I want to go ahead and jump right in and introduce today's special guest. My guest today is Dr.
Robert Murphy. Bob is the author of The Politically Incorrect Guide to Capitalism and his recently
released book, The Politically Incorrect Guide to the Great Depression and the New Deal. Dr.
Murphy holds a PhD in economics from New York University. Bob is an adjunct scholar at the
at the Mises Institute and a Senior Fellow in Business and Economic Studies at the Pacific
Research Institute.
Bob has testified before Congress on economic issues, is a frequent radio guest, and writes
a column for townhall.com.
Bob, welcome to the show.
Thanks for having me.
Well, I guess, Bob, I should say welcome back.
You know, it's been a while since our last visit together on the air in October.
What's happened since then, to say the least?
The government's certainly grown since the last we talked.
Yeah.
Hasn't it?
Well, what I wanted to start off with, Bob, is let's talk a little bit about your new
book, The Politically Incorrect Guide to the Great Depression and the New Deal.
What was your inspiration for this book?
Well, I had known for a while, ever since reading Rothbard's History of the Great Depression,
that what you learn in school is wrong, that it's not true that Herbert Hoover sat back
And I want to dig into, that's one of the issues I'd like to dig into, the Obama
FDR Comparison.
But one thing I was going to ask you here, Bob, on the first page, you say most of what
we've been told about the Great Depression and the New Deal was utterly false.
So what were the three biggest lies we've been taught in school?
I think one of them is the claim that it was pure unregulated capitalism that led to the
stock market crash and the Great Depression.
Another lie is that Herbert Hoover sat back and did nothing.
And then another lie is that FDR, New Deal got us out of it, or a related thing that's
just false is that it was World War II military spending that got us out of the Depression.
Okay.
So, let's talk a little bit about this comparison you make in your book, Bob, which I think
is really well done in your book. You compare George W. Bush to Hoover and Obama to FDR.
So if we start off first with the Bush-Hoover comparison and the whole idea of the laissez-faire,
hands-off, free market advocate, you're saying that that's false for both Bush and Hoover,
is that right?
Right, so it is ironic that the people who typically are fans of Barack Obama and are
saying that Bush was like Hoover and Barack Obama is going to be like FDR, I actually
agree with them, but not for the reasons they think, because like you just said, they think
that George Bush was this big guy who trusted in free markets and cut the government, and
that's what led to disaster, and they think the same thing of Herbert Hoover, but the
opposite is true, that Hoover was a big interventionist.
He actually, when the stock market crashed in 29, he called on all the big business
leaders and told them, don't cut wage rates.
He thought that was, it made sense from an individual business' point of view to try
to restore profitability by cutting wages or firing people.
But Hoover thought that no, if all businesses at the same time do that, it's collectively
crazy because then the workers lose purchasing power and so it just intensifies the depression.
So what you had was the fact that wages were staying the same while prices in general were
falling in the 29, 30, 31 and so workers got artificially more and more expensive because
their price stayed the same while everything else got cheaper and so that's why unemployment
went up so much.
So I think that was the single biggest mistake that Hoover made and again that was pure intervention
from DC, him telling businesses how much to pay their workers but he did all sorts of
other things too.
and Massively Increased Government Spending.
He ran what at the time were record deficits for peacetime.
He started all sorts of public works programs, including the Hoover Dam.
And he even started a Reconstruction Finance Corporation, which had over a billion dollars
at its inception to prop up banks that had made bad loans during the 20's.
All the types of things that actually George Bush started and FDR, you know, his New Deal
wasn't some qualitatively different approach from what Hoover had done.
was just, you know, he upped the ante. And the same thing, what Barack Obama is doing
is in the same spirit of all the things that George Bush did under his administration,
it's just he bumped up the numbers.
You know, I don't, let me ask you this, Bob, I don't know the exact numbers on this, but
as I recall reading recently, Bush actually doubled the federal debt, if I'm not mistaken,
isn't that right?
I don't know the exact numbers off the top of my head, but that sounds like it's probably
Correct.
Because I thought I read numbers, and don't quote me on this, but I think it went from
like four and a half trillion to nine trillion or something in that range.
So I think, back to your point, Bush obviously did a lot to grow the government.
He certainly wasn't trying to restrain the government in any kind of way.
Right.
I mean, just at the end of his administration, and I think he was acting under horrible advice
from his Treasury Secretary and the Fed Chairman, but be that as it may, George Bush signed
off on partial nationalization of the banks.
What more could he do to show that he's not a laissez-faire guy than having Washington
take over the banking system?
Good point.
Bob, let me go back to...
We'll talk about Obama and FDR in a few minutes, but you made an interesting point there about
Hoover trying to hold wages up, which I guess, at first glance you might say, well, that's
a nice thing to do for the workers, but I think as you talk about it in the book, if
you hold wages artificially high, that's what created such terrible unemployment.
As I recall too, I think Henry Ford was actually talking about raising wages, which to me
For me, it seems obvious that that would cause tremendous unemployment, and a point you make
in the book too, Bob, and let me see, it's page 176 here, you talk about wages need to
fall.
I remember about a year ago, I made the statement that American auto workers were overpaid and
I got just countless ugly emails about that, but talk about that a little bit, Bob, when
you're talking about wages need to fall, are you just me and mean or why are you saying
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.
I mean that they're immoral or greedy or that there's something wrong with them.
It just means for whatever reason, the conditions in the economy are such that at that particular
wage rate, businesses don't want to hire as many people as people want to work.
That means people can't find jobs, so the way you fix that is the wage rate has to come
down.
So, again, what happened under the Hoover administration, because this was unprecedented.
went up to, by some estimates, it got up to 28% in March of 1933, right when Hoover handed
over to FDR and that is just hands down the worst that's ever been in US history before
or since.
So the question is, what was different about the Hoover administration, why did unemployment
get so bad?
Because there had been depression with a small D before then and there had been recessions
because they call them depression after that one since then, but unemployment never got
anywhere near that.
The difference was here that the U.S. was still on the gold standard, and so that meant
the Fed really couldn't print too much money, and so prices in general started falling.
Because people were scared, they took their money out of the banks, and that tended to
shrink the money supply.
So there was less money in the economy, so that means prices were falling, except the
one price that wasn't allowed to fall because of the president's moralizing from the bully
Poll Pit and some other action he leaned against the businesses behind the scenes, they didn't
want to cut wage rates and so there's no way around that.
If wage rates are staying the same while every other price is falling, if you're a business
person, you're getting less revenue from your customers, but you're still paying the same
per hour of labor, you're going to cut back on how much labor you hire and so that means
unemployment.
So it's true, if you kept your job during the Depression, ironically you actually did
much better.
The real wages, the wages adjusted for the cost of living, rose more quickly in the early
30s than they had during the roaring 20s.
So the people who kept their job, their paycheck kept going farther and farther because all
the prices around them kept falling, but that really wasn't much consolation for the up
to 25% of the people who couldn't get a job by 1933.
So it helps workers if you keep your job, but it certainly doesn't help you if you
get laid off and then you can't get work.
Yeah, that is a great point.
When you look at situations like, and the comment I'm referring to, Bob, is I was talking
about American auto workers being overpaid and you can't imagine how many ugly emails
I got about that.
But are we starting to see that in some industries now where they actually are lowering wages
and isn't that ultimately a good thing?
Yeah, I mean that's what needs to happen because part of what's going on here in our current
situation and this is also true back in the early 30s is there was a big boom that I would
to argue was caused by the Federal Reserve.
And so lots of different lines were started in our time with our current crisis.
Obviously, a lot of those resources went into housing, a lot of resources went into the
financial sector.
And so you had too many workers flowing into those industries and their profitability was
exaggerated because of the bubble mentality.
And now the bubble pops, people realize, wait a minute, these workers aren't worth as much
as we had been paying them.
And so something needs to give.
You need to get workers flowing out of those sectors into other sectors, and the way you
do that in a market economy is not that some dictator orders them around and tells them
where to go and says, okay, you guys were building houses in Nevada, now you need to
go do something else.
No, the way it happens in the market is wage rates fall, and so workers leave that particular
sector because it's not as attractive, and they go somewhere else.
And there's no way around that.
the government comes in and tries to prop up those bloated sectors like the
government has been doing to try to keep house prices up all it's going to do is
perpetuate this unsustainable bubble that the quickest way to resolve this to
get on with life is that overpriced housing needs to come down and workers
who are in housing who are also overpriced their wages need to fall so
they need to so some of those workers need to flow in other sectors so I guess
To sum up the Bush-Hoover comparison, we're really saying that they were both painted
as a hands-off, laissez-faire, free market, when they actually did a lot to grow the government.
So is that a good way to sum that comparison up?
Sure.
I mean, just to go back to George Bush a little bit, by almost any metric you pick, he was
a big government person.
It would be, first of all, just how much he added to the debt, as you mentioned, before
Before the break and the size of government, a lot of people say, oh, well, sure, he spent
a lot on the military.
But even if you just look at domestic expenditures, they rose at a fairly sharp clip under a bush.
He had the prescription drug benefit plan and even things in terms of regulation.
I mean, people forget that Enron collapsed and then the SEC got all sorts of extra money
for its budgets to hire new regulators and so forth because people thought it was because
So, there are a lot of numbers of poorly regulated markets that Enron was allowed to run wild
and that's why we need to beef up the SEC.
So it may be that the SEC didn't do anything useful in terms of watching companies, but
again, that just proves the point that it's silly to trust people in Washington to ensure
financial integrity.
But my point is just this idea that George Bush was gutting domestic programs because
he was a small government man, I mean, that's just absurd.
Just look at the numbers of budgets of various departments.
That's absolutely true.
So let's move on and talk a little bit about this Obama-FDR comparison.
Obviously there was staggering growth in government programs in the 30s under FDR.
I guess my thought there, Bob, is how can people deny that Obama is basically just following the FDR?
Plan.
Well, I think actually a lot of his proponents or his supporters don't deny it.
They probably like the comparison between the two because they think that FDR, New Deal
got us out of the Great Depression and just as they think it's going to take Barack Obama's
large interventions to rescue us from the deregulated economy that George Bush bequeathed
to us.
So, I actually haven't seen too many people denying that Barack Obama is like FDR. The
only thing I do see people saying is a lot of people will say, you know, it's silly
to say the current crisis is anywhere near as bad as the Great Depression. And I think
that is true by several measures. If our economy all of a sudden was back to normal tomorrow,
what we just went through the last two years would not have been considered to be anywhere
in the Great Depression, but it's what I think is coming in the future that will make
future historians look back right now and say this was the beginning of a pretty bad
downturn.
Let me ask you a question there, Bob.
I talked about this on other shows and my listeners are interested in this whole idea.
Obviously, we all know that the Federal Reserve expanded the money supply in the late 20s
and then contracted it dramatically in the thirties.
So, tell me if I'm wrong here, because it seems like we'll have a different effect now,
because here we had the Federal Reserve expanding the money supply dramatically in the nineties,
and then expanding the money supply even more now.
So, isn't the effect here, Bob, that would just push the problem into the future?
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
And so we managed to recover from the dot-com crash without any significant impact to the
real economy.
And so Alan Greenspan is a genius, but of course now more and more economists are blaming
the housing bubble on what Greenspan did and they realized that maybe we should have just
taken our lumps back after the dot-com crash and we could have avoided the boom bust of
the housing sector.
And so just as you say, I think that's what's going to happen now, that Bernanke is now
Now taking rates down to basically zero percent, pumping in truly an unprecedented amount of
money into the banking sector, doing all sorts of measures to prop up banks that made bad
loans and investments in mortgage-backed securities, and it might provide some short-term relief
that I think certainly unemployment would be higher right now if it were not for all
these Fed interventions.
But still, you can't get around the fact that malinvestments were made during the boom.
Too many resources went into housing, too many resources went into the financial sector.
You can't undo those mistakes just by printing up green pieces of paper and so at some point
the piper is going to have to be paid and it will be that much worse because of all
these interventions now, just like the housing bubble in Boston was a lot worse because of
Greenspan's unwillingness to suffer the recession after the dot com crash.
I think what you're saying, too, it's really interesting, Bob, because you're talking
about when the government prints all this extra money, you have malinvestment because
it's sending false signals to the economy.
So I guess we'd all be billionaires if we knew this, but where is all that extra money
going?
Are we going to have another commodity boom of some sort?
I guess we're going to inflate the economy in general.
Gas prices will go up and everything else will go up, but does a large amount of that,
is it heading for another housing kind of boom or dot-com kind of boom?
It's a great question and you're right.
If we knew the answer to that with any certainty, if we wouldn't be on the radio, we'd be out
at a pool somewhere in the Bahamas.
I'm not sure exactly, I think there's a couple of things going on.
So one thing for sure is that if Bernanke had not increased the money supply so much,
then, and just to make sure your listeners understand, so there's two separate things.
There's what's called the monetary base, and that's the reserves that the banks themselves
hold with the Federal Reserve.
So it's like the checking account of a bank with the Fed, is the Fed being the banker
of the bank, and then the cash in the vaults, and so those are the high-powered money.
So those things have literally basically doubled in about six months, and so that's just the
unprecedented increase.
But beyond that, just the money held by the public, checking account balances and cashing
people's wallets and so forth, that figure went up about 17% over the course of 2008.
So that's not unprecedented, but that's a pretty big increase.
And yet, as we all know, prices were fairly flat over the course of the year.
They actually came down a little bit in the last quarter of 2008.
So I think what you would have seen if Bernanke had just stayed pat and not pumped in all
this new money, you would have seen prices come down a lot, which is what we were earlier
saying needs to happen for the economy to adjust and to correct for these mistakes.
And so I think you see inflation in the sense that relative to what the baseline would have
been, prices are a lot higher now because of that money pumping, the things that would
have come down a lot in price, you know, homes would have fallen in price, milk, eggs and
and so forth. Gasoline would have fallen even more, but those things were propped up a little
bit. Their fall was arrested by pumping in all this new money. But other than that, if
people ask me what sector right now do I think is in a bubble, I think it's U.S. treasuries
to be honest. It really doesn't make much sense when the U.S. is running a $1.8 trillion
deficit and there's just more deficits as far as the eye can see and everyone is becoming
and more and more alarmed at the financial solvency of even the US government and they
know that if the economy continues to nosedive all these investments that Fannie and Freddie
have made, FDIC, all these other things are very vulnerable, it's odd that US treasuries
have become a sort of safe haven and I think that once that spell is broken, it'll just
take a central bank somewhere to stop buying US treasuries and I think there'll be a stampede
at that point.
And so that's the one commodity or one asset that I'm worried about just collapsing overnight
if psychology changes with the U.S. Treasuries and indirectly the dollar itself.
That is a fascinating point and I guess what we're saying there too, Bob, is the dollar
is fairly strong against some of the other major currencies because the other governments
are inflating as well.
Well, I mean, that's certainly a part of it, but if you look at the relative amount of
how much each central bank has pumped in, I mean obviously Bernanke has been more responsible
than the central banker of Zimbabwe, I'm not saying he's in that league, but I mean
compared to the European Central Bank and some other ones, Bernanke, especially in the
last half of 2008, just left them all in the dust with how much money he pumped in, and
And I think partly it was because he could get away with it, that because the dollar
still is the world's reserve currency, other countries around the world, their central
banks stockpile dollars as if it's gold, right?
They view that as a safe asset, as something backing up their own currencies, they have
the US dollar.
But I think more and more people are backing off that.
You see central bankers around the world openly discussing, well, maybe we should move away
from the dollar.
Maybe we should have a basket of currencies.
And they didn't talk like that even just three years ago.
That would have been unheard of for central bankers to question the integrity of the dollar.
And so I think it really is a matter of no one wants to be the first one to start a stampede,
especially like China that's sitting on hundreds of billions of dollars worth of assets denominated
in dollars.
You know, they have all these treasury bills.
It's not in China's interest for the dollar to crash, but at the same time, they don't
I just want to keep accumulating these huge reserves and never growing stockpile of dollars
when Bernanke is running the printing press like crazy.
So it's sort of an odd strategic situation.
All the central bankers are locked in where they all are sitting on dollars and they don't
want it to collapse.
But yet, Bernanke just keeps printing with reckless abandon.
Right.
Well, that's an interesting and terrifying point.
My guest today is Dr. Robert Murphy.
He's the author of The Politically Incorrect Guide to the Great Depression and the New Deal.
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,
well, it's all over and everything is up from here.
And the question I was asking you during the break, Bob, was is there a possibility that
we're going to have one of these 1937-38 style depression within the depression type
of things?
Because initially when FDR took the reins, it looked like things were going to turn up
and then we had an even deeper depression within that depression.
Is there another bump in the road coming?
Oh, I definitely think so. And I mean, this is something where if you believe in free
markets, if you think that capitalism works better than central planning, then how can
you not think the US economy is just in store for a decade of stagnation at this point?
Because look at all the things they've done. Let me put it this way. If you two years ago
gave me a pen and paper and said, go ahead and write out a plan for crippling the US
and then also the cause you know price inflation while you're at it I would say
okay well the government takes over the banks how about to take over car
companies how about they take over health care how about they take over
energy markets with cap and trade let's run oh gee a 1.8 trillion dollar
deficit in one year let's plan on doubling the debt is a fraction of the
economy from 40% to 80% over 10 years let's let's strengthen unions let's
start changing the rules and bankruptcy proceedings so that investors don't know whether their
secured bonds will actually be honored according to the terms of the contract.
I mean, I think you see what I'm doing here and I can just keep going on and on and these
are all things that have been done and there's plenty more where that came from.
So I mean, again, if you think that the free markets work better than central planning,
how can you not think that the economy is just going to be awful and this is by far
the most interventionist government since the 1930s, and we saw what happened the last
time governments did this, that we were stuck in the Great Depression for a decade.
So I think that, yes, this is people who are looking at certain indicators and saying,
oh, things are turning around, we have green shoots, I guess is the phrase they use.
I think that's very naive.
And that, I mean, what happened in 1930, there were plenty of times when the stock market
dipped back up a little bit and people at the time thought, okay, finally we're out
of this thing.
And they kept thinking that as it kept going down and down and down into 1933.
So I think that unemployment is still going to keep going up.
Now unemployment is not going to get nearly as bad as it was in the 30s because we're
not going to have the price deflation that they had back then coupled with sticky wages.
But I mean, other indicators besides unemployment I think are going to be pretty awful for at
at least the next eight years.
Yeah, it's hard to argue with that, Bob, if you give us that list of all the things
that have been done just in the last year.
At some point, as you've said, we have to pay the piper at some point.
Right, and a particularly insidious intervention, I think, is the government partially nationalizing
the banking system.
And people, by the way, who think, oh, well, don't worry, those banks will repay the TART
money and then that'll be the end of it, we'll be back to a free system.
I think that's very naive, too, because look, the government, these banks have wanted to
pay back the TART.
Many of these banks were forced to take the TART money in the first place under Treasury
Secretary Paulson.
He called them all in and gave them, you know, their handouts explaining how much of the
TART money they were going to take.
And he basically told them, we're not leaving this room until you all sign off on this.
And so now as we know, there are banks who want to give back the TART money.
to grow over time, if that process gets sabotaged, which it will because now it's all politicized,
that has to affect the growth of GDP and other more standard measures of economic performance
if you sabotage the banking system.
Yeah, it's hard to argue with that.
Let me ask you, there's an interesting point in your book, too, Bob.
You talk about before the Great Depression and before the Federal Reserve and so forth,
there were panics, bubbles, business slowdowns throughout history, but they didn't last long.
They would last 18 months, two years at the most where the Great Depression lasts more
than a decade.
So what can we learn from that?
Could we just take the hit and have some high unemployment for a short period of time and
suffer the pain but be done with it and move on?
Is that a better strategy than what we're trying to do?
I think it is, Mike.
And again, just for your listeners to reiterate the point that the Great Depression was not
the first major downturn in the American economy in US history.
There were plenty of depressions with a small d or they actually called them panics before
then which is sort of funny that I think under the Hoover administration the term depression
was really pushed because it was a euphemism that it sounded better to say, oh, no, no,
we're not in the midst of a panic, it's more of a depression and economic activity.
And so they had plenty of those but like you say, they were typically over within two years,
for years at the most, and when you ask, well, what did they do differently?
Before Hoover, U.S. presidents really did adopt the laissez-faire stance.
They didn't think that they had the constitutional ability for Washington to try to come in and
micromanage the economy.
They just thought that business cycles were natural and that you just had to suck it up
and let things run their course, and eventually you'd return to normalcy, and that's what
did happen.
that, for example, the 1920-21 Depression was a pretty severe one.
It was after World War I was over, the U.S. government massively cut its budget, the Federal
Reserve tightened interest rates, and the money supply because there had been large
price inflation during the war.
And so all of the conventional explanations for why the Great Depression was so awful,
those factors were all present times too during the 1920-21 Depression.
Yet most Americans probably don't even know there was a depression during those years because
we never learned about it because it was over within two years.
And so it was only when you had activist government first under Hoover and then more so under
FDR that the downturn lasted a decade.
And so again, we know from the grand sweep of history that central planning doesn't
work.
And so why should it surprise us that when the US government comes the closest to outright
socialism in its history that we also get the worst economy in US history?
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.
That's a really good point. Yeah, really interesting.
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.
of the Depression, and then I think what's even more disturbing is the people who are
talking in terms of World War II got us out of the Depression, it seems like the implication
there is just horrible, I mean people are basically saying to mass destruction and death
would help the economy, we're not going to end up with something like that, or the government
programs don't work and we end up in some massive war to try to stimulate the
economy that would be a dreadful path to take. Right, exactly. And so you're
right that it's important intellectually for people to realize that war is not
beneficial to the economy and so not only is war awful for humanitarian
reasons, it's also bad on the economy. That what you do during war
time is resources that otherwise could have gone into homes and cars and television sets
and other things that consumers want instead of going to making bombers and missiles and
bullets that don't directly serve consumer welfare.
So obviously if you're getting attacked and you need to defend yourself, you might argue
that those resources are well spent towards military defense, but don't fool yourself
into thinking that that's helping your economy at the same time because then, like you say,
And you come to the perverse conclusion that whatever else he may have done that was awful,
at least add up Hitler, fix the U.S. economy, and that's just crazy, it's not true.
So in the book, I go through some of the statistical arguments, because on paper, it does look
like the Depression ended when World War II started, that you see the official GDP figures
go way up, you see unemployment rates come way down when the U.S. enters the war.
So it's understandable how just naively looking at those statistics you would think that the
war got us out of the depression.
But just to give you a quick example of some of the fallacies involved, the reason unemployment
fell is because FDR started taking millions of men and shipping them overseas to go fight
the Nazis.
So what is unemployment?
It's measuring how many people are standing around without a job compared to the size
of the workforce.
So if you round up a million men and ship them across the ocean obviously the official unemployment rate is going to come down
And it's nothing more mysterious than that and that's what happened. That's why those
statistics turned around like that
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
Yeah, it's a great point that people would be able to
to spin those statistics like that because obviously in this country, as you're saying
on the home front, we have rationing of absolutely everything and what a miserable period of time
to live through.
Sure.
I mean, psychologically, they might have...the war might have been good in the sense that
it took their minds off the depression, right?
That during the depression, everyone's very self-centered and just worrying about getting
a job and feeding their family and now all of a sudden, you're in a war against tyranny
to save the free world from being dominated by dictators, so in a sense, people might
not have perceived that their standard of living was lower in the 1940s than it had
been like during 1938, but actually it was.
If you look at the GDP figures of the size of the private sector, that continued to shrink
through the 1940s.
So even though the official GDP figures that went up, they were being inflated by military
Purchases of Hardware, and so forth, that those numbers are basically nonsensical because
the government comes in, spends a million dollars on ammunition, that's not the same
thing as if a bunch of consumers spend a million dollars collectively on radios and automobiles.
The government doesn't have the same incentive to watch how much money it spends, so to say
the government spent a million dollars isn't really the same type of statement about economic
General Motors is obviously in absolutely horrible shape, and as I was saying during
the break, I used to do some consulting work for them, and I still have some friends working
there.
Where do you think that's going?
Are we going to end up General Motors becomes government motors and we're producing green
cars at taxpayer expense that nobody wants?
Where's that going to end up?
Yeah, I think you just hit the nail on the head.
What they needed to do, the only way to make those companies viable was they really needed
to just clean house.
They needed to impose all sorts of cuts, both to the management, but also just the workers,
how much they're getting paid, and it may have been necessary for some of the bondholders
to take a haircut and so forth if they went bankrupt.
But what's happened now is this is sort of the worst of both worlds where the private
investors feel like they were defrauded.
and they feel like their contractual rights were violated and so who in his right mind
would lend more money to them or to any other sector that has a large union presence because
they have seen now that if it goes to court, the government might just intervene on behalf
of the unions and impose an unfair outcome on the private lenders.
So those companies, nobody in the private sector is going to pump any money into them
and then, yeah, with this latest cafe standard adjustment by pushing it forward four years,
I mean, it's going to force them to have to produce cars that Americans don't want to
buy.
That the Americans who do want to get weak, fuel-efficient cars, they typically have gotten
them from foreign manufacturers, whereas if you want a big SUV or a big truck, that's
what the American producers were known for.
And so these crazy cafe standards, I mean, it would be like passing a law that you're
You're worried about Americans being overweight and so you pass a law saying that McDonald's
has to have 20% of its sales being devoted to salads or something.
That's what's going on here.
It's understandable if you want to increase fuel efficiency, but then do something like
change the tax code so that you get a tax credit if you buy a fuel efficient car, but
just to mandate that the big three have to have a certain proportion of their cars being
very highly fuel efficient to raise the average miles per gallon.
It's the crazy regulation.
So yeah, the big three at this point, and only two of them of course have been effectively
nationalized, their future to me is hopeless at this point, they're just wards of the state
right now.
It's interesting too, I guess this is a whole different topic Bob, but what I see Obama's
team promoting is that class war between the autoworkers and these nasty, greedy bondholders,
but I think my heart goes out to the bondholders, I mean, as you were saying, these are people
who invested their hard-earned money and supposedly had some kind of rights, legal rights that
have just been trampled on, I'm really concerned about that.
Yeah, that's true, and the thing that was very misleading was when the president got
up on national television, I'm sure many of your listeners saw this clip, where he was
saying something to the effect that, you know, I'm not going to side with these, some of
these creditors, they want everyone else to take the pain, but not them, and they're insisting
on twice the rate of return as some of the other people are, but the reason the other
lenders agreed to those unfair terms was because they were banks that had taken TART money,
So they weren't in a position to challenge the president because they were effectively
controlled by the government already.
This shows how insidious it is when the government starts taking over various sectors, it just
multiplies its power and it can really lean on any of the remaining holdouts of people
that are relatively private because not only does it seem like the government's against
you but it seems like all the other big banks are against you because those in turn have
that have been taken over by the government.
That's right.
Well, let's talk about this for a minute, Bob.
I know both you and I are really concerned about inflation,
about the rear edge, ugly head.
With all the printing that the Federal Reserve is doing,
isn't that just a matter of when it's going to explode?
I think it is, and I should say as a caveat
that other economists whom I respect,
They think that I'm wrong and they think that the US is in store for a decade of low growth
and deflation the way Japan went through.
So there is some dispute, but even so I come down, you're right, I think that the great
danger right now is that Bernanke has just printed so much money and that not only that,
but the Obama administration, its planned deficits, as far as the eye can see, they're
We're going to need to be borrowing more and more money, and if other countries stop lending
it to us, I think what's going to happen is the Fed is basically going to just start printing
up the money to cover the deficit, that the Fed already has really started buying not
just short-term but long-term government debt, and I think you're just going to see that
practice multiply once foreign creditors are no longer willing to finance our budget deficit.
I personally think we're going to see it by the end of this year, but whenever it
does hit, it's going to be bad because it's the sort of thing where everybody knows that
Bernanke has printed up a bunch of money and we're sort of like the Wiley Coyote in the
Roadrunner cartoons when he runs off the cliff but hasn't looked down yet and so he doesn't
start falling.
I think that's the situation we're in that everyone knows if for some reason everyone
expected there to be massive inflation, it would be a self-fulfilling prophecy and right
now we're in this limbo where Bernanke has printed an unbelievable amount of money and
Let me ask you this Bob, we have about a minute and a half left here, so let's consider this
scenario.
Suppose President Obama comes to you and says, Dr. Murphy, I'm lost, what do you suggest
I do at this point?
What's your one minute answer to the President?
I would say to roll back, massively cut tax rates to give people the incentive to go work
Work and Produce More, to just slash government spending across the board as many areas as
possible, to return resources to the private sector, to immediately get the government
to let those banks pay back the cart money, to unwind all of the other loans and so forth
that keeps the government interlocked with the financial sector, and to just try to completely
return as much of the resources back to the economy as possible, and for the government
to start running budget surpluses because it was overconsumption that got us into this
mess.
The way you get out of that is by saving more.
That's very well put.
Well, let me do this now, Bob.
I want to tell my listeners in these few seconds we have left here, Bob Murphy actually has
two books that I highly recommend.
The first one was The Politically Incorrect Guide to Capitalism and then his latest book
The Politically Incorrect Guide to the Great Depression and the New Deal
They're both published by Regnery and obviously they're both available on Amazon.com
Well, Bob, many thanks today. I appreciate having you.
Thanks for having me, Mike.
And to my listeners, you've been listening to Free Market.
I'm Mike Beitler, your host.