WEBVTT NOTE A Chronicle of Limitless Failures of Government 1 00:00:00.000 --> 00:00:12.000 Our Hazlitt Memorial Lecturer this afternoon is Martin Fridson. Martin is perhaps the most well-known figure in the high-yield world, according to Investment Dealers Digest. 2 00:00:12.000 --> 00:00:23.000 Over 25 years' span with brokerage firms including Salomon Brothers, Morgan Stanley, and Merrill Lynch, he became known for his innovative work in credit analysis and investment strategy. 3 00:00:23.000 --> 00:00:29.000 Fridson received his BA cum laude in history from Harvard College and his MBA from Harvard Business School. 4 00:00:29.000 --> 00:00:39.000 He has served as president of the Fixed Income Analysis Society, governor of the Association for Investment Management and Research, now the CFA Institute, 5 00:00:39.000 --> 00:00:43.000 and director of the New York Society of Security Analysis. 6 00:00:43.000 --> 00:00:49.000 In 2000, the Green Magazine called Fridson's financial statement analysis, quote, 7 00:00:49.000 --> 00:00:52.000 One of the most useful investment books ever. 8 00:00:52.000 --> 00:00:59.000 The Financial Management Association International named Fridson the Financial Executive of the Year in 2002. 9 00:00:59.000 --> 00:01:06.000 In 2000, he became the youngest person ever inducted into the Fixed Income and Analyst Society Hall of Fame. 10 00:01:06.000 --> 00:01:12.000 The Boston Globe said his 2006 book, Unwarranted Intrusions, the Case Against Government Intervention in the Marketplace, 11 00:01:12.000 --> 00:01:17.000 and there are many copies all over the Institute here, should be listed for best business book of the decade. 12 00:01:17.000 --> 00:01:34.000 Now, I read this book, and it was what stimulated me to invite Martin here, and I tell you as a professional economist, it really has more economic insight and sense than all the articles that were published in 2006 in the American Economic Review. 13 00:01:34.000 --> 00:01:44.000 So I am very pleased to have just met and now to present to you Morton Fridson. 14 00:01:44.000 --> 00:02:03.000 Thank you for very, very kind comments and I wanted to say, first of all, that it is really a pleasure to be here 15 00:02:03.000 --> 00:02:06.000 in the Loveliest Village on the Plains 16 00:02:06.000 --> 00:02:10.000 and it's truly an honor to be speaking at the Mises Institute. 17 00:02:10.000 --> 00:02:12.000 I had another honor this week 18 00:02:12.000 --> 00:02:15.000 in the form of making page one of the New York Times. 19 00:02:15.000 --> 00:02:18.000 Unfortunately, the edge was taken off that one a little bit 20 00:02:18.000 --> 00:02:24.000 because Governor Eliot Spitzer made page one the same day. 21 00:02:24.000 --> 00:02:30.000 His article, by the way, had nothing to do with the state of the leveraged buyout industry. 22 00:02:30.000 --> 00:02:41.000 But unlike mine, his article is above the fold, so all in all, speaking to this gathering is definitely the biggest honor of the week and, in fact, of the year for me. 23 00:02:41.000 --> 00:02:48.000 Now, in addition to expressing my thanks for this invitation, I also want to acknowledge a debt to the Mises Institute. 24 00:02:48.000 --> 00:02:58.000 The debt is that my book on unwarranted intrusions has a chapter on America's misguided policy of criminalizing Paola. 25 00:02:58.000 --> 00:03:12.000 And the basic idea of that is that if you go into a supermarket, every inch of the shelf space has been paid for by a food manufacturer or some other consumer goods company. 26 00:03:12.000 --> 00:03:17.000 Now the only way you can possibly get people to buy recorded music is for them to hear it. 27 00:03:17.000 --> 00:03:25.000 That has been proven over many, many decades, and yet if you pay to enable them to hear your music, you'll get prosecuted. 28 00:03:25.000 --> 00:03:27.000 Posted by Eliot Spitzer 29 00:03:55.000 --> 00:04:14.000 The problem of Paola in 1956 actually had been going on for many decades before that, even before the era of recording, there was Paola because that's how they sold sheet music as well, by getting famous artists to perform the music. 30 00:04:14.000 --> 00:04:22.000 Murray Rothbard, you see here, and I know his books are well represented out here in the hallway, and was vice president of the Institute. 31 00:04:22.000 --> 00:04:32.000 But this article that he wrote about Paola in 1956 was not published until 2001 when it appeared in the Institute's publication, Free Market. 32 00:04:32.000 --> 00:04:38.000 And it was extremely helpful in putting together that chapter, so I'm very grateful. 33 00:04:38.000 --> 00:04:48.000 By the way, Rothbard in this article indirectly anticipated the introduction of satellite-based subscription radio several decades later. 34 00:04:48.000 --> 00:05:01.000 And if you'll indulge me a small digression, I have to mention a wonderful story about Murray Rothbard and a circle of his anarchist-minded friends who enjoyed composing songs, playing board games and going to movies together. 35 00:05:01.000 --> 00:05:13.000 One movie they went to was a horror picture about a man-eating tree. Rothbard cheered for the tree the entire time. 36 00:05:13.000 --> 00:05:29.000 The people he ate were aggressors. They kept trying to set the tree on fire or chop it down, when the tree hadn't done a damn thing to them. 37 00:05:29.000 --> 00:05:33.000 Three key themes run through unwarranted intrusions. 38 00:05:33.000 --> 00:05:47.000 Theme 1 is the stark contrast between bedrock economic principles which were accepted by economists clear across the ideological spectrum on the one hand and political rhetoric on the other hand. 39 00:05:47.000 --> 00:06:01.000 An example is a survey of the early 1990s found that 93% of economists agreed with the statement that the usual effect of import tariffs and quotas is to reduce economic welfare. 40 00:06:01.000 --> 00:06:11.000 Yet, Congress engages in idiocies such as overriding the Linnaean system to declare that catfish native to Vietnam are not really catfish. 41 00:06:11.000 --> 00:06:16.000 And they cannot be marketed in the United States as such. 42 00:06:16.000 --> 00:06:22.000 This is a purely protectionist piece of legislation and just one of many ludicrous examples. 43 00:06:22.000 --> 00:06:29.000 I live in New York City and another of the findings of that survey was that a similar proportion of economists agreed that 44 00:06:29.000 --> 00:06:33.000 Rent Control Reduces the Stock and Quality of Housing 45 00:06:33.000 --> 00:06:39.000 I was reluctant to include it in the book because it's such a standard example given in elementary economics textbooks 46 00:06:39.000 --> 00:06:47.000 And yet I was fascinated by the fact that we had a mayoral election right around the time the book was coming out 47 00:06:47.000 --> 00:06:53.000 And there were five major candidates on the Democratic side, one representing the party of free enterprise, the Republicans 48 00:06:53.000 --> 00:06:57.000 None of them suggested that there was anything wrong with rent control 49 00:06:57.000 --> 00:07:08.000 The only discussion was whether they should shift the administration of the rent control law from the state capitol in Albany back to the local jurisdiction in New York. 50 00:07:08.000 --> 00:07:23.000 That was the sum of the debate about rent control after decades of horrendous results and well-documented inferiority of the housing stock in New York of a similar age in Chicago where they don't have rent control, of course. 51 00:07:23.000 --> 00:07:31.000 That was theme one of the book, just a remarkable disconnect between the political debate and issues. 52 00:07:31.000 --> 00:07:34.000 They're just not controversy at all among economists. 53 00:07:34.000 --> 00:07:42.000 Theme two is that economists and politicians agree in principle that we should leave matters of commerce to the marketplace 54 00:07:42.000 --> 00:07:45.000 unless someone can demonstrate a market failure. 55 00:07:45.000 --> 00:07:51.000 Now in practice, politicians devise a subsidy for some special interest group they're beholden to. 56 00:07:51.000 --> 00:08:01.000 at various times, the egregious ethanol program has been promoted as the solution to the energy shortage, the solution to the air pollution problem, and even as a way of supporting our troops in Iraq. 57 00:08:01.000 --> 00:08:10.000 This story has only gotten worse since the book came out, with the government pushing ethanol harder and harder in the face of rising oil prices, 58 00:08:10.000 --> 00:08:13.000 This story has only gotten worse since the book came out. 59 00:08:13.000 --> 00:08:18.000 With the government pushing ethanol harder and harder in the face of rising oil prices, 60 00:08:18.000 --> 00:08:23.000 corn has become more costly for the traditional use of feeding livestock and humans. 61 00:08:23.000 --> 00:08:29.000 So we're treated to the spectacle of interventionist congressmen who represent cattle farmers 62 00:08:29.000 --> 00:08:33.000 battling interventionist congressmen who represent corn growers. 63 00:08:33.000 --> 00:08:37.000 And the rise in food prices produced by artificially induced demand 64 00:08:37.000 --> 00:08:42.080 The rise in food prices produced by artificially induced demand for corn has led to food riots 65 00:08:42.080 --> 00:08:48.360 in some countries. On top of that, recent economic research adds to the evidence reported 66 00:08:48.360 --> 00:08:54.000 in my book that the ethanol program is actually bad for the environment, not good. Shifting 67 00:08:54.000 --> 00:08:58.640 agricultural land to ethanol production from other uses increases the production of greenhouse 68 00:08:58.640 --> 00:09:03.760 gases. And that's true not only for corn-based ethanol, but also for ethanol produced from 69 00:09:03.760 --> 00:09:08.760 and the switchgrass, which is supposed to be the responsible form of an ethanol. 70 00:09:08.760 --> 00:09:15.760 On top of that, the increase in agriculture activity required for ethanol production diverts scarce water resources 71 00:09:15.760 --> 00:09:23.760 and it deposits detrimental fertilizer products that are threatening the ecology of the Mississippi River and the Gulf of Mexico. 72 00:09:23.760 --> 00:09:31.760 Theme three is, I really believe strongly that in a democracy, people have the right to enact a bad law. 73 00:09:31.760 --> 00:09:43.760 I also truly believe that if the proposals are presented to the voters honestly, they'll reject the ones that are economically damaging to everyone except a vested interest seeking an unfair advantage. 74 00:09:43.760 --> 00:09:48.760 Therefore, politicians go to great lengths to make sure the voters never get a straight story. 75 00:09:48.760 --> 00:09:55.760 And in Unwarned Intrusions, I detail numerous examples of our public servants telling it like it isn't. 76 00:09:55.760 --> 00:10:07.760 Perhaps the most outrageous was an attempt by the media mogul Rupert Murdoch in collusion with Hillary Clinton, among others, to tighten federal control over television audience ratings. 77 00:10:07.760 --> 00:10:22.760 The real reason for this unwarranted intrusion was that new and improved technology was beginning to show that the Murdoch station's audience share had been overstated under the previous methods of measuring audiences. 78 00:10:22.760 --> 00:10:28.760 But the politician's official story, believe it or not, was that audience measurement was a civil rights issue. 79 00:10:28.760 --> 00:10:32.760 And you can read all about it. 80 00:10:32.760 --> 00:10:39.760 I sent a copy of the book to the Nielsen Service, which was, of course, right in the crosshairs of this alleged reform. 81 00:10:39.760 --> 00:10:47.760 And they concur that the story was pretty much as outlandish and preposterous as it seemed. 82 00:10:47.760 --> 00:10:50.760 It was actually an accurate account of what happened. 83 00:10:50.760 --> 00:10:59.760 Now, I wish I could say that the publication of unwarranted intrusions ignited a prairie fire of honesty and economic rationality on the political landscape. 84 00:10:59.760 --> 00:11:08.760 Well, the book has won some hearts and minds, but I'm afraid there's still a long way to go in rooting out the corruption of buying votes with the voter's own money. 85 00:11:08.760 --> 00:11:12.760 A much worse scam than ordinary corruption, which I would far prefer. 86 00:11:12.760 --> 00:11:20.760 Now, if they use their own money, that would be much better, but this is really rubbing salt in the wounds. 87 00:11:20.760 --> 00:11:26.760 Now, in fact, the headlines tell us that our politicians are digging into a deeper hole every day. 88 00:11:26.760 --> 00:11:35.760 In unwarranted intrusions, I reported on research showing that home ownership subsidies have produced massive over-investment in housing in the United States. 89 00:11:35.760 --> 00:11:45.760 The result is a substantial penalty in national income far greater than can possibly be justified by the acknowledged community and social benefits of ownership versus rental. 90 00:11:45.760 --> 00:11:54.760 That has been documented, but the cost of the subsidies and spillover effects far, far exceeds that by any reasonable standard. 91 00:11:54.760 --> 00:11:59.760 And the benefits of pushing homeownership rates to new highs looks more and more dubious. 92 00:11:59.760 --> 00:12:04.360 Recent research by Carolina Katz-Reed finds that for low-income households, 93 00:12:04.360 --> 00:12:09.360 owning a home means less mobility to pursue improved employment prospects, 94 00:12:09.360 --> 00:12:12.360 less money to devote to children's education, 95 00:12:12.360 --> 00:12:17.160 and a return on investment lower than holding Treasury bills. 96 00:12:17.160 --> 00:12:19.560 And yet, politicians persist. 97 00:12:19.560 --> 00:12:23.160 They're currently proposing a variety of harebrained schemes 98 00:12:23.160 --> 00:12:26.960 to head off foreclosures and prop up housing prices. 99 00:12:26.960 --> 00:12:34.460 That is, they want to A, reward individuals who obtain free options on houses through no-money-down mortgages 100 00:12:34.460 --> 00:12:38.460 and now are very rationally walking away because they're out of the money on their option. 101 00:12:38.460 --> 00:12:46.460 And B, they want to prevent home prices from reaching a level at which they would once again represent attractive investments. 102 00:12:46.460 --> 00:12:52.460 The biggest outrage of all involves the GSEs, or government-sponsored enterprises, Fannie Mae and Freddie Mac. 103 00:12:52.460 --> 00:12:56.960 A few years ago, Fannie and Freddie were finally getting their wings clipped. 104 00:12:56.960 --> 00:13:02.460 Now, this was not happening for the right reason, namely that their entire mission is dubious, 105 00:13:02.460 --> 00:13:09.460 but because they were mired in accounting scandals, so that gave the politicians some scandal to try to rein them in. 106 00:13:09.460 --> 00:13:16.460 But once the housing crisis hit, all was forgiven, and Fannie and Freddie loomed as the saviors of the U.S. economy. 107 00:13:16.460 --> 00:13:25.460 Now, Fannie Mae has now been authorized to deal in mortgages of as much as $700,000, up from $420,000 previously. 108 00:13:25.460 --> 00:13:31.460 Now, people step back for a minute. The median home price in the United States is $200,000. 109 00:13:31.460 --> 00:13:41.460 Why do we have gigantic taxpayer-subsidized companies facilitating purchases of homes with mortgages three times as large as that? 110 00:13:41.460 --> 00:13:56.460 Don't we presume that the buyers of those homes are not low-income families who are trying to get onto the bottom rung as the Fannie Mae propaganda that is advertising? 111 00:13:56.460 --> 00:14:03.460 The question is, why does Fannie Mae advertise during the Super Bowl? 112 00:14:03.460 --> 00:14:11.960 They do not deal with consumers. If you're running a business, why would you advertise to consumers if that's not even your customer base? 113 00:14:11.960 --> 00:14:20.460 Clearly to generate political sympathy and always representing, well, this is what we're doing. We're helping those people get their start. 114 00:14:20.460 --> 00:14:28.460 But surely the people buying those $700,000 mortgage homes, even if they have no money down, are above average income families. 115 00:14:28.460 --> 00:14:39.460 So why do we have this huge middleman in there taking our own tax dollars to subsidize above average income home buyers? 116 00:14:39.460 --> 00:14:40.460 It doesn't really make sense. 117 00:14:40.460 --> 00:14:50.460 And to add insult to injury, the cover of this week's barons suggests that despite all the interest rate subsidies lavished on Fannie Mae over the decades, 118 00:14:50.460 --> 00:14:57.460 the company has mismanaged its affairs so atrociously that it may soon require a taxpayer-financed bailout. 119 00:14:57.460 --> 00:15:05.460 So we see the dangers of the government interfering in a basic economic activity such as providing shelter. 120 00:15:05.460 --> 00:15:13.460 Now let me address another sacred cow, the myth that America's savings rate is too low and something needs to be done about it. 121 00:15:13.460 --> 00:15:23.460 Well, the title of this section is a French phrase, sauve qui peut, which is usually rendered something like every man for himself. 122 00:15:23.460 --> 00:15:30.420 himself, but a loose literal translation would be let those who can save, and that would 123 00:15:30.420 --> 00:15:35.620 be a good policy for the government to follow in the absence of any solid evidence that 124 00:15:35.620 --> 00:15:43.260 all of our tax-based savings programs combined have generated one dollar of incremental savings. 125 00:15:43.260 --> 00:15:48.560 So we should let those who can or are willing to save because none of our expensive programs 126 00:15:48.560 --> 00:15:52.560 have any effect on those who can't or won't save. 127 00:15:52.560 --> 00:15:58.280 As I detailed in Unwarranted Intrusions, former Federal Reserve Chairman Paul Volcker's overall 128 00:15:58.280 --> 00:16:04.020 assessment of the research is that if you create a tax-protected savings vehicle, people 129 00:16:04.020 --> 00:16:09.520 will transfer savings from a taxable to a non-taxable account, but they won't save 130 00:16:09.520 --> 00:16:11.680 any more than before. 131 00:16:11.680 --> 00:16:16.400 They may even save less, because the tax preference means that they don't have to put as much 132 00:16:16.400 --> 00:16:21.560 away as now to reach their total retirement fund objective. 133 00:16:21.560 --> 00:16:25.880 And, you know, the evidence is somewhat mixed on that, but you would think, before launching 134 00:16:25.880 --> 00:16:30.500 into the huge programs we have, we'd kind of get a pretty clear cut that the evidence 135 00:16:30.500 --> 00:16:35.800 is sort of strong on one side or the other, but that's simply not the case. 136 00:16:35.800 --> 00:16:42.920 Now, as for the notion that the nation's savings rate is too low, the idea behind this, you 137 00:16:42.920 --> 00:16:47.940 know, the reason that we have a crisis, allegedly, that has to be addressed, is that people aren't 138 00:16:47.940 --> 00:16:53.980 and saving enough and therefore there won't be enough business investment in new technologies 139 00:16:53.980 --> 00:17:00.940 and productivity will decline and the United States will become less competitive as a result. 140 00:17:00.940 --> 00:17:06.060 Now ever since the lobbyists for financial services firms issued the earliest of these 141 00:17:06.060 --> 00:17:12.460 warnings that I was able to document, US productivity gains have reached a new and higher level. 142 00:17:12.460 --> 00:17:17.860 So this is just purely a scam perpetrated by the marketers of savings products because 143 00:17:17.860 --> 00:17:26.860 It's clearly easier for them to get their hands on our money if we have specifically designated programs with all sorts of acronyms associated with them. 144 00:17:26.860 --> 00:17:34.860 It's very effective for the marketing. But in terms of doing anything useful for the economy, nothing really to support this. 145 00:17:34.860 --> 00:17:39.860 Now, you might ask, has this evidence caused our politicians to see the light? 146 00:17:39.860 --> 00:17:52.860 The answer is of course not. They persist in proposing new tax incentives for savings that are likely to be every bit as ineffective as those of the past. 147 00:17:52.860 --> 00:17:59.860 And you can just look at the presidential candidates' websites to see what they propose to do about the mythical savings crisis. 148 00:17:59.860 --> 00:18:05.860 Barack Obama, and I quote, create a generous savings match for low and middle income Americans, 149 00:18:05.860 --> 00:18:14.260 Americans, match 50% of the first $1,000 of savings for families that earn less than $75,000. 150 00:18:14.260 --> 00:18:18.060 The Clinton campaign, quote, Hillary's American retirement accounts. 151 00:18:18.060 --> 00:18:21.660 I mean, I'm not sure, what other kind would she be proposing than American? 152 00:18:21.660 --> 00:18:27.060 I have to, you know, is she running for presidency of Mexico or something? 153 00:18:27.060 --> 00:18:28.060 I don't know. 154 00:18:28.060 --> 00:18:35.460 But she goes on to say, offer matching tax cuts of up to $500 and $1,000 to help middle 155 00:18:35.460 --> 00:18:39.460 Social Class and Working Families Save. 156 00:18:39.460 --> 00:18:44.700 So in short, instead of letting people allocate resources most efficiently, without being 157 00:18:44.700 --> 00:18:51.280 pushed toward either saving or toward consumption by the tax policy, our elected officials insist 158 00:18:51.280 --> 00:18:55.260 on turning savings into a political football. 159 00:18:55.260 --> 00:18:58.580 Which brings me to my next topic. 160 00:18:58.580 --> 00:19:03.780 Here is the man who has set out to save the sport of football. 161 00:19:03.780 --> 00:19:10.180 Arlen Spector, the ranking Republican member of the Senate Judiciary Committee. 162 00:19:10.180 --> 00:19:15.300 Yes, Spector belongs to the party that purports to be the defender of free enterprise and 163 00:19:15.300 --> 00:19:16.780 small government. 164 00:19:16.780 --> 00:19:22.140 That tells you right there that our truth in advertising laws are misdirected. 165 00:19:22.140 --> 00:19:26.820 Now however misguided the government's intervention in the housing market is, one can at least 166 00:19:26.820 --> 00:19:31.860 understand why politicians think it's something they ought to stick their noses into. 167 00:19:31.860 --> 00:19:36.460 One needs housing of some kind, and for most home-owning families, their house represents 168 00:19:36.460 --> 00:19:38.580 their biggest financial asset. 169 00:19:38.580 --> 00:19:43.400 So to a politician, it sounds like there are legitimate interests to protect. 170 00:19:43.400 --> 00:19:49.660 But who is the victim of the New England Patriots spying on their opponents' signals with videotape 171 00:19:49.660 --> 00:19:52.660 cameras? 172 00:19:52.660 --> 00:19:56.740 Well I suppose that the other teams are hurt, but after all, that's why professional sports 173 00:19:56.740 --> 00:20:01.180 leagues have rules committees and disciplinary procedures. 174 00:20:01.180 --> 00:20:04.900 Now the fans of the Patriots' opponents are unhappy too. 175 00:20:04.900 --> 00:20:09.300 But is that a harm that the United States Senate should be trying to repair? 176 00:20:09.300 --> 00:20:11.740 People, this is entertainment. 177 00:20:11.740 --> 00:20:16.420 Wasn't it sufficient for the government to make a jackass out of itself 50 odd years 178 00:20:16.420 --> 00:20:23.500 ago by cleaning up television quiz shows for no apparent purpose? 179 00:20:23.500 --> 00:20:27.820 As far as I can tell, the folks who have a beef about spying on football teams are gamblers 180 00:20:27.820 --> 00:20:32.820 who, to some small extent, got unfair odds as a result of these spy cameras. 181 00:20:32.820 --> 00:20:38.820 Well, why is Arlen Spector wasting our tax dollars on behalf of gamblers? 182 00:20:38.820 --> 00:20:44.820 The National Football League certainly has a stake in keeping gamblers interested in their sport, 183 00:20:44.820 --> 00:20:47.820 even though these hypocrites would never admit it. 184 00:20:47.820 --> 00:20:50.820 So I say let the league clean up the game and keep the odds honest. 185 00:20:50.820 --> 00:20:54.820 The prime beneficiary of this Senate inquiry is Arlen Spector, 186 00:20:54.820 --> 00:20:58.820 who evidently likes to see his picture in the newspaper. 187 00:20:58.820 --> 00:21:03.820 Now, Spygate erupted after unwarranted intrusions was published, 188 00:21:03.820 --> 00:21:09.820 but a sports topic that I did discuss in the book is taxpayer-financed stadiums. 189 00:21:09.820 --> 00:21:16.820 Now, in a nutshell, no study that was financed by anyone other than a team owner, 190 00:21:16.820 --> 00:21:20.820 and there have been many of those, 191 00:21:20.820 --> 00:21:27.820 has ever shown an economic benefit to the municipality that subsidizes the construction of a stadium. 192 00:21:27.820 --> 00:21:32.820 All it does is shift consumer spending from other forms of entertainment. 193 00:21:32.820 --> 00:21:40.820 And for the first 90 years of professional sports, teams got along just fine in non-tax payer supported stadiums and arenas. 194 00:21:40.820 --> 00:21:45.820 You know, one really great little vignette that I came across in the course of doing the research on this, 195 00:21:45.820 --> 00:21:52.460 research on this. It turns out that the sports owners have made Walt Disney their hero. 196 00:21:52.460 --> 00:21:58.980 And I said, well, why is that? Because there was a wonderful scene where Disney was looking 197 00:21:58.980 --> 00:22:06.020 out at the area in Anaheim, surrounding Disneyland, and he was furious. He said, here are all 198 00:22:06.020 --> 00:22:11.140 these little businesses that have gotten rich off me. I made all this money by building 199 00:22:11.140 --> 00:22:15.020 Disneyland here and they're getting rich. That's never going to happen again. So when 200 00:22:15.020 --> 00:22:19.020 When he went out and constructed Disney World in Orlando, he made sure that he bought up 201 00:22:19.020 --> 00:22:25.580 every piece of land, miles and miles surrounding that, and no one would get any benefit other 202 00:22:25.580 --> 00:22:26.580 than the Disney Corporation. 203 00:22:26.580 --> 00:22:30.900 And, you know, this is a smart business strategy, but the team owners have emulated this. 204 00:22:30.900 --> 00:22:35.100 You'll notice if you go to stadiums and they're, you know, a stadium that's 10, 15 years old, 205 00:22:35.100 --> 00:22:36.100 out of date, got to be replaced. 206 00:22:36.100 --> 00:22:37.100 What do they mean? 207 00:22:37.100 --> 00:22:42.340 It's got to be replaced because they need more skyboxes and they need more room inside 208 00:22:42.340 --> 00:22:46.280 the stadium for restaurants and entertainment, all sorts of other things, to make absolutely 209 00:22:46.280 --> 00:22:50.700 sure that the little bar on the corner down the road from the stadium doesn't get any 210 00:22:50.700 --> 00:22:55.540 revenue from this. So whatever argument that there ever was that there was a spillover 211 00:22:55.540 --> 00:23:00.220 effect from building a taxpayer-finance stadium, they've made sure to demolish. They're going 212 00:23:00.220 --> 00:23:05.380 to get all the revenues inside. And the reason for this is that they have to split the ticket 213 00:23:05.380 --> 00:23:11.900 revenues with the visiting team. So the more other types of activities that they can get 214 00:23:11.900 --> 00:23:15.900 into the stadium, they can keep all of that for themselves, the more profitable it comes, 215 00:23:15.900 --> 00:23:20.140 and of course the more they need the subsidy to build this thing in the first place. 216 00:23:20.140 --> 00:23:26.860 In the case of the infamous stadium in Arlington, Texas, to have the first condemnation of public 217 00:23:26.860 --> 00:23:35.260 property in the state of Texas ever for private use to build that stadium, which was a very 218 00:23:35.260 --> 00:23:40.620 successful venture for the more or less the frontman for that operation, George W. Bush, 219 00:23:40.620 --> 00:24:01.620 The latest bizarre turn in the story of taxpayer-finance stadiums involves Clayton Bennett, who is the owner of the Seattle Supersonics basketball team. 220 00:24:01.620 --> 00:24:15.620 Bennett is currently trying to break his lease on the city's basketball arena, and the reason is he and his partners failed to get Seattle or any neighboring city to provide a new taxpayer-subsidized arena. 221 00:24:15.620 --> 00:24:18.620 So they want to move the team to Oklahoma City. 222 00:24:18.620 --> 00:24:31.620 Now, having failed to obtain a new subsidy in Seattle, Benefit has adopted the impartial economist's consistent view that the team provides no economic value to the city. 223 00:24:31.620 --> 00:24:40.620 And that's his rationale for saying that Seattle should not mind if he walks away from the lease, because they're not doing any good for the city by being there. 224 00:24:40.620 --> 00:24:55.620 Now of course, in Oklahoma City, Bennett is arguing exactly the opposite, namely that having a pro basketball team will bring an economic benefit that justifies building a taxpayer-subsidized arena. 225 00:24:55.620 --> 00:25:05.620 Now this issue has always been about lining team owners' pockets rather than economic reality, but it is now devolving into a theater of the absurd. 226 00:25:05.620 --> 00:25:11.620 Now, of course, that phrase, theater of the absurd, conjures up images other than basketball in Oklahoma City. 227 00:25:11.620 --> 00:25:17.620 For instance, high fashion in New York City, where I am proud to live and work. 228 00:25:17.620 --> 00:25:24.620 This is a catwalk photo featuring a collection by Marc Jacobs. 229 00:25:24.620 --> 00:25:30.620 Jacobs was one of the designers whose show at the Fashion Week in New York in February 230 00:25:30.620 --> 00:25:37.820 was produced by a company that allegedly was solicited for $40,000 in bribes and the alleged 231 00:25:37.820 --> 00:25:43.100 seeker of graft was a state government employee who controlled access to the building where 232 00:25:43.100 --> 00:25:46.540 the fashion shows were being held. 233 00:25:46.540 --> 00:25:51.920 Now according to the charges, the superintendent of the 26th Street Armory demanded money under 234 00:25:51.920 --> 00:25:57.420 the table for reserving space in this highly desirable facility and for making sure in 235 00:25:57.420 --> 00:26:02.420 and in particular that the National Guard's needs did not interfere with the designer's activities. 236 00:26:02.420 --> 00:26:10.420 Now, the government official allegedly asked for $1,500 to allow a designer to begin setting up one day early 237 00:26:10.420 --> 00:26:12.420 without paying the daily rental fee. 238 00:26:12.420 --> 00:26:16.420 Now, the accused is going to get his day in court, 239 00:26:16.420 --> 00:26:23.420 but nowhere in the reporting of this case have I seen anyone raise the question that an economist would naturally ask, 240 00:26:23.420 --> 00:26:31.420 Which is, why was the assignment of valuable space and setup time left at the discretion of a government employee? 241 00:26:31.420 --> 00:26:41.420 Here is another case, like radio airtime in Paola, where a market is bound to arise for a valuable asset, whether it's officially sanctioned or not. 242 00:26:41.420 --> 00:26:48.420 The rather obvious solution is to publicize the existence of these benefits and auction them off to the highest bidder. 243 00:26:48.420 --> 00:26:56.420 The value of the display space and the setup time would then accrue to the taxpayers and not to an enterprising state employee. 244 00:26:56.420 --> 00:27:03.420 So what have I learned from publishing the case against government intervention in the marketplace? 245 00:27:03.420 --> 00:27:05.420 Well, I've learned something that may surprise you. 246 00:27:05.420 --> 00:27:11.420 And by way of background, I not only live in New York, but I live on the Upper West Side of Manhattan, 247 00:27:11.420 --> 00:27:17.420 which is surely one of the most liberal congressional districts in the entire United States. 248 00:27:17.420 --> 00:27:23.920 So, you might not expect my neighbors to embrace the ideas of a book that espouses libertarian principles. 249 00:27:23.920 --> 00:27:28.920 But I've actually found people are quite receptive to many of the book's arguments. 250 00:27:28.920 --> 00:27:30.920 And why shouldn't they be? 251 00:27:30.920 --> 00:27:38.420 I point out in the book that calcium is the nutrient in which children and the elderly in the United States are most deficient, 252 00:27:38.420 --> 00:27:44.420 and this is a direct result of milk price supports, which simply make dairy products too expensive. 253 00:27:44.420 --> 00:27:54.420 I cite the World Bank estimate that on a global basis, ending agricultural trade restrictions would lift 150 million people out of poverty. 254 00:27:54.420 --> 00:28:04.420 And I mention that in the United States, tariffs, believe it or not, are higher on low-price clothing and shoes bought by low-income people 255 00:28:04.420 --> 00:28:08.420 than on expensive watches and liquor bought by the wealthy. 256 00:28:08.420 --> 00:28:13.420 So how could any self-respecting liberal support these kinds of economic inequities? 257 00:28:13.420 --> 00:28:18.420 Now, I have to admit that there's some strategy involved here. 258 00:28:18.420 --> 00:28:25.420 I present these ideas in terms of economic efficiency, not in terms of ideology. 259 00:28:25.420 --> 00:28:33.420 And it turns out that there are many issues on which agreement is achievable across a surprisingly broad political spectrum. 260 00:28:33.420 --> 00:28:40.420 The late Milton Friedman excelled at putting such proposals forth, including the negative income tax, 261 00:28:40.420 --> 00:28:47.220 tax, which inspired the earned income credit, and also the abolition of the peacetime draft. 262 00:28:47.220 --> 00:28:51.660 Even if the United States has not reached a state of ideological perfection in the minds 263 00:28:51.660 --> 00:28:56.820 of most libertarians, I believe we're better off as a nation as a result of the free market 264 00:28:56.820 --> 00:28:59.380 ideas that have been put into action. 265 00:28:59.380 --> 00:29:04.540 And this has been accomplished by pragmatists who wanted to make the world better instead 266 00:29:04.540 --> 00:29:07.260 of waiting for it to become perfect. 267 00:29:07.260 --> 00:29:11.260 Now, I understand that libertarians take doctrine very seriously. 268 00:29:11.260 --> 00:29:17.260 They say that if two libertarians ever find themselves agreeing on something, you know that one of them has sold out. 269 00:29:17.260 --> 00:29:27.260 But I'm not embarrassed to be no more of a purist than Milton Friedman. 270 00:29:27.260 --> 00:29:36.260 And I know that the libertarian movement has many sincere individuals who argue that the issue is not economic efficiency at all, but freedom. 271 00:29:36.260 --> 00:29:43.260 I sometimes think that maybe this movement, if it's possible to describe such a group as a movement, 272 00:29:43.260 --> 00:29:46.260 maybe it's really two completely separate strains. 273 00:29:46.260 --> 00:29:49.260 I think there are people who are very interested in economic efficiency, 274 00:29:49.260 --> 00:29:54.260 and it turns out that freedom is very consistent. 275 00:29:54.260 --> 00:29:58.260 You wind up with the same results when you proceed from these two different directions, 276 00:29:58.260 --> 00:30:02.260 and one could imagine a universe where it wouldn't be the case, 277 00:30:02.260 --> 00:30:32.260 where you'd wind up with inefficiency as a result of freedom or lack of freedom as a result of economic efficiency, but I know that for many people that really is the issue more so than the types of questions I've been talking about, the economic fallacies that arise from interfering in people's ability to enter freely into transactions with other consulting adults, but the problem 278 00:30:32.260 --> 00:30:37.260 The problem is that while there's a reasonably objective consensus on what constitutes economic efficiency, 279 00:30:37.260 --> 00:30:41.260 the same cannot be said for economic freedom. 280 00:30:41.260 --> 00:30:46.260 This word, freedom, has a different meaning for the gun-owning, cigarette-smoking, 281 00:30:46.260 --> 00:30:50.260 and helmetless motorcycle-riding members of this audience 282 00:30:50.260 --> 00:30:57.260 than it does for many of my friends on the Upper West Side of Manhattan. 283 00:30:57.260 --> 00:31:02.260 And this difference in understanding has been a fact of life for centuries. 284 00:31:02.260 --> 00:31:12.260 At the time of the American Revolution, the British writer Samuel Johnson observed that the loudest yelps about liberty came from the drivers of slaves. 285 00:31:12.260 --> 00:31:18.260 This is material for a wonderful and necessary philosophical debate. 286 00:31:18.260 --> 00:31:23.940 But my experience has been that a great deal can be accomplished to improve the lot of mankind 287 00:31:23.940 --> 00:31:28.140 before these debates get resolved many eons from now. 288 00:31:28.140 --> 00:31:32.500 Now I mentioned at the beginning of my talk one debt of gratitude to the Mises Institute 289 00:31:32.500 --> 00:31:36.820 and let me conclude my formal remarks by mentioning a second. 290 00:31:36.820 --> 00:31:42.280 I am very grateful for the opportunity to share ideas with such a distinguished audience 291 00:31:42.280 --> 00:31:47.180 and I look forward to hearing the views of those of you who have been so kind to listen.