WEBVTT NOTE Theory Meets Praxis: The Austrian Business Cycle Theory in Today's Economy 1 00:00:00.000 --> 00:00:05.000 Discussions of high theory among intellectuals will not by itself win the day for liberty. 2 00:00:05.000 --> 00:00:10.000 To convert others to the truth, theory must prove its merit and application. 3 00:00:10.000 --> 00:00:18.000 The Austrian School has a long tradition of public intellectuals who have dedicated themselves to bearing the fruit of Austrian thought. 4 00:00:18.000 --> 00:00:26.000 Men such as Ron Paul in politics, Benjamin Anderson in finance, and Henry Hazlitt in journalism. 5 00:00:26.000 --> 00:00:31.000 To commemorate their efforts, we offer the Henry Hazlitt Memorial Lecture. 6 00:00:31.000 --> 00:00:36.000 We are very pleased to have Mr. Sean Corrigan deliver this year's Hazlitt Memorial Lecture. 7 00:00:36.000 --> 00:00:41.000 Mr. Corrigan received his M.A. in natural sciences at Magdalen College, Cambridge, 8 00:00:41.000 --> 00:00:49.000 before doing postgraduate work on aerospace structural engineering at Cranford Institute of Technology. 9 00:00:49.000 --> 00:00:54.000 He started as a financial trader in the city of London as the Japanese bubble was expanding 10 00:00:54.000 --> 00:01:08.000 In the mid-1990s, Mr. Corrigan became head of G7 Market Strategy and Research at a major independent London research house. 11 00:01:08.000 --> 00:01:14.000 With his partner, Judy Matthews, Mr. Corrigan founded Capital Insight in 1999. 12 00:01:14.000 --> 00:01:20.000 Capital Insight is an economic and financial market advisory service based on Austrian economics. 13 00:01:20.000 --> 00:01:26.640 Economics. He is an advisor to the Eidelweiss fund run from Zurich by another devotee of 14 00:01:26.640 --> 00:01:33.960 Murray Rothbard and a regular contributor to lewrockwell.com and mises.org. Mr. Corrigan's 15 00:01:33.960 --> 00:01:42.080 topic is theory meets praxis, the Austrian business cycle theory in today's economy. 16 00:01:42.080 --> 00:01:53.080 Well, it's theory to practice anyway. I don't know about today's business cycle theory. 17 00:01:53.080 --> 00:02:02.080 When I was asked if I'd be willing to deliver this lecture, I contacted Lew to see if he'd give me a few pointers as to what sort of material would be most suitable for the audience on the occasion. 18 00:02:02.080 --> 00:02:11.080 And Lew said it was quite easy that Henry Hazlitt himself was very big, pouring over official statistics and showing how they could be supportive of very different conclusions from those 19 00:02:11.080 --> 00:02:16.080 which the mainstream tended to draw from them, and he said, why don't I do the same? 20 00:02:16.080 --> 00:02:20.080 Well splendid, I thought, after all this is a big part of what I do for a daily living, 21 00:02:20.080 --> 00:02:24.080 so I ideally set off downloading data, compiling a number of very large Excel spreadsheets 22 00:02:24.080 --> 00:02:31.080 and drawing copious graphs to illustrate yet another bromide on the failings of the global fiat dollar hegemony. 23 00:02:31.080 --> 00:02:36.080 Well thinking to enliven these, I dug out a few copies of some of Hazlitt's work to look for some passages 24 00:02:36.080 --> 00:02:41.280 I could quote, only slightly out of context, in order to affect the usual subterfuge of 25 00:02:41.280 --> 00:02:45.640 the struggling politician of the hack lawyer, and add somebody else's intellectual stubsence 26 00:02:45.640 --> 00:02:51.400 to my own special pleading in this PowerPoint kaleidoscope. 27 00:02:51.400 --> 00:02:55.480 But on re-reading works like The Inflation Crisis and The Failure of the New Economics 28 00:02:55.480 --> 00:03:00.000 after a gap of a number of years, it became more and more apparent that the power of Hazlitt's 29 00:03:00.000 --> 00:03:04.480 writing and the clarity of his analysis are timeless, and that the problems of today are 30 00:03:04.480 --> 00:03:09.480 are of course therefore the same ones which he so effectively disposed of in his own time. 31 00:03:09.480 --> 00:03:13.360 So rather than bombarding you with the mind-numbing profusion of billions of this and trillions 32 00:03:13.360 --> 00:03:19.680 of that or subjecting your aesthetic sensibilities to the chromatic enormities of my charts, 33 00:03:19.680 --> 00:03:23.840 I decided instead I'd provide a run-through of the way in which the logic of Austrianism 34 00:03:23.840 --> 00:03:29.400 can be applied to make a practical difference to traders, investors and businessmen at large. 35 00:03:29.400 --> 00:03:34.160 Now before we start, I need to lay a little groundwork by way of challenging the preconceptions 36 00:03:34.160 --> 00:03:42.160 I want to look at the fundamental question of how we characterize something called growth in the modern economy. 37 00:03:42.160 --> 00:03:48.160 Here we immediately run into the fact that the familiar usage, coupled with a dull complacency of thought, 38 00:03:48.160 --> 00:03:58.160 has allowed the idea to arise that any increase in prosperity is to be measured strictly in terms of that macroeconomic entity called gross domestic product, or GDP for short. 39 00:03:58.160 --> 00:04:04.100 Of itself this has led to a horrible inversion of means and ends, such that it encourages 40 00:04:04.100 --> 00:04:08.120 ever more monetary and regulatory violence to be visited upon the free economy by the 41 00:04:08.120 --> 00:04:13.000 ranks of self-serving politicians and bureaucrats from Collectivist Central, who have come to 42 00:04:13.000 --> 00:04:17.920 believe that keeping this statistical artefact expanding by some arbitrary minimum during 43 00:04:17.920 --> 00:04:22.840 their term of office is their primary function, no matter what the long-term economic or social 44 00:04:22.840 --> 00:04:25.000 harm they are occasioning along the way. 45 00:04:25.000 --> 00:04:43.000 Indeed, the collectivists have successfully deluded both themselves, and most of the uncritical electorate over whom they reign, that were they to desist, or even to relent a little from this interference, the intrinsic flaws in the capitalist free market would self-evidently lead to an implosion under the weight of its own contradictions. 46 00:04:43.000 --> 00:04:51.000 It should be noted that this whole business of national income accounting intrinsically enshrines Keen's perverted and patronising view of the economy, 47 00:04:51.000 --> 00:05:03.000 and so it condemns those of us who reject its premises to an Orwellian struggle to articulate heretical thoughts within the narrow framework of an alien language and an antagonistic epistemology. 48 00:05:03.000 --> 00:05:09.000 The very origins of the intellectual effort and the financial resources devoted to the compilation of the GDP numbers 49 00:05:09.000 --> 00:05:12.480 are rooted in the efforts of King's contemporary Simon Kuznets 50 00:05:12.480 --> 00:05:15.440 to provide Roosevelt's statist brain trusters 51 00:05:15.440 --> 00:05:18.800 with a template on which to impose their Mussolini-inspired fantasies 52 00:05:18.800 --> 00:05:21.800 of how the nation's affairs should be ordered. 53 00:05:21.800 --> 00:05:25.880 Now given that their efforts were largely responsible for prolonging, 54 00:05:25.880 --> 00:05:29.560 if not intensifying, the dislocations associated with the pricking 55 00:05:29.560 --> 00:05:32.040 of the inflationary bubble of the late 1920s 56 00:05:32.040 --> 00:05:35.840 for more than a decade of lost hope and retarded progress, 57 00:05:35.840 --> 00:05:38.800 and given too that once the seeds of conflict and extremism 58 00:05:38.800 --> 00:05:52.800 had taken root in this otherwise barren soil, the second great extension of their statistical efforts arose out of the need to try to coordinate the totalitarian wartime command economy, you might feel we should treat this whole approach with a deal of suspicion. 59 00:05:52.800 --> 00:06:04.800 But even if we were to suspend our questioning of the simplistic algebraic formulation of the Keynesian economy, intrinsic to the data, the fact remains that even the author Kuznets of this series admitted of grave qualifications. 60 00:06:04.800 --> 00:06:14.800 The statistician, he wrote, who supposes he can make a purely objective estimate of national income, not influenced by preconceptions concerning the facts, is deluding himself. 61 00:06:14.800 --> 00:06:25.800 For whenever he includes one item or excludes another, he is implicitly accepting some standard of judgement, his own, or that of the compiler of the data, and there is no escaping this subjective element. 62 00:06:25.800 --> 00:06:32.800 Something a lot of people should bear in mind today. A few numbers might help flesh out this idea. 63 00:06:32.800 --> 00:06:55.800 In 2001, GDP, measured in the depreciated dollars of the day, was reckoned to stand at just about $10 trillion in the US, broken down as to $7 trillion of personal consumption, just under $1.6 trillion of private investment and $1.9 trillion of government outlays, less what was then only $300 billion to account for the surplus of imports over exports registered that year. 64 00:06:55.800 --> 00:07:02.160 Now, even as thus boldly stated, there are problems aplenty. One obvious fact is that 65 00:07:02.160 --> 00:07:07.840 fixed investment is measured on a gross basis, but inventory accumulation is measured net. 66 00:07:07.840 --> 00:07:11.980 More importantly, there is the issue of just who gets to determine what is a consumption 67 00:07:11.980 --> 00:07:16.560 expenditure and what is an investment, much less whether this distinction is a valid one 68 00:07:16.560 --> 00:07:21.120 to set in place of the classically correct separation of resource use into productive 69 00:07:21.120 --> 00:07:26.240 and exhaustive spending categories. Software, for example, used to be treated as an intermediate 70 00:07:26.240 --> 00:07:32.020 business consumption item and was thus excluded from the final reckoning. Its subsequent reclassification 71 00:07:32.020 --> 00:07:36.980 in the mid-90s, in essence, was a move akin to the sort of manipulation of revenue recognition 72 00:07:36.980 --> 00:07:41.440 that Worldcom and the other corporate miscreants of the bubble used to practice. 73 00:07:41.440 --> 00:07:45.880 A third problem inherent in the GDP numbers is that in order to add apples to pears, each 74 00:07:45.880 --> 00:07:50.320 of the myriads of different commodities and services being exchanged in the economy have 75 00:07:50.320 --> 00:08:04.320 Money is the obvious candidate for this task, but money itself fluctuates in the speed at which it depreciates in value, the rara avis of its appreciation being a very elusive fowl indeed these days. 76 00:08:04.320 --> 00:08:10.320 This gives rise to the calculation reams of what are called implicit price deflators through which to allow for the changes. 77 00:08:10.320 --> 00:08:13.320 The backflips to which this gives rise are enormous. 78 00:08:13.320 --> 00:08:25.320 For instance, just if you have time in the inclination, compare the entries for the nominal and the real inflation-adjusted versions of the high-tech component of private fixed investment, PC, software and the like. 79 00:08:25.320 --> 00:08:36.320 So embarrassing here have become the distortions that the sub-entries in the columns have been left blank, apart from monetary footnotes of the effect that the admission arises because the numbers are not to be trusted. 80 00:08:36.320 --> 00:08:42.100 Ask yourselves next whether the near 20% of GDP accruing to the activities of the state 81 00:08:42.100 --> 00:08:46.900 has any place at all in the reckoning. Though one cannot deny that some benefit is to be 82 00:08:46.900 --> 00:08:52.160 derived from the activities of the 21 million or so souls employed in the public sector, 83 00:08:52.160 --> 00:08:56.200 there is also much that the apparatchiks, the senses of political correctness, the price 84 00:08:56.200 --> 00:09:01.640 fixers, quota monitors, box tickers, environmental inspectors, dull dispensers and tax gatherers, 85 00:09:01.640 --> 00:09:05.060 not to mention the secret policemen, uniformed paramilitaries and galactic storm troopers 86 00:09:05.060 --> 00:09:08.060 is complete with a commissariat and armourers, 87 00:09:08.060 --> 00:09:11.060 through that he's openly destructive. 88 00:09:11.060 --> 00:09:16.060 In any case, where even some genuine benefits can be identified from public sector workers, 89 00:09:16.060 --> 00:09:21.060 since the provision of government services is often a matter of either direct or indirect compulsion, 90 00:09:21.060 --> 00:09:24.060 and is anyway never subject to the disciplines of the market, 91 00:09:24.060 --> 00:09:28.060 the need to satisfy willing consumers in a sustainable financial fashion 92 00:09:28.060 --> 00:09:30.060 under conditions of competition and choice, 93 00:09:30.060 --> 00:09:34.060 Attaching to even these a value of any sort is still problematical. 94 00:09:34.060 --> 00:09:38.060 That this is far from being a pedantic distinction can be seen in the fact 95 00:09:38.060 --> 00:09:44.060 that around one in four of the more than three million manufacturing production workers lost in the past three years 96 00:09:44.060 --> 00:09:49.060 have ended up conceptually, if not individually, on the bloated payroll of the state instead, 97 00:09:49.060 --> 00:09:53.060 where the new drones enjoyed salaries a third higher than the metal bashes had been paid 98 00:09:53.060 --> 00:09:55.060 and received benefits one sixth greater. 99 00:09:55.060 --> 00:10:16.060 All of which implies that each member of the shrinking number of manufacturing workers has now had to become over 8% more productive per year of value just to support the monstrous regiment of extra-bureaucrats in Silowiski, a legion of the dams whose muster is burgeoned from 169 to 214 per 100 manufacturers just since 2000 itself. 100 00:10:16.060 --> 00:10:20.060 It should not be a matter of dispute that much of this game of Keynesian piggyback, 101 00:10:20.060 --> 00:10:23.060 rather than being some sort of augmentation to the common will, 102 00:10:23.060 --> 00:10:26.060 can in fact only be doing the nation harm. 103 00:10:26.060 --> 00:10:30.060 Leaving this behind, yet another glaring inconsistency in the facts, 104 00:10:30.060 --> 00:10:33.060 involves the disparate treatment we've noted already 105 00:10:33.060 --> 00:10:36.060 of what may be loosely termed fixed and circulating capital. 106 00:10:36.060 --> 00:10:40.060 In the case of the former, the choice to ignore the effects of depreciation 107 00:10:40.060 --> 00:10:42.060 adulterates the composition of this identity, 108 00:10:42.060 --> 00:10:46.420 identity since it implies that a peasant who keeps buying sickly donkeys which 109 00:10:46.420 --> 00:10:50.100 die after only two years hard work is adding more to national income than is 110 00:10:50.100 --> 00:10:54.900 his prudent brother who buys those which can endure for four. The upshot is we're 111 00:10:54.900 --> 00:10:57.820 now left wondering whether even the nominal national product should be 112 00:10:57.820 --> 00:11:01.700 reckoned as 10 trillion as it is presented or is the 8 trillion after we 113 00:11:01.700 --> 00:11:04.860 subtract government or the 7 trillion after we deduct the estimates made of 114 00:11:04.860 --> 00:11:09.420 private capital consumption. But in fact we're still not finished for we find a 115 00:11:09.420 --> 00:11:15.420 Now, a good deal of the expenditure in these numbers is not monetary at all, but takes the form of something called imputation, 116 00:11:15.420 --> 00:11:18.420 which the Bureau of Economic Analysis tells us are, quote, 117 00:11:18.420 --> 00:11:25.420 transactions recorded in the national income and product accounts that are not transactions of the market economy, 118 00:11:25.420 --> 00:11:32.420 i.e. they're numerical phantoms purporting to adjust for the implicit services rendered but not charged to their recipients. 119 00:11:32.420 --> 00:11:36.420 Now, to give a flavour of the vast sleight of hand being undertaken here, 120 00:11:36.420 --> 00:11:40.300 Let me just briefly show how the magic of imputation helps solve the mystery 121 00:11:40.300 --> 00:11:43.060 of how a citizenry increasingly in hoc 122 00:11:43.060 --> 00:11:47.060 and whose net financial assets for the first time in at least fifty years are falling 123 00:11:47.060 --> 00:11:50.620 can still be enjoying year-on-year net interest receipts of around nine hundred 124 00:11:50.620 --> 00:11:52.020 billion dollars 125 00:11:52.020 --> 00:11:56.460 roughly ten percent of the unadjusted total income they're supposed to receive 126 00:11:56.460 --> 00:11:59.520 What we do is we deduct from the interest paid column 127 00:11:59.520 --> 00:12:02.880 three hundred and fifty billion dollars in mortgage interest payments 128 00:12:02.880 --> 00:12:06.840 because these are made not by the homeowner but by an imaginary corporation set up in 129 00:12:06.840 --> 00:12:12.400 the accounts to buy his house for him and hence to prove that somehow it's an investment. 130 00:12:12.400 --> 00:12:17.240 Next we add $260 billion to the interest received column, which is reckoned to be the value 131 00:12:17.240 --> 00:12:22.340 of the free checking services your bank gives you and the net difference now in interest 132 00:12:22.340 --> 00:12:29.760 soars 225% from an actual monetary total of $275 billion to the published $900 billion. 133 00:12:29.760 --> 00:12:35.560 Hey presto! Incidentally, do you not consider it a touch risable that the implication of 134 00:12:35.560 --> 00:12:39.880 the second of these adjustments is the next time you go overdrawn, you can always just 135 00:12:39.880 --> 00:12:46.460 hand your checkbook into the bank and tell your account manager that the balance is quits? 136 00:12:46.460 --> 00:12:51.000 The blizzard of numbers here means that GDP ends up being swollen by perhaps 16% from 137 00:12:51.000 --> 00:12:57.520 the published number, a gap incidentally which has widened appreciably from the 1964 to 1973 138 00:12:57.520 --> 00:13:12.520 So is the economy in 2001 10 trillion in size, 8 trillion ex-government, 7 trillion ex-depreciation or 6 trillion ex-imputation? 139 00:13:12.520 --> 00:13:17.520 Clearly giving the yawning two-thirds differential between the lowest and the highest of these, 140 00:13:17.520 --> 00:13:23.520 any collectivist central planner should be asked to adjudicate on which is the most representative of economic reality 141 00:13:23.520 --> 00:13:28.520 before he proposes to trample on our property rights or to infringe upon our sacred personal liberties 142 00:13:28.520 --> 00:13:32.520 in order to achieve his arbitrary target for what he likes to think of as growth, 143 00:13:32.520 --> 00:13:35.520 but which is usually only spending. 144 00:13:35.520 --> 00:13:40.520 In fact, even the foregoing does not come close to providing a full view of the controversy with which we have to deal, 145 00:13:40.520 --> 00:13:44.520 but this has still been framed in Keynes and Kuznets' own terms. 146 00:13:44.520 --> 00:13:47.520 But conversely, if there is one thing the Austrian School teaches, 147 00:13:47.520 --> 00:13:50.520 it's the fundamental importance of the division of labour. 148 00:13:50.520 --> 00:13:55.920 Another is the crucial element of time and of the instrumentality of capital in mastering 149 00:13:55.920 --> 00:14:01.280 this. Another is the role played by the individual entrepreneur in disposing of scarce resources 150 00:14:01.280 --> 00:14:05.720 to meet current and prospective consumer demand and a final one is the function of saving 151 00:14:05.720 --> 00:14:08.960 and facilitating this role. 152 00:14:08.960 --> 00:14:12.880 With this in mind we can recast the official statistics with all their provisors and precautionary 153 00:14:12.880 --> 00:14:18.640 notices in a radically different way, maneuvering them using an approach first outlined by Professor 154 00:14:18.640 --> 00:14:25.640 to give us a feel for what Hayek depicted as a right triangular arrangement of production in the modern economy. 155 00:14:25.640 --> 00:14:32.640 To achieve this, we take the official input-output tables, which show, in addition to the now familiar GDP numbers, 156 00:14:32.640 --> 00:14:37.640 all the intermediate business-to-business flows, which are then later simply cancelled out. 157 00:14:37.640 --> 00:14:42.640 Adding imports to the domestic total of these, we are left with a sum of business revenues, 158 00:14:42.640 --> 00:14:47.640 whether derived from sales to other businesses and consumers, to government or to foreigners. 159 00:14:47.640 --> 00:14:53.000 If we subtract appreciation and profits from the revenues, we are left with above the line 160 00:14:53.000 --> 00:14:57.340 business costs, to which we can add the entries for net inventory, accumulation and gross 161 00:14:57.340 --> 00:15:00.960 fixed investment which represent the below the line outlays. 162 00:15:00.960 --> 00:15:05.520 We now have identified a total of all domestic productive spending, to which we can compare 163 00:15:05.520 --> 00:15:09.760 the sum of personal consumption and government expenditures, plus the total of residential 164 00:15:09.760 --> 00:15:15.000 real estate investment, to determine the scale of domestic exhaustive spending. 165 00:15:15.000 --> 00:15:20.240 In our year under consideration of 2001, the productive outlays came to a grand total of 166 00:15:20.240 --> 00:15:27.480 $18 trillion, against which was lined up around $9.3 trillion in the exhaustive category. 167 00:15:27.480 --> 00:15:30.520 Thus it could be argued the circulation of money and hence the transfer of goods and 168 00:15:30.520 --> 00:15:34.560 services through the real economy amounted not to the $6 trillion, the $8 trillion or 169 00:15:34.560 --> 00:15:40.680 even the $10 trillion above, but to a whopping $27.5 trillion, of which some two-thirds represented 170 00:15:40.680 --> 00:15:46.680 is not the final consumptive exhaustion of wealth, so over-emphasized in the orthodox approach, 171 00:15:46.680 --> 00:15:56.680 but a series of exquisitely intertwined, mutually reliant, highly contingent and purposely undertaken non-automatic entrepreneurial expenditures. 172 00:15:56.680 --> 00:16:01.680 Even now, however, after we have tried to expand the scope of our mental imagery, 173 00:16:01.680 --> 00:16:08.680 we are still all too prone to succumb to the temptation to describe the economy by a single number or a single series of numbers. 174 00:16:08.680 --> 00:16:22.680 This insistent urge keeps leading us back to a narrow conceptualization, very much like the one of trying to capture the complex geology and fractal topography of the Rockies by measuring the total volume of rock contained in them. 175 00:16:22.680 --> 00:16:36.680 The Romans, it is said, had little concept of cartography. There is apparently no word in Greek or Latin for map. Instead their worldview was what is called odological. It was based predominantly on milages set out in periploi or linear itineraries. 176 00:16:36.680 --> 00:16:54.680 In fact, when the Rooseveltian tyrant who thought he could cue a rampant third century inflation by fixing prices, the Emperor Diocletian, came across a man who had constructed a two-dimensional map of the world, he had the poor unfortunate summarily executed, lest his enhanced knowledge made him a danger to the Imperium. 177 00:16:54.680 --> 00:17:06.680 The Keynesians and the other macromances, with their fetish for monolithic aggregate numbers and their reliance on predetermined coefficients of mass behaviour, share a similarly blinkered outlook, 178 00:17:06.680 --> 00:17:14.680 while their vituperation towards the more deductive and individually centred schools of thought makes them and their masters all mental diocletians. 179 00:17:14.680 --> 00:17:26.680 In contrast, we Austrians always strive to attain a wider purview and to preserve a sense of the variability and complex interrelations which characterize the world of acting men and women laid out before us. 180 00:17:26.680 --> 00:17:36.680 Armed then with these growing insights, let us try to dispel in sequence the falsehoods nested in the simulation of the mainstream view set out before you in the handout. 181 00:17:36.680 --> 00:17:44.680 We started with the phrase, America is recovering thanks to the courageous actions of the Federal Reserve in slashing interest rates. 182 00:17:44.680 --> 00:17:55.680 To assume that lower interest rates, when imposed by monetary manipulation rather than arising spontaneously on the free market, are a panacea for all ills is a very old delusion indeed. 183 00:17:55.680 --> 00:18:02.680 If low rates and a cheap currency were a solution to hardship, then we should have to impeach Alan Greenspan before the Court of World Opinion 184 00:18:02.680 --> 00:18:11.680 and the world opinion for being too pusillanimous in ending want and for not allowing his colleague Ben Bernanke the full access to the printing press which he so patently desires. 185 00:18:11.680 --> 00:18:18.680 If this were the case, John Law would never have gone bankrupt. To be worth a continental would be praise indeed. 186 00:18:18.680 --> 00:18:23.680 And the legendary wheelbarrow wielders of Weimar would have secured command over all the riches of the world. 187 00:18:23.680 --> 00:18:28.680 But President Bush's visionary tax cuts have helped us. 188 00:18:28.680 --> 00:18:58.680 Reducing taxes and reducing them on producers rather than consumers is a laudable aim, but refraining from funding these by an equal and opposite assault on the spending side of the ledger is but to substitute the government for the private agents with the beneficiaries of the tax deductions as the party liable for the extra-inflationary debt so brought into being, and that this is inflationary has particularly been true over the past six or seven months when US commercial banks, foreign monetary authorities and the 189 00:18:58.680 --> 00:19:05.680 and the Fed itself have bought such prodigious amounts of government paper, simply by expanding the entries on their balance sheets, 190 00:19:05.680 --> 00:19:10.680 that they have more than accounted for the whole increase in marketable public debt in that time. 191 00:19:10.680 --> 00:19:15.680 This is a process called monetisation, and it puts the US on the same inflationary road to ruin 192 00:19:15.680 --> 00:19:20.680 as has been travelled by all those previously practising this subtle fraud. 193 00:19:20.680 --> 00:19:23.680 Besides, lower taxes are one thing. 194 00:19:23.680 --> 00:19:33.680 The higher subsidies, renewed tariffs and the threats of quotas, more burdensome legislation, more expensive welfare programs and the pervasive threat of arbitrary legal assault are quite another. 195 00:19:33.680 --> 00:19:43.680 And there is little enough sign that the Bush White House has done any more to lighten these crushing impediments to wealth creation than has any other progressive administration of recent times. 196 00:19:43.680 --> 00:19:50.680 But the US has weathered a shallow recession and is now growing strongly again, the fastest rate in two decades according to the numbers. 197 00:19:50.680 --> 00:19:56.680 Well, this shallowest of recessions has actually seen manufacturing payrolls plunge to their lowest level since before Pearl Harbour, 198 00:19:56.680 --> 00:20:05.680 and total hours worked have suffered such a steep decline that the fall has barely been pipped for the title of worst post-Second War depression 199 00:20:05.680 --> 00:20:10.680 by the trough registered in the savage worldwide recession of 1982. 200 00:20:10.680 --> 00:20:15.680 Net non-residential fixed investment has fallen by its greatest extent in over 50 years, 201 00:20:15.680 --> 00:20:19.180 as is the proportion of total net investment to GDP. 202 00:20:19.180 --> 00:20:27.180 Cumulative non-financial profits, now admittedly on something of an upswing, also fell by their greatest extent in that period. 203 00:20:27.180 --> 00:20:33.180 But the US of A is once again the locomotive of growth for an ungrateful world. 204 00:20:33.180 --> 00:20:39.680 This is only the case if you subscribe to the 400-year-old errors of the mercantilists, as all Keynesians do, of course. 205 00:20:39.680 --> 00:20:47.680 If you confuse money with wealth and credit with capital, only then could you see the present-day Anglo-American role as a benign one. 206 00:20:47.680 --> 00:20:57.680 Asian labourers, mostly though not exclusively with lower standards of living, are sweating in their factories to sell us Westerners cheaper goods than we can produce here at home, 207 00:20:57.680 --> 00:21:03.680 and they're accepting nothing but our irredeemable and largely unenforceable paper promises in return. 208 00:21:03.680 --> 00:21:08.800 Thus, rather than being a locomotive, the more apt metaphor is that of a surly and aggressive 209 00:21:08.800 --> 00:21:13.320 brother-in-law who arrives not only to eat you out of house and home, to touch you for 210 00:21:13.320 --> 00:21:16.840 the odd 50 bucks here and there until a payday which never seems to arrive and a horse which 211 00:21:16.840 --> 00:21:21.520 never gets to finish first, but who also reviles you before his pals in the local bar room 212 00:21:21.520 --> 00:21:25.600 for the sake of your long-suffering charity. 213 00:21:25.600 --> 00:21:30.800 The heroic American consumer who makes up 70% of the economy has gone out and shopped 214 00:21:30.800 --> 00:21:31.800 for victory. 215 00:21:31.800 --> 00:21:35.800 She's released some of the wealth contained in her appreciating home for the purpose. 216 00:21:35.800 --> 00:21:39.800 Well, yes, the consumer is 70% of GDP. 217 00:21:39.800 --> 00:21:43.800 But that particular map, as we've just been at pains to describe, is not the territory. 218 00:21:43.800 --> 00:21:50.800 The personal consumer may exercise the biggest part of that final $1 a vote franchise, which is the free market. 219 00:21:50.800 --> 00:21:54.800 But remember, her spending amounts to no more than a quarter of the overall invoices raised 220 00:21:54.800 --> 00:21:57.800 and the bill settled up and down our cone of production. 221 00:21:57.800 --> 00:22:11.800 And besides, it is saving, wisely utilised by honest and far-sighted entrepreneurs, and not spending founded largely on the inflationary collateral credit spiral that is the US housing market, which will lead to our material enrichment. 222 00:22:11.800 --> 00:22:21.800 Anyone with a basic grasp of accountancy, much less economics, must see that monetising a notional gain in the value of an unproductive asset by borrowing more against it, 223 00:22:21.800 --> 00:22:27.320 are against it and then dissipating the proceeds on instant gratification can hardly be construed 224 00:22:27.320 --> 00:22:33.880 as liberating wealth, only as destroying it. But now as uncertainty subsides and revenues 225 00:22:33.880 --> 00:22:39.000 rise businesses too are spending their money on investments. What it is true there has 226 00:22:39.000 --> 00:22:43.140 been a pick-up in some of the indicators of capital goods spending but given the size 227 00:22:43.140 --> 00:22:48.680 of the O'Neill tax incentives and the highly accelerated obsolescence of much new era equipment, 228 00:22:48.680 --> 00:22:52.680 Not to mention the scale of the preceding drop in that investment, this is largely unremarkable. 229 00:22:52.680 --> 00:22:57.620 It is also true that the inflationary effects of the aggressive stimulus policies being 230 00:22:57.620 --> 00:23:02.280 enacted at home and abroad, coupled with a decline in the value of the dollar, have helped 231 00:23:02.280 --> 00:23:03.280 corporate cash flow. 232 00:23:03.280 --> 00:23:08.000 Indeed, it would be a singular event if there was not at least a temporary and unevenly 233 00:23:08.000 --> 00:23:11.740 distributed boost under the prevailing circumstances. 234 00:23:11.740 --> 00:23:15.200 But how much of this will be revealed as capital consumption? 235 00:23:15.200 --> 00:23:19.080 How many of these newly coursing streams will dry up and even reverse if this deliberate 236 00:23:19.080 --> 00:23:24.720 inflation either accelerates or switches channels, and how soon costs will rise again in line 237 00:23:24.720 --> 00:23:29.720 with or faster than prices is something we cannot know in advance, but are developments 238 00:23:29.720 --> 00:23:33.240 for whose signs we must be ever vigilant. 239 00:23:33.240 --> 00:23:36.800 Another feature often overlooked is that all this easy money flows straight to the bottom 240 00:23:36.800 --> 00:23:41.680 line of corporate America in a very different manner than in the past, since even nominally 241 00:23:41.680 --> 00:23:47.680 Non-financial corporates now have more financial assets than tangible ones on their balance sheets, 242 00:23:47.680 --> 00:23:52.300 meaning that these days they are half machine shop and half consumer finance house and pension 243 00:23:52.300 --> 00:23:54.960 fund manager combined. 244 00:23:54.960 --> 00:23:59.160 Thriving on the proceeds of a steep yield curve, soaring especially speculative bond 245 00:23:59.160 --> 00:24:04.200 prices and rapid asset growth, officially designated financial corporate profits have 246 00:24:04.200 --> 00:24:11.440 climbed to a record $60 for every $100 earned by their ostensibly non-financial brethren. 247 00:24:11.440 --> 00:24:15.040 Now if we were only to assume the latter derived the same amount of mileage from the same type 248 00:24:15.040 --> 00:24:20.080 of activities as the former, returns from the credit bubble alone could therefore amount 249 00:24:20.080 --> 00:24:26.760 to between 65 and 70% of all corporate profits earned, a complete and inherently disquieting 250 00:24:26.760 --> 00:24:31.320 inversion of the ratio typical of the 60s and 70s. 251 00:24:31.320 --> 00:24:35.660 As growth picks up though, the absence of inflation, especially core inflation as measured 252 00:24:35.660 --> 00:24:41.460 by the Fed's indexes, and the existence of so much idle capacity worldwide means the 253 00:24:41.460 --> 00:24:46.220 Fed can be patient about raising short term interest rates and can keep the present accommodative 254 00:24:46.220 --> 00:24:47.220 settings. 255 00:24:47.220 --> 00:24:53.300 While inflation, no Austrian will need to be told, is not synonymous with rising prices, 256 00:24:53.300 --> 00:24:56.860 but it's the prime causative factor in those prices rising. 257 00:24:56.860 --> 00:25:02.140 And inflation is a situation where more money exists, however we define that term, than 258 00:25:02.140 --> 00:25:06.740 and is required by individuals in their own subjective judgment, so that it is ever more 259 00:25:06.740 --> 00:25:12.940 eagerly exchanged into goods, services, other financial assets or the monies of other polities. 260 00:25:12.940 --> 00:25:18.660 With the broad M3 measure of money and credit up by over a quarter since the end of 2000, 261 00:25:18.660 --> 00:25:23.780 a gain of getting on for $3 trillion, which is an increment greater than the total stock 262 00:25:23.780 --> 00:25:28.620 of money called into existence in the first 208 years of the Republic, you have to have 263 00:25:28.620 --> 00:25:58.620 With mortgage debt up nearly 40%, financial debt up a third, state and local government borrowing up 30% in these past three years, for an aggregate increase of over $7.5 trillion, and a climb of 50 percentage points from 370% to 420% of private domestic product, the size of this officially sanctioned Ponzi scheme and the scale of its expansion in the last three years, 264 00:25:58.620 --> 00:26:02.700 is hardly unnoticeable for those who care to look. 265 00:26:02.700 --> 00:26:06.700 As for the spare capacity argument, this is another old canard. 266 00:26:06.700 --> 00:26:10.780 If you reflect for a moment, it must be obvious that those businesses presently with a glut 267 00:26:10.780 --> 00:26:16.220 of capacity are precisely the ones whose managers during the late boom most misread the true 268 00:26:16.220 --> 00:26:20.820 state of consumer demand vis-a-vis the costs of all the inputs they needed to try to meet 269 00:26:20.820 --> 00:26:21.820 it. 270 00:26:21.820 --> 00:26:25.420 Therefore, there is little choice but for as many of these as possible to release these 271 00:26:25.420 --> 00:26:40.260 It seems unlikely in the extreme by artificially pumping up consumer demand in this general 272 00:26:40.260 --> 00:26:45.140 indiscriminatory fashion, the authorities will, for example, call many of the hundreds 273 00:26:45.140 --> 00:26:48.500 of millions of miles of unlit fibre optic cable back into employment. 274 00:26:48.500 --> 00:26:55.380 It is often overlooked further by the aggregationists that one sector capacity is another sector 275 00:26:55.380 --> 00:26:59.860 shortfall. Resources misdirected towards the first, during the phase of 276 00:26:59.860 --> 00:27:04.540 feverish malinvestment, were inevitably also directed away from what many may now 277 00:27:04.540 --> 00:27:09.460 be revealed as more deserving outlets. You only have to consider that while 278 00:27:09.460 --> 00:27:14.340 semiconductors and servers went on building to unsustainable levels, natural 279 00:27:14.340 --> 00:27:18.100 gas and oil refining was sorely neglected, not to mention the steel mills 280 00:27:18.100 --> 00:27:23.780 now making the nightly news. As Hazlitt himself put it, capacity is reached when 281 00:27:23.780 --> 00:27:28.460 And we have fully employed our most scarce resource or complementary productive factor, 282 00:27:28.460 --> 00:27:34.020 whether that is an important key industry, specialized labour, plant or some raw material. 283 00:27:34.020 --> 00:27:38.500 When this situation occurs the price of the scarce factor will start to soar. 284 00:27:38.500 --> 00:27:42.260 This rise will soon force increases in other prices and wage rates. 285 00:27:42.260 --> 00:27:48.020 If you read the business pages of today's newspapers you'll see this is very much the 286 00:27:48.020 --> 00:27:49.020 case. 287 00:27:49.020 --> 00:27:52.500 In fact the irony was that this morning the USA Today on the business page in the left 288 00:27:52.500 --> 00:28:03.500 The right hand column had a little item saying that Wall Street was heartened by the fact that the February CPI numbers were low and were below consensus and there was no inflation. 289 00:28:03.500 --> 00:28:06.500 And on the right hand side it had a big column, because energy costs were down. 290 00:28:06.500 --> 00:28:15.500 And on the right hand side it had a big long column saying natural gas prices hit record highs as crude oil soars. 291 00:28:15.500 --> 00:28:19.500 In any case, businesses, the problem in our economy is they're too productive. 292 00:28:19.500 --> 00:28:28.500 They don't need any extra workers to meet all this demand, but maybe that'll pass as they begin to exhaust the possibilities of applying all these new technologies. 293 00:28:28.500 --> 00:28:32.500 Let's take that last phrase, one of our venerable Fed Chairmen's, first. 294 00:28:32.500 --> 00:28:37.500 Since when did investment depend only upon the technological possibilities open to man, 295 00:28:37.500 --> 00:28:44.500 rather than upon a careful weighing up of the returns achievable by deploying available savings to put it into operation? 296 00:28:44.500 --> 00:28:52.500 And even if it did depend on this, and NASA was the most profitable entity on Earth, why should we ever look to exhaust such possibilities? 297 00:28:52.500 --> 00:28:56.500 Have we already applied all the techniques of which we are already aware? 298 00:28:56.500 --> 00:28:59.500 Has every economic entity taken advantage of them? 299 00:28:59.500 --> 00:29:04.500 Has the well of human ingenuity suddenly run dry so we can no longer look forward to more advance? 300 00:29:04.500 --> 00:29:12.500 Sorry Mr Greenspan, that explanation doesn't fly, even if it does employ all the aerospace marvels that the skunkworks has to offer us. 301 00:29:12.500 --> 00:29:22.500 Less frivolously, we are forced to concede that an individual business, or even a group of businesses, may well find it profitable to substitute capital for labour. 302 00:29:22.500 --> 00:29:26.500 But is it really likely they've all suddenly decided this is the best course of action? 303 00:29:26.500 --> 00:29:35.500 And even if this were the case, would it then be telling us not that labour is too productive, but rather that it is not productive enough of economic value? 304 00:29:35.500 --> 00:30:05.500 In all the interminable talk we get from the Fed of a productivity revolution, overlooked is the fact that its own oft-cited numbers are aggregative, hedonically manipulated, which means they over count notional quality adjustments, they count things made, not the value received for them, that by the BLS's own admission they under count hours of work, and that also they ignore those non-labour costs, which can amount to as much as 50% as wages on top of the 305 00:30:05.500 --> 00:30:11.740 Bill that firms face for labour. Even by their own rather dim lights, it should also be noted, 306 00:30:11.740 --> 00:30:16.940 they artificially and arbitrarily ascribe the bulk of all productivity gains to labour, 307 00:30:16.940 --> 00:30:22.340 thus pushing the increase in this quantity in the late 1990s to a 2.5% annual pace, the 308 00:30:22.340 --> 00:30:27.340 best since the early 80s. But ignoring the fact that simultaneously negative returns 309 00:30:27.340 --> 00:30:34.700 on capital of nearly minus 2% was the worst showing since the 1979 to 1983 recession, 310 00:30:34.700 --> 00:30:40.860 And their own officially calculated multi-factor productivity numbers, which combine these, 311 00:30:40.860 --> 00:30:48.460 fell to its most anemic level of growth since the troubled 1989-1993 stretch. 312 00:30:48.460 --> 00:30:53.260 Increased productivity, the employment of more useful capital per head of population, 313 00:30:53.260 --> 00:30:56.980 is the route to riches, not mass redundancy. 314 00:30:56.980 --> 00:31:01.160 But only if the markets are unhampered, if prices and costs are allowed to adjust to 315 00:31:01.160 --> 00:31:05.720 to reflect the new plenitude of goods being made, and thus they speed the useful 316 00:31:05.720 --> 00:31:10.160 re-employment of the labour released from all its former drudgery. 317 00:31:10.160 --> 00:31:13.400 But where these jobs are being created, we're told, they're moving offshore. 318 00:31:13.400 --> 00:31:17.280 And this is only possible because the perfidious Chinese keep buying US dollars 319 00:31:17.280 --> 00:31:21.240 and suppressing the value of their own currency unfairly. 320 00:31:21.240 --> 00:31:24.560 Well here again we see the glaring paradox that we, who are supposedly so 321 00:31:24.560 --> 00:31:28.240 effortlessly superior in terms of technology and productivity, 322 00:31:28.240 --> 00:31:33.840 can't compete with the newly hired factory hand fresh from the paddy fields of Hainan or Hanoi 323 00:31:33.840 --> 00:31:38.740 but then economic rationality was never much of a match for cheap populism 324 00:31:38.740 --> 00:31:40.680 the contradictions are manifold 325 00:31:40.680 --> 00:31:44.680 for the Chinese these days actually run very little by way of a trading balance 326 00:31:44.680 --> 00:31:47.120 when we measure it across all their partners 327 00:31:47.120 --> 00:31:49.840 and so naturally they see little incentive 328 00:31:49.840 --> 00:31:53.000 to unplug, unplug, unpeg the one 329 00:31:53.000 --> 00:31:56.320 potentially upsetting the entrepreneurial calculations of all those involved in 330 00:31:56.320 --> 00:32:03.320 The US, by contrast, racked up a record goods deficit of over $49 billion in a single month last month, a shortfall which amounts to nearly 30% of the total trade in goods. 331 00:32:03.320 --> 00:32:07.320 This is rather impressive, given the fact that the US has been doing business with them. 332 00:32:07.320 --> 00:32:14.320 Indeed, their surplus over the past year on the trade account amounted to around $20 billion out of a total global two-way trade volume of $800 billion, a disproportion of some 2-3%, which given the reliability of the statistics is nothing. 333 00:32:14.320 --> 00:32:25.320 The US, by contrast, racked up a record goods deficit of over $49 billion in a single month last month, a shortfall which amounts to nearly 30% of the total trade in goods. 334 00:32:25.320 --> 00:32:30.880 This is rather a lot to be blaming on a single bilateral currency distortion. 335 00:32:30.880 --> 00:32:34.400 But if the Chinese keep cheating the rules, of course, we should limit their ability to 336 00:32:34.400 --> 00:32:38.960 send us their exports, and we should compel American businesses to buy goods and services 337 00:32:38.960 --> 00:32:40.280 here at home instead. 338 00:32:40.280 --> 00:32:46.240 Yes siree, let's punish the American consumer by denying her the full benefits of the International 339 00:32:46.240 --> 00:32:47.240 Division of Labour. 340 00:32:47.240 --> 00:32:51.480 That'll show those pesky Chinamen. 341 00:32:51.480 --> 00:32:56.400 And if Fu Manchu wants to give away his Nike sneakers, we still won't take them. 342 00:32:56.400 --> 00:33:00.800 We'd rather make the citizens pay some unionised, over-regulated, inefficient good old boys 343 00:33:00.800 --> 00:33:05.320 from the cotton belt to make them for $120 a pair, and we'll be grateful for it when 344 00:33:05.320 --> 00:33:08.600 they vote for us afterwards. 345 00:33:08.600 --> 00:33:13.080 Besides this sort of illiteracy, sadly becoming written into the electoral platforms for both 346 00:33:13.080 --> 00:33:20.280 of those Yale alumni Tweedledum and Tweedledee, we should ask what rules precisely are the 347 00:33:20.280 --> 00:33:24.560 The Chinese breaking by seeking to keep their unit of accounts stable against the world's 348 00:33:24.560 --> 00:33:29.320 reserve currency, the same currency by the way for which they were lauded for selflessly 349 00:33:29.320 --> 00:33:33.960 shadowing throughout the crushing collapse of the 1997-98 Asian contagion. 350 00:33:33.960 --> 00:33:39.480 Moreover, if we consider that the Chinese run an export surplus with the US, receive 351 00:33:39.480 --> 00:33:44.000 reserve assets in exchange and then allow domestic credit to increase on the base which 352 00:33:44.000 --> 00:33:48.600 these provide, thus driving up both internal prices and the demand for goods on either 353 00:33:48.600 --> 00:33:55.600 on the other side of their border, this is only a simulacrum of the workings of the classical and internationally munificent gold standard. 354 00:33:55.600 --> 00:34:00.600 Where it breaks down is that the reverse should be happening in the United States, 355 00:34:00.600 --> 00:34:07.600 where the withdrawal of these reserves should serve to contract credit deflate prices to the point where balance is once more achieved. 356 00:34:07.600 --> 00:34:13.600 Only under the rules of what Jacques Reff scathingly termed the childish game of marbles, 357 00:34:13.600 --> 00:34:17.600 by which the winners, the Chinese, return their spoils, the excess dollars, 358 00:34:17.600 --> 00:34:20.600 back to the American losers at the end of every round 359 00:34:20.600 --> 00:34:23.600 by buying US Treasury and Agency bonds in the main. 360 00:34:23.600 --> 00:34:27.600 And as a result of what that great Frenchman also dubbed the monetary sin of the West, 361 00:34:27.600 --> 00:34:31.600 the fact that the dollar hegemony allows the US to go on mindlessly inflating 362 00:34:31.600 --> 00:34:35.600 and then blaming others for its own lack of financial virtue, 363 00:34:35.600 --> 00:34:38.600 can the Chinese be held culpable for what is at work here? 364 00:34:38.600 --> 00:34:42.600 And then their crime is only that of being an accessory after the fact. 365 00:34:42.600 --> 00:34:48.600 While the main perpetrators are to be found inside the beltway, not in the People's Congress in Beijing. 366 00:34:48.600 --> 00:34:53.600 But these wily orientals are now gobbling up all the world's natural resources and their spare energy capacity. 367 00:34:53.600 --> 00:34:58.600 They're pushing up prices. Well, they're damned if they do, and they're damned if they don't. 368 00:34:58.600 --> 00:35:04.600 If they accumulate dollars and return to the US Treasury, they're not allowing the market to determine the value of their currency, 369 00:35:04.600 --> 00:35:09.600 which is political speak for they're not accommodating the GOP and devaluing the dollar more broadly. 370 00:35:09.600 --> 00:35:16.600 If instead they buy real assets, whether for immediate use or, as some suspect, by way of building strategic stockpiles, 371 00:35:16.600 --> 00:35:24.600 thus transforming their work for the importunate but ungrateful Occidental customers into tangible wealth of their own, 372 00:35:24.600 --> 00:35:32.600 they are to blame for the fact that they've highlighted there isn't quite as much idle capacity in the world as the Fed would have us believe. 373 00:35:32.600 --> 00:35:36.600 In the unlikely event that the US were to stop inflating, 374 00:35:36.600 --> 00:35:49.600 Or under the less fantastical scenario that China's very real and very Austrian style bubble were to implode of its own accord, the pressure on these scarce factors would of course cease to soar forthwith. 375 00:35:49.600 --> 00:35:57.600 But this is not inflationary anyway. No central bank needs to restrict credit yet. This is cost push, not demand pulled. 376 00:35:57.600 --> 00:36:03.720 To see the fallacy of this one, if you imagine you only had $10 left in the world and you 377 00:36:03.720 --> 00:36:09.320 were going to treat yourself to a final two beers at $2.50 a bottle and a $5 hamburger 378 00:36:09.320 --> 00:36:11.720 meal before you went broke. 379 00:36:11.720 --> 00:36:15.800 If when you got to the store you found the price of beer had doubled, you would have 380 00:36:15.800 --> 00:36:17.720 to rearrange your preferences. 381 00:36:17.720 --> 00:36:21.720 Perhaps you'd make do with half as much booze and a little more beef, maybe you'd stick 382 00:36:21.720 --> 00:36:25.800 to your original quota of two bottles of beer and down them on an empty stomach, or maybe 383 00:36:25.800 --> 00:36:31.120 If you'd find a substitute beverage or alternative snack, so this price rise would assuredly 384 00:36:31.120 --> 00:36:36.760 not be inflationary, merely the holy, natural and welcome functioning of the price mechanism, 385 00:36:36.760 --> 00:36:40.680 signalling to entrepreneurs everywhere that beer was now more relatively urgently demanded 386 00:36:40.680 --> 00:36:44.800 than before and that production schedules should be adapted accordingly. 387 00:36:44.800 --> 00:36:52.400 However, if your fairy godfather, a septuagenarian figure with receding hair, bulging bespectacled 388 00:36:52.400 --> 00:36:58.340 and a confusing and somewhat tedious turn of phrase appeared in a flash and simply conjured 389 00:36:58.340 --> 00:37:03.920 up the extra $5 you needed, you could have beer and beef and economise on nothing. 390 00:37:03.920 --> 00:37:06.680 That would be inflationary. 391 00:37:06.680 --> 00:37:10.840 This is what career central bank chief Mr Park, the man responsible for the preceding 392 00:37:10.840 --> 00:37:15.640 quote, as well as his well more well known peers clearly intend to do should raw materials 393 00:37:15.640 --> 00:37:21.080 prices like the beer of our fable continue to rise, less some real life producers, like 394 00:37:21.080 --> 00:37:51.080 In fact, in Korea, the interesting thing was that the small businesses, who were hampered by the fact that the overarching kai-bol conglomerates, kind of like a non-military industrial complex over there, get all the goods and services and all the finance, the small manufacturers complained about the price rises, and so they asked the government to intervene in their favour by extending them cheap credit, so they could buy the beef in half a tail. 395 00:37:51.080 --> 00:37:55.080 and Federal Materials. It's interesting how economic literacy works in this world. 396 00:37:55.080 --> 00:38:00.080 Things are going up because there's too much credit, so give us some of the credits so we can push them up even more. 397 00:38:00.080 --> 00:38:10.080 An ever-increasing part of our economy, Alan Greenspan told Congress the other week, is becoming conceptual rather than physical. 398 00:38:10.080 --> 00:38:15.080 All of the items in these standard commodity indexes, well they're physical, they're not intellectual. 399 00:38:15.080 --> 00:38:21.240 Good old Alan may well have been able to will vast effusions of money into existence, frustrating 400 00:38:21.240 --> 00:38:25.920 the market process and underwriting the speculations of the money trust with our effort, but he 401 00:38:25.920 --> 00:38:30.480 clearly has fallen into a folie de grandeur if he believes that he can will a gallon of 402 00:38:30.480 --> 00:38:34.920 gas into our tank or a loaf of bread onto our table. 403 00:38:34.920 --> 00:38:39.000 Such dangerous flights of whimsy only serve to show those involved in the painstaking business 404 00:38:39.000 --> 00:38:43.260 of building and cultivating the capital by which we will all be enriched have all too 405 00:38:43.260 --> 00:38:52.180 Rising personal indebtedness is nothing. It doesn't matter when we look at the increase 406 00:38:52.180 --> 00:38:56.960 in household wealth, and if debt service becomes a problem, people can always refinance their 407 00:38:56.960 --> 00:39:02.860 homes once more, apparently now using adjustable rate mortgages according to Mr Greenspan. 408 00:39:02.860 --> 00:39:08.060 As noted above, cashing in some of the gains in an asset price spiral, not by selling some 409 00:39:08.060 --> 00:39:13.020 of it outright, but by increasing one's leverage against it, is hardly the soundest of financial 410 00:39:13.020 --> 00:39:18.180 Practices. And as for the reliability of the household wealth measure itself, we shall 411 00:39:18.180 --> 00:39:24.540 have more to say. Governor Bernanke, for his part, tells us there are risks associated 412 00:39:24.540 --> 00:39:30.400 with deflation, though they thankfully receded very substantially. But even so, trend inflation 413 00:39:30.400 --> 00:39:36.860 is rich levels that are too low, to the point where the benefits of low inflation are lost. 414 00:39:36.860 --> 00:39:42.100 Quite what the benefits of even low inflation are, aside from providing an insidious transfer 415 00:39:42.100 --> 00:39:49.100 And as for prices, well, the highly dubious consumer price index may still be behaving modestly by today's rather lax standards, but prices of homes rose at their fastest in 30 years last quarter, and the nation's residential real estate is now valued at an aggregate $16.5 trillion, even if this is something of a total nonsense. 416 00:40:12.100 --> 00:40:23.940 Caveats notwithstanding, at this stippling level, the RE capitalisation figure represents 417 00:40:23.940 --> 00:40:29.820 an unprecedented 205% of private GDP, where it is 20 points up from the zenith of the 418 00:40:29.820 --> 00:40:37.100 late 80s boom and is also at a record price to estimated replacement cost of 170% premium. 419 00:40:37.100 --> 00:40:49.100 Significantly, despite having risen 30% in 3 years and having doubled in 10, these house prices have still allowed home earners' average equity to languish at a record low of 55%. 420 00:40:49.100 --> 00:41:01.100 And no wonder, when they've extracted what Alan Greenspan calls wealth to the tune of $600 billion from their homes since the end of 2000 through mortgage refis and home equity loans. 421 00:41:01.100 --> 00:41:19.100 The rise in the stock market needs little comment, of course, if we're looking for prices, except to note that its aggregate price to book, price to trailing earnings and capitalisation to GDP among several conventional metrics are back at levels still only seen during the post-95 bubble itself. 422 00:41:19.100 --> 00:41:25.420 All other manner of financial assets, especially the more exotic denizens of the bestiary, 423 00:41:25.420 --> 00:41:29.900 junk bonds, emerging market debt, structured products replete with risky derivatives, the 424 00:41:29.900 --> 00:41:34.060 least substantial stocks such as those trading on the hot house which is the OTC bulletin 425 00:41:34.060 --> 00:41:38.480 board, all these have made new highs in price and lows in absolute or relative yield in 426 00:41:38.480 --> 00:41:40.340 recent weeks. 427 00:41:40.340 --> 00:41:44.380 Back in the real world you need no reminding that medical expenses, insurance premium and 428 00:41:44.380 --> 00:41:48.420 tuition fees are rising by double digit amounts and that it costs ever more to fill up your 429 00:41:48.420 --> 00:42:01.800 The National Federation of Independent Business agreed in its January survey, quote, price 430 00:42:01.800 --> 00:42:05.180 hikes were pervasive in the service sector and it appears that things are looking up 431 00:42:05.180 --> 00:42:09.700 in agriculture. Providers of professional services also managed to post price hikes 432 00:42:09.700 --> 00:42:15.540 fairly frequently. Their bigger brethren at the ISM revealed that prices paid were the 433 00:42:15.540 --> 00:42:20.420 The highest since the bubble peaked in March 2000 and the second highest in a decade. 434 00:42:20.420 --> 00:42:24.660 And on top of this last month, the well-regarded Philadelphia Fed survey came complete with 435 00:42:24.660 --> 00:42:29.860 the second highest forecast for prices to be received in 15 years. 436 00:42:29.860 --> 00:42:33.460 Look to the prices of widely traded commodities for confirmation and we see that though some 437 00:42:33.460 --> 00:42:37.580 of them have slipped back in the past week or two, they are characterised by rapid, double 438 00:42:37.580 --> 00:42:40.460 and even triple-digit percentage gains. 439 00:42:40.460 --> 00:42:44.820 For example, the Journal of Commerce index of commodities has risen by 50% annualised 440 00:42:44.820 --> 00:42:51.340 since last spring, the fastest ever such rise. Steel prices are up perhaps 160% from their 441 00:42:51.340 --> 00:42:57.980 lows, aluminium is 50% above its 2002 nadir, copper is 120% and tin is 88% higher than 442 00:42:57.980 --> 00:43:04.020 their 2001 bottom, and all of these are at 8-9 year highs. We could go on at length quoting 443 00:43:04.020 --> 00:43:08.940 prices and multi-year highs for lead, nickel, zinc, gold, platinum, silver, palladium, lumber, 444 00:43:08.940 --> 00:43:14.940 Flywood, oil, gas, coal, cotton, soy, corn, palm, rice and rubber, among others. 445 00:43:14.940 --> 00:43:16.940 You'd be glad I cut that down. 446 00:43:16.940 --> 00:43:22.940 Emphatically, the only risks associated with deflation are those which come from clinging too long 447 00:43:22.940 --> 00:43:27.940 to the naive faith that the value of one's money will be preserved by a central bank 448 00:43:27.940 --> 00:43:30.940 which can still talk about such an eventuality 449 00:43:30.940 --> 00:43:37.940 while the malign effects of its inflationary policies are everywhere increasingly undeniable. 450 00:43:37.940 --> 00:43:42.940 The next myth, Democrats will address the deficit by taxing the undeserving rich once more, 451 00:43:42.940 --> 00:43:49.940 while the Republicans will look to plug the gap when their policies begin to shift more of the undeserving poor off the welfare rolls. 452 00:43:49.940 --> 00:43:54.940 Well, the ballooning budget deficit may not presently be obvious in crowding out investment, 453 00:43:54.940 --> 00:44:01.940 for as we saw, it is being monetized so effectively that interest rates remain subdued and that bond prices remain elevated. 454 00:44:01.940 --> 00:44:15.940 But the government is still commandeering too many resources to the detriment of those private endeavours which could be accessing them at a commensurately reduced cost and it is demoralizing thrift, enterprise and self-reliance into the bargain. 455 00:44:15.940 --> 00:44:28.940 In a West already displaying symptoms of the extirpation of the middle classes in favour of the governing military-political elite and at the cost of buying off its feckless urban proletariat with a higher dole and more spectacular circuses, 456 00:44:28.940 --> 00:44:40.940 The more the state expands in this way, the more success it will enjoy in the only one of its wars on abstract nouns, which it wages unremittingly, and at outrance, its war on capital. 457 00:44:40.940 --> 00:44:48.940 But don't fret, even if the deficits did count, as President Cheney apparently doubts, we owe it to ourselves. 458 00:44:48.940 --> 00:44:52.940 Well, yes they do count, and no we don't. 459 00:44:52.940 --> 00:44:57.940 Some of us owe it to others, which is a very different species of animal. 460 00:44:57.940 --> 00:45:01.940 And in any case, not having been invested in anything worthwhile, 461 00:45:01.940 --> 00:45:05.940 but merely payable in future in depreciated dollars out of general taxation, 462 00:45:05.940 --> 00:45:11.940 in practice out of rolling over principal and interest as they come due at the expense of some future dupe, 463 00:45:11.940 --> 00:45:14.940 this is hardly an asset in its strictest sense. 464 00:45:14.940 --> 00:45:19.940 And furthermore, the abiding evil of a funded and permanent public debt 465 00:45:19.940 --> 00:45:26.940 is exactly that it teaches people to count as assets, the exactions to be forcibly visited both on themselves and others 466 00:45:26.940 --> 00:45:34.940 on the day when that incontinent monster of public administration comes to pay its slaves once more for the labour of making their own shackles. 467 00:45:34.940 --> 00:45:42.940 If no less than Jefferson fulminated against transplanting this medium of the great Whig corruption from the metropolis to the infant republic 468 00:45:42.940 --> 00:45:48.940 and if Hamilton cynically espoused it as a means to bind the interests of those ruled to that of their patrician rulers, 469 00:45:48.940 --> 00:45:55.940 and rulers, I think we can safely set their opinions above the amoral braggadocio of the good Mr. Cheney. 470 00:45:55.940 --> 00:46:05.940 So where does this all leave us? Well, hopefully with the healthy distrust of bald macroeconomic statistics as they are typically presented and spun, 471 00:46:05.940 --> 00:46:14.940 and also with heed to the lesson of caution needed in drawing conclusions from the prevailing vapours of optimism coming from the likes of Mr. Greenspan and his acolytes. 472 00:46:14.940 --> 00:46:36.940 In the real world, it is a simple matter of logic to predict that jobs will be added only in those industries where the costs of hiring, and all the costs, including the monetary ones of benefits as well as wages, and not to overlook the intangible ones of regulation and legal jeopardy, seem not to preclude but rather to enhance the profitable production of goods and services. 473 00:46:36.940 --> 00:46:42.380 Services. Conversely, if the present environment makes the hiring of American workers seem 474 00:46:42.380 --> 00:46:47.820 too expensive and or too risky for any given firm to hire, be assured they will not be 475 00:46:47.820 --> 00:46:52.340 hired, but the capital will be substituted for labour where possible, and that this will 476 00:46:52.340 --> 00:46:58.220 take place overseas if need be. Since adding capital per head is the only sustainable way 477 00:46:58.220 --> 00:47:03.680 of enhancing productivity and thus the general standard of living, and at this those improving 478 00:47:03.680 --> 00:47:09.800 is still well below its recent best in quantitative, if hopefully not so much in qualitative terms, 479 00:47:09.800 --> 00:47:15.600 this still means we have quite a hill to climb. Moreover, where materials and energy inputs 480 00:47:15.600 --> 00:47:21.000 rise so as to preclude that too, for as Hayek pointed out, capital and labour compete with 481 00:47:21.000 --> 00:47:27.380 one another but raw materials compete with both, not even those higher order industries 482 00:47:27.380 --> 00:47:33.000 which might otherwise benefit from equipment orders will be able to flourish. 483 00:47:33.000 --> 00:47:38.680 This way, both the direct and the indirect take-up of the unemployed may be aborted by 484 00:47:38.680 --> 00:47:43.160 these higher resource prices, these prices you remember which have arisen to a considerable 485 00:47:43.160 --> 00:47:48.600 extent because of the very reflationary policies being undertaken to supposedly insure full 486 00:47:48.600 --> 00:47:49.600 employment. 487 00:47:49.600 --> 00:47:56.340 Thus, notwithstanding the artificial boost delivered by a 25% currency devaluation, negative 488 00:47:56.340 --> 00:48:02.040 real interest rates, a half trillion dollar budget deficit, this might yet dissipate itself 489 00:48:02.040 --> 00:48:14.040 In a variable and inherently unpredictable rise of costs incurred, which may serve to dash the entrepreneur's hopes of securing unmitigated gains from the rising prices he expects to receive. 490 00:48:14.040 --> 00:48:29.040 If so, it will usher in a renewed stagnation in production, an inhibition which, remember, will nonetheless be partially disguised by the inflationary effects of government fiscal and monetary policy upon some few fortuitous industries. 491 00:48:29.040 --> 00:48:50.040 If this is not to lead to a commensurate reduction in consumption, to the policymaker's horror and the banker's imperilment, however much its balm is actually needed to soothe our fevered brows, it can only be offset by recourse to yet more credit, credit presumably built upon further asset price inflation, especially if the Fed is lucky in the housing market. 492 00:48:50.040 --> 00:48:57.160 Indeed, to keep this game going will certainly require a good deal of finesse, another large 493 00:48:57.160 --> 00:49:03.240 dose of disingenuousness regarding inflation and, you may want to underline this, a further 494 00:49:03.240 --> 00:49:07.400 period of inordinate laxity in setting interest rates. 495 00:49:07.400 --> 00:49:12.800 The overwhelming imperative to avoid a housing implosion, coupled with the self-imposed erosion 496 00:49:12.800 --> 00:49:17.380 of America's competitive edge on the world labour market, seems almost a guarantee that 497 00:49:17.380 --> 00:49:22.940 Policy both here and abroad will stay too loose for too long in the vain belief that 498 00:49:22.940 --> 00:49:30.700 this will ease the problems caused by a previous spell when policy was too loose for too long. 499 00:49:30.700 --> 00:49:35.220 The likelihood is that the development of full-blown symptoms of an inflationary excess 500 00:49:35.220 --> 00:49:40.620 across much of the globe is as much of a certainty as anything in this ever-changing world with 501 00:49:40.620 --> 00:49:45.200 its top-heavy, distortive and intrinsically unstable financial and monetary system can 502 00:49:45.200 --> 00:49:59.200 Pessimists, especially the foreign variety who have so many investments tied up here in the US, will find a resonance in the words of Treasury Secretary Henry McCulloch, quoted by Hazlitt in The Inflation Crisis, 503 00:49:59.200 --> 00:50:07.200 It is corrupting the public morals. It is converting the business of the country into gambling and seriously diminishing the labour of the country. 504 00:50:07.200 --> 00:50:11.200 Men are apparently getting rich while morality languishes. 505 00:50:11.200 --> 00:50:17.200 Upon the demoralizing influence of an inconvertible government currency, it is not necessary to enlarge. 506 00:50:17.200 --> 00:50:22.200 It is not to be expected that a people will be more honest than the government under which they live. 507 00:50:22.200 --> 00:50:26.200 And while the government of the United States refuses to pay its notes according to their tenor, 508 00:50:26.200 --> 00:50:30.200 It practically teaches the people the adoption of repudiation. 509 00:50:30.200 --> 00:50:35.200 McCulloch should know he was the Yankee secretary in the Civil War. 510 00:50:35.200 --> 00:50:40.200 Optimists, however, and we have to have an optimistic note in a speech this long, 511 00:50:40.200 --> 00:50:47.200 will turn for comfort to the voice of Adam Smith, who has it, cites, in The Conquest of Poverty. 512 00:50:47.200 --> 00:50:52.200 The uniform, constant and uninterrupted effort of every man to better his condition 513 00:50:52.200 --> 00:51:02.200 is frequently powerful enough to maintain the natural progress of things towardsivid the extravagance of government and the greatest errors of administration. 514 00:51:02.200 --> 00:51:11.200 While you decide to which camp you belong, some of you might also recall Hazlitt's own scathing summation of Keen's general theory to the effect that 515 00:51:11.200 --> 00:51:16.200 I have been able to find in it a single important doctrine that is both true and original. 516 00:51:16.200 --> 00:51:20.200 What is original in the book is not true and what is true is not original. 517 00:51:20.200 --> 00:51:26.200 In fact, even much that is fallacious in the book is not original, but can be found in a score of previous writers. 518 00:51:26.200 --> 00:51:34.200 If, having paid kind attention to my talk tonight, you feel the same way about me, I offer my apologies. 519 00:51:34.200 --> 00:51:44.200 I can only assure you it has nonetheless been a singular honour to have been asked to commemorate such an unyielding champion of liberty and a tireless expositor of the truth as Henry Hazlitt. 520 00:51:44.200 --> 00:51:51.200 May his example, as well as those of the many others associated with the Mises Institute, always be before us. Thank you. 521 00:51:52.200 --> 00:51:53.200 Morgan. 522 00:51:53.200 --> 00:52:16.200 If you want to solve the GDP statistics, which is well deserved truly, but how would you 523 00:52:16.200 --> 00:52:42.200 How would you address the choir argument, offsetting errors and musicality, or in the labor statistics, you have the idea of unemployment, which is a far softer concept than having a job, but goes the argument that we may not have the level right because of all these discouraged workers and what not, 524 00:52:42.200 --> 00:52:57.200 But the changes really are reliable. So, goes the argument, changes in GDP, despite all these grievances underneath the data, seem to tell us something. 525 00:52:59.200 --> 00:53:07.200 Well, I think the lesson to be drawn really from this is that we presented with this one number as if it was an absolute, it's calculated to several decimal places. 526 00:53:07.200 --> 00:53:15.200 In fact, in Belgium, for instance, they quote the CPI number, I think, to two, if not three decimal places, as if it meant anything. 527 00:53:15.200 --> 00:53:20.200 The point being is that you shouldn't take these headline numbers as they come in isolation. 528 00:53:20.200 --> 00:53:23.200 You should look at them. You should be intelligent about interpreting them. 529 00:53:23.200 --> 00:53:25.200 You should corroborate them with other numbers. 530 00:53:25.200 --> 00:53:33.200 And, of course, you should have a well-founded intellectual basis on which to look and ask the right questions. 531 00:53:33.200 --> 00:53:36.440 questions you can't do good science unless you have a good scientific 532 00:53:36.440 --> 00:53:40.060 methodology and the same thing applies to economics the point here is is that 533 00:53:40.060 --> 00:53:42.800 nobody number there are two points your number one is that people take these 534 00:53:42.800 --> 00:53:46.400 numbers on trust because they're supposedly compiled ridiculously and 535 00:53:46.400 --> 00:53:50.240 that's a nonsense secondly is that even if the numbers even if we attach some 536 00:53:50.240 --> 00:53:55.360 caveats you have to know or understand how an economy works which the Keynesians 537 00:53:55.360 --> 00:54:02.360 What would you use the second guess for the CPI number? 538 00:54:25.360 --> 00:54:31.360 What suggestion would you offer, for example, would you offer a gold standard with a 100% back and forth? 539 00:54:31.360 --> 00:54:46.360 So there's no simple answer to that. What we do know is that there is a vast diffusion of money and credit being created and we now know that not just financial asset prices, not just residential real estate, not just domestic services, but also raw materials are going up in price. So clearly the effects are there. 540 00:54:46.360 --> 00:54:56.360 What suggestion would you offer, for example, would you offer a gold standard with 100% back and forth? 541 00:54:56.360 --> 00:55:03.360 Well, that would be nice in an ideal world, sir, but in the famous words of the person who got lost in rural Ireland, 542 00:55:03.360 --> 00:55:09.360 who pointed to the little, who asked the little guy sitting, smoking a pipe on the wall, how do I get from here to Skiverine? 543 00:55:09.360 --> 00:55:18.560 If there's a burst in the credit bubble, how do you feel that affects inflation and the 544 00:55:18.560 --> 00:55:21.560 prices of different countries? 545 00:55:21.560 --> 00:55:23.560 Depends where it happens first, I guess. 546 00:55:23.560 --> 00:55:29.060 As I try to point out, I think one of the vulnerabilities at the moment is that the 547 00:55:29.060 --> 00:55:34.060 children are not getting the money they need. 548 00:55:34.060 --> 00:55:49.060 Yes. As I try to point out, I think one of the vulnerabilities at the moment is that the Chinese have had unfortunate experiences with credit inflation in the past, twice in this generation. 549 00:55:49.060 --> 00:55:59.060 The Tiananmen Square business was largely about unrest created by an inflationary problem. There are enormous real-size strides obviously being made in China, 550 00:55:59.060 --> 00:56:04.860 in China, but we also have the problem that credit growth seems to be out of control and 551 00:56:04.860 --> 00:56:09.500 that too much of the investment and production decisions are made by bureaucrats trying to 552 00:56:09.500 --> 00:56:15.340 hit growth targets rather than by the decisions of entrepreneurs. So it's very hard to unpick 553 00:56:15.340 --> 00:56:18.700 the good from the bad there. But what we do know is that the Chinese government are now 554 00:56:18.700 --> 00:56:23.340 supposedly going to try to slow this down. And if history teaches us one thing, you can't 555 00:56:23.340 --> 00:56:28.460 slow a credit bubble. It either collapses or you reinflate it quickly. So I think that's 556 00:56:28.460 --> 00:56:33.340 That's a critical element. If it happens in China, then we'll probably see a revulsion 557 00:56:33.340 --> 00:56:38.700 in foreign markets which will lead money flooding back to the United States. And we'll, just 558 00:56:38.700 --> 00:56:42.900 as we did in 97, 98 with the Asian contagion, we'll have another period where we in the 559 00:56:42.900 --> 00:56:47.620 West, by the way I pick on the United States, we Brits are guilty of all the sins that you 560 00:56:47.620 --> 00:56:51.460 are and some more as well. The numbers and the imbalances and the distortions in the 561 00:56:51.460 --> 00:56:58.180 British economy are at least as bad in many instances if not worse. So this isn't me 562 00:56:58.180 --> 00:57:01.060 Preaching from the pulpit here in that sense. 563 00:57:01.060 --> 00:57:04.900 If Asia goes first, which will probably be through China, 564 00:57:04.900 --> 00:57:06.940 then we'll have another couple of years, possibly, 565 00:57:06.940 --> 00:57:09.100 where we get to eat everybody else's cooking again, 566 00:57:09.100 --> 00:57:10.940 because they'll all look for safety. 567 00:57:10.940 --> 00:57:13.180 If China manages or indeed continues 568 00:57:13.180 --> 00:57:17.500 to inflate at the signs of problems, I don't know. 569 00:57:17.500 --> 00:57:19.260 I must admit, I'm skeptical of this. 570 00:57:19.260 --> 00:57:22.460 I think that any kind of collapse, 571 00:57:22.460 --> 00:57:24.540 if the housing market goes, it's more important 572 00:57:24.540 --> 00:57:26.180 than if the stock market goes, because it's 573 00:57:26.180 --> 00:57:28.100 much more critical for banking balance sheets 574 00:57:28.100 --> 00:57:30.620 and therefore the general monetary mechanism of the country. 575 00:57:30.620 --> 00:57:32.900 But we also know this government, any government, 576 00:57:32.900 --> 00:57:35.420 would stop at nothing to socialize that problem. 577 00:57:35.420 --> 00:57:39.620 So I think that any dislocation there is unlikely to be permanent. 578 00:57:39.620 --> 00:57:43.740 There would clearly be enormous attempts immediately to reinflate. 579 00:57:43.740 --> 00:57:46.180 Now, what form that takes is another question. 580 00:57:46.180 --> 00:57:49.020 Of course, the Argentinians ended up with inflation, 581 00:57:49.020 --> 00:57:50.980 but only after they'd had a complete collapse 582 00:57:50.980 --> 00:57:53.900 of the monetary system. 583 00:57:53.900 --> 00:57:56.260 Could a country like America or Great Britain go that way? 584 00:57:56.260 --> 00:58:04.820 I don't know, but I find it hard to believe that we will slow the inflation willingly here 585 00:58:04.820 --> 00:58:08.500 and that if asset prices look like they're going down, there will not be huge measures 586 00:58:08.500 --> 00:58:13.500 taken to keep the party going. 587 00:58:13.500 --> 00:58:18.500 For the benefit of students and some of us who are not that economically sophisticated, 588 00:58:18.500 --> 00:58:25.500 when you say the economy collapses, what does that mean to the average person? 589 00:58:25.500 --> 00:58:37.700 I mean Cisco trades at nine cents probably but no sure well well that's a 590 00:58:37.700 --> 00:58:41.300 very broad question which I'm sure you're trying to ask me for a pithy answer to 591 00:58:41.300 --> 00:58:44.220 I mean the positive side to all this of course is that even in the Great 592 00:58:44.220 --> 00:58:48.460 Depression 80% of people who wanted a job still had one and that life did go 593 00:58:48.460 --> 00:58:55.220 on for people and as we saw in periods of distress in the 19th century when 594 00:58:55.220 --> 00:58:59.220 There were classic liberal mechanisms that work in the markets or to a greater extent. 595 00:58:59.220 --> 00:59:02.220 Times of hardship for some were times of prosperity for others. 596 00:59:02.220 --> 00:59:11.220 We shouldn't fall into the aggregative problems here that I've been reging this Philippic against. 597 00:59:11.220 --> 00:59:15.220 There will be people who do well in any situation. 598 00:59:15.220 --> 00:59:19.220 There will just simply be relatively less of them than there would be if we'd been allowed to get on with things ourselves 599 00:59:19.220 --> 00:59:22.220 and hadn't had these distortions visited upon us. 600 00:59:22.220 --> 00:59:27.220 I don't know if that answers your question, but it's a very broad question to take up in this space.