WEBVTT NOTE Free Markets: An Interview with Robert P. Murphy 1 00:00:00.000 --> 00:00:06.200 I want to go ahead and jump right in and introduce today's special guest. My guest today is Dr. 2 00:00:06.200 --> 00:00:13.600 Robert Murphy. Bob is the author of The Politically Incorrect Guide to Capitalism and his recently 3 00:00:13.600 --> 00:00:20.200 released book, The Politically Incorrect Guide to the Great Depression and the New Deal. Dr. 4 00:00:20.200 --> 00:00:27.200 Murphy holds a PhD in economics from New York University. Bob is an adjunct scholar at the 5 00:00:27.200 --> 00:00:33.440 at the Mises Institute and a Senior Fellow in Business and Economic Studies at the Pacific 6 00:00:33.440 --> 00:00:34.720 Research Institute. 7 00:00:34.720 --> 00:00:42.040 Bob has testified before Congress on economic issues, is a frequent radio guest, and writes 8 00:00:42.040 --> 00:00:43.600 a column for townhall.com. 9 00:00:43.600 --> 00:00:46.000 Bob, welcome to the show. 10 00:00:46.000 --> 00:00:47.760 Thanks for having me. 11 00:00:47.760 --> 00:00:50.320 Well, I guess, Bob, I should say welcome back. 12 00:00:50.320 --> 00:00:56.720 You know, it's been a while since our last visit together on the air in October. 13 00:00:56.720 --> 00:00:58.960 What's happened since then, to say the least? 14 00:00:58.960 --> 00:01:01.720 The government's certainly grown since the last we talked. 15 00:01:01.720 --> 00:01:02.720 Yeah. 16 00:01:02.720 --> 00:01:03.720 Hasn't it? 17 00:01:03.720 --> 00:01:08.440 Well, what I wanted to start off with, Bob, is let's talk a little bit about your new 18 00:01:08.440 --> 00:01:13.720 book, The Politically Incorrect Guide to the Great Depression and the New Deal. 19 00:01:13.720 --> 00:01:15.600 What was your inspiration for this book? 20 00:01:15.600 --> 00:01:21.600 Well, I had known for a while, ever since reading Rothbard's History of the Great Depression, 21 00:01:21.600 --> 00:01:25.680 that what you learn in school is wrong, that it's not true that Herbert Hoover sat back 22 00:01:25.680 --> 00:01:55.680 And I want to dig into, that's one of the issues I'd like to dig into, the Obama 23 00:01:55.680 --> 00:01:56.680 FDR Comparison. 24 00:01:56.680 --> 00:02:04.800 But one thing I was going to ask you here, Bob, on the first page, you say most of what 25 00:02:04.800 --> 00:02:10.120 we've been told about the Great Depression and the New Deal was utterly false. 26 00:02:10.120 --> 00:02:15.200 So what were the three biggest lies we've been taught in school? 27 00:02:15.200 --> 00:02:21.760 I think one of them is the claim that it was pure unregulated capitalism that led to the 28 00:02:21.760 --> 00:02:24.880 stock market crash and the Great Depression. 29 00:02:24.880 --> 00:02:29.240 Another lie is that Herbert Hoover sat back and did nothing. 30 00:02:29.240 --> 00:02:34.960 And then another lie is that FDR, New Deal got us out of it, or a related thing that's 31 00:02:34.960 --> 00:02:39.240 just false is that it was World War II military spending that got us out of the Depression. 32 00:02:39.240 --> 00:02:40.240 Okay. 33 00:02:40.240 --> 00:02:52.160 So, let's talk a little bit about this comparison you make in your book, Bob, which I think 34 00:02:52.160 --> 00:03:01.520 is really well done in your book. You compare George W. Bush to Hoover and Obama to FDR. 35 00:03:01.520 --> 00:03:10.360 So if we start off first with the Bush-Hoover comparison and the whole idea of the laissez-faire, 36 00:03:10.360 --> 00:03:16.920 hands-off, free market advocate, you're saying that that's false for both Bush and Hoover, 37 00:03:16.920 --> 00:03:17.920 is that right? 38 00:03:17.920 --> 00:03:23.800 Right, so it is ironic that the people who typically are fans of Barack Obama and are 39 00:03:23.800 --> 00:03:28.160 saying that Bush was like Hoover and Barack Obama is going to be like FDR, I actually 40 00:03:28.160 --> 00:03:32.280 agree with them, but not for the reasons they think, because like you just said, they think 41 00:03:32.280 --> 00:03:37.760 that George Bush was this big guy who trusted in free markets and cut the government, and 42 00:03:37.760 --> 00:03:40.840 that's what led to disaster, and they think the same thing of Herbert Hoover, but the 43 00:03:40.840 --> 00:03:44.700 opposite is true, that Hoover was a big interventionist. 44 00:03:44.700 --> 00:03:49.180 He actually, when the stock market crashed in 29, he called on all the big business 45 00:03:49.180 --> 00:03:51.260 leaders and told them, don't cut wage rates. 46 00:03:51.260 --> 00:03:55.620 He thought that was, it made sense from an individual business' point of view to try 47 00:03:55.620 --> 00:03:59.940 to restore profitability by cutting wages or firing people. 48 00:03:59.940 --> 00:04:04.380 But Hoover thought that no, if all businesses at the same time do that, it's collectively 49 00:04:04.380 --> 00:04:10.540 crazy because then the workers lose purchasing power and so it just intensifies the depression. 50 00:04:10.540 --> 00:04:15.940 So what you had was the fact that wages were staying the same while prices in general were 51 00:04:15.940 --> 00:04:22.860 falling in the 29, 30, 31 and so workers got artificially more and more expensive because 52 00:04:22.860 --> 00:04:26.940 their price stayed the same while everything else got cheaper and so that's why unemployment 53 00:04:26.940 --> 00:04:27.940 went up so much. 54 00:04:27.940 --> 00:04:32.340 So I think that was the single biggest mistake that Hoover made and again that was pure intervention 55 00:04:32.340 --> 00:04:36.700 from DC, him telling businesses how much to pay their workers but he did all sorts of 56 00:04:36.700 --> 00:04:37.700 other things too. 57 00:04:37.700 --> 00:04:39.800 and Massively Increased Government Spending. 58 00:04:39.800 --> 00:04:43.500 He ran what at the time were record deficits for peacetime. 59 00:04:43.500 --> 00:04:47.900 He started all sorts of public works programs, including the Hoover Dam. 60 00:04:47.900 --> 00:04:53.200 And he even started a Reconstruction Finance Corporation, which had over a billion dollars 61 00:04:53.200 --> 00:04:58.220 at its inception to prop up banks that had made bad loans during the 20's. 62 00:04:58.220 --> 00:05:03.740 All the types of things that actually George Bush started and FDR, you know, his New Deal 63 00:05:03.740 --> 00:05:07.240 wasn't some qualitatively different approach from what Hoover had done. 64 00:05:07.240 --> 00:05:12.720 was just, you know, he upped the ante. And the same thing, what Barack Obama is doing 65 00:05:12.720 --> 00:05:16.800 is in the same spirit of all the things that George Bush did under his administration, 66 00:05:16.800 --> 00:05:18.280 it's just he bumped up the numbers. 67 00:05:18.280 --> 00:05:24.680 You know, I don't, let me ask you this, Bob, I don't know the exact numbers on this, but 68 00:05:24.680 --> 00:05:31.360 as I recall reading recently, Bush actually doubled the federal debt, if I'm not mistaken, 69 00:05:31.360 --> 00:05:32.800 isn't that right? 70 00:05:32.800 --> 00:05:36.080 I don't know the exact numbers off the top of my head, but that sounds like it's probably 71 00:05:36.080 --> 00:05:37.080 Correct. 72 00:05:37.080 --> 00:05:42.080 Because I thought I read numbers, and don't quote me on this, but I think it went from 73 00:05:42.080 --> 00:05:47.440 like four and a half trillion to nine trillion or something in that range. 74 00:05:47.440 --> 00:05:53.440 So I think, back to your point, Bush obviously did a lot to grow the government. 75 00:05:53.440 --> 00:05:59.520 He certainly wasn't trying to restrain the government in any kind of way. 76 00:05:59.520 --> 00:06:00.520 Right. 77 00:06:00.520 --> 00:06:03.360 I mean, just at the end of his administration, and I think he was acting under horrible advice 78 00:06:03.360 --> 00:06:08.540 from his Treasury Secretary and the Fed Chairman, but be that as it may, George Bush signed 79 00:06:08.540 --> 00:06:12.240 off on partial nationalization of the banks. 80 00:06:12.240 --> 00:06:15.920 What more could he do to show that he's not a laissez-faire guy than having Washington 81 00:06:15.920 --> 00:06:17.400 take over the banking system? 82 00:06:17.400 --> 00:06:18.400 Good point. 83 00:06:18.400 --> 00:06:22.520 Bob, let me go back to... 84 00:06:22.520 --> 00:06:28.640 We'll talk about Obama and FDR in a few minutes, but you made an interesting point there about 85 00:06:28.640 --> 00:06:35.800 Hoover trying to hold wages up, which I guess, at first glance you might say, well, that's 86 00:06:35.800 --> 00:06:41.440 a nice thing to do for the workers, but I think as you talk about it in the book, if 87 00:06:41.440 --> 00:06:47.120 you hold wages artificially high, that's what created such terrible unemployment. 88 00:06:47.120 --> 00:06:58.360 As I recall too, I think Henry Ford was actually talking about raising wages, which to me 89 00:06:58.360 --> 00:07:04.560 For me, it seems obvious that that would cause tremendous unemployment, and a point you make 90 00:07:04.560 --> 00:07:10.280 in the book too, Bob, and let me see, it's page 176 here, you talk about wages need to 91 00:07:10.280 --> 00:07:11.280 fall. 92 00:07:11.280 --> 00:07:16.880 I remember about a year ago, I made the statement that American auto workers were overpaid and 93 00:07:16.880 --> 00:07:22.960 I got just countless ugly emails about that, but talk about that a little bit, Bob, when 94 00:07:22.960 --> 00:07:28.080 you're talking about wages need to fall, are you just me and mean or why are you saying 95 00:07:28.080 --> 00:07:58.080 Well, I hope I'm not just being mean. But yeah, I mean, this is Econ 101 here that if there's too much of a product, if a store is trying to sell TVs and the TVs are just sitting on the shelf and they can't get them off the shelf, what do they do? They cut the price. That's how they get rid of them. That's what you do when you have a surplus or a glut of something. You have to lower the unit price until people buy up all the available supply. So what does it mean when unemployment keeps rising? It means that workers are priced too high. 96 00:07:58.080 --> 00:08:02.920 I mean that they're immoral or greedy or that there's something wrong with them. 97 00:08:02.920 --> 00:08:07.680 It just means for whatever reason, the conditions in the economy are such that at that particular 98 00:08:07.680 --> 00:08:11.760 wage rate, businesses don't want to hire as many people as people want to work. 99 00:08:11.760 --> 00:08:17.320 That means people can't find jobs, so the way you fix that is the wage rate has to come 100 00:08:17.320 --> 00:08:18.320 down. 101 00:08:18.320 --> 00:08:23.960 So, again, what happened under the Hoover administration, because this was unprecedented. 102 00:08:23.960 --> 00:08:31.840 went up to, by some estimates, it got up to 28% in March of 1933, right when Hoover handed 103 00:08:31.840 --> 00:08:37.760 over to FDR and that is just hands down the worst that's ever been in US history before 104 00:08:37.760 --> 00:08:38.760 or since. 105 00:08:38.760 --> 00:08:42.440 So the question is, what was different about the Hoover administration, why did unemployment 106 00:08:42.440 --> 00:08:43.440 get so bad? 107 00:08:43.440 --> 00:08:48.560 Because there had been depression with a small D before then and there had been recessions 108 00:08:48.560 --> 00:08:52.180 because they call them depression after that one since then, but unemployment never got 109 00:08:52.180 --> 00:08:53.180 anywhere near that. 110 00:08:53.180 --> 00:08:59.180 The difference was here that the U.S. was still on the gold standard, and so that meant 111 00:08:59.180 --> 00:09:04.540 the Fed really couldn't print too much money, and so prices in general started falling. 112 00:09:04.540 --> 00:09:06.980 Because people were scared, they took their money out of the banks, and that tended to 113 00:09:06.980 --> 00:09:07.980 shrink the money supply. 114 00:09:07.980 --> 00:09:12.100 So there was less money in the economy, so that means prices were falling, except the 115 00:09:12.100 --> 00:09:17.020 one price that wasn't allowed to fall because of the president's moralizing from the bully 116 00:09:17.020 --> 00:09:24.060 Poll Pit and some other action he leaned against the businesses behind the scenes, they didn't 117 00:09:24.060 --> 00:09:28.260 want to cut wage rates and so there's no way around that. 118 00:09:28.260 --> 00:09:31.860 If wage rates are staying the same while every other price is falling, if you're a business 119 00:09:31.860 --> 00:09:35.940 person, you're getting less revenue from your customers, but you're still paying the same 120 00:09:35.940 --> 00:09:40.300 per hour of labor, you're going to cut back on how much labor you hire and so that means 121 00:09:40.300 --> 00:09:41.300 unemployment. 122 00:09:41.300 --> 00:09:48.460 So it's true, if you kept your job during the Depression, ironically you actually did 123 00:09:48.460 --> 00:09:49.460 much better. 124 00:09:49.460 --> 00:09:55.180 The real wages, the wages adjusted for the cost of living, rose more quickly in the early 125 00:09:55.180 --> 00:09:58.700 30s than they had during the roaring 20s. 126 00:09:58.700 --> 00:10:03.580 So the people who kept their job, their paycheck kept going farther and farther because all 127 00:10:03.580 --> 00:10:08.060 the prices around them kept falling, but that really wasn't much consolation for the up 128 00:10:08.060 --> 00:10:12.700 to 25% of the people who couldn't get a job by 1933. 129 00:10:12.700 --> 00:10:16.620 So it helps workers if you keep your job, but it certainly doesn't help you if you 130 00:10:16.620 --> 00:10:19.420 get laid off and then you can't get work. 131 00:10:19.420 --> 00:10:25.660 Yeah, that is a great point. 132 00:10:25.660 --> 00:10:32.820 When you look at situations like, and the comment I'm referring to, Bob, is I was talking 133 00:10:32.820 --> 00:10:39.460 about American auto workers being overpaid and you can't imagine how many ugly emails 134 00:10:39.460 --> 00:10:41.260 I got about that. 135 00:10:41.260 --> 00:10:47.460 But are we starting to see that in some industries now where they actually are lowering wages 136 00:10:47.460 --> 00:10:49.860 and isn't that ultimately a good thing? 137 00:10:49.860 --> 00:10:55.540 Yeah, I mean that's what needs to happen because part of what's going on here in our current 138 00:10:55.540 --> 00:11:01.380 situation and this is also true back in the early 30s is there was a big boom that I would 139 00:11:01.380 --> 00:11:03.900 to argue was caused by the Federal Reserve. 140 00:11:03.900 --> 00:11:08.060 And so lots of different lines were started in our time with our current crisis. 141 00:11:08.060 --> 00:11:12.380 Obviously, a lot of those resources went into housing, a lot of resources went into the 142 00:11:12.380 --> 00:11:13.380 financial sector. 143 00:11:13.380 --> 00:11:18.180 And so you had too many workers flowing into those industries and their profitability was 144 00:11:18.180 --> 00:11:22.660 exaggerated because of the bubble mentality. 145 00:11:22.660 --> 00:11:26.180 And now the bubble pops, people realize, wait a minute, these workers aren't worth as much 146 00:11:26.180 --> 00:11:27.940 as we had been paying them. 147 00:11:27.940 --> 00:11:29.700 And so something needs to give. 148 00:11:29.700 --> 00:11:34.620 You need to get workers flowing out of those sectors into other sectors, and the way you 149 00:11:34.620 --> 00:11:39.140 do that in a market economy is not that some dictator orders them around and tells them 150 00:11:39.140 --> 00:11:43.140 where to go and says, okay, you guys were building houses in Nevada, now you need to 151 00:11:43.140 --> 00:11:44.140 go do something else. 152 00:11:44.140 --> 00:11:50.260 No, the way it happens in the market is wage rates fall, and so workers leave that particular 153 00:11:50.260 --> 00:11:54.980 sector because it's not as attractive, and they go somewhere else. 154 00:11:54.980 --> 00:11:56.540 And there's no way around that. 155 00:11:56.540 --> 00:12:01.040 the government comes in and tries to prop up those bloated sectors like the 156 00:12:01.040 --> 00:12:05.360 government has been doing to try to keep house prices up all it's going to do is 157 00:12:05.360 --> 00:12:10.100 perpetuate this unsustainable bubble that the quickest way to resolve this to 158 00:12:10.100 --> 00:12:14.700 get on with life is that overpriced housing needs to come down and workers 159 00:12:14.700 --> 00:12:18.980 who are in housing who are also overpriced their wages need to fall so 160 00:12:18.980 --> 00:12:23.940 they need to so some of those workers need to flow in other sectors so I guess 161 00:12:23.940 --> 00:12:29.780 To sum up the Bush-Hoover comparison, we're really saying that they were both painted 162 00:12:29.780 --> 00:12:39.180 as a hands-off, laissez-faire, free market, when they actually did a lot to grow the government. 163 00:12:39.180 --> 00:12:41.660 So is that a good way to sum that comparison up? 164 00:12:41.660 --> 00:12:42.660 Sure. 165 00:12:42.660 --> 00:12:47.860 I mean, just to go back to George Bush a little bit, by almost any metric you pick, he was 166 00:12:47.860 --> 00:12:48.860 a big government person. 167 00:12:48.860 --> 00:12:53.340 It would be, first of all, just how much he added to the debt, as you mentioned, before 168 00:12:53.340 --> 00:12:57.460 Before the break and the size of government, a lot of people say, oh, well, sure, he spent 169 00:12:57.460 --> 00:12:58.460 a lot on the military. 170 00:12:58.460 --> 00:13:03.500 But even if you just look at domestic expenditures, they rose at a fairly sharp clip under a bush. 171 00:13:03.500 --> 00:13:07.740 He had the prescription drug benefit plan and even things in terms of regulation. 172 00:13:07.740 --> 00:13:15.140 I mean, people forget that Enron collapsed and then the SEC got all sorts of extra money 173 00:13:15.140 --> 00:13:19.860 for its budgets to hire new regulators and so forth because people thought it was because 174 00:13:19.860 --> 00:13:23.300 So, there are a lot of numbers of poorly regulated markets that Enron was allowed to run wild 175 00:13:23.300 --> 00:13:26.260 and that's why we need to beef up the SEC. 176 00:13:26.260 --> 00:13:32.100 So it may be that the SEC didn't do anything useful in terms of watching companies, but 177 00:13:32.100 --> 00:13:36.820 again, that just proves the point that it's silly to trust people in Washington to ensure 178 00:13:36.820 --> 00:13:37.820 financial integrity. 179 00:13:37.820 --> 00:13:43.880 But my point is just this idea that George Bush was gutting domestic programs because 180 00:13:43.880 --> 00:13:46.140 he was a small government man, I mean, that's just absurd. 181 00:13:46.140 --> 00:13:48.360 Just look at the numbers of budgets of various departments. 182 00:13:48.360 --> 00:13:51.360 That's absolutely true. 183 00:13:51.360 --> 00:13:57.360 So let's move on and talk a little bit about this Obama-FDR comparison. 184 00:13:57.360 --> 00:14:04.360 Obviously there was staggering growth in government programs in the 30s under FDR. 185 00:14:04.360 --> 00:14:17.360 I guess my thought there, Bob, is how can people deny that Obama is basically just following the FDR? 186 00:14:17.360 --> 00:14:18.360 Plan. 187 00:14:18.360 --> 00:14:26.240 Well, I think actually a lot of his proponents or his supporters don't deny it. 188 00:14:26.240 --> 00:14:31.560 They probably like the comparison between the two because they think that FDR, New Deal 189 00:14:31.560 --> 00:14:36.040 got us out of the Great Depression and just as they think it's going to take Barack Obama's 190 00:14:36.040 --> 00:14:41.360 large interventions to rescue us from the deregulated economy that George Bush bequeathed 191 00:14:41.360 --> 00:14:42.360 to us. 192 00:14:42.360 --> 00:14:47.460 So, I actually haven't seen too many people denying that Barack Obama is like FDR. The 193 00:14:47.460 --> 00:14:52.280 only thing I do see people saying is a lot of people will say, you know, it's silly 194 00:14:52.280 --> 00:14:57.800 to say the current crisis is anywhere near as bad as the Great Depression. And I think 195 00:14:57.800 --> 00:15:04.640 that is true by several measures. If our economy all of a sudden was back to normal tomorrow, 196 00:15:04.640 --> 00:15:07.960 what we just went through the last two years would not have been considered to be anywhere 197 00:15:07.960 --> 00:15:12.600 in the Great Depression, but it's what I think is coming in the future that will make 198 00:15:12.600 --> 00:15:16.240 future historians look back right now and say this was the beginning of a pretty bad 199 00:15:16.240 --> 00:15:17.240 downturn. 200 00:15:17.240 --> 00:15:21.440 Let me ask you a question there, Bob. 201 00:15:21.440 --> 00:15:27.880 I talked about this on other shows and my listeners are interested in this whole idea. 202 00:15:27.880 --> 00:15:36.440 Obviously, we all know that the Federal Reserve expanded the money supply in the late 20s 203 00:15:36.440 --> 00:15:39.440 and then contracted it dramatically in the thirties. 204 00:15:39.440 --> 00:15:46.440 So, tell me if I'm wrong here, because it seems like we'll have a different effect now, 205 00:15:46.440 --> 00:15:53.440 because here we had the Federal Reserve expanding the money supply dramatically in the nineties, 206 00:15:53.440 --> 00:15:58.440 and then expanding the money supply even more now. 207 00:15:58.440 --> 00:16:04.440 So, isn't the effect here, Bob, that would just push the problem into the future? 208 00:16:04.440 --> 00:16:34.440 to put it a different way what happened after the dot-com crash number in 2000 2001 is that you know there would have been a pretty bad recession then and Alan Greenspan didn't want to tolerate that he said no no let's give a soft landing he took interest rates down to 1% held him there for a year from June 03 to June 04 and then we got through that without too much pain and everyone was calling him the maestro and saying wow that was amazing 209 00:16:34.440 --> 00:16:40.120 And so we managed to recover from the dot-com crash without any significant impact to the 210 00:16:40.120 --> 00:16:41.120 real economy. 211 00:16:41.120 --> 00:16:46.940 And so Alan Greenspan is a genius, but of course now more and more economists are blaming 212 00:16:46.940 --> 00:16:51.480 the housing bubble on what Greenspan did and they realized that maybe we should have just 213 00:16:51.480 --> 00:16:57.320 taken our lumps back after the dot-com crash and we could have avoided the boom bust of 214 00:16:57.320 --> 00:16:58.320 the housing sector. 215 00:16:58.320 --> 00:17:02.760 And so just as you say, I think that's what's going to happen now, that Bernanke is now 216 00:17:02.760 --> 00:17:07.480 Now taking rates down to basically zero percent, pumping in truly an unprecedented amount of 217 00:17:07.480 --> 00:17:12.920 money into the banking sector, doing all sorts of measures to prop up banks that made bad 218 00:17:12.920 --> 00:17:19.640 loans and investments in mortgage-backed securities, and it might provide some short-term relief 219 00:17:19.640 --> 00:17:23.880 that I think certainly unemployment would be higher right now if it were not for all 220 00:17:23.880 --> 00:17:26.200 these Fed interventions. 221 00:17:26.200 --> 00:17:30.600 But still, you can't get around the fact that malinvestments were made during the boom. 222 00:17:30.600 --> 00:17:35.520 Too many resources went into housing, too many resources went into the financial sector. 223 00:17:35.520 --> 00:17:41.480 You can't undo those mistakes just by printing up green pieces of paper and so at some point 224 00:17:41.480 --> 00:17:47.040 the piper is going to have to be paid and it will be that much worse because of all 225 00:17:47.040 --> 00:17:53.520 these interventions now, just like the housing bubble in Boston was a lot worse because of 226 00:17:53.520 --> 00:17:57.680 Greenspan's unwillingness to suffer the recession after the dot com crash. 227 00:17:57.680 --> 00:18:02.480 I think what you're saying, too, it's really interesting, Bob, because you're talking 228 00:18:02.480 --> 00:18:08.760 about when the government prints all this extra money, you have malinvestment because 229 00:18:08.760 --> 00:18:13.640 it's sending false signals to the economy. 230 00:18:13.640 --> 00:18:20.360 So I guess we'd all be billionaires if we knew this, but where is all that extra money 231 00:18:20.360 --> 00:18:21.360 going? 232 00:18:21.360 --> 00:18:25.000 Are we going to have another commodity boom of some sort? 233 00:18:25.000 --> 00:18:30.840 I guess we're going to inflate the economy in general. 234 00:18:30.840 --> 00:18:36.080 Gas prices will go up and everything else will go up, but does a large amount of that, 235 00:18:36.080 --> 00:18:42.360 is it heading for another housing kind of boom or dot-com kind of boom? 236 00:18:42.360 --> 00:18:43.920 It's a great question and you're right. 237 00:18:43.920 --> 00:18:48.320 If we knew the answer to that with any certainty, if we wouldn't be on the radio, we'd be out 238 00:18:48.320 --> 00:18:51.800 at a pool somewhere in the Bahamas. 239 00:18:51.800 --> 00:18:54.680 I'm not sure exactly, I think there's a couple of things going on. 240 00:18:54.680 --> 00:19:00.800 So one thing for sure is that if Bernanke had not increased the money supply so much, 241 00:19:00.800 --> 00:19:04.920 then, and just to make sure your listeners understand, so there's two separate things. 242 00:19:04.920 --> 00:19:11.720 There's what's called the monetary base, and that's the reserves that the banks themselves 243 00:19:11.720 --> 00:19:14.080 hold with the Federal Reserve. 244 00:19:14.080 --> 00:19:18.440 So it's like the checking account of a bank with the Fed, is the Fed being the banker 245 00:19:18.440 --> 00:19:24.320 of the bank, and then the cash in the vaults, and so those are the high-powered money. 246 00:19:24.320 --> 00:19:29.240 So those things have literally basically doubled in about six months, and so that's just the 247 00:19:29.240 --> 00:19:30.960 unprecedented increase. 248 00:19:30.960 --> 00:19:35.600 But beyond that, just the money held by the public, checking account balances and cashing 249 00:19:35.600 --> 00:19:41.360 people's wallets and so forth, that figure went up about 17% over the course of 2008. 250 00:19:41.360 --> 00:19:44.960 So that's not unprecedented, but that's a pretty big increase. 251 00:19:44.960 --> 00:19:48.920 And yet, as we all know, prices were fairly flat over the course of the year. 252 00:19:48.920 --> 00:19:52.560 They actually came down a little bit in the last quarter of 2008. 253 00:19:52.560 --> 00:19:57.000 So I think what you would have seen if Bernanke had just stayed pat and not pumped in all 254 00:19:57.000 --> 00:20:02.480 this new money, you would have seen prices come down a lot, which is what we were earlier 255 00:20:02.480 --> 00:20:07.160 saying needs to happen for the economy to adjust and to correct for these mistakes. 256 00:20:07.160 --> 00:20:11.840 And so I think you see inflation in the sense that relative to what the baseline would have 257 00:20:11.840 --> 00:20:16.620 been, prices are a lot higher now because of that money pumping, the things that would 258 00:20:16.620 --> 00:20:21.240 have come down a lot in price, you know, homes would have fallen in price, milk, eggs and 259 00:20:21.240 --> 00:20:25.920 and so forth. Gasoline would have fallen even more, but those things were propped up a little 260 00:20:25.920 --> 00:20:30.160 bit. Their fall was arrested by pumping in all this new money. But other than that, if 261 00:20:30.160 --> 00:20:36.440 people ask me what sector right now do I think is in a bubble, I think it's U.S. treasuries 262 00:20:36.440 --> 00:20:42.080 to be honest. It really doesn't make much sense when the U.S. is running a $1.8 trillion 263 00:20:42.080 --> 00:20:48.880 deficit and there's just more deficits as far as the eye can see and everyone is becoming 264 00:20:48.880 --> 00:20:53.120 and more and more alarmed at the financial solvency of even the US government and they 265 00:20:53.120 --> 00:20:58.120 know that if the economy continues to nosedive all these investments that Fannie and Freddie 266 00:20:58.120 --> 00:21:03.260 have made, FDIC, all these other things are very vulnerable, it's odd that US treasuries 267 00:21:03.260 --> 00:21:08.880 have become a sort of safe haven and I think that once that spell is broken, it'll just 268 00:21:08.880 --> 00:21:14.680 take a central bank somewhere to stop buying US treasuries and I think there'll be a stampede 269 00:21:14.680 --> 00:21:15.680 at that point. 270 00:21:15.680 --> 00:21:20.920 And so that's the one commodity or one asset that I'm worried about just collapsing overnight 271 00:21:20.920 --> 00:21:25.000 if psychology changes with the U.S. Treasuries and indirectly the dollar itself. 272 00:21:25.000 --> 00:21:33.760 That is a fascinating point and I guess what we're saying there too, Bob, is the dollar 273 00:21:33.760 --> 00:21:38.400 is fairly strong against some of the other major currencies because the other governments 274 00:21:38.400 --> 00:21:39.960 are inflating as well. 275 00:21:39.960 --> 00:21:46.600 Well, I mean, that's certainly a part of it, but if you look at the relative amount of 276 00:21:46.600 --> 00:21:51.520 how much each central bank has pumped in, I mean obviously Bernanke has been more responsible 277 00:21:51.520 --> 00:21:55.920 than the central banker of Zimbabwe, I'm not saying he's in that league, but I mean 278 00:21:55.920 --> 00:21:59.880 compared to the European Central Bank and some other ones, Bernanke, especially in the 279 00:21:59.880 --> 00:22:06.160 last half of 2008, just left them all in the dust with how much money he pumped in, and 280 00:22:06.160 --> 00:22:10.000 And I think partly it was because he could get away with it, that because the dollar 281 00:22:10.000 --> 00:22:14.960 still is the world's reserve currency, other countries around the world, their central 282 00:22:14.960 --> 00:22:20.040 banks stockpile dollars as if it's gold, right? 283 00:22:20.040 --> 00:22:24.720 They view that as a safe asset, as something backing up their own currencies, they have 284 00:22:24.720 --> 00:22:26.080 the US dollar. 285 00:22:26.080 --> 00:22:28.640 But I think more and more people are backing off that. 286 00:22:28.640 --> 00:22:33.160 You see central bankers around the world openly discussing, well, maybe we should move away 287 00:22:33.160 --> 00:22:34.160 from the dollar. 288 00:22:34.160 --> 00:22:35.160 Maybe we should have a basket of currencies. 289 00:22:35.160 --> 00:22:37.520 And they didn't talk like that even just three years ago. 290 00:22:37.520 --> 00:22:42.860 That would have been unheard of for central bankers to question the integrity of the dollar. 291 00:22:42.860 --> 00:22:48.120 And so I think it really is a matter of no one wants to be the first one to start a stampede, 292 00:22:48.120 --> 00:22:53.840 especially like China that's sitting on hundreds of billions of dollars worth of assets denominated 293 00:22:53.840 --> 00:22:54.840 in dollars. 294 00:22:54.840 --> 00:22:56.800 You know, they have all these treasury bills. 295 00:22:56.800 --> 00:23:00.520 It's not in China's interest for the dollar to crash, but at the same time, they don't 296 00:23:00.520 --> 00:23:05.680 I just want to keep accumulating these huge reserves and never growing stockpile of dollars 297 00:23:05.680 --> 00:23:07.960 when Bernanke is running the printing press like crazy. 298 00:23:07.960 --> 00:23:11.480 So it's sort of an odd strategic situation. 299 00:23:11.480 --> 00:23:14.600 All the central bankers are locked in where they all are sitting on dollars and they don't 300 00:23:14.600 --> 00:23:15.600 want it to collapse. 301 00:23:15.600 --> 00:23:18.160 But yet, Bernanke just keeps printing with reckless abandon. 302 00:23:18.160 --> 00:23:19.160 Right. 303 00:23:19.160 --> 00:23:23.440 Well, that's an interesting and terrifying point. 304 00:23:23.440 --> 00:23:25.720 My guest today is Dr. Robert Murphy. 305 00:23:25.720 --> 00:23:31.720 He's the author of The Politically Incorrect Guide to the Great Depression and the New Deal. 306 00:23:31.720 --> 00:23:41.720 And Bob, during the break, I made a comment to you that I've been watching CNBC and there seemed to be a number of people talking about, 307 00:23:41.720 --> 00:23:45.720 well, it's all over and everything is up from here. 308 00:23:45.720 --> 00:23:51.920 And the question I was asking you during the break, Bob, was is there a possibility that 309 00:23:51.920 --> 00:23:59.720 we're going to have one of these 1937-38 style depression within the depression type 310 00:23:59.720 --> 00:24:00.720 of things? 311 00:24:00.720 --> 00:24:07.960 Because initially when FDR took the reins, it looked like things were going to turn up 312 00:24:07.960 --> 00:24:11.000 and then we had an even deeper depression within that depression. 313 00:24:11.000 --> 00:24:13.240 Is there another bump in the road coming? 314 00:24:13.240 --> 00:24:19.640 Oh, I definitely think so. And I mean, this is something where if you believe in free 315 00:24:19.640 --> 00:24:23.720 markets, if you think that capitalism works better than central planning, then how can 316 00:24:23.720 --> 00:24:30.200 you not think the US economy is just in store for a decade of stagnation at this point? 317 00:24:30.200 --> 00:24:34.440 Because look at all the things they've done. Let me put it this way. If you two years ago 318 00:24:34.440 --> 00:24:40.200 gave me a pen and paper and said, go ahead and write out a plan for crippling the US 319 00:24:40.200 --> 00:24:45.720 and then also the cause you know price inflation while you're at it I would say 320 00:24:45.720 --> 00:24:49.040 okay well the government takes over the banks how about to take over car 321 00:24:49.040 --> 00:24:52.320 companies how about they take over health care how about they take over 322 00:24:52.320 --> 00:24:56.720 energy markets with cap and trade let's run oh gee a 1.8 trillion dollar 323 00:24:56.720 --> 00:25:00.720 deficit in one year let's plan on doubling the debt is a fraction of the 324 00:25:00.720 --> 00:25:06.960 economy from 40% to 80% over 10 years let's let's strengthen unions let's 325 00:25:06.960 --> 00:25:11.600 start changing the rules and bankruptcy proceedings so that investors don't know whether their 326 00:25:11.600 --> 00:25:14.760 secured bonds will actually be honored according to the terms of the contract. 327 00:25:14.760 --> 00:25:18.360 I mean, I think you see what I'm doing here and I can just keep going on and on and these 328 00:25:18.360 --> 00:25:22.960 are all things that have been done and there's plenty more where that came from. 329 00:25:22.960 --> 00:25:28.720 So I mean, again, if you think that the free markets work better than central planning, 330 00:25:28.720 --> 00:25:33.160 how can you not think that the economy is just going to be awful and this is by far 331 00:25:33.160 --> 00:25:38.720 the most interventionist government since the 1930s, and we saw what happened the last 332 00:25:38.720 --> 00:25:43.280 time governments did this, that we were stuck in the Great Depression for a decade. 333 00:25:43.280 --> 00:25:47.640 So I think that, yes, this is people who are looking at certain indicators and saying, 334 00:25:47.640 --> 00:25:50.880 oh, things are turning around, we have green shoots, I guess is the phrase they use. 335 00:25:50.880 --> 00:25:52.960 I think that's very naive. 336 00:25:52.960 --> 00:25:57.760 And that, I mean, what happened in 1930, there were plenty of times when the stock market 337 00:25:57.760 --> 00:26:01.080 dipped back up a little bit and people at the time thought, okay, finally we're out 338 00:26:01.080 --> 00:26:02.080 of this thing. 339 00:26:02.080 --> 00:26:07.280 And they kept thinking that as it kept going down and down and down into 1933. 340 00:26:07.280 --> 00:26:10.480 So I think that unemployment is still going to keep going up. 341 00:26:10.480 --> 00:26:14.320 Now unemployment is not going to get nearly as bad as it was in the 30s because we're 342 00:26:14.320 --> 00:26:21.040 not going to have the price deflation that they had back then coupled with sticky wages. 343 00:26:21.040 --> 00:26:25.880 But I mean, other indicators besides unemployment I think are going to be pretty awful for at 344 00:26:25.880 --> 00:26:28.280 at least the next eight years. 345 00:26:28.280 --> 00:26:36.480 Yeah, it's hard to argue with that, Bob, if you give us that list of all the things 346 00:26:36.480 --> 00:26:39.960 that have been done just in the last year. 347 00:26:39.960 --> 00:26:45.280 At some point, as you've said, we have to pay the piper at some point. 348 00:26:45.280 --> 00:26:51.800 Right, and a particularly insidious intervention, I think, is the government partially nationalizing 349 00:26:51.800 --> 00:26:52.800 the banking system. 350 00:26:52.800 --> 00:26:56.160 And people, by the way, who think, oh, well, don't worry, those banks will repay the TART 351 00:26:56.160 --> 00:26:59.640 money and then that'll be the end of it, we'll be back to a free system. 352 00:26:59.640 --> 00:27:03.560 I think that's very naive, too, because look, the government, these banks have wanted to 353 00:27:03.560 --> 00:27:04.560 pay back the TART. 354 00:27:04.560 --> 00:27:08.240 Many of these banks were forced to take the TART money in the first place under Treasury 355 00:27:08.240 --> 00:27:09.240 Secretary Paulson. 356 00:27:09.240 --> 00:27:13.840 He called them all in and gave them, you know, their handouts explaining how much of the 357 00:27:13.840 --> 00:27:14.840 TART money they were going to take. 358 00:27:14.840 --> 00:27:18.280 And he basically told them, we're not leaving this room until you all sign off on this. 359 00:27:18.280 --> 00:27:21.720 And so now as we know, there are banks who want to give back the TART money. 360 00:27:51.720 --> 00:27:58.280 to grow over time, if that process gets sabotaged, which it will because now it's all politicized, 361 00:27:58.280 --> 00:28:04.040 that has to affect the growth of GDP and other more standard measures of economic performance 362 00:28:04.040 --> 00:28:06.080 if you sabotage the banking system. 363 00:28:06.080 --> 00:28:10.880 Yeah, it's hard to argue with that. 364 00:28:10.880 --> 00:28:16.220 Let me ask you, there's an interesting point in your book, too, Bob. 365 00:28:16.220 --> 00:28:21.620 You talk about before the Great Depression and before the Federal Reserve and so forth, 366 00:28:21.620 --> 00:28:29.780 there were panics, bubbles, business slowdowns throughout history, but they didn't last long. 367 00:28:29.780 --> 00:28:34.820 They would last 18 months, two years at the most where the Great Depression lasts more 368 00:28:34.820 --> 00:28:36.940 than a decade. 369 00:28:36.940 --> 00:28:40.980 So what can we learn from that? 370 00:28:40.980 --> 00:28:52.700 Could we just take the hit and have some high unemployment for a short period of time and 371 00:28:52.700 --> 00:28:55.220 suffer the pain but be done with it and move on? 372 00:28:55.220 --> 00:28:58.420 Is that a better strategy than what we're trying to do? 373 00:28:58.420 --> 00:28:59.420 I think it is, Mike. 374 00:28:59.420 --> 00:29:04.540 And again, just for your listeners to reiterate the point that the Great Depression was not 375 00:29:04.540 --> 00:29:08.540 the first major downturn in the American economy in US history. 376 00:29:08.540 --> 00:29:13.580 There were plenty of depressions with a small d or they actually called them panics before 377 00:29:13.580 --> 00:29:18.900 then which is sort of funny that I think under the Hoover administration the term depression 378 00:29:18.900 --> 00:29:22.740 was really pushed because it was a euphemism that it sounded better to say, oh, no, no, 379 00:29:22.740 --> 00:29:27.140 we're not in the midst of a panic, it's more of a depression and economic activity. 380 00:29:27.140 --> 00:29:32.780 And so they had plenty of those but like you say, they were typically over within two years, 381 00:29:32.780 --> 00:29:39.420 for years at the most, and when you ask, well, what did they do differently? 382 00:29:39.420 --> 00:29:43.540 Before Hoover, U.S. presidents really did adopt the laissez-faire stance. 383 00:29:43.540 --> 00:29:47.980 They didn't think that they had the constitutional ability for Washington to try to come in and 384 00:29:47.980 --> 00:29:50.060 micromanage the economy. 385 00:29:50.060 --> 00:29:54.220 They just thought that business cycles were natural and that you just had to suck it up 386 00:29:54.220 --> 00:29:58.620 and let things run their course, and eventually you'd return to normalcy, and that's what 387 00:29:58.620 --> 00:29:59.620 did happen. 388 00:29:59.620 --> 00:30:04.180 that, for example, the 1920-21 Depression was a pretty severe one. 389 00:30:04.180 --> 00:30:09.580 It was after World War I was over, the U.S. government massively cut its budget, the Federal 390 00:30:09.580 --> 00:30:14.340 Reserve tightened interest rates, and the money supply because there had been large 391 00:30:14.340 --> 00:30:16.100 price inflation during the war. 392 00:30:16.100 --> 00:30:21.460 And so all of the conventional explanations for why the Great Depression was so awful, 393 00:30:21.460 --> 00:30:27.060 those factors were all present times too during the 1920-21 Depression. 394 00:30:27.060 --> 00:30:30.500 Yet most Americans probably don't even know there was a depression during those years because 395 00:30:30.500 --> 00:30:33.740 we never learned about it because it was over within two years. 396 00:30:33.740 --> 00:30:38.460 And so it was only when you had activist government first under Hoover and then more so under 397 00:30:38.460 --> 00:30:41.580 FDR that the downturn lasted a decade. 398 00:30:41.580 --> 00:30:46.660 And so again, we know from the grand sweep of history that central planning doesn't 399 00:30:46.660 --> 00:30:47.660 work. 400 00:30:47.660 --> 00:30:51.140 And so why should it surprise us that when the US government comes the closest to outright 401 00:30:51.140 --> 00:30:56.540 socialism in its history that we also get the worst economy in US history? 402 00:30:56.540 --> 00:31:04.540 This is very simple stuff. You have to do mental gymnastics to twist it the other way so that it was a new deal that actually is a good idea. 403 00:31:06.540 --> 00:31:10.540 That's a really good point. Yeah, really interesting. 404 00:31:11.540 --> 00:31:21.540 Another related thing that I find really disturbing, Bob, is that we have some people saying, well, FDR's new deal got us out of the depression. 405 00:31:21.540 --> 00:31:27.740 of the Depression, and then I think what's even more disturbing is the people who are 406 00:31:27.740 --> 00:31:33.780 talking in terms of World War II got us out of the Depression, it seems like the implication 407 00:31:33.780 --> 00:31:40.580 there is just horrible, I mean people are basically saying to mass destruction and death 408 00:31:40.580 --> 00:31:47.380 would help the economy, we're not going to end up with something like that, or the government 409 00:31:47.380 --> 00:31:54.020 programs don't work and we end up in some massive war to try to stimulate the 410 00:31:54.020 --> 00:32:01.180 economy that would be a dreadful path to take. Right, exactly. And so you're 411 00:32:01.180 --> 00:32:05.740 right that it's important intellectually for people to realize that war is not 412 00:32:05.740 --> 00:32:10.460 beneficial to the economy and so not only is war awful for humanitarian 413 00:32:10.460 --> 00:32:14.020 reasons, it's also bad on the economy. That what you do during war 414 00:32:14.020 --> 00:32:19.940 time is resources that otherwise could have gone into homes and cars and television sets 415 00:32:19.940 --> 00:32:25.020 and other things that consumers want instead of going to making bombers and missiles and 416 00:32:25.020 --> 00:32:29.300 bullets that don't directly serve consumer welfare. 417 00:32:29.300 --> 00:32:34.700 So obviously if you're getting attacked and you need to defend yourself, you might argue 418 00:32:34.700 --> 00:32:39.740 that those resources are well spent towards military defense, but don't fool yourself 419 00:32:39.740 --> 00:32:43.980 into thinking that that's helping your economy at the same time because then, like you say, 420 00:32:43.980 --> 00:32:48.620 And you come to the perverse conclusion that whatever else he may have done that was awful, 421 00:32:48.620 --> 00:32:54.540 at least add up Hitler, fix the U.S. economy, and that's just crazy, it's not true. 422 00:32:54.540 --> 00:33:00.460 So in the book, I go through some of the statistical arguments, because on paper, it does look 423 00:33:00.460 --> 00:33:05.240 like the Depression ended when World War II started, that you see the official GDP figures 424 00:33:05.240 --> 00:33:10.740 go way up, you see unemployment rates come way down when the U.S. enters the war. 425 00:33:10.740 --> 00:33:15.060 So it's understandable how just naively looking at those statistics you would think that the 426 00:33:15.060 --> 00:33:18.580 war got us out of the depression. 427 00:33:18.580 --> 00:33:24.020 But just to give you a quick example of some of the fallacies involved, the reason unemployment 428 00:33:24.020 --> 00:33:29.240 fell is because FDR started taking millions of men and shipping them overseas to go fight 429 00:33:29.240 --> 00:33:30.360 the Nazis. 430 00:33:30.360 --> 00:33:31.840 So what is unemployment? 431 00:33:31.840 --> 00:33:35.480 It's measuring how many people are standing around without a job compared to the size 432 00:33:35.480 --> 00:33:36.480 of the workforce. 433 00:33:36.480 --> 00:33:42.040 So if you round up a million men and ship them across the ocean obviously the official unemployment rate is going to come down 434 00:33:42.040 --> 00:33:46.560 And it's nothing more mysterious than that and that's what happened. That's why those 435 00:33:47.320 --> 00:33:48.680 statistics turned around like that 436 00:33:48.680 --> 00:33:56.120 But clearly the economy itself in terms of the people on the home front and their standard of living suffered even more because of the war effort 437 00:33:57.760 --> 00:34:00.960 Yeah, it's a great point that people would be able to 438 00:34:00.960 --> 00:34:07.720 to spin those statistics like that because obviously in this country, as you're saying 439 00:34:07.720 --> 00:34:13.920 on the home front, we have rationing of absolutely everything and what a miserable period of time 440 00:34:13.920 --> 00:34:14.920 to live through. 441 00:34:14.920 --> 00:34:15.920 Sure. 442 00:34:15.920 --> 00:34:20.440 I mean, psychologically, they might have...the war might have been good in the sense that 443 00:34:20.440 --> 00:34:22.400 it took their minds off the depression, right? 444 00:34:22.400 --> 00:34:25.880 That during the depression, everyone's very self-centered and just worrying about getting 445 00:34:25.880 --> 00:34:30.000 a job and feeding their family and now all of a sudden, you're in a war against tyranny 446 00:34:30.000 --> 00:34:35.360 to save the free world from being dominated by dictators, so in a sense, people might 447 00:34:35.360 --> 00:34:40.040 not have perceived that their standard of living was lower in the 1940s than it had 448 00:34:40.040 --> 00:34:44.080 been like during 1938, but actually it was. 449 00:34:44.080 --> 00:34:50.440 If you look at the GDP figures of the size of the private sector, that continued to shrink 450 00:34:50.440 --> 00:34:51.440 through the 1940s. 451 00:34:51.440 --> 00:34:56.420 So even though the official GDP figures that went up, they were being inflated by military 452 00:34:56.420 --> 00:35:01.660 Purchases of Hardware, and so forth, that those numbers are basically nonsensical because 453 00:35:01.660 --> 00:35:07.460 the government comes in, spends a million dollars on ammunition, that's not the same 454 00:35:07.460 --> 00:35:14.140 thing as if a bunch of consumers spend a million dollars collectively on radios and automobiles. 455 00:35:14.140 --> 00:35:18.660 The government doesn't have the same incentive to watch how much money it spends, so to say 456 00:35:18.660 --> 00:35:23.260 the government spent a million dollars isn't really the same type of statement about economic 457 00:35:53.260 --> 00:35:58.380 General Motors is obviously in absolutely horrible shape, and as I was saying during 458 00:35:58.380 --> 00:36:02.740 the break, I used to do some consulting work for them, and I still have some friends working 459 00:36:02.740 --> 00:36:03.740 there. 460 00:36:03.740 --> 00:36:06.260 Where do you think that's going? 461 00:36:06.260 --> 00:36:12.300 Are we going to end up General Motors becomes government motors and we're producing green 462 00:36:12.300 --> 00:36:15.980 cars at taxpayer expense that nobody wants? 463 00:36:15.980 --> 00:36:17.540 Where's that going to end up? 464 00:36:17.540 --> 00:36:21.420 Yeah, I think you just hit the nail on the head. 465 00:36:21.420 --> 00:36:25.640 What they needed to do, the only way to make those companies viable was they really needed 466 00:36:25.640 --> 00:36:27.000 to just clean house. 467 00:36:27.000 --> 00:36:33.620 They needed to impose all sorts of cuts, both to the management, but also just the workers, 468 00:36:33.620 --> 00:36:38.180 how much they're getting paid, and it may have been necessary for some of the bondholders 469 00:36:38.180 --> 00:36:41.680 to take a haircut and so forth if they went bankrupt. 470 00:36:41.680 --> 00:36:46.380 But what's happened now is this is sort of the worst of both worlds where the private 471 00:36:46.380 --> 00:36:49.200 investors feel like they were defrauded. 472 00:36:49.200 --> 00:36:54.240 and they feel like their contractual rights were violated and so who in his right mind 473 00:36:54.240 --> 00:37:00.000 would lend more money to them or to any other sector that has a large union presence because 474 00:37:00.000 --> 00:37:04.480 they have seen now that if it goes to court, the government might just intervene on behalf 475 00:37:04.480 --> 00:37:10.040 of the unions and impose an unfair outcome on the private lenders. 476 00:37:10.040 --> 00:37:14.680 So those companies, nobody in the private sector is going to pump any money into them 477 00:37:14.680 --> 00:37:20.080 and then, yeah, with this latest cafe standard adjustment by pushing it forward four years, 478 00:37:20.080 --> 00:37:25.440 I mean, it's going to force them to have to produce cars that Americans don't want to 479 00:37:25.440 --> 00:37:26.440 buy. 480 00:37:26.440 --> 00:37:31.440 That the Americans who do want to get weak, fuel-efficient cars, they typically have gotten 481 00:37:31.440 --> 00:37:36.080 them from foreign manufacturers, whereas if you want a big SUV or a big truck, that's 482 00:37:36.080 --> 00:37:38.800 what the American producers were known for. 483 00:37:38.800 --> 00:37:44.600 And so these crazy cafe standards, I mean, it would be like passing a law that you're 484 00:37:44.600 --> 00:37:49.360 You're worried about Americans being overweight and so you pass a law saying that McDonald's 485 00:37:49.360 --> 00:37:55.160 has to have 20% of its sales being devoted to salads or something. 486 00:37:55.160 --> 00:37:57.600 That's what's going on here. 487 00:37:57.600 --> 00:38:01.360 It's understandable if you want to increase fuel efficiency, but then do something like 488 00:38:01.360 --> 00:38:05.520 change the tax code so that you get a tax credit if you buy a fuel efficient car, but 489 00:38:05.520 --> 00:38:10.600 just to mandate that the big three have to have a certain proportion of their cars being 490 00:38:10.600 --> 00:38:14.580 very highly fuel efficient to raise the average miles per gallon. 491 00:38:14.580 --> 00:38:16.820 It's the crazy regulation. 492 00:38:16.820 --> 00:38:21.980 So yeah, the big three at this point, and only two of them of course have been effectively 493 00:38:21.980 --> 00:38:27.380 nationalized, their future to me is hopeless at this point, they're just wards of the state 494 00:38:27.380 --> 00:38:28.380 right now. 495 00:38:28.380 --> 00:38:37.580 It's interesting too, I guess this is a whole different topic Bob, but what I see Obama's 496 00:38:37.580 --> 00:38:47.300 team promoting is that class war between the autoworkers and these nasty, greedy bondholders, 497 00:38:47.300 --> 00:38:52.580 but I think my heart goes out to the bondholders, I mean, as you were saying, these are people 498 00:38:52.580 --> 00:38:59.100 who invested their hard-earned money and supposedly had some kind of rights, legal rights that 499 00:38:59.100 --> 00:39:02.660 have just been trampled on, I'm really concerned about that. 500 00:39:02.660 --> 00:39:08.900 Yeah, that's true, and the thing that was very misleading was when the president got 501 00:39:08.900 --> 00:39:13.300 up on national television, I'm sure many of your listeners saw this clip, where he was 502 00:39:13.300 --> 00:39:16.620 saying something to the effect that, you know, I'm not going to side with these, some of 503 00:39:16.620 --> 00:39:20.180 these creditors, they want everyone else to take the pain, but not them, and they're insisting 504 00:39:20.180 --> 00:39:23.500 on twice the rate of return as some of the other people are, but the reason the other 505 00:39:23.500 --> 00:39:29.420 lenders agreed to those unfair terms was because they were banks that had taken TART money, 506 00:39:29.420 --> 00:39:35.260 So they weren't in a position to challenge the president because they were effectively 507 00:39:35.260 --> 00:39:37.020 controlled by the government already. 508 00:39:37.020 --> 00:39:44.420 This shows how insidious it is when the government starts taking over various sectors, it just 509 00:39:44.420 --> 00:39:49.280 multiplies its power and it can really lean on any of the remaining holdouts of people 510 00:39:49.280 --> 00:39:54.020 that are relatively private because not only does it seem like the government's against 511 00:39:54.020 --> 00:39:57.420 you but it seems like all the other big banks are against you because those in turn have 512 00:39:57.420 --> 00:39:59.420 that have been taken over by the government. 513 00:39:59.420 --> 00:40:01.420 That's right. 514 00:40:01.420 --> 00:40:04.420 Well, let's talk about this for a minute, Bob. 515 00:40:04.420 --> 00:40:08.420 I know both you and I are really concerned about inflation, 516 00:40:08.420 --> 00:40:11.420 about the rear edge, ugly head. 517 00:40:11.420 --> 00:40:16.420 With all the printing that the Federal Reserve is doing, 518 00:40:16.420 --> 00:40:20.420 isn't that just a matter of when it's going to explode? 519 00:40:20.420 --> 00:40:24.420 I think it is, and I should say as a caveat 520 00:40:24.420 --> 00:40:26.420 that other economists whom I respect, 521 00:40:26.420 --> 00:40:33.260 They think that I'm wrong and they think that the US is in store for a decade of low growth 522 00:40:33.260 --> 00:40:36.260 and deflation the way Japan went through. 523 00:40:36.260 --> 00:40:41.860 So there is some dispute, but even so I come down, you're right, I think that the great 524 00:40:41.860 --> 00:40:47.660 danger right now is that Bernanke has just printed so much money and that not only that, 525 00:40:47.660 --> 00:40:53.740 but the Obama administration, its planned deficits, as far as the eye can see, they're 526 00:40:53.740 --> 00:40:58.040 We're going to need to be borrowing more and more money, and if other countries stop lending 527 00:40:58.040 --> 00:41:02.260 it to us, I think what's going to happen is the Fed is basically going to just start printing 528 00:41:02.260 --> 00:41:06.860 up the money to cover the deficit, that the Fed already has really started buying not 529 00:41:06.860 --> 00:41:10.820 just short-term but long-term government debt, and I think you're just going to see that 530 00:41:10.820 --> 00:41:19.760 practice multiply once foreign creditors are no longer willing to finance our budget deficit. 531 00:41:19.760 --> 00:41:23.660 I personally think we're going to see it by the end of this year, but whenever it 532 00:41:23.660 --> 00:41:28.540 does hit, it's going to be bad because it's the sort of thing where everybody knows that 533 00:41:28.540 --> 00:41:33.180 Bernanke has printed up a bunch of money and we're sort of like the Wiley Coyote in the 534 00:41:33.180 --> 00:41:36.460 Roadrunner cartoons when he runs off the cliff but hasn't looked down yet and so he doesn't 535 00:41:36.460 --> 00:41:37.460 start falling. 536 00:41:37.460 --> 00:41:41.360 I think that's the situation we're in that everyone knows if for some reason everyone 537 00:41:41.360 --> 00:41:45.380 expected there to be massive inflation, it would be a self-fulfilling prophecy and right 538 00:41:45.380 --> 00:41:50.260 now we're in this limbo where Bernanke has printed an unbelievable amount of money and 539 00:41:50.260 --> 00:42:00.060 Let me ask you this Bob, we have about a minute and a half left here, so let's consider this 540 00:42:00.060 --> 00:42:01.060 scenario. 541 00:42:01.060 --> 00:42:06.480 Suppose President Obama comes to you and says, Dr. Murphy, I'm lost, what do you suggest 542 00:42:06.480 --> 00:42:08.940 I do at this point? 543 00:42:08.940 --> 00:42:11.860 What's your one minute answer to the President? 544 00:42:11.860 --> 00:42:18.240 I would say to roll back, massively cut tax rates to give people the incentive to go work 545 00:42:18.240 --> 00:42:23.800 Work and Produce More, to just slash government spending across the board as many areas as 546 00:42:23.800 --> 00:42:30.200 possible, to return resources to the private sector, to immediately get the government 547 00:42:30.200 --> 00:42:36.520 to let those banks pay back the cart money, to unwind all of the other loans and so forth 548 00:42:36.520 --> 00:42:42.360 that keeps the government interlocked with the financial sector, and to just try to completely 549 00:42:42.360 --> 00:42:47.000 return as much of the resources back to the economy as possible, and for the government 550 00:42:47.000 --> 00:42:51.000 to start running budget surpluses because it was overconsumption that got us into this 551 00:42:51.000 --> 00:42:52.000 mess. 552 00:42:52.000 --> 00:42:55.560 The way you get out of that is by saving more. 553 00:42:55.560 --> 00:42:57.360 That's very well put. 554 00:42:57.360 --> 00:43:00.040 Well, let me do this now, Bob. 555 00:43:00.040 --> 00:43:05.960 I want to tell my listeners in these few seconds we have left here, Bob Murphy actually has 556 00:43:05.960 --> 00:43:07.680 two books that I highly recommend. 557 00:43:07.680 --> 00:43:12.940 The first one was The Politically Incorrect Guide to Capitalism and then his latest book 558 00:43:12.940 --> 00:43:16.940 The Politically Incorrect Guide to the Great Depression and the New Deal 559 00:43:16.940 --> 00:43:22.940 They're both published by Regnery and obviously they're both available on Amazon.com 560 00:43:22.940 --> 00:43:25.940 Well, Bob, many thanks today. I appreciate having you. 561 00:43:25.940 --> 00:43:27.940 Thanks for having me, Mike. 562 00:43:27.940 --> 00:43:31.940 And to my listeners, you've been listening to Free Market. 563 00:43:31.940 --> 00:43:33.940 I'm Mike Beitler, your host.