WEBVTT NOTE Meltdown: An Interview with Tom Woods 1 00:00:00.000 --> 00:00:08.000 Welcome to the first ever Young Americans for Liberty podcast. My name is Aaron Ricks. I'm the president of the Young American High School chapter of the Young Americans for Liberty. 2 00:00:08.000 --> 00:00:20.000 Along with me in here is Kyle Peabody and Michael Lee, senior members of the club. Delighted to have as our first guest Mr. Tom Woods. Mr. Woods is a senior fellow at the Ludwig von Mises Institute. 3 00:00:20.000 --> 00:00:28.000 Mr. Woods' new book just released a week or two ago, Meltdown, a free market look at why the stock market collapsed, the economy tanked, and the government bailout to make things worse. 4 00:00:28.000 --> 00:00:33.240 Now, personally, I really dove into the theory of Austrian economics a little more than a 5 00:00:33.240 --> 00:00:37.060 year ago, around the time I started paying attention to the Ron Paul campaign and listening 6 00:00:37.060 --> 00:00:41.160 to the Peter Schiff interviews, which, as everyone says, are very amusing. 7 00:00:41.160 --> 00:00:45.120 Now, as a high school student, I read their book, or at least most of it, I didn't have 8 00:00:45.120 --> 00:00:47.840 time, the time I would have liked to take to go through it. 9 00:00:47.840 --> 00:00:52.440 I'll be the first to admit that advanced economics theory isn't something, you know, isn't something 10 00:00:52.440 --> 00:00:53.440 easy to grasp. 11 00:00:53.440 --> 00:00:56.720 Now, the first book I read was Henry Hazlitt's Economics in One Lesson. 12 00:00:56.720 --> 00:01:03.720 The Theory of Money and Credit 13 00:01:26.720 --> 00:01:56.720 Profile Investment Services, Ltd., or Israel National News. 14 00:02:26.720 --> 00:02:31.640 the Forward by Ron Paul, in which he says exactly that, that I'm pretty sure there's 15 00:02:31.640 --> 00:02:35.120 going to be an avalanche of books and they're all going to be a disaster, so I figured I 16 00:02:35.120 --> 00:02:41.640 would sort of do one for the good guys, get it out there, make it marginally harder for 17 00:02:41.640 --> 00:02:47.200 the media to pretend that the free market interpretation of all this doesn't exist, 18 00:02:47.200 --> 00:02:51.680 and the sales of it so far, I mean it's too early to get any hard figures, but I mean 19 00:02:51.680 --> 00:03:01.680 It's selling like crazy, so I'm hopeful that it will gum up the works a little bit as they try to claim that this is a big failure of the free market. 20 00:03:01.680 --> 00:03:11.680 I wanted the book to counter them, but also to help people who support the free market to make the arguments, to learn what the arguments are so that they can defend themselves. 21 00:03:11.680 --> 00:03:41.680 Profile Investment Services, Inc., Ltd., or Israel National News. 22 00:03:41.680 --> 00:04:11.680 The question would have to be, I guess I'd put it this way, part of human nature is that people can be greedy. That's just unavoidable. So the question is, what institutional framework can cope the best with this undeniable aspect of human nature? And it seems to me the free market copes the best with it, because if the free market can cope the best with it, then the free market can cope with it. 23 00:04:11.680 --> 00:04:17.680 If you want to improve your material well-being, how do you do that in a genuine free market? 24 00:04:17.680 --> 00:04:22.080 In a genuine free market, you do that by doing something that pleases your fellow man. 25 00:04:22.080 --> 00:04:23.880 That's how you get his money, legally. 26 00:04:23.880 --> 00:04:25.920 That's how you get his money. 27 00:04:25.920 --> 00:04:32.520 So that's the institutional framework that in effect helps us best cope with greed. 28 00:04:32.520 --> 00:04:37.720 Whereas a framework that is status, that's dominated by government, is not so helpful 29 00:04:37.720 --> 00:04:42.520 because the greedy people just wind up in government and they use 30 00:04:42.520 --> 00:04:46.240 government to line their own pockets and loot the rest of the population. 31 00:04:46.240 --> 00:04:50.640 Whereas a businessman has to get the voluntary consent of his customer. 32 00:04:50.640 --> 00:04:53.480 Nobody in government needs the voluntary consent of anybody. They're the government. 33 00:04:53.480 --> 00:04:55.360 They have a monopoly on violence. 34 00:04:55.360 --> 00:04:58.280 So when I look at this crisis and people try to tell me 35 00:04:58.280 --> 00:05:02.960 it's caused by greed, well of course there are some greedy people, no question about that, but 36 00:05:02.960 --> 00:05:04.360 what kind of 37 00:05:04.360 --> 00:05:05.960 environment is it 38 00:05:05.960 --> 00:05:07.520 in which greed 39 00:05:07.520 --> 00:05:13.000 can lead to an outcome like this. And what I want to argue is that explanations that 40 00:05:13.000 --> 00:05:18.960 simply refer to greed leave out the institutional factors that allow greed to flourish. And 41 00:05:18.960 --> 00:05:24.800 those institutional factors would be, for instance, the unmentionable Federal Reserve 42 00:05:24.800 --> 00:05:32.000 system, which pumps, in this case, literally insane amounts of money into the system, thereby 43 00:05:32.000 --> 00:05:36.800 lowering interest rates below where the free market would have set them. And this, you 44 00:05:36.800 --> 00:06:06.800 Profile Investment Services, Inc., www.profile-financial.com, www.profile-financial.com, 45 00:07:06.800 --> 00:07:20.800 The Free Market is surprisingly stable, but it becomes unstable when you intervene in it, and that's what the Fed does. The Fed's very existence is a violation of the free market. 46 00:07:20.800 --> 00:07:29.800 Definitely. To me it sounded like almost a misnomer, like there's no tangible evidence behind the whole argument that greed causes a financial collapse. 47 00:07:29.800 --> 00:07:47.800 Now, one of the things I commend you for is you mentioned panics and crashes even before the Federal Reserve's coming to existence. These crashes still function in the same exact principles that we see in later booms of busts when the Federal Reserve was created. Can you elaborate a bit on these previous panics and crashes? 48 00:07:47.800 --> 00:08:17.800 Transcription is a production of the U.S. Department of State. 49 00:08:47.800 --> 00:08:54.800 The Federal Reserve is borrowing this money to go out and create projects that are aimed at future production of goods. 50 00:08:54.800 --> 00:08:58.800 So that's good. We're going to consume in the future and they're producing for the future. It's wonderful. 51 00:08:58.800 --> 00:09:04.800 But if interest rates come down just because the central bank forces them down, well now we've got a time mismatch 52 00:09:04.800 --> 00:09:09.800 because now investors once again will invest in long-term projects aimed at the future, 53 00:09:09.800 --> 00:09:16.800 but we haven't necessarily indicated a desire to consume less in the present to fund these investments. 54 00:09:16.800 --> 00:09:22.800 In fact, we may even be consuming just as much or more than before. 55 00:09:22.800 --> 00:09:25.800 So meanwhile, you've got investors investing for the future, 56 00:09:25.800 --> 00:09:28.800 but consumers are demanding more of existing goods right now. 57 00:09:28.800 --> 00:09:32.800 You've got investors engaged in product development 58 00:09:32.800 --> 00:09:37.800 at a time when Americans want more of existing products right now, so there's a time mismatch. 59 00:09:37.800 --> 00:09:43.800 And secondly, when you and I save more, the fact that we're not consuming as much 60 00:09:43.800 --> 00:09:46.800 to finish their investment projects. 61 00:09:46.800 --> 00:09:50.800 But when the interest rate comes down, just because it's been artificially forced down, 62 00:09:50.800 --> 00:09:55.800 well that doesn't magically produce all the physical goods necessary 63 00:09:55.800 --> 00:09:59.800 to finish all the investment projects that businessmen will start. 64 00:09:59.800 --> 00:10:03.800 So they're going to find that they cannot afford to finish a lot of these projects. 65 00:10:03.800 --> 00:10:06.800 So in other words, when you interfere with interest rates 66 00:10:06.800 --> 00:10:08.800 and you don't let the free market set them, 67 00:10:08.800 --> 00:10:38.800 Profile Investment Services, Inc., Ltd., or Israel National News. 68 00:10:38.800 --> 00:11:08.800 the same factor, the same events, the same interference with money and interest rates that we see in all other panics, because if you look at the 19th century, you don't have a Fed, but you do in many cases have a government established national bank with government granted monopoly privileges, which you had leading into the panic of 1819, which you had leading into the panic of 1837, and they have a national bank with government granted monopoly privileges. 69 00:11:08.800 --> 00:11:38.800 They create more money than the free market would have created and they push interest rates down lower and I quote people, contemporaries from the 19th century, looking at these panics and what they're describing, the phenomena they're describing are exactly what Hayek describes about the business cycle that we see an excess of investment in certain unsustainable lines and then we've seen this bust and everything's come crashing down. It's exactly the same thing and you look at all the other panics, it's either again some national bank that's authorized by the Federal Reserve 70 00:11:38.800 --> 00:11:55.800 or the banking system in general, simply creating money out of thin air, which in effect puts the economy on a kind of sugar high that can't last. It doesn't have a real foundation. It's phony. And so all these panics are all explainable on the same grounds. 71 00:11:55.800 --> 00:12:02.800 Well, yeah, I definitely think it's really hard for people to realize that governments, by definition, don't produce anything. 72 00:12:02.800 --> 00:12:08.800 That, you know, the only way they get things done is by taking from productive members of society. 73 00:12:08.800 --> 00:12:16.800 Yeah, in fact, can I elaborate on that? Because in the same way that governments don't have any resources, don't create anything, neither do central banks. 74 00:12:16.800 --> 00:12:22.800 So the very fact, the mere fact that the Fed or some central bank lowers interest rates, that doesn't magically create resources. 75 00:12:22.800 --> 00:12:29.800 Resources 76 00:12:52.800 --> 00:13:22.800 Profile Investment Services, Inc., Ltd., or Israel National News. 77 00:13:22.800 --> 00:13:52.800 Profile Investment Services, Ltd., or Israel National News. 78 00:14:22.800 --> 00:14:34.800 are the same people who have been critical of the Fed, who have been critical of fiat money, that is money that can't be converted into anything, it's based on nothing, can just be printed up indefinitely by a printing press. 79 00:14:34.800 --> 00:14:40.800 It's all the people who basically hold our points of view are almost the only ones who weren't completely clueless. 80 00:14:40.800 --> 00:14:53.800 The only ones who actually saw this coming overwhelmingly are the ones who have this particular theory as to what caused it. 81 00:14:53.800 --> 00:15:01.800 Whereas the people who now are instructing us and who now are trying to run our economy, those people, well, almost none of them saw it coming. 82 00:15:01.800 --> 00:15:04.800 How are they supposed to fix a problem they weren't even aware of? 83 00:15:04.800 --> 00:15:18.800 Another question, Austin Vreneman, a member of the Young Americans for Liberty movement, wants to know, if you had to make a recommendation right now, would you encourage Dr. Paul to run again in 2012? 84 00:15:18.800 --> 00:15:38.800 Well, I asked him about this back in the summertime, and at that time he was saying, he seemed down on the idea, but when I look back on it and I think about what he actually said, he didn't actually rule it out, he just simply said, I can't even think that far ahead. 85 00:15:38.800 --> 00:16:08.800 Profile Investment Services, SIPC, MSRB, NFA, SIFMA. 86 00:16:08.800 --> 00:16:38.800 Profile Investment Services, Inc., www.profile-financial.com, www.profile-financial.com, 87 00:17:08.800 --> 00:17:38.800 2008 was that he has changed the landscape forever. The Federal Reserve system is now on the table. People talk about it. Peter Schiff has an in now, partly because of Ron Paul, I think. A lot of us are getting hearings that we wouldn't have gotten otherwise. I go on all kinds of radio shows, big time radio shows, where the host knows all about the Fed. That's because of Ron Paul. But beyond that, we've got all people like you guys, young people coming out of nowhere, huge 88 00:17:38.800 --> 00:18:05.800 Mark Soriano, what's your opinion on a gold-based currency versus a fiat-based currency? 89 00:18:08.800 --> 00:18:15.160 The gold-based one is infinitely preferable because, and again, in Meltdown, I quote Henry 90 00:18:15.160 --> 00:18:19.960 Hazlitt, who of course wrote Economics in One Lesson, but Hazlitt said, you know, there 91 00:18:19.960 --> 00:18:24.520 are a lot of people who have these tiny little technical criticisms of the gold standard. 92 00:18:24.520 --> 00:18:30.600 He said, but the fact is a gold money is a money that cannot be arbitrarily interfered 93 00:18:30.600 --> 00:18:38.600 with or destroyed by politicians, and he said, now, this single merit makes all technical 94 00:18:38.600 --> 00:18:42.380 Criticisms of the gold standard, utterly trivial 95 00:18:42.380 --> 00:18:43.520 by comparison. 96 00:18:43.520 --> 00:18:48.040 But my view though is not so much that we should go back to a gold-backed 97 00:18:48.040 --> 00:18:53.380 money, or a gold standard per se. I mean, if people want that, that's fine with me. 98 00:18:53.380 --> 00:18:55.080 But a gold standard 99 00:18:55.080 --> 00:18:57.120 that would require the government 100 00:18:57.120 --> 00:19:00.080 to maintain it and to maintain the 101 00:19:00.080 --> 00:19:02.880 the ratio of dollars to gold, 102 00:19:02.880 --> 00:19:05.600 I think is unrealistic because 103 00:19:05.600 --> 00:19:11.120 You know, look at the politicians who we have in Washington. Which one of them, other than Ron Paul, 104 00:19:11.120 --> 00:19:15.320 would you trust to do that? I mean, what's to stop them from just going off the gold standard again? 105 00:19:15.320 --> 00:19:19.640 Or fiddling around with it, or whatever. I mean, why would we trust them with it? 106 00:19:19.640 --> 00:19:23.680 Instead, I think we need to think in more radical ways. We need to think 107 00:19:23.680 --> 00:19:25.400 about what Hayek said toward, 108 00:19:25.400 --> 00:19:28.920 sort of toward the end of his career. In the late seventies, he gave a speech, 109 00:19:28.920 --> 00:19:30.440 actually in New Orleans, 110 00:19:30.440 --> 00:19:34.160 and the speech is reprinted in the Journal of Libertarian Studies in the late seventies. 111 00:19:34.160 --> 00:20:04.160 Profile Investment Services, Inc., Ltd., or Israel National News. 112 00:20:04.160 --> 00:20:13.160 Don't insult me with that. The reason they want to control the money supply is so they can create money out of thin air and reward their friends with it. 113 00:20:13.160 --> 00:20:17.160 That's what it's for. That's why the government monopolizes money. 114 00:20:17.160 --> 00:20:23.160 Given this is the case, what we instead should do is look to the free market. 115 00:20:23.160 --> 00:20:32.160 The free market supplies every good we need and it supplies it the most efficiently, so why don't we look for free market alternatives? 116 00:20:32.160 --> 00:20:45.160 The way we start doing that is really to follow Ron Paul's advice, which is get rid of all sales and capital gains taxes on precious metals, which would serve to obstruct their use as money, and secondly, repeal legal tender laws. 117 00:20:45.160 --> 00:20:49.160 Those are monopolistic interferences in the free market. 118 00:20:49.160 --> 00:20:55.320 Get rid of that because legal tender laws mean basically that government courts will 119 00:20:55.320 --> 00:21:00.520 not enforce contracts that require payment in gold because the person is, because of 120 00:21:00.520 --> 00:21:04.360 legal tender, is allowed to pay you in the depreciating dollar. 121 00:21:04.360 --> 00:21:08.640 So that makes it very hard for alternatives to pop up because all alternatives are at 122 00:21:08.640 --> 00:21:09.640 artificial disadvantages. 123 00:21:09.640 --> 00:21:14.780 Let's have a level playing field and let's see how the market deals with it and we're 124 00:21:44.780 --> 00:22:02.300 Part of my answer is, look at those countries in the world where the gap between the rich 125 00:22:02.300 --> 00:22:07.660 and the poor is the widest, and those are the countries that are the farthest away from 126 00:22:07.660 --> 00:22:08.660 the free market. 127 00:22:08.660 --> 00:22:09.660 That's always the case. 128 00:22:09.660 --> 00:22:14.820 In the Soviet Union, the apparatchiks did very, very well. 129 00:22:14.820 --> 00:22:18.180 The average person suffered tremendously. 130 00:22:18.180 --> 00:22:19.180 Look at Africa. 131 00:22:19.180 --> 00:22:22.620 The only places in Africa where you've got anything approaching a free market would be 132 00:22:22.620 --> 00:22:23.620 Botswana. 133 00:22:23.620 --> 00:22:28.580 By the way, Botswana, here's a big surprise, Botswana is one of the richest countries in 134 00:22:28.580 --> 00:22:29.580 Africa. 135 00:22:29.580 --> 00:22:31.260 Big surprise there, right? 136 00:22:31.260 --> 00:22:35.260 South Africa, well, it's kind of a mess right now. 137 00:22:35.260 --> 00:22:39.620 You can find isolated pockets of the free market, but otherwise, it's a bunch of extremely 138 00:22:39.620 --> 00:23:09.620 Profile Investment Services, Inc., Ltd., or Israel National News. 139 00:23:09.620 --> 00:23:13.620 and this holds true consistently as a rule. 140 00:23:13.620 --> 00:23:16.620 So it seems to me that if we genuinely care about the poor, 141 00:23:16.620 --> 00:23:20.620 I mean look, if somebody has three yachts in a free market society, 142 00:23:20.620 --> 00:23:22.620 that doesn't hurt me any. 143 00:23:22.620 --> 00:23:23.620 He's not stealing them from me. 144 00:23:23.620 --> 00:23:25.620 I didn't have him to start with, I assure you. 145 00:23:25.620 --> 00:23:29.620 If we could just set envy aside for five seconds 146 00:23:29.620 --> 00:23:33.620 and actually demonstrate a real concern for people who are poor, 147 00:23:33.620 --> 00:23:37.620 we would not consign them to systems that have made the poor worse off. 148 00:23:37.620 --> 00:23:55.620 Even if you look at so-called third-way European welfare states like Sweden, American blacks on average are richer than the average Swede, and American blacks are not doing as well as some other groups in America, yet they are doing better than Swedes in general. 149 00:23:55.620 --> 00:24:04.620 So if you really care about the well-being of the poor, you would want to adopt the system that provides for their material well-being better than any other system. 150 00:24:04.620 --> 00:24:34.620 Profile Investment Services, Inc., Ltd., or Israel National News. 151 00:24:34.620 --> 00:24:41.380 On a virtual level, the Austrian business cycle theory makes complete sense, but when 152 00:24:41.380 --> 00:24:45.660 you consider it with respect to the recent crisis, it's a bit harder to put the pieces 153 00:24:45.660 --> 00:24:46.660 together. 154 00:24:46.660 --> 00:24:50.340 Specifically, the Austrian business cycle holds the capital goods industries that are 155 00:24:50.340 --> 00:24:55.380 most affected by both the artificial boom and subsequent bust, yet it was housing that 156 00:24:55.380 --> 00:24:58.820 was the prime player in today's crisis, not exactly a capital good. 157 00:24:58.820 --> 00:25:02.340 How does the Austrian business cycle deal with this? 158 00:25:02.340 --> 00:25:12.340 Well, I guess part of the answer is that housing is at the very least an extremely durable consumer good. 159 00:25:12.340 --> 00:25:17.340 But secondly, it's not just housing that's going to ultimately bust. 160 00:25:17.340 --> 00:25:19.340 It's also going to be commercial real estate. 161 00:25:19.340 --> 00:25:22.340 That is the buildings in which businesses operate. 162 00:25:22.340 --> 00:25:31.340 Or a lot of times businesses will have built an addition or they will have built a second building for a second branch of the business. 163 00:25:31.340 --> 00:25:41.340 And that is arguably, and in fact Gerald Salerno makes this point, that's actually going to be a worse bust than residential households are going to be. 164 00:25:41.340 --> 00:25:48.340 So that in effect reinforces Austrian business cycle theory that the more capital intensive will get hit harder. 165 00:25:48.340 --> 00:26:00.340 Well, the more capital intensive type of building projects, the commercial real estate market is in fact going to wind up being hit harder than just regular residential real estate. 166 00:26:00.340 --> 00:26:01.340 Real Estate. 167 00:26:01.340 --> 00:26:02.340 So there's that. 168 00:26:02.340 --> 00:26:06.180 But also remember that how are people financing this real estate? 169 00:26:06.180 --> 00:26:08.900 How are people going out and buying a house? 170 00:26:08.900 --> 00:26:15.500 Well, they're buying it basically with this 30-year mortgage thing, which is in itself 171 00:26:15.500 --> 00:26:17.340 partly a government intervention. 172 00:26:17.340 --> 00:26:20.340 Most people in the 30s didn't own their own homes. 173 00:26:20.340 --> 00:26:23.500 Nobody would lend to you for 30 years because you could never tell what inflation is going 174 00:26:23.500 --> 00:26:25.620 to do and so on and so forth. 175 00:26:25.620 --> 00:26:33.380 So this sort of long-term type of an expenditure is very interest rate sensitive. 176 00:26:33.380 --> 00:26:42.020 Unlike consumer goods like toothbrushes or hats or potato chips, a house is a large, 177 00:26:42.020 --> 00:26:46.500 durable purchase that is paid for over a long span of time. 178 00:26:46.500 --> 00:26:52.700 So I think that does, in fact, still make it qualify as something that would be artificially 179 00:26:52.700 --> 00:27:22.700 Transcription and Transcription of interview questions. 180 00:27:22.700 --> 00:27:37.700 The Austrian Theory can be conformed to this idea that you've had a boom in residential housing. 181 00:27:37.700 --> 00:27:43.700 One of the best things I've ever heard about the Austrian Theory was that it encourages production savings, 182 00:27:43.700 --> 00:27:50.700 not this kind of artificial consumption and buy as much as you can because the businesses are dying. 183 00:27:50.700 --> 00:27:55.100 are dying. I mean, how much more can we buy? We've been buying for so long. I mean, how 184 00:27:55.100 --> 00:27:58.580 much more did they want us to do? How much more debt did they want the American people 185 00:27:58.580 --> 00:27:59.580 to have? 186 00:27:59.580 --> 00:28:04.260 Right. And I've got an article coming out in the Campaign for Liberty site sometime 187 00:28:04.260 --> 00:28:09.120 this week, sort of explaining this, because I know that there is a superficial plausibility 188 00:28:09.120 --> 00:28:13.180 to the idea that people should spend because, you know, how can businesses stay in business 189 00:28:13.180 --> 00:28:17.460 if people don't spend? And there are a lot of different replies to that. But one that's 190 00:28:17.460 --> 00:28:47.460 The most relevant to today is, as you say, it's not spending per se that we need, because if that were the case, everybody should get into debt up to his eyeballs, as a lot of people already are, and then go out and spend, but then, you know, well then what will we do three weeks from now, when we're so in debt that we can't spend anymore, I mean, obviously that can't be the solution in and of itself, but beyond that, the fact is that because of the housing boom, people spent more than they should have, they thought they were richer than they really were, because everybody thinks he's sitting on a half million dollar house. 191 00:28:47.460 --> 00:28:50.940 Now they realize they're not, and now they realize they've engaged in more consumption 192 00:28:50.940 --> 00:28:54.380 spending than they should have, or they borrowed against the equity in their homes to finance 193 00:28:54.380 --> 00:28:55.380 consumption spending. 194 00:28:55.380 --> 00:28:58.460 And they wouldn't have done that if they had known the real value of their homes. 195 00:28:58.460 --> 00:29:02.780 So what we're starting to see now is that in the boom, it was not just housing that 196 00:29:02.780 --> 00:29:04.120 was affected by the boom. 197 00:29:04.120 --> 00:29:09.100 The boom distorts all lines of production, or a lot of lines of production, that wouldn't 198 00:29:09.100 --> 00:29:10.700 have occurred without the boom. 199 00:29:10.700 --> 00:29:16.300 And so for instance, we're now learning that Starbucks, or at least it's one store every 200 00:29:16.300 --> 00:29:20.300 Every 10-feet business model was a bubble activity. 201 00:29:20.300 --> 00:29:24.300 They are closing stores like you wouldn't believe, because when people feel like, 202 00:29:24.300 --> 00:29:28.300 hey, I've got an infinitely appreciating asset in the form of my house, 203 00:29:28.300 --> 00:29:31.300 well, sure, a five-buck cup of coffee has sky's the limit. 204 00:29:31.300 --> 00:29:36.300 Or a six-dollar ice cream cone with cold stone creamery, great, fine, let's do it. 205 00:29:36.300 --> 00:29:42.300 But we're now seeing that those are bubble activities. They're going south, fast. 206 00:29:42.300 --> 00:29:49.300 So it's not so much that we need spending per se. We don't need people to go out and spend five dollar cups of coffee. 207 00:29:49.300 --> 00:29:54.300 What we need is for the economy to realize, wait a minute, five dollar cups of coffee are not what we need to be producing. 208 00:29:54.300 --> 00:29:58.300 We need capital to go out of that and to produce one dollar cups of coffee. 209 00:29:58.300 --> 00:30:05.300 So what we need is a restructuring of the economy so that it produces things people can sustainably spend their money on. 210 00:30:05.300 --> 00:30:09.300 We don't want to freeze this economy just the way it is and tell people to keep spending. 211 00:30:09.300 --> 00:30:14.900 We're producing things that people can't afford. We're producing more plasma TVs maybe than we should be. 212 00:30:14.900 --> 00:30:18.900 I don't exactly know what we're producing too much of. That's why we have a price system. 213 00:30:18.900 --> 00:30:24.700 But we need the economy to sort out what is sustainable in a post-bubble economy 214 00:30:24.700 --> 00:30:26.900 and what should be allowed to go out of business. 215 00:30:26.900 --> 00:30:33.100 And then we will restore an equilibrium where people will spend and will be producing things that people want. 216 00:30:33.100 --> 00:30:38.900 But just throwing money at the existing economy is just going to prop up zombies. That's the last thing we want. 217 00:30:38.900 --> 00:30:53.900 On that note, the Obama administration so far has spent over a trillion dollars and God knows how much the Geithner bank program could cost. But if they continue on this path, what do you see happening in the next four years? 218 00:30:53.900 --> 00:31:11.900 Well, if they continue on this path, I just can't see how the economy could recover. Markets are incredibly resilient. The market was trying to recover in the early years of the New Deal. There are some signs of that. 219 00:31:11.900 --> 00:31:20.900 So it can fight against government intervention, but given that we've got no savings, we're very much hollowed out as an economy, 220 00:31:20.900 --> 00:31:31.900 it's hard to see where the resources for the recovery could come from given that our pool of savings has been stretched thin or is almost nonexistent, 221 00:31:31.900 --> 00:31:38.900 and then what little we have left the government wants to raid so it can spend on arbitrary projects to reward political favorites. 222 00:31:38.900 --> 00:31:52.900 So I don't see where the recovery could come from. So we could, you know, best case scenario, we degenerate to a West European welfare state model where they have extremely sluggish growth, if any growth at all. 223 00:31:52.900 --> 00:32:07.900 They have high unemployment and they pretend not to know why this is happening to them. Or there is the possibility of, you know, the worst case scenario is a complete collapse of the whole system, a complete collapse of the dollar with all this pressure being put on it. 224 00:32:07.900 --> 00:32:15.900 I think it's very hard to know which of those outcomes will happen, but neither one of them is completely implausible. 225 00:32:15.900 --> 00:32:20.900 Okay, now we have a caller, Matt, from Syracuse University. He's going to ask you a question. Matt, you're live. 226 00:32:20.900 --> 00:32:25.900 Hey, Tom, how's it going? Big fan. This is more of a prod than a question. 227 00:32:25.900 --> 00:32:30.900 So, conservative pundits and politicians who are poignant on pretty much everything when a Republican's in office, 228 00:32:30.900 --> 00:32:34.900 but sometimes all right on economics when a Democrat's in office, 229 00:32:34.900 --> 00:32:54.900 The New Deal didn't cure the Great Depression, some will even say that it didn't make it worse, but they'll usually follow a lot of step behind your Paul Krugman of the world in saying that the Public Works Project that was World War II actually cured us of the Depression. 230 00:32:54.900 --> 00:33:07.900 Can you just speak to curing people of this kind of fallacy, this notion that World War II was a depression? I know you're going to reference Higgs and everything. 231 00:33:07.900 --> 00:33:37.900 Profile Investment Services, Inc. 232 00:33:37.900 --> 00:33:42.900 There should be some alarm bells going off when you hear that the war was good for us. 233 00:33:42.900 --> 00:33:48.900 I mean, when you have a war and you've got 12 million people drafted into the armed forces, 234 00:33:48.900 --> 00:33:53.900 12 million of your prime workers, and they're drafted into the armed forces, 235 00:33:53.900 --> 00:33:55.900 they're no longer available to produce goods and services. 236 00:33:55.900 --> 00:34:05.900 And 40% of the economy, 40% is either devoted to the armed forces or it's devoted to civilian employees of the armed forces 237 00:34:05.900 --> 00:34:35.900 Profile Investment Services, Inc. 238 00:34:35.900 --> 00:35:05.900 Profile Investment Services, Inc., Ltd., or Israel National News. 239 00:35:05.900 --> 00:35:35.900 Profile Investment Services, Inc., Ltd., or Israel National News. 240 00:35:36.060 --> 00:35:40.540 for the 1940s that tells you that we had a great boom in America during the war. 241 00:35:40.540 --> 00:35:44.220 You have to ask yourself, wait a minute, do these statistics make any sense? How could 242 00:35:44.220 --> 00:35:51.220 we have the biggest boom in the history of the United States at a time when the economy 243 00:35:51.980 --> 00:35:58.300 is suddenly finding itself under unprecedented resource constraints? The best workers have 244 00:35:58.300 --> 00:36:04.460 been shipped away and replaced by inexperienced people and that gives us the single greatest 245 00:36:04.460 --> 00:36:08.940 Boom in American history? How can that be? There's got to be something wrong with this. 246 00:36:08.940 --> 00:36:12.020 And so the rest of the answer, and I'll make this as quick as I can, 247 00:36:12.020 --> 00:36:15.380 the rest of the answer is that these GDP figures are totally misleading. 248 00:36:15.380 --> 00:36:17.380 They're just phony numbers. 249 00:36:17.380 --> 00:36:21.900 GDP is a screwy number to begin with under ideal circumstances. 250 00:36:21.900 --> 00:36:26.660 But basically what happened is that the economy was so controlled by the government 251 00:36:26.660 --> 00:36:28.020 during the war 252 00:36:28.020 --> 00:36:31.620 that so many of the prices were just dictated by the government. 253 00:36:31.620 --> 00:36:35.620 This is what we're going to pay for this good. Now, you go and produce it for us for the war. 254 00:36:35.620 --> 00:36:39.620 And this has spillover effects and affects other prices in the economy. 255 00:36:39.620 --> 00:36:46.620 Prices are only meaningful if they arise voluntarily between the bids of buyers and sellers for products. 256 00:36:46.620 --> 00:36:57.620 But if the government were to arbitrarily say, from now on, the price of eggs is, we declare to be $10 per egg, and the government is going to order a million eggs, 257 00:37:27.620 --> 00:37:57.620 Profile Investment Services, Inc., Ltd., or Israel National News. 258 00:37:57.620 --> 00:38:03.020 One of the hosts mentioned earlier that they had a liberal fund at their school that kind 259 00:38:03.020 --> 00:38:05.620 of couldn't see through the free market view on this. 260 00:38:05.620 --> 00:38:11.260 I'm wondering if you can speak to how the current financial system, how the Federal 261 00:38:11.260 --> 00:38:17.380 Reserve, how the government is currently set up, how that kind of feeds into the warfare 262 00:38:17.380 --> 00:38:18.380 state. 263 00:38:18.380 --> 00:38:21.380 I feel like a good answer on that would be something that could appeal to more liberal 264 00:38:21.380 --> 00:38:22.380 people. 265 00:38:22.380 --> 00:38:36.380 Yeah, yeah. Well, I mean, think of it this way. Is government going to be more able to wage destructive wars and by and large without the full enthusiastic consent of the population? 266 00:38:36.380 --> 00:38:42.380 Is it going to be more likely to be able to do that if it can just print up the money it needs to finance it out of thin air? 267 00:38:42.380 --> 00:38:49.380 Or if it has to actually go to the population and get the money either through borrowing from the population or through taxes? 268 00:38:49.380 --> 00:39:19.380 The question answers itself. If you really, really honestly care about war, and it's not just posturing, and it's not just a way to skip school for the day, but if you really believe it, if you really believe that war is evil, and that a lot of these wars that we've seen in recent years have been just unbelievable atrocities, well then it's very hard to take you seriously if you're going to say, but the government needs to be able to create out of thin air, out of absolutely nothing, with nobody's consent, even if the population is dead-set, 269 00:39:19.380 --> 00:39:29.380 I mean, that was what made Vietnam possible, because how did Lyndon Johnson finance that? 270 00:39:29.380 --> 00:39:36.380 I mean, a very, very large proportion of it was through just creating the money out of nowhere. 271 00:39:36.380 --> 00:39:42.380 Likewise for the Iraq War, taxes weren't raised, so where did the money come from? 272 00:39:42.380 --> 00:39:50.380 It was basically borrowing from foreigners and then creating the money, just printing the money up, and that's what made the war possible. 273 00:39:50.380 --> 00:39:56.380 So you can tell me all day long about you're all tears and pity for the Iraqi people and how terrible this is. 274 00:39:56.380 --> 00:40:11.380 But if you're going to sit here and either ignore or actually defend the government's power to fund these atrocities with money it has a monopoly on creating, you've just got to be kidding me. 275 00:40:11.380 --> 00:40:26.380 So, I mean, now you probably want to say this a little more nicely in a nicer tone than I just did, but I mean, as I say, if the war machine also runs a money machine, do you think there's going to be more war or less war? I mean, this is not brain surgery. 276 00:40:26.380 --> 00:40:32.380 Well, thanks a lot. Just one more question, Mr. Woods. Do you have an idea for another book? 277 00:40:32.380 --> 00:40:41.940 I've been writing an awful lot of books lately, so in the immediate run, I don't, just because 278 00:40:41.940 --> 00:40:48.300 I worked just day and night on Meltdown and it really took a lot out of me to be honest 279 00:40:48.300 --> 00:40:51.300 with you. 280 00:40:51.300 --> 00:40:54.740 People have actually been writing to me and say, ìHey, you're writing books faster than 281 00:40:54.740 --> 00:40:58.700 I can read them.î Well, then maybe right now I'm going to let people catch up a little 282 00:40:58.700 --> 00:41:00.900 bit while I get some recuperation. 283 00:41:00.900 --> 00:41:08.320 I'm not going to lie, I was impressed with all those citations and you sourced everything 284 00:41:08.320 --> 00:41:09.320 that you said. 285 00:41:09.320 --> 00:41:13.460 There were five pages of sources in the back and I love it and I'm going to go through 286 00:41:13.460 --> 00:41:15.900 all of them as soon as I have the chance. 287 00:41:15.900 --> 00:41:18.300 Thank you very much Mr. Woods, I guess we're going to conclude. 288 00:41:18.300 --> 00:41:22.100 Thanks for talking to us, it's been a very enjoyable experience and we're grateful that 289 00:41:22.100 --> 00:41:25.580 you took time out of your busy schedule to talk with other Liberty-minded people to get 290 00:41:25.580 --> 00:41:26.580 the message out there. 291 00:41:26.580 --> 00:41:34.580 So to everyone listening, Buy Meltdown. It's available on Amazon.com. It's a great book and I highly recommend it. Thank you very much, Mr. Woods. 292 00:41:34.580 --> 00:41:40.580 Thank you, guys. And check me out at TomWoods.com where I've got a free chapter of the book available. 293 00:41:40.580 --> 00:41:42.580 Alright. Thanks a lot. 294 00:41:42.580 --> 00:41:44.580 Okay. Thank you, guys.