WEBVTT NOTE Question and Answer Session 1 00:00:00.000 --> 00:00:06.000 Could you have overinvestment across all of us? 2 00:00:06.000 --> 00:00:13.000 Actually, you know, that question would give you different answers, depending on whether you read Hayek or Mises. 3 00:00:13.000 --> 00:00:22.000 And it's Mises who does argue that there can be, in fact, he says even overconsumption, which is, 4 00:00:22.000 --> 00:00:27.000 and the use of resources even at the finest things. 5 00:00:27.000 --> 00:00:34.000 But on top of that, superimposition on top of that is a relative misallocation. 6 00:00:34.000 --> 00:00:39.000 So what I would argue, and do argue in time of money, is that you get both. 7 00:00:39.000 --> 00:00:47.000 That you get an increase in investment all around that's very temporary, that's inherently temporary. 8 00:00:47.000 --> 00:00:54.000 And at the same time, a pattern of investment that actually pulls the Hayekian Triangle at both ends against the middle. 9 00:00:54.000 --> 00:01:06.000 You get excessive consumption as identified by Mises, and you get excessive investment in the long-term sectors as recognized by both Mises and Hayek. 10 00:01:06.000 --> 00:01:35.000 So I would say you get both, and I would say that the market mechanisms that bring the boom to an end are very critically tied up with the malinvestment aspect, because if you think about it, what's happening, and again I'll go back to Frank Shostak's pool of funding, at the very time the pool is being drained by consumers, investors are setting off on a course that would require a large pool, okay? 11 00:01:35.000 --> 00:01:41.800 And so as that process moves forward and as stages of production in the intermediate range 12 00:01:41.800 --> 00:01:47.800 mature to fruition, the consumable output simply isn't as great. 13 00:01:47.800 --> 00:01:50.200 And so at that point consumption has to be reduced. 14 00:01:50.200 --> 00:01:56.600 In fact, that's the reduction in consumption that I think is best described by the term 15 00:01:56.600 --> 00:02:02.200 forsake, which is integral to most all the Austrian accounts of the business cycle. 16 00:02:02.200 --> 00:02:15.200 You mentioned that a bad policy begets bad policies. I've heard this question before, but why doesn't that inevitably lead to the U.S. being some sort of Marxian utopia? 17 00:02:15.200 --> 00:02:22.200 Is there some cultural constraint that bad policy eventually leads to good policy? 18 00:02:22.200 --> 00:02:30.200 Well, no, not really. I'd like someone to guarantee me that we're not turning into a Marxist utopia, first of all. 19 00:02:30.200 --> 00:02:42.200 But, okay, with a certain gradualism, I suppose, but if you read certain publications, including some of them that claim to be conservative, 20 00:02:42.200 --> 00:02:50.200 you find a certain wholesale adoption of themes that used to be those of the Marxists and so forth. 21 00:02:50.200 --> 00:02:53.200 Certainly neoconservative and socialist. 22 00:02:53.200 --> 00:02:58.200 Yeah, I think that's fair enough in several senses. 23 00:02:58.200 --> 00:03:02.200 Well, it may be, partly, that it's cumulative. 24 00:03:02.200 --> 00:03:07.200 One, intellectual error can just, apparently, persist for quite a long time, 25 00:03:07.200 --> 00:03:12.200 but it's not just that. It means, once the process has gone on long enough, 26 00:03:12.200 --> 00:03:16.200 you've got a whole class of entrenched people who believe this, 27 00:03:16.200 --> 00:03:20.200 but it's also in their interest to have other people believe this. 28 00:03:20.200 --> 00:03:26.200 And when these people, in effect, nationalize the educational system of the entire country 29 00:03:26.200 --> 00:03:32.200 and creates the predominant paradigms that you get from first grade through the universities. 30 00:03:32.200 --> 00:03:35.200 And they also have an interest in perpetuating these views. 31 00:03:35.200 --> 00:03:41.200 It becomes very difficult for anybody to sort of think their way out of the paper bag. 32 00:03:41.200 --> 00:03:52.200 And also, again, it's also partly maybe just a kind of logistical problem that it's much simpler for a few sugar producers 33 00:03:52.200 --> 00:04:01.200 to go to Tallahassee or send lobbyists to Tallahassee to figure out some way to raise the price of sugar, 34 00:04:01.200 --> 00:04:08.200 then it would be for all the sugar buyers in Florida to organize themselves to save that couple of cents. 35 00:04:08.200 --> 00:04:15.200 And it's just a few pennies on the dollar for the single consumer, but it means a lot to the guys who send the lobbyists. 36 00:04:15.200 --> 00:04:33.200 Let me ask something. I think Mises' explanation of this has to do with the notion that we tend to lose freedom gradually. 37 00:04:33.200 --> 00:04:39.200 You tend not to see a society that's moving gradually towards freedom. 38 00:04:39.200 --> 00:05:03.200 Joe, this is sort of a sidelight to your talk, but I was curious to meet the other people. 39 00:05:03.200 --> 00:05:18.200 Was Charisma the main explanation for Roosevelt's 36th re-election, given that he hadn't solved the pressing problem that got him elected? 40 00:05:33.200 --> 00:05:36.200 You always have to allow for that. 41 00:05:36.200 --> 00:05:40.200 But yeah, I suppose that the charisma was a big factor. 42 00:05:40.200 --> 00:05:42.200 And although, I don't know, there were people, 43 00:05:42.200 --> 00:05:48.200 John T. Flynn was one who said that he voted for Roosevelt the first time he ran 44 00:05:48.200 --> 00:05:53.200 when he appeared to be a Cleveland Democrat and never voted for him again. 45 00:05:53.200 --> 00:05:58.200 And my father did the same thing, voted for him once and then never again. 46 00:05:58.200 --> 00:06:12.200 Apparently some people didn't react badly to this set of policies that were being put in place and voted against him on that basis, but maybe thought this might work, or maybe somehow did create this notion that something was being done. 47 00:06:12.200 --> 00:06:27.200 I mean, you've got to remember, they're putting all these people out there with shovels and planting trees, and they've got a lot of activity going, and they're getting a lot of press, and they keep a lot of excitement, and they're slaughtering little pigs to raise the prices and all of that. 48 00:06:27.200 --> 00:06:30.200 This isn't all of that. So maybe that was enough. 49 00:06:30.200 --> 00:06:38.200 Can I say this? In that particular election, the campaign sloganeering was very candid, very explicit. 50 00:06:38.200 --> 00:06:42.200 It was, span, span, span, elect, elect, elect. 51 00:06:42.200 --> 00:06:46.200 You got a lot of votes, with or without charisma. 52 00:06:46.200 --> 00:06:53.200 And there was people after the election that said, they told me if I voted for Outlander, there would be more years of depression. 53 00:06:53.200 --> 00:06:57.200 So, I did, and there was. 54 00:06:57.200 --> 00:07:06.200 We also remember that Roosevelt took us off Prohibition, and that made a lot of people happy. 55 00:07:06.200 --> 00:07:12.200 Yes, Dr. Garrison, in your article, The Classic Hierarchy and Hangover, you talked about MGM growth. 56 00:07:12.200 --> 00:07:24.200 And would you agree with some academics subtracting money market funds from MZM in their calculation or money supply work? 57 00:07:24.200 --> 00:07:33.200 Quite possibly, but of all of the statistics that are reported routinely by the Central Bank itself, 58 00:07:33.200 --> 00:07:44.200 I tend to look at MZM rather than certainly rather than M1 or the monetary base. I think it's a better indicator. 59 00:07:44.200 --> 00:08:10.200 Dr. Garrison, would you comment on the so-called hedonic price adjustments that are used by government statisticians to artificially make productivity and output look better, and also inflation look better, sort of artificial price adjustments that give a totally irrelevant and incorrect picture of how the U.S. economy should perform over the last five years? 60 00:08:10.200 --> 00:08:27.200 Well, those kind of adjustments are so prone to chicanery into making the figures say what you want them to say that it's something I don't think is much worth looking at those statistics that tell my story. 61 00:08:27.200 --> 00:08:29.200 I mean, is that simply political chicanery? 62 00:08:29.200 --> 00:08:37.200 Well, yeah, it certainly invites it and it's hard to establish that they've got just the right to tell me price. 63 00:08:37.200 --> 00:08:41.200 And that's institutionalized now, isn't it, in the calculation of the CPI? 64 00:08:41.200 --> 00:08:49.200 Well, in a lot of it, in imputing the value of goods that are traded and so on. 65 00:08:49.200 --> 00:08:53.200 I want to add one thing about the moral hazard. 66 00:08:53.200 --> 00:08:54.200 Go ahead. 67 00:08:54.200 --> 00:08:58.200 Yeah, there's now a number, there's sort of a small literature now, 68 00:08:58.200 --> 00:09:02.200 there's articles in the political science journals that have titles like 69 00:09:02.200 --> 00:09:07.200 The four-year presidential business cycle 70 00:09:07.200 --> 00:09:14.200 So the political scientists, at least, have figured out the way in which there's an attempt to actually fine-tune 71 00:09:14.200 --> 00:09:17.200 fiscal policy to presidential elections. 72 00:09:17.200 --> 00:09:22.200 Of course, the general public is even beginning to catch on to this, that the president gets in 73 00:09:22.200 --> 00:09:27.200 and if the economy is, quote-unquote, sluggish, then he'll have Alan do something with the money supply 74 00:09:27.200 --> 00:09:46.200 Roger, in your presentation you tie the unemployment rate with the concept of sustainable gold. 75 00:09:46.200 --> 00:09:55.200 Are there other measures in the economy that would track out similarly and why do you pick the unemployment rate? 76 00:09:55.200 --> 00:10:03.200 Well, using the unemployment rate, I think it shows pretty vividly the unsustainable period of growth. 77 00:10:03.200 --> 00:10:07.200 But you can also look at long-term capital investments. 78 00:10:07.200 --> 00:10:18.200 I mean, in the article that I handed out, one point we make is that that particular unsustainable boom was certainly characterized by long-term investment. 79 00:10:18.200 --> 00:10:33.200 There's an investment boom and an investment bust and all sorts of businesses who are operating on a current negative cash flow but hope for profits in the next decade or whatever 80 00:10:33.200 --> 00:10:58.200 were the ones that went down like the dot coms for instance, a lot of the dot coms were jump started and up and running with negative cash flows and not even anticipating to turn profits for 10 or 12 years and that's a very kind of activity that you could track to verify the Austrian theory and that's what we saw in that period. 81 00:10:58.200 --> 00:11:06.200 What are you doing to work on trying to actually trace where these monetary injections go and how they go? 82 00:11:06.200 --> 00:11:18.200 It's very difficult doing it on an industry-by-industry or a sector-by-sector basis, but essentially you want to just watch what's happening to interest rates, 83 00:11:18.200 --> 00:11:26.200 That's going to cover what kinds of investment gets undertaken in whichever industry has to be undertaken. 84 00:11:29.200 --> 00:11:34.200 Well, Dr. Graves, one point you didn't raise about green finance is bailouts. 85 00:11:34.200 --> 00:11:40.200 First there was Mexico, then there's Asia, and there's a long series of interventions in the stock market. 86 00:11:40.200 --> 00:11:53.200 and then after September 11th, considering the relationship between political chicanery and intellectual error, how do you account for this aspect of Greenspan's rule? 87 00:11:53.200 --> 00:12:02.200 That's difficult and a lot of the things he did were very much counter to the whole operation of the Fed or what it's supposed to do. 88 00:12:02.200 --> 00:12:14.200 He was violating even Fed procedures and taking public stands and using the Federal Reserve to help long-term banking with funds and that sort of thing. 89 00:12:14.200 --> 00:12:30.200 And I think it's, you know, Greenspan himself, in response to some of Woodward's questioning, likened it to a fire truck going their own way down a one-way street to put out a waiting fire. 90 00:12:30.200 --> 00:12:37.200 Okay, we're not supposed to do it, but hey, you know, to find a worse evil, we'll commit this one. 91 00:12:37.200 --> 00:12:43.200 Any more questions? 92 00:12:43.200 --> 00:12:45.200 Right there in the middle. 93 00:12:45.200 --> 00:12:47.200 Great, that's Dr. Garrison. 94 00:12:47.200 --> 00:12:57.200 When you're looking for a definition of malinvestment, is there any reason why it just can't be simply defined as a project whose internal rate of return doesn't return to the rate of average cost of capital? 95 00:12:57.200 --> 00:13:01.200 No, it's not quite as simple as that. 96 00:13:01.200 --> 00:13:18.200 Now that might help, I mean in some cases you might identify some, but with the Austrian theory, what's very critical is that investment projects, as used by Hayek, that term is used by Hayek or Mises or whatever, 97 00:13:18.200 --> 00:13:33.200 We refer to projects that are seen through several different stages of production and are in the hands of different firms, where outputs of one firm sell as inputs into the next firm. 98 00:13:33.200 --> 00:13:40.200 So there's some vertical relationship between the different firms that eventually give rise to consumer goods. 99 00:13:40.200 --> 00:13:52.000 And so the internal rate of return that you would have to look at, if you could look at it, would be the rate of return that would apply to the entire project of several firms. 100 00:13:52.000 --> 00:13:57.080 And those are figures that aren't available, they're not calculated by the individual firms. 101 00:13:57.080 --> 00:14:00.120 In fact, they're not within the scope of individual firms to calculate. 102 00:14:00.120 --> 00:14:13.520 This is one of the problems, that if some industry had a way of making those calculations from the outset, they probably wouldn't engage in those activities. 103 00:14:13.520 --> 00:14:16.720 They wouldn't, would they not? Because they're looking at a false... 104 00:14:16.720 --> 00:14:22.680 Right. The calculations they're making are based on wrong signals. I mean, prices really are signals. 105 00:14:22.680 --> 00:14:26.800 And if the signals are distorted, the calculations are going to be wrong. 106 00:14:26.800 --> 00:14:42.560 And despite the whole so-called rational expectations revolution, we can't simply assume that just because a firm knows or suspects that a signal is wrong, that he knows what the undistorted signal would be. 107 00:14:42.560 --> 00:15:12.560 is that information is available but it may well be that the rate of return, internal rate of return that's unique to a specific firm is engaged in part of the project may show it profitable based on prices that they're facing and yet it may be in the end that this project after it's been sold is output, it's input to the next firm, so in the end the whole thing 108 00:15:12.560 --> 00:15:41.560 I don't think I'll deviate from what Joseph Salerno said. 109 00:15:41.560 --> 00:15:55.640 says, I won't put numbers on it, but the price of the recession may well bottom out in mid-year of 2002. I won't put any figures on it. 110 00:15:55.640 --> 00:15:57.640 So what else might one say? What do you think? 111 00:15:57.640 --> 00:16:05.400 I don't know. I'm just a historian. I try to avoid this kind of prediction. 112 00:16:05.400 --> 00:16:33.400 Did you see things happening with this administration and this Congress that we've already tried and we've done before in the past in similar crashes or panics that would lead one to sort of make a guess as to what we have to look forward to in the future? 113 00:16:35.400 --> 00:16:38.480 in the next three to four years. 114 00:16:38.480 --> 00:16:41.240 Are we making mistakes that we've made before? 115 00:16:41.240 --> 00:16:42.280 Well, sure. 116 00:16:42.280 --> 00:16:45.440 No, they're infinitely replicable or repeatable. 117 00:16:45.440 --> 00:16:50.360 They can always make the same mistake again up until some point. 118 00:16:50.360 --> 00:16:53.000 I guess the approach is a total collapse of the system 119 00:16:53.000 --> 00:16:54.480 or a hyperinflation or something. 120 00:16:54.480 --> 00:16:58.080 They can't apparently do this over and over 121 00:16:58.080 --> 00:16:59.520 without learning a great deal. 122 00:17:01.720 --> 00:17:04.840 That's not a very optimistic answer, I suppose, 123 00:17:04.840 --> 00:17:10.840 Well, actually, I'm referring more to Congress and policy, not necessarily the Fed. 124 00:17:10.840 --> 00:17:14.840 Well, no, I was including, I think I was including Congress. 125 00:17:14.840 --> 00:17:18.840 But, I mean, Congress has to vote these bailouts, and the bailouts are going... 126 00:17:18.840 --> 00:17:24.840 I mean, there's no real chest of money hidden away in the back of the White House to finance the bailouts. 127 00:17:24.840 --> 00:17:31.840 I mean, they're going to bail out the insurance industry, they're going to bail out everybody who even knew anybody 128 00:17:31.840 --> 00:18:01.840 Anybody who was involved in the Twin Towers, it's becoming very large, it's huge, and then there is the cost of this war or whatever, it's being called lately, there's all that, there's this whole, but they love that, you know, that you can always sell a military action, and particularly in a situation like this one, there's been an actual terrorist attack, so there's this, 129 00:18:01.840 --> 00:18:09.840 I'm frankly wondering how they're going to actually be able to exert any of their famous control 130 00:18:09.840 --> 00:18:14.840 with the amount of money they're proposing to lay out in all these areas, 131 00:18:14.840 --> 00:18:26.840 but perhaps they have acquired some general feeling for how to keep the thing from becoming just a runaway situation. 132 00:18:26.840 --> 00:18:34.840 I don't know, I mean, not only do you have just normal political motivations for pursuing the same bad policies again, 133 00:18:34.840 --> 00:18:41.840 now you've also got this added dimension of bailout, world empire, 134 00:18:41.840 --> 00:18:46.840 there were some responsibilities of being the last remaining superpowers. 135 00:18:46.840 --> 00:18:54.840 It seems to me it's quite colossal in these proposals, we're going to bail out all these other failing economies. 136 00:18:54.840 --> 00:18:59.540 There's bound to be some prize. I don't know how high it will be. 137 00:18:59.540 --> 00:19:07.440 I mean, for the American people, for the American economy, that's something I wish I knew. 138 00:19:07.440 --> 00:19:12.240 But I don't know if that directly answered your question. 139 00:19:12.240 --> 00:19:16.740 But it seems to me, yeah, H. L. Mencken once said, 140 00:19:16.740 --> 00:19:21.540 no one ever went broke underestimating the intelligence of the American voter. 141 00:19:21.540 --> 00:19:29.540 But I would say, well, nobody ever went broke underestimating the rascality of these people in power. 142 00:19:29.540 --> 00:19:37.540 I don't know, there's very few restraints on them other than the danger of possibly not being re-elected. 143 00:19:37.540 --> 00:19:41.540 And it takes a lot to not be re-elected now.