The Austrian School of Monetary Policy
It's clear-headed thought on economics that you'll ever find.
It's always interesting to watch the Federal Reserve Chairman when they go before the Congressional
committees and they talk about monetary policy in this country and you kind of watch and
you go, hmm, hmm, something doesn't sound right here half the time and it's because
we've gotten so far away from many of the principles that this nation was founded upon.
Dr. Mark Thornton
The Federal Reserve, fiat money, fractional reserve banking, Human Action, Man Economy and State, The Theory of Money and Credit
Celebrating our Tax Freedom Day sometime in the second week of January.
So we've gotten a little bit out of control with respect to taxes.
Yeah.
And here in California, it's not till like the middle of May.
Everything comes a little later in California.
Yeah, it does.
That's right.
But down where you are in Alabama, you guys are like right near the top.
You're like April 12th through 13th.
It already passed.
Right.
We're also number one in property taxes in the country.
I am going to Alabama with a banjo on money. I am going to talk with Dan Mitchell about
something here next hour, about an hour from now, but you might just want to comment on
this for a second, amplify it, but there was a study that came out the other day that shows
that over one in two Americans now receive significant income from governmental programs
And so when we're talking about trying to reduce the tax burden in this country and
reduce the size of government, it's going to be very difficult because what politicians
have done is they have created an incredible interest base.
Yes, everybody is speeding at the trough.
And of course the famous French economist, Frederic Bastiat, said the state is the great
fiction in which everybody tries to live at the expense of everybody else.
And that's what we've become.
The Federal Reserve has become that crazed system where we all expect to benefit more than we pay in taxes and of course that's actually impossible.
We're just draining our system of its economic vitality at an incredible rate.
I mean, the growth in government has been out of control over the last couple of administrations.
When Clinton first came into office, the federal government was only spending less than $1.4 trillion.
Now, it's spending close to $2.5 trillion.
By the way, I saw a figure that mentioned yesterday that personal income tax paid by
all Americans will come over just a little over a trillion dollars.
So where does the government come up with that other trillion and a half?
It's got its fingers into everything.
It's got Social Security tax, Medicare, Medicaid, inheritance, estate taxes, excise taxes, tariffs,
uh... all sorts of fees uh... the number of actual revenue sources is probably exceeds
a hundred in total but the big ones are the income tax the corporate income tax
the social security taxes
you know let's talk about that too uh... when you start talking about taxes and who pays the taxes
uh... how much
what what kind of percentage of the total tax bill
our corporations paying compared to individual uh... you know
individual persons here in the country.
Well corporations really don't pay.
I know they pass the tax, they pass it on in the form of raised prices, but they have
to write a check.
This is the thing that people, a lot of times the friends of fraud on the left will tell
everyone that they're not paying their fair share.
Like if the individual tax payer is holding up all the burden and particularly the poor
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Tax on labor, you get less labor. If you take a tax on business, you get fewer businesses.
So is that in a sense when corporations and businesses pay a lot of money to figure out
where the loopholes are and to avoid those taxes, is that effort, that money spent, is
that in a sense a deadweight loss to the economy?
Absolutely. It's absolutely a deadweight loss and it's a tremendous burden on our economy
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Now, a lot of the people, the friends of fraud, as I refer to them, would try to convince
the American people that we can continue raising the tax burden and it's not really going to
affect our economy because, after all, they like to point to the social welfare states
of Europe as the model, quote-unquote, democracy where people live in a paternalistic cradle-to-grave
Society and you see their economies are doing okay well are they well they're
doing okay but that's not a very good I mean there was a study done last year
comparing Sweden and how much the average Swede had to spend on goods and
services and it came to roughly the same amount as the people of Mississippi the
poorest state in the nation much poorer in fact in the state of Alabama which
and so if we want to reduce our standard of living to below that of Mississippi then yes we can raise our tax burden from 25 to 30% on up to 40% or 50% but it's going to be impoverishment of the people basically and restriction on all your liberties as well.
And what happens to unemployment when you go into this type of spending because isn't the norm over in Europe around 10%?
Yeah, it's over 10% and of course that's not a good reflection of the actual unemployment
because of course so many people are tied up into dead-end government jobs and misplaced
public works projects.
If you look at the real unemployment rate, it would be much, much higher.
We'd be talking about something along the lines of 20%.
The thing is that in the European economies, they've accepted an unemployment rate, nominal
unemployment rate that they published, between 9 and 11 percent, to them that's an acceptable
figure.
In this country, it would be completely unacceptable.
When we have unemployment around 4.5 to 5 percent, a lot of people don't like that.
That's traditionally where, when we have around a 4 percent rate, for some reason the government
The 10% unemployment rate is an economic depression, basically.
That's what we're talking about.
The unemployment rate was higher during our Great Depression, but a 10% level is a depression.
If you go from 6% to 10%, then you're in a recession, basically, but 10% and above, that's
Economic Depression.
Yeah, and see that's what they've ended up with there and only because, you know, the
governments print a lot of fiat money, they take, now in the case of France, I was talking
to someone from France on another subject and we got onto their tax system and he mentioned
to me that 70% of your income in France, of your reported income is taken in taxes to
run that cradle to grave society and one of the things that this fellow indicated to me
was you know there's a tremendous black market for everything in France you know especially
for you know goods particularly labor services you know no one wants to be paid everybody
wants to be paid under the table no one wants it on the books because it's the only way
that people can get by because when government is taking 70 cents of every dollar you own
it doesn't leave you a heck of a lot you know for yourself so now what the government does
The way they do this is they encourage people to break the law and not report their income
because it's the only way they can make ends meet is by doing jobs on the site and taking
the cash under the table.
Oh, absolutely.
I was over in Europe last year and I learned of this firsthand and all the intimate details
of how people are basically breaking the law.
Once you get a system to this craziness, the European welfare system, you think, oh, isn't
that nice?
Isn't that neat?
Isn't that so quaint?
It's actually what you've created as a society of lawbreakers where everybody, virtually everyone, is breaking the law, including public officials.
And so it's the backwards of what people in America think, oh, wouldn't that be great? Isn't that pristine?
It's actually a society of systemic lawbreaking, corruption.
Yeah, and it leads to tremendous moral decay among the body politic because then, you know, there's no respect for rule of law.
Mark Thornton is our guest, he's with the Mises Institute, we'll be right back.
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Southbound 101, a traffic hazard in the Prunedale area, and let's see, one other thing to mention
to you, the weather for the Monterey Bay area today, it's going to be okay, not as nice
as just talking with Mark about the weather down there in Auburn, Alabama, which is beautiful,
but it'll be okay here today, windy and cooler, and a high of 63 degrees today for the Salinas
area, so it's okay, 627 as we continue our conversation with Dr. Mark Thornton from Mises
Institute in Auburn, Alabama.
By the way, Alabama, the home state of one of my favorite character actors, a guy by
the name of Pat Butrom.
I don't know if you knew that.
I did not.
Mr. Heaney from Green Acre and Gene Autry's sidekick.
Absolutely.
Alabama is a state of characters.
I mean, they're just wonderful people across the board.
There's a lot of very talented people from the state of Alabama.
You know, you had a Democratic Senator, the U.S. Senate, there for many years who talked.
He became, I think he was the chair of some Judiciary Committee back then.
Absolutely.
Senator Hal Heflin.
Yeah, Howell Heflin.
And, you know, I used to see him on television, I'd never seen that guy before, I'd see him
on TV and there he had this slick, well his hair was parted down the middle and slicked
over to the sides.
He looked like one of these old politicians from the 30s and he talked like Foghorn Leghorn.
That's right.
That cartoon character.
He was absolutely the caricature of the Senator from the South.
Absolutely.
He was a character.
I had a pleasure meeting him and there's many, many stories about him.
I didn't like his democratic policies, but he was a great character.
He's probably a fun guy to sit down and have a beer with.
I think so.
We were talking about the fact that the problem also with the onerous tax policy is it leads
to moral decay.
and you know we saw this a couple years ago when they had that terrible summer heat wave in France
and many, many people, older people died in their homes because their government provided air
conditioning systems weren't working. Family members didn't check on older family members
because in a society like that people have abdicated their responsibility to their immediate
family members because after all we live in a paternalistic society where the government
is Responsible, and it's that kind of thing where everyone's responsible, no one's responsible.
Absolutely.
Again, it's this mysterious belief that people have in their government that they're going
to take care of people, but that's just not really the case.
If you want to depend on somebody, you want to depend on their profit motive to get out
there and fix your air conditioning.
I know in Auburn, Alabama, where the temperatures are in the high 90s and the humidity is over
for 100 percent and your air conditioner breaks down on a Saturday before a party, you can
count on the fact that an air conditioner repairman will come out on the weekend to
fix your unit because he's based on the profit motive.
Right.
However, if you're depending on the government to do it for you, well, let's take this as
an example.
When you have a burned out light bulb in the street lamp on your street and you call the
The City Public Works Department say, that lamp is out, can you send someone over to
change it?
How long does it take for the bucket truck to get there and for them to replace the lamp?
I don't know about Auburn, Alabama, but I know that in Marina, California, it takes
three months.
I'm not surprised at all.
One of the problems of living in Auburn, Alabama is we have these ice storms and we've had
hurricanes and the power gets knocked out.
And very often, you know, the public utility will take up to a week to fix the power.
You know, I've been out without power for a week.
Wow.
Nothing like that would ever happen with privately provided services.
You know, there's always, you know, there's, see, because, and this is the thing.
You know, in every type of private service, there's accountability.
Because there's always the, there's always the opportunity for the customer who's not satisfied to go somewhere else.
And anytime you deal with a monopoly, there is never the impetus to serve the customer and make sure that the customer is happy because they can't go anywhere else.
And this is the basic problem in the nature of government-provided services is that government is a monopoly and therefore government has no reason to be accountable to its customers, the taxpayers.
And so what we end up with is dealing, you know, we're always told by people in government
the monopolies are bad and yet these are the people with the biggest monopoly of all.
Oh, absolutely.
I mean, you know, and that's what taxation feeds, feeds into the system.
You know, the more we get taxed, the more government controls various aspects of our
lives, whether it's, you know, the public utility, whether it's the post office, whether
it's social security, whether it's Medicaid, Medicare, where they're determining your
The Theory of Money and Credit The Theory of Money and Credit
and I appreciate you joining us. And by the way, the website for the Mises Institute, if any of our listeners want to go online and read about the Mises Institute and some of the works of Ludwig von Mises.
It's www.mises.org. It's the world's largest economics webpage. Everything is available there for free, downloadable, and we encourage you to visit the webpage. It's actually a wonderful resource.
and search for any term in the world and you'll come up with something interesting.
All right, Mark, thank you so much for joining us.