Welcome back to the Wall Street Shuffle. We have Walter Block on the line with us. Walter is an economics professor at Loyola University and author of
Privatization of Roads and Highways and Defending the Undefendable. Walter, how are you, my friend?
I'm delighted to be with you on your show.
Well, thank you very much. You are so polite. Most people are not anywhere near that polite. Thank you so much, my friend.
You have such provocative topics. For example, privatizing rivers. What the heck is that all about?
Well, I'm from New Orleans, and recently a government river killed a lot of people.
I'm talking about Katrina, and the Army Corps of Engineers, which is a governmental enterprise,
and the U.S. government, which owns the Mississippi River, between the two of them killed about
1,500 of my fellow citizens, and I'm not much of a fan of that.
And my thought is that if the river was owned by the Mississippi River Corporation, a private
entity, they would take better care of their property than the government would.
But then the argument comes right back at you that Transocean didn't do that on the
oil rig.
So I guess that goes both ways.
Transocean?
Yeah, that was a private company, right?
Lack of regulation, 11 people died and now it's turning into the largest ecological disaster
in history of the Gulf.
Did we bring you in to shoot the guest wheels off?
Did we do that?
I wanted to bring the other side of the argument. You've been gone too long.
Anyways, continue. Is that not a valid point as well?
We're now talking about the BP oil spill in the Gulf.
Yes. Guess who claims ownership of the Gulf?
Good question. Who is it? It's the government.
Oh, I see. And if the Gulf were privately owned,
they would have been much more careful, presumably, than in who they
The government, in its infinite wisdom, has seen to it that DP is not going to be responsible
for all of the damage caused, but only up to, I think, $95 million, plus the cost of
cleanup.
So I think a private enterprise who own the Gulf of Mexico would have been a little bit
more careful, because if they make a mistake, they can go broke, whereas if the government
Make no mistake, it just raises our taxes.
So unless we embrace socialism, and we've seen what happened with the Soviet Union,
we should embrace pre-enterprise.
Well, let's just assume, first of all, you are one of my favorites, because instead of
being a Keynesian economist, you're an Austrian economist, as am I, and a libertarian theorist.
I happen to subscribe to the libertarian theory.
So you and I are exactly on the same page, and what you're really talking about is letting
the free market control everything.
Now, and I agree with that, but let me ask you a question when it comes to Wall Street.
Greenspan said the same thing. He thought that the inherent greed of people on Wall Street would be self-regulating.
It turns out it wasn't. How do you reconcile our theory about Austrian economics and libertarianism with greed?
Well, as Adam Smith said about greed, it's not from benevolence that the butcher and the baker and the candlestick maker
The magic of the marketplaces, Ronald Reagan used to talk about, converts greed and selfishness into good work.
But the problem is when you don't have private property, or when you have government regulations,
or when you have a central bank like the Fed, of which we're all very familiar,
or when you have government regulation or when you have a central bank like the
Fed of which Greenspan and now Bernanke are head of, well then you don't have free
enterprise and of course this isn't going to work if you have a large ad
mixture of socialism or fascism. It only works when you have free enterprise.
So are you saying that had there been, and I struggle with this because I think
the avarice on Wall Street is beyond belief and how blatant it is, I guess you
you could say that back in the early nineties before the government said we need to encourage
more home ownership.
If the government hadn't become involved in the whole prime, sub-prime process, getting
more homes to the people that can't afford it, if we hadn't gotten involved in that,
I guess you're saying we never would have gotten to 2006 through 2008 and the system
would have been self-regulating, I'd like to believe that greed would have regulated
the system.
It seems to me that greed would have taken us right off the same cliff.
Well, when you shop for a car, do you try to buy the cheapest car you can get or do
you try to buy the most expensive car of the thing?
Every chance I get.
I'm sure you try to.
If there are two cars that are identical and one is selling for $30,000 and one is selling
for $35,000, you greedy person, don't you grab the $30,000 one?
Actually, I prefer the $50,000 one selling for $30,000, but yes, your point's well taken.
Well the point is that everyone is greedy.
The average is no monopoly of Wall Street.
Every last person wants to buy at the lowest price and sell at the highest price.
So what is this Wall Street greed, this greed all over?
Well, I agree with that, but we're talking about things like, let's say, the subprime
mess, the derivatives, the one and a half quadrillion dollars worth of completely unmatched
derivatives floating around out there.
People have created instruments of absolutely no value to anybody in society, pocketed the
the fees on them, left nothing behind but carnage and walked away. Now you've taken
greed to a whole new level. Do we need regulation for that or are we just completely eliminating
regulation of Wall Street to serve us better?
Well I think we need to eliminate regulation because the cause of the problem is, as you
say, the subprime mortgages, letting people into houses that never could have gotten into
before under the old stricter rules of you have to have collateral and you have to have
of Credit Rating.
But I think that the Federal Reserve system also deserves a big dollop of blame for this
crisis.
Oh, absolutely.
The Fed came in in 1913, and if you look at roughly 100 years before and after the Fed
came in, where right now we're roughly 100 years later, the business cycle has been going
like a cyclone ever since they got into it, where before, even though there was still
some government regulation which caused the cycles before that, but afterward it's gigantic.
So I think you're really on the wrong foot when you blame greed or avarice or anything
like that.
What you have to do is look for government intervention which screws up the market.
These people have been artificially lowering interest rates, thus encouraging malinvestment,
allocations of resources, and that's what causes the bubble, not the derivatives or
any of these other Wall Street financial...
If you're saying, could we do without a central bank, I contend the Treasury could do what
the central bank can do, and I think the central bank's role in supposedly eliminating these
positive and negative spikes in our economy, they haven't been able to do it since 1913.
They're not able to do it now, and I think they're exacerbating the problem, would be
my humble opinion.
It's not really even that they're not able to stop it or that they're exacerbating, they're causing the whole thing.
If we have the gold standard, which Ron Paul is favoring, and I certainly support him on that,
I don't say we have no cycle, you know, there are variations that
supply and demand don't always equal necessarily totally all the time, but
there wouldn't be any of this topsy-turvy stuff.
So the cause of it is not average or greed
or
Derivatives or anything like that. Rather the cause of it is
is government intervention into the economy
specifically in the present case by
the toxic assets that are based on
mortgages that never should have been granted and the Fed.
Walter, I want to ask a very quick question, a little bit of a right turn here.
I get a lot of callers ask me
what's the difference between a Keynesian economist and an Austrian economist.
They always hear the word Keynes and they assume that if they can say the word
that they must be really really smart people because they know the name of an economist
nobody really even knows what the Ludwig von Mises Institute is or
about Austrian economists. Could you give us a brief
insight into the difference between the two?
Well, let me just
it's a very big question so let me just start with the macro part of it because
that's what we're now discussing.
The Keynesians believe that
the economy is sort of like a car
and when we are
Down, depressed, dispirited, our animal spirits are depressed. Well, then what the government
has got to do is press the gas. On the other hand, when our animal spirits are crawling
up toward the roof and we're very excited, then what the government has to do is press
the brakes because the market does not have within itself a regulatory device that keeps
us on an even keel. Now, there are two branches of Keynesianism, the fiscalists, mainly associated
with Harvard and MIT, and then there are the monetarist Keynesians, mainly associated with
Milton Friedman and the University of Chicago, and the only difference between them, they're
both Keynesians, is that the one believes that the gas pedal and the brake should be
fiscal, tax and spending policy, and the other believes that it should be monetary policy.
So how are the Austrians different?
The Austrians differ because we believe that within the bowels of the economy there are
self-regulating mechanisms that keep us on an even keel, and government is not needed
to keep us on an even keel, but rather what government does is it screws things up, animal
spirits.
I mean, it's sort of a psychiatric view of the economy, the Keynesian view, that we're
either depressed or exuberant, and there's no way out of reconciling these two.
In the Austrian view, the market is a self-regulating institution, and it's not given to bouts of
depression or exuberance.
And if there is any excess exuberance or the opposite, the profit and loss system will
take care of that.
I've got to add, I don't want to, we're going to run out of time here pretty soon.
We've got about two or three minutes left.
I have to ask you about voluntary slave contracts.
What are you talking about?
Now, suppose my child is in horrible disease and it'll take $10 million to cure him and
I value his life more than my own freedom and you are a very rich man and you long wanted
to have me as a slave and then you could, you know, whip me in the shape on Keynesianism
or whatever you wanted to do.
So, we make the following deal.
I will sell myself and the slavery to you for $10 million.
You give me the $10 million, I turn it over to my son's doctors and they cure him and
And then I become your slave. Now, this is very different than the slavery that existed
until 1865, which was coercive slavery. We're now talking about voluntary slavery.
Sounds like life settlements to me.
I'm sorry?
I'm sorry, I'm making a joke. It sounds like life settlements to me.
Yeah, well, I think all voluntary contracts are mutually beneficial. I gain because I
value my son's life more than my freedom. You gain because you value me as a slave more
and the 10 million bucks. So why should that be prohibited by law? I see no reason for it.
So then I can only assume that prostitution is okay with you on that. And I'm not making a judgment call on that.
I'm actually kind of sort of, you know, I'm open-minded on that, only because people should have the right to do what they want to do.
And I'm very much a libertarian in that regard.
Yes. Well, I wouldn't want my daughter to be a prostitute or my wife or my mother or any, I really oppose prostitution.
I think that sex between consenting adults should be based on love and affection, not on money, but I'm not going to be putting people in jail for voluntary consensual activity between consenting adults. I think that's wrong.
Yeah, and the people here in the control room in our studio are cringing right now that I just said that. Let me be perfectly clear what I mean. I am not promoting prostitution. What I'm trying to suggest is that if you... Danny's handing me notes right in the middle. What are you handing me?
I think we agree that we're not favoring prostitution, and there's a big difference between favoring
prostitution and favoring the legalization of prostitution, the same thing with the drugs
like marijuana, cocaine, whatever.
I oppose the use of those things, I think they're dangerous substances, but I don't
want to be putting people in jail for putting crap into their own bodies, that is adult.
I think the libertarian analysis on both is clear, and we have to make clear that we don't
favor marijuana or heroin use. We don't favor prostitution. We just oppose the prohibition
of it and putting people in jail.
I think that's the problem that I have with this whole process. We can make our own moral
judgments based upon our own principles, and that's fine. But the minute that our government
starts making moral choices for us in our own personal lives, then you're ceding so
So much control on a slippery slope to a government. That's the problem that I have. And so what
I might choose morally not to do, I don't want the government to tell me that I can't
do it.
Or prohibit it, right. I mean, they can talk all they want. Obama or Bush can get up on
their hind legs and talk all they want. I don't care. It's just when the police come
and put you in jail for capitalist acts between consenting adults, then it's not a slippery
slope. The slope has already arrived.
Danny was handing me a note here. Let me get to this real quick, and then we really do need to go to a quick break. He was asking me about drug policy economics. How do you stand on drug legalization?
Well, I certainly favor drug legalization, even though I don't approve of drugs. And look at what's happening in Arizona now and Mexico. I mean, some people say that the drug gangs are even stronger than the Mexican government, and that can happen in the U.S. too.
The reason for this crime is not because of drugs, it's because of the prohibition of drugs.
Look, right now, alcohol is legal.
And there's nobody shooting anyone over alcohol, yet a couple of decades ago, when alcohol was illegal,
people were dying like flies that were being shot in the streets of Chicago over alcohol.
So we've learned nothing from prohibition of alcohol because we've got prohibition of drugs and it's creating the same havoc.
You have our own little in-studio pot-pimp over here, praising you, jumping up and down doing jumping jacks, which you just said.
I mean, I'm in New Orleans and there are a lot of young black men that are dying of this and I go on black TV and I try to tell these people, you know,
forget about affirmative action, forget about welfare. Young black men are dying like flies. Every day it's in the Times-Picayune.
uh... this is a big problem and the only solution for it is to legalize it and
you know previously over alcohol it was young italian men that were shooting each
other and and being shot uh... so you know that this is a horrible situation
ron paul happily favors not only legalizing gold but legalizing pot and
legalizing anything that is not a per se violation of rights like rape or murder
or theft
we love ron paul ron paul is one of our regular guests on this show but i wish he
I'm going to get rid of the Department of Defense, the CIA, the NSA, please, there are truly people out there that want to kill us. Please don't keep saying those things.
No, no, but Ron doesn't want to get rid of the Department of Defense. He wants to make it a Department of Defense. Right now it's a Department of Offense.
Unfortunately, he came on the show and actually said he wanted to get rid of the FBI and NSA once, and he's like, and I love the guy, don't get me wrong, I love the guy.
I'm talking about the FBI. I'm talking about the Department of Defense. He wants a real Department of Defense, namely a very strong defensive army. He doesn't want to go over there. The reason we're over here is because we're over there. Right now, what we've got is an Department of Office. You know, they used to call it the Department of War, or the War Department. That's what it is. And what he wants to do, if I can put words in his mouth, I'm sure he would agree with me, is not get rid of the Department of Defense, but make what we've got now defensive. Yeah, I think that's right. And although I did have a good
I have a very close friend of mine who was a very high ranking person in the military and the defense intelligence side say that not enough Americans understand why we have bases around the world and the simple answer is you take it to them before they take it to you.
Hang on, let me just finish the point real quick. Their theory is that if you extend, if you project the land mass, the power of the United States into Europe, into Asia, into South America, that they've got to get through that first wall of defense before they get to the United States.
I'm not suggesting whether that's true or not, but that's a much more palatable explanation
than we're just staying there because we like being in Korea, we like being in Germany and
we like being in Iraq. So there is some plausibility to that answer.
I don't think it's very plausible. How would we like it if Switzerland or Portugal or any
other country had 800 military bases in foreign countries and 150 different foreign countries
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