.' And I said, 'But aren't we on the Reservation? Dah, dah, dah.' 'I own this place.' And the third time, when I ask a stupid question, he said, 'I own this place,' and I said, 'Like I own my house?' And he said, 'Yes.' So, that's the fee simple land. And some of the land is owned by Indians. And my friend who I mentioned before, Bill Yellowtail, he has a wonderful ranch on the Crow Reservation. So they live relatively peacefully. The big problem is that the tribal government has no control in any way of the private lands. They can't tax them--only the state within which the reservation sits can tax the private lands. And they don't have any tax base. There's a Federal police department, a Bureau of Indian Affairs police department. It governs the crime on reservations. If there is a dispute on reservations, oftentimes it goes to a tribal court. And these tribal courts are often very biased against non-Indian owners. My colleague and friend, Nick Parker, now at the U. of Wisconsin, and I looked at--we compared reservations that have their legal systems, judicial systems run through state courts with reservations that have their judicial systems run through tribal courts. And our hypothesis was that you would get more of a rule of law out of the state courts. And what we found was incredibly more--higher incomes, higher growth rates of incomes in the reservations that use state courts. And the argument we make is this provides a legal system that allows people to interact better, to contract with one another, and as a result of those contracts, be able to make necessary investments to improve productivity. Today, American Indians of course can move off reservations any time they wish, and many do. And it's almost a necessity to move off the reservation if you are going to be successful. If you stay on the reservation and don't have land, you have nothing. You have no way to really make investments in your allotted land; and your human capital investments are worth little on the reservation. So, what you find is people moving away from reservations, and often finding unemployment if they move to big urban areas. But the comparison of off-reservation Indian income with on-reservation is astounding. Just much richer off reservations.

36:55 Russ Roberts: So, there's a rich tradition of spirituality, economic life, all kinds of things for Native Americans, some of which I assume they can still enjoy on the reservations, others they can't. So, just to take an obvious example, the buffalo drives which have some interesting property rights, which, when I was reading your work was intrigued by these--but it's well known that the Indians would often herd large numbers of buffalo over cliffs. That kind of economic activity isn't, presumably isn't possible any more. A lot of what would be traditional ways of interacting with the land aren't possible. But I assume some are. Are people on the reservations leading "traditional lives"--meaning lifestyles and economic activity similar to what their ancestors did out of devotion, love? Who knows whatever the reasons are. And it might leave them poorer, but maybe they enjoy it. Others, I assume, can't do those things; they are going to be poorer because there's just not those choices available to them. What are your thoughts on that? Terry Anderson: I think that--maybe one could compare it to a Jewish family, or in my case, I grew up with Serbian relatives. And we would go to Serbian picnics; and we celebrated the Orthodox holidays for Christmas and Easter. As a kid, of course, you wanted two Christmases, so I got that. Russ Roberts: It's a deal. Terry Anderson: Yeah. It was a great deal. So, we had some of those traditions. And as I said, if you live in a Jewish family, you can enjoy Jewish traditions. But that was kind of inside the house, if you will. And then outside the house you participated in the larger open economy. And I think that's somewhat true for American Indians. A couple of friends on the Crow Reservation still participate in Sun Dances--a very spiritual and very severe kind of deprivation. It's days of fasting and no water. And it used to be tying yourself, tethering yourself to a pole with skewers through your skin and standing in the sun for long hours. They don't do that quite as much any more. But these are rituals that are very important. And they are still practiced. But after that, it's back to life outside the house--if I continue that analogy. And the question for tribal members is: What is there outside the house? Is there anything available? And only a few tribes have managed to find ways of continuing economic prosperity. But as you say, if your life was based on herding buffalo off of a cliff, which was true of these nomadic Plains Tribes, that just isn't there any more. You may have a buffalo herd; and again, some tribes have enough buffalo they have celebrations where they will kill some buffalo and have a feast and do some of their dancing. The importance of those rituals can't be denied. And become a part of what holds the social fabric of a tribe or culture together. But beyond that, it's a matter of finding ways to generate income and wealth from the soil, from the energy, from the human capital, and from whatever other resources are out there on the reservation. Russ Roberts: Well, I ask because we've talked a lot on this program about poverty outside the United States, in the Third World, so-called Third World. And I think there's a terrible tendency to romanticize primitive ways of life or traditional ways of life. At the same time, I don't want to underestimate the possibility that people are not totally driven by financial wellbeing; and a lot of people aren't driven by that at all. And might be relatively content to embrace a certain lifestyle for other reasons, other benefits they get from it: the comfort of being part of a community, the comfort of doing things the way they've always been done. And I'm just curious, given that it's not that hard. It's hard to leave a really poor country in Africa or South America. It's not that hard to leave the Indian reservation. And the fact that they are very poor or have very high unemployment, maybe that's okay with the people who stay there. Or is there more to the story? Terry Anderson: Well, I think there's a bit more to the story. I first want to just re-emphasize your point about the importance of these cultural norms and rituals. They are what binds society together. And whether it's sitting around your dinner table having a prayer and teaching people, 'Thou shalt not steal'--those kinds of cultural positions have an important part to play in institutions. And we economists get some credit for having made this clear. Certainly Nobel Laureate Lin Ostrom, for example, or Douglass North have made that clear. But then, beyond that is the question of: Okay, can you live off of that, if you don't have the buffalo to drive over a cliff? And there I think, yes, moving off the reservation is part of the answer for some people. But I'm reminded of the notion of there being a poverty trap: that you at a low level and you can't really get out of that without some major step upward. And in the case of American Indians, there's a significant amount of welfare--welfare-type payments--flowing into reservations through the various agencies that govern reservations. The Bureau of Indian Affairs has 9000 employees; they spend $2.9 billion dollars every year. Each bureaucrat has 322 Indians and they spend about $1000 on every Indian. They spend more on education on Indian reservations per student than we do off--$20,000 on reservations, $12,000 off. So, if you are on a reservation, you are getting some of these benefits. You get some subsidized housing. And to then say, 'Well, let me move off,' you've have to be able to say, 'Wow, I've got a college education and I can really move off the reservation, leave my family, and make a lot of income.' And for most of them, they don't have the education. And that poverty trap, that wall that they have to climb over that they have to just stay. Russ Roberts: And so, when I was making the remark about, maybe they are better off in poorer countries with their current lifestyle--the part that, I think it's important to emphasize: There are people who argue that it's better to be poor because you are not susceptible to the evils of Western capitalism and Western materialism. You heard the same things about Elian Gonzalez, when we returned--when the U.S. government returned Elian Gonzalez to Cuba. There were actually commentators who said, 'That's good for him because now he won't have to grow up in Western materialism.' And I think that's probably a choice that most people would prefer: they certainly show that they prefer it by risking their lives to come here. And they come here, of course, for all kinds of reasons beyond the material. But I think they are interwoven--I think the opportunity to express oneself and have a life of meaning often comes from how you spend your time in the day outside the rituals and family, etc.--what we call 'work.' So, I don't want to be misunderstood when I was saying, 'People on the reservation, obviously, since they stay there, they must be better off.' Well, they are in some sense. But I say that not because I romanticize poverty versus, say, Western standard levels of living. So, I just want to make that clear.

46:14 Russ Roberts: So, how many programs are there in the Bureau of Indian Affairs that are specifically for Indians rather than off-reservation folks? Can people on reservations--do they get food stamps? Do they get standard welfare programs available across the country? And do they have their own programs that other people aren't eligible for? Terry Anderson: Oh, they have everything and then some. They have huge amounts of housing subsidies. I already mentioned the education expenditures are almost twice what they are from the Federal government, almost twice, what they offer reservations. The Indian Health Service, a completely separate health system: And, it's good in some places, bad in others; it has a reputation as not providing the best health care. But they have an Indian Health Service. They have an Indian Police Force. They have all manner of investment programs available to tribes trying to start--as I mentioned, the electronics firm, the Crow tried to start a carpet factory. Reservation after reservation has its own effort to make these kinds of investments. So, I can't give you an exact number. But, you take housing, health care, capital investment, education--and it's huge amounts of money that flow into these reservations. And therein I think lies part of the problem for how you get, how people somehow are able to unlock the wealth of Indian nations--as I titled the book I recently edited. And the problem is, if you are a tribal elder, you are a tribal chairman, and you are the one who allocates all of the welfare that's coming in, then you have a lot of power. And if somehow the tribe is able to pull out of this, the red tape that it's wrapped in as a result of all these various programs, it means that you may have less power. And therein lies the real, I think, problem of how to unlock the wealth of Indian nations. Russ Roberts: Well, some of that wealth is human capital, the entrepreneurial and innovative temperament that is still there but presumably is being handicapped by property rights not being as available as they could be. Terry Anderson: And I should add that, in the last couple of decades, we've opened tribal colleges on virtually every reservation, in an effort to try to increase the human capital available to Native Americans without them having to leave the reservation and come some university town where they are quite unfamiliar with the culture and lifestyle. So, we've made those investments in human capital; but the question is: What do you do with human capital once you have it? I might just note that there's a group of Indians--they are not a recognized tribe--in North Carolina, called the Lumbees. And the Lumbee Indians are noted for their entrepreneurship. A good friend, Ben Chavis, who has written a book called Crazy Like a Fox--it's about his entrepreneurial efforts. And you talk to the Lumbees and they are truly capitalists. But they don't have a reservation; they don't have all this welfare, because they are not a recognized tribe. And they utilize the system, but the maintain many of their cultural roots as well. So, it's an example of a group of Indians who are able to have their cake and eat it, too, of sorts. Russ Roberts: Well, your remark about education, colleges on the reservation, reminds me, tragically, of increases in efforts to education poor people outside the United States--in the Third World. And we often find no relationship between education and economic wellbeing in poor countries, because, as you say, there's just not much to do with it if you stay where you are. If you left, maybe you could do something productive. If that's what you wanted.

51:03 Russ Roberts: Let's talk about the handicaps facing--let me say it better. Let's talk about what might be changed on reservations today with respect to government policy and why that might make things better, if things were different. So, right now, the obvious example you talk about in your work is control and access to natural resources is highly limited. Are there other changes that you would recommend that we make? Talk about that in particular and then maybe other things that are important. Terry Anderson: Back to this whole notion of trusteeship. That to my mind is probably the biggest hurdle to unlocking the wealth of Indian nations, especially, again, the Western reservations. And I might just note that it is not saying, 'Give them more opportunity for gaming, for casinos.' That's--it only works in urban areas; and Ron Johnson, an economist friend of mine has written about what happens when tribes are really successful with gaming; and the answer is: The state says, 'We want a share.' And they either get the tribes to contribute part of their profits to the state, or they open up casinos to compete with them. So that kind of thing is not the answer to wealth. Trusteeship is what wraps these reservations in a red tape that keeps them from developing land and resources. And somehow getting the Federal government to relinquish the trusteeship is important. Let me use the example of Flathead Reservation here in Montana, where they used a special law to basically wrest control of their timber resources from the Federal government. They manage their own timber. We did a study here at PERC (Property and Environment Research Center) comparing their management with neighboring U.S. Forest Service management. For every dollar the Forest Service spent, they basically broke even; and that's because it's a really productive forest. Usually, they lose. The Tribe, however, was earning $2 for every $1 it spent. It had better timber; it had better age distribution of the timber; it had better species distribution of the timber; it had better water quality; better wildlife habitat. It beat the government on every count. And the reason was that the tribe had control. It was like private ownership, in a sense--in this case it was communal for the tribe. And they were able to manage it quite well. So, I think there are ways that tribes can get out of this trusteeship; and when they do, the evidence is they do quite well. The Crow tribe has the biggest coal reserves in the United States. They are the richest coal owner in the United States. And yet they have trouble developing their coal, for two reasons. One, they have to overcome all of these trust requirements that the Federal government puts on them. And two, they can't export their coal because, in their case, the Lummi--not the Lumbee, but the Lummi Indians in Washington--oppose construction of the coal export terminals. So you've got tribe against tribe. So, this trusteeship is probably the most onerous part. If you look at the Fort Berthold Reservation in North Dakota, right in the center of the Bakken play[?] as the fracking was booming: They had nothing going on. I have a GIS (geographic information system) map showing where wells were drilled. None were on the Fort Berthold Reservation, until a law was passed that allowed them to get out from under 49 different regulations that controlled what they could do with their oil and gas. Once that passed, the Reservation flourished with oil wells or fracking wells being drilled. And they made millions and millions of dollars. Darrin Old Coyote, the Chairman of the Crow Tribe, says that the War on Coal is a war on his families and his people. He says that because, again, it is regulating their ability to use their resources. So I think the first step is to somehow get the government, the Fed government, out of the constraints it puts on tribes, and let the tribes decide. There's an effort in Canada, for example, for each reservation to simply decide: Does it want the Federal government out, and does it want to take responsibility for managing its lands, for having fee ownership on its lands? And doing it reservation-by-reservation: 'If you want to stay under this system that exists by this proposed legislation in Canada, your tribe decides to stay under; my tribe decides to get out.' It would be a great test of just how important the flexibility and essentially a kind of Federalism is to devolving authority back to tribes. But all that can only work if tribes can understand how to run their governments. And that's certainly not--we know that at the Federal level in the United States and a few states as well--it's not easy to create a government based on rule of law that's physically responsible. And I've been working with some tribes here in the United States--with some Maori, the natives of New Zealand, and with some bands in Canada to create a consortium for developing a framework for tribal leaders to understand, essentially, what the Federalist Papers said. And I think that getting the Federal government out is a start; but then tribal governments have to find ways of managing their affairs in a way that is consistent with expanding the pie. Not just for the government, but for the tribal members themselves.

57:00 Russ Roberts: One thing that strikes me when listening to this: You said at the beginning, it's small population. But, 3 million people--that's the number of American Indians--it's not that small a number. Certainly it's not that small a number out west, where population is lower. It's surprising to me that--maybe I missed it--I don't see a lot of traction for these kind of issues in elections. Or maybe it just doesn't get reported on? You'd think there would be a lot of demand for getting rid of this kind of paperwork and red tape that's hampering development. But the people who live there and who could prosper--at least financial, maybe not necessarily employment but certainly financial from selling rights to access to these natural resources. In local elections, in Congressional elections, are these issues that arise? Terry Anderson: Almost never. As you were making that point, I remember that President Obama came and visited some of the reservations in Montana. And, you know, it was an important time. And he participated in some of the rituals he had, and was made a member of the Crow Tribe, I believe it was. And that got them some attention. But after that, it kind of fizzled. There was not a lot of attention paid. I think it's partly that these populations--if it was 3 million people in one location, they'd have a lot to say and have a lot of power and they'd make their point. But when you have just a few hundred here and a few thousand there--I think 5000 on the Fort Peck Reservation, if I recall--these populations are so small. And even if they were well-organized as a Crow Tribe or a Northern Cheyenne Tribe or a Sioux Tribe--they are just small in that way. And then getting them organized as a whole group is really difficult. I mentioned the Canadian effort: They have a national organization of First Nations, as they are called up there. And they are hardly a single voice. So, I think it's just a typical collective action problem: you have a hard time getting these 3 million people together, getting your agreement, and their voices don't get heard. And then that's competing with a well-organized bureaucracy in D.C., for sure--the Bureau of Indian Affairs, Department of the Interior, some Housing monies, and so on. And a pretty well-organized tribal leadership in many cases through which this money from Washington flows. So you've got to somehow overcome, on the one side, the hurdles created by these--I'll call them special interests--and on the other side, organize the people who are poor as a result of these kinds of controls. Russ Roberts: Well, you mentioned a lot of money flowing into the reservations. But if it's 3 million people and a $3 billion budget, or $2.9 billion, for the Bureau of Indian Affairs, that's only about a thousand dollars per person. Is it because that's a lot of money when you are poor? Or is it that there are other monies and other effects that we are not talking about when we just look at, say, the Bureau of Indian Affairs budget? Terry Anderson: Yeah, I did. It's partly that it is a lot of money [?]. You're talking about per capita income of $5000. $1000 of that is 20%. That's significant. But that number doesn't include the housing that's built on the reservation; it doesn't include all of the investment--I was going to use the word 'debacles'--that happen. So it's far more than that. What's interesting, too, is that if you look at reservations and--I keep harping on the Crow because I was just there this summer and visited their coal mine and talked to their tribal leaders--they don't develop as much coal as they'd like to or as they could. But they are still taking in, I think the tribal members get a check for $400 every 3 months or something like that, if my recollection is correct. So, they are getting some revenue off of their coal, and it comes back to the people. The problem is--back to what we talked about--what do you do? You just got a check for $400. What are you going to do with it living on the reservation? You don't have any land you can invest it in. You can't go out and help pay off the tractor that you just purchased to plow your field because you don't have a tractor. And you can't borrow the money to get a tractor because you don't have any collateral to put up: You don't own the land. It's in trust. And so, this money gets spent on consumer goods. As Darrin Old Coyote, the Chairman said, he said, 'We get these checks, and first thing that happens is they run to Billings, Montana, 60 miles away, buy a new car and trash the one they had.' And that's what happens over and over where there are these resources that could help generate wealth for the rightful owners.