WEBVTT NOTE Government Bailouts: Picking Winners 1 00:00:00.000 --> 00:00:05.600 Now, our first speaker earned his Ph.D. at Columbia University. 2 00:00:05.600 --> 00:00:16.800 He's author, editor, co-editor, co-writer of many books, a few of which we have out front, 3 00:00:16.800 --> 00:00:25.800 Defending the Undefendable, a wonderful little read, Labor Economics from a free market perspective. 4 00:00:25.800 --> 00:00:32.200 He was the editor of Man Economy and Liberty Essays in honor of Murray Rothbard. 5 00:00:32.200 --> 00:00:38.040 Of course, that's very near and dear to my heart because I was a student of Murray's. 6 00:00:38.040 --> 00:00:45.240 Our speaker has, if there's students in the audience wondering how to get a PhD in economics 7 00:00:45.240 --> 00:00:52.440 and eventually teach in an Austrian tradition, our next speaker is the guy to talk to. 8 00:00:52.440 --> 00:01:02.340 He's written hundreds of journal articles. He's co-written hundreds of journal articles and he still has hundreds that he wants to write, as near as I can tell. 9 00:01:02.340 --> 00:01:08.540 He has a very hot new book out front called The Privatization of Roads and Highways. 10 00:01:08.540 --> 00:01:14.280 And today he is speaking on government bailouts picking the winners. 11 00:01:14.280 --> 00:01:17.880 Please help me welcome Dr. Walter Block. 12 00:01:17.880 --> 00:01:37.880 Thanks for the kind introduction. I remember when I got my PhD in economics, my mother said, 13 00:01:37.880 --> 00:01:45.920 now will you go to law school? So I guess it didn't impress her all these things, but 14 00:01:45.920 --> 00:01:49.680 Jewish mothers are a tough sell. 15 00:01:49.680 --> 00:01:55.360 What I think all of us, I think I speak for my colleagues who are speaking today, are 16 00:01:55.360 --> 00:01:59.520 attempting to do is to explain why we're in the present recession, depression, whatever 17 00:01:59.520 --> 00:02:02.280 it is we're in the midst of. 18 00:02:02.280 --> 00:02:07.020 And I think one of the benefits is you'll hear several different voices, we're all pretty 19 00:02:07.020 --> 00:02:13.980 much on the same page on this, but each of us will emphasize different things. 20 00:02:13.980 --> 00:02:19.420 So the way I'd like to start is to consider several hypotheses as to why we are now in 21 00:02:19.420 --> 00:02:24.020 the difficulties economically that we are in. 22 00:02:24.020 --> 00:02:31.700 The first hypothesis, the first theory is greed. 23 00:02:31.700 --> 00:02:32.700 Due to greed. 24 00:02:32.700 --> 00:02:36.540 Nancy Pelosi, I'm sure, would agree with this. 25 00:02:36.540 --> 00:02:41.420 There's a thing in the newspaper, a stewing greed. 26 00:02:41.420 --> 00:02:50.260 I guess the people in the front row can see this. Harvard MBA students pledge to be ethical. 27 00:02:50.260 --> 00:02:55.740 I don't know what they're doing at Harvard. It must be in the water or something. These 28 00:02:55.740 --> 00:03:00.760 Harvard MBA students are signing an MBA oath, a voluntary student-led pledge quote that 29 00:03:00.760 --> 00:03:05.260 states the goal of the business manager is to serve the greater good. The vow promises 30 00:03:05.260 --> 00:03:09.380 that the Harvard MBA graduates will act responsibly, ethically and refrain from advancing their 31 00:03:09.380 --> 00:03:16.180 their own narrow ambitions at the expense of others. 32 00:03:16.180 --> 00:03:21.420 I mean, these guys are going to go into business, or as we used to say in Arkansas, bidness, 33 00:03:21.420 --> 00:03:22.660 that's the way they pronounce it there. 34 00:03:22.660 --> 00:03:27.220 Well, when you go into bidness, it's a mutual exchange, there's benefit. 35 00:03:27.220 --> 00:03:32.320 I mean, if I trade you my tie for your pen, I must like something about your pen more 36 00:03:32.320 --> 00:03:35.640 than the tie, and you must like something about the tie more than the pen. 37 00:03:35.640 --> 00:03:39.040 Every time anyone does anything in business is mutual gain. 38 00:03:39.040 --> 00:03:43.240 So what is this at the expense of others? I mean the only way you can do something at 39 00:03:43.240 --> 00:03:47.340 the expense of others is grab their wallet when they're not looking or engage in fraud 40 00:03:47.340 --> 00:03:51.760 like social security or Ponzi scheme or what have you. But that's not what they mean, they're 41 00:03:51.760 --> 00:04:01.000 attacking greed. Well, greed has got a bad press somehow. In the 80s was the decade of 42 00:04:01.000 --> 00:04:07.520 greed because Ronald Reagan was there, which is a little silly because when he was governor 43 00:04:07.520 --> 00:04:27.720 This attack on greed runs counter to what Adam Smith said, it's not from benevolence 44 00:04:27.720 --> 00:04:32.000 that the butcher and the baker and the candlestick maker give us their wares, it's rather out 45 00:04:32.000 --> 00:04:38.280 of a Keen Appreciation of Their Own Self-Interest or greed. Greed is good, says Wall Street, 46 00:04:38.280 --> 00:04:42.840 Gordon Gekko. Remember that magnificent speech about how greed is good? Well, these guys 47 00:04:42.840 --> 00:04:51.840 ought to go see that movie. So I reject, with due respect, the theory that it's greed. 48 00:04:51.840 --> 00:04:56.000 The second hypothesis that I have for our consideration is that it's due to laissez-faire 49 00:04:56.000 --> 00:05:01.560 capitalism. Now you might think this is silly. Who would ever say that? But here are a few 50 00:05:01.560 --> 00:05:07.280 Alan Greenspan admitted that he had put too much faith in the self-correcting power of 51 00:05:07.280 --> 00:05:16.480 free markets, head of the Fed, which is the central Politburo, planning bureau for money. 52 00:05:16.480 --> 00:05:20.640 Here's Jacob Weisberg in Newsweek under the title, End of Libertarianism. 53 00:05:20.640 --> 00:05:25.200 The financial collapse proves that its ideology makes no sense. 54 00:05:25.200 --> 00:05:31.840 Another one, Sarkozy, President of France, said laissez-faire economics, self-regulation 55 00:05:31.840 --> 00:05:37.480 and the view that the old powerful market always knows best are finished. 56 00:05:37.480 --> 00:05:41.960 Another one, the German finance minister, Peter Steinbrück, America's laissez-faire 57 00:05:41.960 --> 00:05:46.800 ideology, America's laissez-faire ideology, I don't know what world these guys are living 58 00:05:46.800 --> 00:05:51.960 in, as practice during the subprime crisis was as simplistic as it was dangerous and 59 00:05:51.960 --> 00:05:58.920 The New York Times, a little respect please. We love The New York Times. The United States 60 00:05:58.920 --> 00:06:03.800 has a culture that celebrates laissez-faire, capitalism is the economic ideal. I mean these 61 00:06:03.800 --> 00:06:10.000 guys are imbibing controlled substances or something. We don't have a free enterprise 62 00:06:10.000 --> 00:06:15.080 system. Free enterprise system means government is night watchmen state, you know, armies, 63 00:06:15.080 --> 00:06:20.200 courts and police, that's about it. But here the government takes over 40% of GDP, which 64 00:06:20.200 --> 00:06:25.120 is a little higher than the surf days when they only made you work two out of seven days 65 00:06:25.120 --> 00:06:32.440 for the government. We're doing, and this doesn't count off-budget spending like Fannie 66 00:06:32.440 --> 00:06:38.920 Mae and Freddie Mac and recent bailouts. The Federal Departments of Housing, Transportation, 67 00:06:38.920 --> 00:06:43.480 Healthcare, Education, Energy, Mining, Agriculture, Labor and Commerce, they're not really compatible 68 00:06:43.480 --> 00:06:48.360 with laissez-faire capitalism. Then you have more than a hundred federal agencies such 69 00:06:48.360 --> 00:06:55.400 such as IRS, FRB, FDIC, CIA, EPA, FDA, SEC, CFTS, I don't know what half of these things 70 00:06:55.400 --> 00:06:59.440 mean but there's a long list and I won't bore you with it because it takes a long time to 71 00:06:59.440 --> 00:07:00.440 read it. 72 00:07:00.440 --> 00:07:06.860 A year ago the Federal Register had 73,000 pages of detailed government regulations up 73 00:07:06.860 --> 00:07:10.080 by 10,000 pages since 1978. 74 00:07:10.080 --> 00:07:13.880 You know how big the Federal Register would be under laissez-faire capitalism? 75 00:07:13.880 --> 00:07:16.680 That big, zero. 76 00:07:16.680 --> 00:07:22.600 We have local rules about how you should flush your toilets and ladders and drugs and sex 77 00:07:22.600 --> 00:07:28.000 and all sorts of rules and regulations. We had the New Deal, the Fair Deal, the New Frontier, 78 00:07:28.000 --> 00:07:34.920 the Great Society, Obamonomics. I'm not sure what his society will be, the Obama Society. 79 00:07:34.920 --> 00:07:40.840 The U.S. is not really a laissez-faire society, so this hypothesis, too, has to be rejected. 80 00:07:40.840 --> 00:07:44.640 The next theory is the Keynesian Theory, and there are several subheadings of the Keynesian 81 00:07:44.640 --> 00:07:52.800 in Theory. The first one is due to lack of good animal spirits. You people are just dispirited. 82 00:07:52.800 --> 00:07:58.640 We need more optimism, hooray optimism, boof of pessimism. That's why they keep talking 83 00:07:58.640 --> 00:08:04.560 about green shoots. You know, their theory is that if you tell people that we're having 84 00:08:04.560 --> 00:08:08.440 green shoots, they'll be optimistic and then they'll spend more money or whatever it is 85 00:08:08.440 --> 00:08:12.980 and then we'll get out of the depression. This is sort of like a psychological view 86 00:08:12.980 --> 00:08:18.180 of Depressions. I can imagine how the cartoonists are going to do it. They're going to make 87 00:08:18.180 --> 00:08:23.140 Obama into Freud, Rogers, Albert Ellis or Jung. You know, put a little beard on him 88 00:08:23.140 --> 00:08:28.020 and he'll give him an Austrian accent. And you know the body politic? We talk about the 89 00:08:28.020 --> 00:08:35.020 body politic. Well, think of the body economics. So the body economic walks into Freud's office, 90 00:08:35.020 --> 00:08:42.900 a darker Freud with an Obama face, and says, sit down on my couch and free associate. Is 91 00:08:42.900 --> 00:08:54.180 to try to get people spiffed up. Well, this is silly. I had a full head of hair before 92 00:08:54.180 --> 00:08:59.380 I heard of this and now look at me. This is just preposterous that if people just felt 93 00:08:59.380 --> 00:09:04.260 good about themselves, we should all, I don't know, eat ice cream and get a massage or whatever 94 00:09:04.260 --> 00:09:09.260 it is that turns our crank and the economy would be better. And that's what they teach 95 00:09:09.260 --> 00:09:14.260 in Graduate Schools and Economics Departments. 96 00:09:14.260 --> 00:09:20.760 Okay, the next Freudian, next Freudian, that was a Freudian slip, the next Keynesian explanation. 97 00:09:20.760 --> 00:09:24.460 Well, Freud, Keynes, not much difference. 98 00:09:24.460 --> 00:09:29.460 The next one is that savings are evil and investment and consumption are good. 99 00:09:29.460 --> 00:09:36.060 You know, if you were going on a desert island and you had to pick people to help the economy 100 00:09:36.060 --> 00:09:41.740 and you had four fat guys over here who were champions of eating hot dogs, you know, if 101 00:09:41.740 --> 00:09:46.500 you go to a hot dog eating contest they'll kick butt or kick hot dog or whatever it is 102 00:09:46.500 --> 00:09:51.300 and here you have four guys that aren't fat but work hard. According to the Keynesians 103 00:09:51.300 --> 00:09:56.260 you're supposed to take these guys because it's consumption and these guys are good consumers, 104 00:09:56.260 --> 00:09:59.380 look at them, I mean, you know, you give them a hot dog and it's gone like that whereas 105 00:09:59.380 --> 00:10:04.180 these guys, you know, they're not such great consumers. Well, this is just preposterous, 106 00:10:04.180 --> 00:10:11.020 is silly that we can consume our way out of depressions and the way to have a good economy 107 00:10:11.020 --> 00:10:15.900 is to have everyone should eat like a pig or something. 108 00:10:15.900 --> 00:10:21.060 The next one is the Keynesian theory that if you have a problem with inflation, what 109 00:10:21.060 --> 00:10:24.900 you're supposed to do is cut spending. And if you have a problem with depression, what 110 00:10:24.900 --> 00:10:30.940 you're supposed to do is increase spending. Well, what about if you have both? See, the 111 00:10:30.940 --> 00:11:00.940 The way that Keynesians see it is sort of like a car. If it's going too slow, you hit the gas. If it's going too fast, you hit the brake. The gas is spending. The brake is less spending. And what if you have both? Arthur Burns, when he was the head of the Fed, was once asked, well, suppose you have both. And you know what his response was? We'll have to resign. Well, we've had both. Why don't they resign? They're all Keynesians. Which leads me to another statement in, what was it? 112 00:11:00.940 --> 00:11:10.940 In Samuelson's book, he quoted Milton Friedman saying, we're all Keynesians now, and I was, I won't say associate or friend, but I knew Milton Friedman, I attended conferences with him, 113 00:11:10.940 --> 00:11:18.940 and I said, Milton, what is this, we're all Keynesians now business, that Samuelson said, and he said, oh, Samuelson got it wrong as usual. 114 00:11:18.940 --> 00:11:26.940 The full quote, and I'll give it from memory, is when it comes to the tools of economic, when it comes to public policy analysis, 115 00:11:26.940 --> 00:11:33.220 There's a gigantic difference between us monetarists, this is Friedman speaking, and them the Arkansians. 116 00:11:33.220 --> 00:11:39.260 But when it comes to the tools of analysis, we're all Keynesians now. 117 00:11:39.260 --> 00:11:42.140 So I don't think that Samuelson got Friedman out of context. 118 00:11:42.140 --> 00:11:45.900 Truly, the tools of analysis are more important than the conclusions you make, 119 00:11:45.900 --> 00:11:51.140 because the conclusions you make are conclusions based on the premises of the tools of analysis. 120 00:11:51.140 --> 00:11:54.700 So the tools of analysis come first. 121 00:11:54.700 --> 00:12:00.300 The big difference between Chicago and Harvard, if I can put it in those terms, is that for 122 00:12:00.300 --> 00:12:05.340 the Chicago types, the breaks in the gas is monetary. They're the monetarists. Whereas 123 00:12:05.340 --> 00:12:09.740 for the Keynesians, they're fiscalists. It's tax and spending and things like that. Not 124 00:12:09.740 --> 00:12:16.180 a dime's worth of difference. It's the same Keynesian stuff. And this is the big debate 125 00:12:16.180 --> 00:12:23.580 among the mainstream economists, not the Austrians, which have a slightly different view. Well, 126 00:12:23.580 --> 00:12:29.340 If it was really money, then Zimbabwe would be in great shape, or Germany in 1923 with 127 00:12:29.340 --> 00:12:30.340 hyperinflation. 128 00:12:30.340 --> 00:12:36.780 I mean, they had the million-dollar and zillion-dollar marks or whatever it is they have in Zimbabwe. 129 00:12:36.780 --> 00:12:40.860 And if it was fiscal policy, the USSR would be good, because they had a lot of fiscal 130 00:12:40.860 --> 00:12:41.860 activity. 131 00:12:41.860 --> 00:12:45.620 I mean, the government counted for 98% of the economy. 132 00:12:45.620 --> 00:12:49.460 So this, too, I think, has to be rejected. 133 00:12:49.460 --> 00:12:55.300 A more recent one, another hypothesis is the speculation. Speculation is evil. This is 134 00:12:55.300 --> 00:13:00.460 James Tobin from Yale and sort of a left wing. I mean, the whole thing, left wing and right 135 00:13:00.460 --> 00:13:04.500 wing. The left wings are Yale and Harvard and MIT and the right wing is Chicago and 136 00:13:04.500 --> 00:13:11.220 they're all Keynesians. So, you know, what's the big deal? Well, James Tobin has this thing 137 00:13:11.220 --> 00:13:18.780 we should have a tax on speculation in exchange, especially foreign exchange. But speculation, 138 00:13:18.780 --> 00:13:21.820 I think I even have a chapter on this in my book, Defending the Undefendable, but it's 139 00:13:21.820 --> 00:13:28.060 a very basic thing. What speculation does, if prices are going like this, up and down, 140 00:13:28.060 --> 00:13:32.900 up and down, and what you do is you buy when it's low and sell when it's high, what you 141 00:13:32.900 --> 00:13:40.500 do is you even out the oscillations. So speculation, if it's successful, evens out oscillations 142 00:13:40.500 --> 00:13:44.820 and prices and makes things run more smoothly. And if you're not successful, you exacerbate 143 00:13:44.820 --> 00:13:49.420 Exasperated but you lose money. Of course when the government does it, they exacerbate 144 00:13:49.420 --> 00:13:54.140 it and they don't lose money so it doesn't work, only under private enterprise. So this 145 00:13:54.140 --> 00:13:59.140 too I think is a silly hypothesis. 146 00:13:59.140 --> 00:14:04.820 The last one I've got is, the reason we're in trouble is wages are too low. We have to 147 00:14:04.820 --> 00:14:11.000 increase wages. But anyone who's ever had econ 101 knows that if wages are above equilibrium, 148 00:14:11.000 --> 00:14:15.960 You create unemployment. I mean, if supply is greater than demand, above the equilibrium 149 00:14:15.960 --> 00:14:21.480 point, you're creating unemployment. This is what Hoover did. This is what FDR did. 150 00:14:21.480 --> 00:14:27.360 This is what Bush and Obama are doing, or did and are doing. They do it in several ways. 151 00:14:27.360 --> 00:14:32.460 One, they just raise the minimum wage. They keep raising it every, I forget when, a buck 152 00:14:32.460 --> 00:14:37.300 or two every time. Well, if the minimum wage was such a great thing, why be such pikers? 153 00:14:37.300 --> 00:14:44.020 Why be niggardly about it? You're not supposed to say that word, but it's a legitimate word. 154 00:14:44.020 --> 00:14:48.460 Why not make the minimum wage 100 bucks an hour and then everyone will be rich? Obviously 155 00:14:48.460 --> 00:14:53.660 the reason is because if you have to pay someone 100 bucks or not employ them, it's a no-brainer. 156 00:14:53.660 --> 00:14:59.640 You just don't employ them. We'll have vast unemployment. Another way of raising wages 157 00:14:59.640 --> 00:15:04.980 higher than they would otherwise be on the market is unions. And a third one is this 158 00:15:04.980 --> 00:15:10.360 Lily Ledbetter law, do you know about Lily Ledbetter? This is the idea that women get 159 00:15:10.360 --> 00:15:17.680 paid less than men and therefore we have to raise women's wages. You wonder why not just 160 00:15:17.680 --> 00:15:23.640 lower men's wages? That would do it too. No, no, no, we have to raise wages so you get 161 00:15:23.640 --> 00:15:30.360 a sort of impetus both from the curing of unemployment by raising wages and also this 162 00:15:30.360 --> 00:15:36.960 Feminist stuff. I got in a little spot of difficulty when I, it's all Tom DiLorenzo's fault. 163 00:15:36.960 --> 00:15:45.460 He invited me to speak at Baltimore, Loyola University, our sister school at Baltimore. 164 00:15:45.460 --> 00:15:53.860 And I made the very, very pedestrian statement that the reason I said that wages depend upon productivity 165 00:15:53.860 --> 00:15:56.860 and male and female productivity is about the same this century. 166 00:15:56.860 --> 00:16:02.100 Okay, a century or two ago, male productivity was slightly higher than female because men 167 00:16:02.100 --> 00:16:06.580 have more upper body strength and a lot of jobs like chopping down trees and digging, 168 00:16:06.580 --> 00:16:11.780 shovel, mining stuff takes effort like that, physical effort, and men are stronger than 169 00:16:11.780 --> 00:16:12.780 women. 170 00:16:12.780 --> 00:16:16.980 But nowadays, the way most of this stuff is done is you push a button and women are perfectly 171 00:16:16.980 --> 00:16:18.380 capable of doing it. 172 00:16:18.380 --> 00:16:20.380 And so why do women make less than men? 173 00:16:20.380 --> 00:16:23.860 Well, because they're married and when they're married, they have unequal distribution of 174 00:16:23.860 --> 00:16:28.100 of a Household Care and Child Rearing Care. 175 00:16:28.100 --> 00:16:32.420 And one of the evidences of this is that if you take never marrieds, people who have never 176 00:16:32.420 --> 00:16:37.140 been married, widows, separated, divorced, anything, there is no gap. 177 00:16:37.140 --> 00:16:42.060 The gap comes about because of married people and the 30% gap is an amalgamation of a zero 178 00:16:42.060 --> 00:16:46.020 gap for the never marrieds and a much bigger gap for the ever marrieds. 179 00:16:46.020 --> 00:16:49.500 So this whole thing is silly and yet Obama is making great play, you know, helping the 180 00:16:49.500 --> 00:16:50.500 feminists. 181 00:16:50.500 --> 00:16:57.100 Okay, so these are some of the theories that I would reject as explanations of why we have 182 00:16:57.100 --> 00:17:04.720 depression. Drumroll, what's the correct theory? Thank you, thank you. I paid him five bucks 183 00:17:04.720 --> 00:17:11.420 for that. It was only a four dollar drumroll, but that's better. It's the Austrian business 184 00:17:11.420 --> 00:17:26.540 The Austrian Business Cycle Theory is, I hate to do this to you, it's a nice Saturday morning 185 00:17:26.540 --> 00:17:32.520 and interest rates are boring, but I do this with my students and you people are at least 186 00:17:32.520 --> 00:17:35.940 as bright as my students and probably a lot brighter because most of them are commies 187 00:17:35.940 --> 00:17:40.460 when they come into my class, hopefully when they leave they're a little bit better, but 188 00:17:40.460 --> 00:17:44.960 They're all total commies, most of them anyway. 189 00:17:44.960 --> 00:17:54.000 On the colored sheet, the one in yellow, this is the interest rate table that you're all 190 00:17:54.000 --> 00:18:00.700 accustomed to and all aware of and creates no theoretical difficulty for anyone. 191 00:18:00.700 --> 00:18:05.280 Everyone sees this, namely if you put a dollar in the bank at 2%, at the end of the year 192 00:18:05.280 --> 00:18:19.200 The higher the interest rate that you leave for one year, you get $1.10 at 10% interest. 193 00:18:19.200 --> 00:18:23.080 And then the more years you leave the money in the bank at any given interest rate, now 194 00:18:23.080 --> 00:18:27.720 we're going down the rows instead of across the columns, well, the more money you get. 195 00:18:27.720 --> 00:18:35.240 So if you leave money in the bank for 50 years at 4%, you get $7.11. 196 00:18:35.240 --> 00:18:38.040 That's the easy one. 197 00:18:38.040 --> 00:18:47.720 Now before turning the page over, let me offer you people the following deal. 198 00:18:47.720 --> 00:18:50.480 Here is the deal. 199 00:18:50.480 --> 00:18:57.520 I have here in my hot hands a dollar bill, U.S. currency, you can trust this stuff. 200 00:18:57.520 --> 00:19:04.440 I feel like Cartman in, what is it, South Park, you can trust this. 201 00:19:04.440 --> 00:19:08.560 And we have to assume, just for the sake of argument, that there will be no inflation 202 00:19:08.560 --> 00:19:12.520 from now until a year from now, and also you can trust me that I will indeed give you this 203 00:19:12.520 --> 00:19:15.220 dollar in a year from now. 204 00:19:15.220 --> 00:19:19.200 And the question comes, what will you bid for it now? 205 00:19:19.200 --> 00:19:25.660 And if you're smart, the first bid ought to be minus infinity, namely you'll pay me minus 206 00:19:25.660 --> 00:19:30.360 infinity, namely I pay you everything in order to take this, but after we get rid of the 207 00:19:30.360 --> 00:19:37.000 The Minus Numbers, the best bid is zero, or a penny, right? You're all with me, you'd 208 00:19:37.000 --> 00:19:41.200 bet, you'd bid a penny for this dollar in a year from now, and a dollar and a penny 209 00:19:41.200 --> 00:19:46.480 doesn't mean much, but if we put a few zeros on it, it gets serious. So if it's a million 210 00:19:46.480 --> 00:19:51.400 dollars and you know, you'd bet, you'd bid ten thousand for a million dollars in a year 211 00:19:51.400 --> 00:19:58.180 from now. But what is the equilibrium bet, or bid? What is the bid such that there is 212 00:19:58.180 --> 00:20:03.420 There is no profit and in equilibrium you never make any profit. Does anyone know what 213 00:20:03.420 --> 00:20:11.220 the answer is? That's it. That's the answer. What's the interest rate? The interest rate 214 00:20:11.220 --> 00:20:17.220 is very determinative, definitive in telling you what the present discounted value of a 215 00:20:17.220 --> 00:20:23.740 dollar is. And now we turn to the other table, the black and white table, the non-color table. 216 00:20:23.740 --> 00:20:30.500 And what that is, is a present discounted value of a future dollar for sure and no inflation 217 00:20:30.500 --> 00:20:34.620 because if you're not sure then you stick in a risk premium and if there's inflation 218 00:20:34.620 --> 00:20:38.100 you stick in an inflation premium but I'm trying to make it simple. 219 00:20:38.100 --> 00:20:45.820 Okay, so for example, what's a dollar worth in a year from now at the 8% interest? 220 00:20:45.820 --> 00:20:49.220 Well it's worth 92.6 cents right now. 221 00:20:49.220 --> 00:20:55.020 If you bid 92.6 cents right now, you'll neither make money nor lose money, because if you 222 00:20:55.020 --> 00:21:02.660 would have put 92.6 cents in the bank and you turn it all around the other side at 8% 223 00:21:02.660 --> 00:21:09.940 and you multiply 92.6 times 108, you ought to get one, namely these tables are reciprocals 224 00:21:09.940 --> 00:21:13.060 of each other. 225 00:21:13.060 --> 00:21:18.780 So the present discounted value of money receivable in the future is determined by this blank 226 00:21:18.780 --> 00:21:28.820 or non-colored black and white interest rate table and you can see that as you go from 227 00:21:28.820 --> 00:21:34.740 left to right on the same row, the numbers get smaller because you're more heavily discounting 228 00:21:34.740 --> 00:21:39.420 a dollar receivable at 20% than you are at 1%. 229 00:21:39.420 --> 00:21:40.860 Everyone see why that is? 230 00:21:40.860 --> 00:21:46.300 At a 20% interest rate, you're heavily discounting the future, whereas at a 1% interest rate, 231 00:21:46.300 --> 00:21:48.560 you're not so heavily discounting the future. 232 00:21:48.560 --> 00:21:55.760 So you only have to pay 99 cents at 1% and you pay 8 or rather you pay a full 99 cents 233 00:21:55.760 --> 00:22:02.860 at the 1% but you only have to pay 83.3 cents if it's 20% okay this is going to be a quiz 234 00:22:02.860 --> 00:22:09.820 so you'd be people better shape up on this you don't get lunch until you, no I'm kidding. 235 00:22:09.820 --> 00:22:15.380 So the numbers go down as you move to the right and they also go down as you go down 236 00:22:15.380 --> 00:22:20.940 the Roe. So, for example, at 3%, the present discounted value of a dollar receivable in 237 00:22:20.940 --> 00:22:27.460 one year at 3% is 97 cents, which means if you put 97 cents in the bank at 3%, you get 238 00:22:27.460 --> 00:22:33.260 about a dollar. Are you getting about rounding problems? Yes? Everyone with me? Whereas, 239 00:22:33.260 --> 00:22:37.900 in 50 years, all you have to do is put in 22 cents in the bank, 22.8, and you'll get 240 00:22:37.900 --> 00:22:41.640 a dollar. So, the present discounted value of a dollar receivable in 50 years from now 241 00:22:41.640 --> 00:22:46.480 Now is worth squat or worth a lot less, okay? 242 00:22:46.480 --> 00:22:50.560 Now for the Austrian business cycle bit. 243 00:22:50.560 --> 00:22:54.140 Suppose the government, you see what I'm trying to say is that the interest rate is a crucially 244 00:22:54.140 --> 00:22:59.240 important price, inter-temporal price. 245 00:22:59.240 --> 00:23:01.280 And prices are important. 246 00:23:01.280 --> 00:23:03.240 Prices determine things. 247 00:23:03.240 --> 00:23:05.360 Prices help us cooperate with each other. 248 00:23:05.360 --> 00:23:10.640 Look, if we all decide we're too fat and we've got to go on a diet and we're going to stop 249 00:23:10.640 --> 00:23:13.640 We're going to stop eating chocolate and we're going to start eating carrots, right? 250 00:23:13.640 --> 00:23:17.640 Well, what happens to the price of chocolate as our demand for chocolate recedes? 251 00:23:17.640 --> 00:23:20.640 Well, the price of chocolate goes down. 252 00:23:20.640 --> 00:23:25.640 And the price of carrots goes up as people start wanting to pig out on carrots. 253 00:23:25.640 --> 00:23:32.640 And this price of chocolate and carrots allocates resources between chocolate and carrots. 254 00:23:32.640 --> 00:23:36.640 So we don't have to write a letter to President Obama and say, 255 00:23:36.640 --> 00:23:43.080 Obama, we're too fat, we want less chocolate, we want more carrots and we have to hold hearings, 256 00:23:43.080 --> 00:23:46.960 is this really true and how should we do it? I mean, in the Soviet society, that's what 257 00:23:46.960 --> 00:23:51.800 they would do and they'd, bureaucrats would go berserk, you know, picking out on whatever 258 00:23:51.800 --> 00:23:56.720 it is, filet mignon and discussing this. Well, no, we don't do that automatically. When the 259 00:23:56.720 --> 00:24:01.560 price of carrots rises, entrepreneurs are led as if by an invisible hand out of chocolate 260 00:24:01.560 --> 00:24:09.760 and into carrots and as they get out of chocolate the profits rise in chocolate and as they 261 00:24:09.760 --> 00:24:16.080 get in the carrots the profits fall so we get some sort of equilibrium or not perfect 262 00:24:16.080 --> 00:24:22.240 the market isn't perfect but it works well what the interest rate does is it allocates 263 00:24:22.240 --> 00:24:28.600 resources not at the present time namely present chocolate and present carrots but rather chocolate 264 00:24:28.600 --> 00:24:34.840 versus chocolate beans or land on which chocolate is built or made or whatever or chocolate 265 00:24:34.840 --> 00:24:38.880 factories, Hershey, Pennsylvania kind of places. 266 00:24:38.880 --> 00:24:42.840 So the interest rate is a crucially important thing, much more important than any one price. 267 00:24:42.840 --> 00:24:46.240 I mean, you know, if you have to have price controls, you might as well have price controls 268 00:24:46.240 --> 00:24:50.400 on toothpicks or rubber bands where it's not really important, but you shouldn't have price 269 00:24:50.400 --> 00:24:55.920 controls on important stuff because important stuff, you need a free price system to make 270 00:24:55.920 --> 00:24:56.920 the thing work. 271 00:24:56.920 --> 00:25:00.520 Well, the interest rate is a very important price. 272 00:25:00.520 --> 00:25:07.380 Okay, so suppose the Fed in its infinite wisdom, and we love Bernanke, he's our man, he's free enterprise. 273 00:25:07.380 --> 00:25:12.160 They even have the audacity to say, well, this is the free enterprise Fed. 274 00:25:12.160 --> 00:25:19.920 I mean, there's this group, OPPE, Association of Private Enterprise Educators, where half the presidents are from the Fed. 275 00:25:19.920 --> 00:25:22.520 And the Dallas Fed or the St. Louis Fed is the free enterprise. 276 00:25:22.520 --> 00:25:25.800 It's sort of like saying, you know, that this planning bureau in the Soviet Union is the 277 00:25:25.800 --> 00:25:32.040 free enterprise planning bureau, and this one isn't. I mean, it's... If I didn't tell 278 00:25:32.040 --> 00:25:36.520 you that joke about my hair, I would employ it again right now. 279 00:25:36.520 --> 00:25:43.520 Okay, so let's suppose we're at 8% and the Fed, in its infinite wisdom, lowers the interest 280 00:25:43.520 --> 00:25:48.360 rate to 6%. Well, what does that do to the present discounted value of a dollar receivable 281 00:25:48.360 --> 00:25:58.760 in a year from now, well it raises it from $9.26 to $9.43, which means that if you make 282 00:25:58.760 --> 00:26:04.640 an investment that will come into the consumer in one year, you get a slight boost, very 283 00:26:04.640 --> 00:26:14.200 slight boost, call it 2%, from 92 cents to 94 cents, roughly 2%. What about an investment 284 00:26:14.200 --> 00:26:19.600 12 years out, namely an investment that you make right now that will come into fruition 285 00:26:19.600 --> 00:26:25.920 in 12 years, namely, what's the present discounted value of that? Well, it used to be 39.7 cents, 286 00:26:25.920 --> 00:26:32.400 everyone with me on the table, and now it's 49 cents, call it the 20% increase, 10 cent 287 00:26:32.400 --> 00:26:40.520 difference over 50, roughly 20%, a little less. What about 50 years? Well, now it's 288 00:26:40.520 --> 00:26:47.640 That's a real big, you've got a real big booth. You go from two cents to five cents, which 289 00:26:47.640 --> 00:26:52.280 is an increase of 250 percent, give or take. Namely, what the lowering of the interest 290 00:26:52.280 --> 00:27:00.480 rate does is it pushes investment way out into the future. More toward, well, the way 291 00:27:00.480 --> 00:27:05.520 the Austrians sometimes illustrate is with a triangle and you talk about very early investments 292 00:27:05.520 --> 00:27:10.880 and later investments. For example, one way to look at fishing is if you're really hungry 293 00:27:10.880 --> 00:27:14.440 and you have great impatience, you're like a bear, you go into the water and you just 294 00:27:14.440 --> 00:27:19.040 try to grab a fish. Not very efficient, but it's quick if you can get one. Next one is 295 00:27:19.040 --> 00:27:24.520 you get a fishing pole or a net or a rowboat or a ship. Well, just how much investment 296 00:27:24.520 --> 00:27:32.860 are we supposed to be making? Well, what's the right chocolate carrot allocation? Whatever 297 00:27:32.860 --> 00:27:41.260 the chocolate, carrot, tastes are of the public, and what's the right inter-temporal allocation? 298 00:27:41.260 --> 00:27:45.940 Well, whatever the time preferences of the people. If people are very, very impatient 299 00:27:45.940 --> 00:27:50.740 and they've got to have it now, well, we're not going to have too many investments that 300 00:27:50.740 --> 00:27:57.340 take 50 years to bring about because the interest rate will be so high that it'll be very difficult. 301 00:27:57.340 --> 00:28:02.420 On the other hand, if we take a very long-term view, Hans Hoppe got in a lot of trouble 302 00:28:02.420 --> 00:28:10.420 for talking about this stuff. I mean, you wouldn't think that this stuff is very politically incorrect, but it is. 303 00:28:10.420 --> 00:28:18.860 He said that gay people have fewer children than heterosexual people, and therefore their time horizons is less. 304 00:28:18.860 --> 00:28:24.060 And for this, he probably got kicked out of the school. I mean, it was just amazing. 305 00:28:24.060 --> 00:28:27.740 But that's the Austrian business cycle theory. I mean, you know, he's trying to, 306 00:28:27.740 --> 00:28:32.220 Hans was trying to give an interesting example to get the kids to understand what's going on. 307 00:28:32.220 --> 00:28:37.820 as am I now trying to do with you. I'm trying to make this thing, this interest rate stuff come alive. 308 00:28:37.820 --> 00:28:43.920 So, the Austrian business cycle theory in a nutshell is the government artificially lowers the rate of interest. 309 00:28:43.920 --> 00:28:50.420 It encourages investments that never should have been made in the first place that are not compatible with the interest rate determination of the people, 310 00:28:50.420 --> 00:28:58.320 which I'm assuming is 8%, not 6%. They lower it to 6%. They make investments that never should have been made. 311 00:28:58.320 --> 00:29:04.320 And there comes a time when not all these investments can come through. 312 00:29:04.320 --> 00:29:10.320 And what are these investments? They're in heavy industry, stuff that's 10, 20, 30, 40, 50 years away. 313 00:29:10.320 --> 00:29:14.320 Houses, cars, anyone? For example. 314 00:29:14.320 --> 00:29:19.320 And what are you going to do if you're up to your armpits and unneeded carrots and you want more chocolate? 315 00:29:19.320 --> 00:29:25.320 Well, those carrots, I guess you've got to burn them or lower the price of them instead of supporting carrots 316 00:29:25.320 --> 00:29:30.400 like they're now doing with supporting housing, with the CRA and the HUD and the Fannie Mae 317 00:29:30.400 --> 00:29:33.960 and the Freddie Mac and all these other kinds of things. 318 00:29:33.960 --> 00:29:39.240 So this is sort of the Austrian theory in a nutshell. 319 00:29:39.240 --> 00:29:42.000 What they do now is they exacerbate the problem. 320 00:29:42.000 --> 00:29:49.920 In addition to lowering the interest rates, they have the CRA which is, you know, building 321 00:29:49.920 --> 00:29:54.120 We're getting more houses, not because of interest rate considerations, but because 322 00:29:54.120 --> 00:30:01.400 of racism situation, namely black people aren't getting enough houses, so we've got to give 323 00:30:01.400 --> 00:30:04.560 them houses even though they don't have any credit worthiness or anything like that or 324 00:30:04.560 --> 00:30:09.640 any ability to pay the mortgages and then we pyramid these mortgages and we get toxic 325 00:30:09.640 --> 00:30:10.640 assets. 326 00:30:10.640 --> 00:30:14.040 So that's one exacerbation. 327 00:30:14.040 --> 00:30:22.160 Another exacerbation that occurred in the Great Depression was the Smoot-Hawley Tariff 328 00:30:22.160 --> 00:30:27.400 with this buy American stuff that Obama's now pushing, you know, that he'll give you 329 00:30:27.400 --> 00:30:31.280 money but you have to promise to buy American. Well this is just a way of messing up international 330 00:30:31.280 --> 00:30:36.900 trade. There was this episode with the Mexican trucks. They wouldn't allow the Mexican trucks 331 00:30:36.900 --> 00:30:41.400 in because their truck drivers aren't up to snuff and their trucks aren't up to snuff. 332 00:30:41.400 --> 00:30:45.700 Well, this is just disguised protectionism. If that were all they were considering was 333 00:30:45.700 --> 00:30:49.120 the safety, what they would have said, okay, look, Mexican truck drivers and trucks, you 334 00:30:49.120 --> 00:30:52.880 want to come in this country, fine, you just have to pass the same test that American trucks 335 00:30:52.880 --> 00:30:58.280 and truck drivers have to pass. And then presumably we'd be on some equal playing field or what 336 00:30:58.280 --> 00:31:05.600 have you. But to say that they can't come in, period, is protectionism. 337 00:31:05.600 --> 00:31:12.960 Another aspect of the Austrian business cycle theory is this thing called cluster of error. 338 00:31:12.960 --> 00:31:19.640 What is the cluster of error? Look, businessmen make mistakes, and when they make mistakes, 339 00:31:19.640 --> 00:31:25.760 they go broke. To get back to chocolate and carrots, if they were investing in chocolate 340 00:31:25.760 --> 00:31:31.400 and we no longer want chocolate, well, half the chocolate has to go. Or the hula hoop. 341 00:31:31.400 --> 00:31:38.280 The Hula Hoop is good and then the Hula Hoop isn't good, so when people make mistakes they 342 00:31:38.280 --> 00:31:39.280 go broke. 343 00:31:39.280 --> 00:31:43.240 That's one of the benefits of the free enterprise system, if you make a mistake you go broke. 344 00:31:43.240 --> 00:31:50.640 I teach in New Orleans and in New Orleans we had the Katrina, it really wasn't the fault 345 00:31:50.640 --> 00:31:56.280 of Katrina, it was the fault of the Army Corps of Engineers which screwed up the levees and 346 00:31:56.280 --> 00:32:03.720 The FEMA, which stopped everyone from coming down and helping us, and 1,500 people died. 347 00:32:03.720 --> 00:32:08.400 Now it might sound cruel and heartless to say, I don't mind that 1,500 people died, I do, 348 00:32:08.400 --> 00:32:12.400 but what really ticks me off is that the people responsible for it are still at the same lemonade 349 00:32:12.400 --> 00:32:13.400 stand. 350 00:32:13.400 --> 00:32:17.640 They're still the FEMA-ing it up, and they're still Army Corps of Engineering it up, if 351 00:32:17.640 --> 00:32:22.000 I can make verbs out of those names. 352 00:32:22.000 --> 00:32:25.380 That's the problem, that there is no exit for inefficiency. 353 00:32:25.380 --> 00:32:36.100 That's why these bailouts and picking winners is silly. 354 00:32:36.100 --> 00:32:40.220 There was this thing, the Mustang Ranch in Nevada. 355 00:32:40.220 --> 00:32:44.780 You all know a cat house. 356 00:32:44.780 --> 00:32:48.880 And they took it over for a non-payment of taxes or something, I'm not sure about that. 357 00:32:48.880 --> 00:32:49.880 And they couldn't run it. 358 00:32:49.880 --> 00:32:54.700 The government couldn't even run a house of prostitution where they sell booze. 359 00:32:54.700 --> 00:32:59.460 How do you expect them to run an auto company? I mean, you know, we'll have Pelosi motors 360 00:32:59.460 --> 00:33:10.460 and Obama motors or something like that. The Soviet Union failed for two main reasons. 361 00:33:10.460 --> 00:33:15.900 Hayek emphasized the fact that the information flows are not there unless you have market 362 00:33:15.900 --> 00:33:22.260 prices and Mises emphasized that unless you have free market prices, you're in a sort 363 00:33:22.260 --> 00:33:27.500 sort of a chaotic system you really have no way to understand if you want to build a bridge 364 00:33:27.500 --> 00:33:35.080 should it be made out of platinum or silver or steel or aluminum or what because you have 365 00:33:35.080 --> 00:33:42.140 no prices happily for the Soviet Union they had the Sears and Roebuck catalog without 366 00:33:42.140 --> 00:33:46.140 the Sears and Roebuck catalog and you know going to the Chicago Board of Mercantile Exchange 367 00:33:46.140 --> 00:33:51.900 the Soviet Union never would have lasted 70 years but if the whole world were sovietized 368 00:33:51.900 --> 00:33:58.620 in which our people in Washington, both Obama and Bush, not just Obama, I think libertarian 369 00:33:58.620 --> 00:34:03.180 is equidistant between liberals and conservatives. I don't think that somehow we're really conservative. 370 00:34:03.180 --> 00:34:12.180 We're a branch of conservatism. I see us as unique from both of those groups. So this 371 00:34:12.180 --> 00:34:19.660 is the Austrian business cycle theory in a nutshell. I wanted to close with a different 372 00:34:19.660 --> 00:34:27.380 Consideration, and that's this business of prediction. There was this wonderful thing 373 00:34:27.380 --> 00:34:36.060 in England that the Queen of England wrote to the economists and said, you know, you 374 00:34:36.060 --> 00:34:41.100 guys were asleep at the switch. Why didn't you predict this? Why didn't you tell us what 375 00:34:41.100 --> 00:34:58.620 What one of them said is quote from the permanent secretary of British Treasury, no this is 376 00:34:58.620 --> 00:35:03.040 Goldman Sachs chief economist, Jim O'Neill, in summary, your majesty, the failure to foresee 377 00:35:03.040 --> 00:35:07.920 the timing, extent and severity of the crisis and head it off, while it had many causes 378 00:35:07.920 --> 00:35:11.920 Mises was principally a failure of the collective imagination of many bright people, both in 379 00:35:11.920 --> 00:35:16.920 this country and internationally, to understand the risks of the system as a whole. 380 00:35:16.920 --> 00:35:19.920 Well, maybe that's part of it. 381 00:35:19.920 --> 00:35:30.920 There was another, what do you call it, another commentary from the British people and here 382 00:35:30.920 --> 00:35:35.200 it says, 10 leading British economists wrote to Her Majesty claiming that the training 383 00:35:35.200 --> 00:35:42.200 The meaning of economist is too narrow, quote, mathematical technique should not dominate real world substance. 384 00:35:42.200 --> 00:35:48.200 If you go to a graduate school in economics, you're not going to learn any economics. 385 00:35:48.200 --> 00:35:57.200 I tell my students, if you want to get a PhD in economics at most graduate schools, don't major in economics. 386 00:35:57.200 --> 00:36:04.200 Major in math and minor in economics, because math is sort of taken over like a virus 387 00:36:04.200 --> 00:36:14.500 And all they do is these models of proving, you know, the fifth derivative of something or other and, you know, like range multipliers and very fancy mathematical techniques. 388 00:36:14.500 --> 00:36:24.400 And they don't do economics. They don't understand economics. And if they have any smattering of economics, it's just Keynesian economics. And they learn nothing from that. 389 00:36:24.400 --> 00:36:33.600 So, I think, I wanted to get to the Austrian view of prediction. See, Austrianism, methodologically, 390 00:36:33.600 --> 00:36:40.880 is an apedictic science. It has synthetic a priori statements, undeniably true statements 391 00:36:40.880 --> 00:36:47.440 that can't be tested empirically. For example, I gave you the example, if I trade you my 392 00:36:47.440 --> 00:36:51.240 tie for your wristwatch, it means that I like something about your wristwatch better than 393 00:36:51.240 --> 00:36:54.840 in the tie. You like something about the tie better than the wristwatch. You might not 394 00:36:54.840 --> 00:36:57.920 like the tie. You might think that I'll be your best friend if we make the trade. Who 395 00:36:57.920 --> 00:37:06.920 knows what's on your weird minds. But perverts have, no, I'm kidding. How do you test that? 396 00:37:06.920 --> 00:37:10.600 You don't test that. I mean, if you understand the English language, you understand the necessity 397 00:37:10.600 --> 00:37:17.840 for that. It's an undeniable statement. Austrian economics is pretty much predicated on that 398 00:37:17.840 --> 00:37:22.160 That sort of a thing. For example, with the minimum wage law, we don't say that if the 399 00:37:22.160 --> 00:37:27.360 minimum wage law goes up, unemployment will go up. What we say is that if the minimum 400 00:37:27.360 --> 00:37:31.320 wage goes up or gets instituted, unemployment will be higher than it otherwise would have 401 00:37:31.320 --> 00:37:36.200 been had the minimum wage not existed or gone up. It's a contrary to fact conditional which 402 00:37:36.200 --> 00:37:43.680 cannot be tested. You might say, well, we're a bunch of sissies and wimps, but, you know, 403 00:37:43.680 --> 00:37:48.840 That's the Austrian theory. 404 00:37:48.840 --> 00:37:55.480 It gives us an insight into what's going on, even though you can't test it. 405 00:37:55.480 --> 00:38:00.880 My PhD dissertation was under Gary Becker, mainstream economist, Nobel Prize winner, 406 00:38:00.880 --> 00:38:06.200 University of Chicago now, although he was my teacher at Columbia when I was there. 407 00:38:06.200 --> 00:38:11.880 And I did an econometric regression on rent control, and my hypothesis was that the more 408 00:38:11.880 --> 00:38:15.640 The more rent control a city had, the worse the housing would be. 409 00:38:15.640 --> 00:38:20.280 And I had to get the right sign, namely, the more rent control, the worse the housing, 410 00:38:20.280 --> 00:38:24.160 so I'd get a minus sign for quality of housing. 411 00:38:24.160 --> 00:38:28.820 And I'd try to get statistical significance at the 5% level, and most of the times my 412 00:38:28.820 --> 00:38:31.880 regressions worked out fine. 413 00:38:31.880 --> 00:38:36.960 Every once in a while, I'd get the wrong sign, and every once in a while, very embarrassingly, 414 00:38:36.960 --> 00:38:41.080 not only the wrong sign, but it would be significantly significant. 415 00:38:41.080 --> 00:38:47.360 Now according to the mainstream economic view, the methodology that they employ, what Becker 416 00:38:47.360 --> 00:38:51.000 should have said is, oh, I've got this genius student, Block, who's going to overturn everything 417 00:38:51.000 --> 00:38:56.440 we ever learned about rent control. Instead, he was too kind to say it, but what he meant 418 00:38:56.440 --> 00:39:02.380 was block you moron, go out and do it again until you get it right. We know what's right. 419 00:39:02.380 --> 00:39:07.580 We know what the answer is because it's an apodictic statement. So while Austrians can't 420 00:39:07.580 --> 00:39:19.580 can't predict and don't predict. On the other hand, we have an insight into what's going on in a way that none of these other theories have. 421 00:39:19.580 --> 00:39:30.580 Thanks for your attention. 422 00:39:30.580 --> 00:39:40.580 Okay, I have a few more minutes in my time. Tom DiLorenzo isn't scheduled to come up till 10.30, and I think I'll leave at 10.25, but I've got seven or eight minutes. 423 00:39:40.580 --> 00:39:47.580 If anyone has questions or comments, I'd be glad to discuss them with you. 424 00:39:47.580 --> 00:39:55.580 Yes, way in the back. 425 00:39:55.580 --> 00:39:58.580 Sorry, I can't hear you. 426 00:40:10.580 --> 00:40:15.580 Well, I think their control over the short term is greater than the control of the long term, but the two are not unrelated. 427 00:40:15.580 --> 00:40:18.580 So if you can control one, you can control the other. 428 00:40:18.580 --> 00:40:21.580 So I would reject that argument. 429 00:40:21.580 --> 00:40:30.080 Bob Murphy did his PhD dissertation on these things and he would be a very good person during the panel discussion afterward. 430 00:40:30.080 --> 00:40:33.580 He, I think, could probably elaborate on what I said. 431 00:40:33.580 --> 00:40:35.580 Michael? 432 00:40:35.580 --> 00:40:49.580 You said, Austrianism is made to be self-evident, but it's hard to believe when you say something like this, that there's more right to control than it seems to be probably. How do you feel about that? 433 00:41:05.580 --> 00:41:16.580 Well, yes and no. In one sense, we are predicting that housing will be worse than it otherwise would have been, but we don't know what it otherwise would have been. 434 00:41:16.580 --> 00:41:26.580 Look, suppose during the time of rent control, Bill Gates, unbeknownst to us, starts giving money to landlords, and housing booms even though rent control occurs. 435 00:41:26.580 --> 00:41:33.580 Then we would say, rent control is doing well in spite of, rather housing is doing well in spite of rent control. 436 00:41:33.580 --> 00:42:03.580 Control. So, look, suppose I say that there's a tendency for profits to equalize in all industries, assuming equal risk. Another apodictic statement, because, you know, if profits are much higher here than there, resources will go out of here and into here, pushing down these profits and pushing them up. Well, is this testable? Is this a testable hypothesis? No, it's just a tendency. No Austrian ever would say that we're always at equilibrium, that profits 437 00:42:03.580 --> 00:42:07.820 are always the same in every industry. We just say there's a tendency in that direction. 438 00:42:07.820 --> 00:42:12.140 So we understand economics in a way that you can't understand economics if you're just 439 00:42:12.140 --> 00:42:18.300 a positivist. If you're a positivist and you believe in empirical testing determines everything, 440 00:42:18.300 --> 00:42:23.940 well, then there are no true economics. There's no true economic understanding because you 441 00:42:23.940 --> 00:42:27.660 can always have another empirical test 10 minutes later which will change it like my 442 00:42:27.660 --> 00:42:34.660 Mistaken Regressions on Run Control, yes, young man in the back. 443 00:42:57.660 --> 00:43:25.420 well I guess I think everyone heard that he's far enough away from me he's got a 444 00:43:25.420 --> 00:43:32.520 Good Voice. Let me just summarize it very quickly. Am I really serious or am I tongue-in-cheek 445 00:43:32.520 --> 00:43:36.900 on the Gordon Gekko? Greed isn't that good. What about government greed? Well, what I'm 446 00:43:36.900 --> 00:43:42.340 saying is that greed per se, there's nothing wrong with greed per se. Of course, the murder 447 00:43:42.340 --> 00:43:47.500 incorporated is motivated by greed, and so is the rapist motivated by greed. So greed 448 00:43:47.500 --> 00:43:52.500 certainly can be funneled in very bad ways, but what I meant was market greed, and that's 449 00:43:52.500 --> 00:43:56.380 That's what Gekko was talking about. What he was saying is that buying and selling and 450 00:43:56.380 --> 00:44:03.300 trying to make a profit honestly is unobjectionable and indeed Adam Smith says it's not only unobjectionable 451 00:44:03.300 --> 00:44:10.060 but it's very beneficial. So I don't take that tongue in cheek. I think that some of 452 00:44:10.060 --> 00:44:15.220 the things that Gordon Gekko did were not legitimate but other things were good. One 453 00:44:15.220 --> 00:44:19.980 of the great quotes he says, well when I was younger I'd make a hundred thousand a day 454 00:44:19.980 --> 00:44:25.820 and that's peanuts and now if I don't make a million dollars a day it's a bad thing. 455 00:44:25.820 --> 00:44:30.420 Murray Rothbard once had this quote that a man's profit or a man's wealth earned honestly 456 00:44:30.420 --> 00:44:35.580 is an indication of his contribution to society. Look, Bill Gates is doing a lot of bad things 457 00:44:35.580 --> 00:44:40.860 now with the money he's got but when he earned that money he earned zillions of dollars and 458 00:44:40.860 --> 00:44:46.000 how did he earn it? He earned it by giving people computers at 500 bucks that they valued 459 00:44:46.000 --> 00:44:50.720 and more than 500 bucks otherwise they wouldn't have bought them and he valued it in less 460 00:44:50.720 --> 00:44:56.440 than 500 bucks and he did it a couple of zillion times and he made a lot of money he pretty 461 00:44:56.440 --> 00:45:02.520 much created a whole industry I assume I mean greed doesn't have to be personal greed for 462 00:45:02.520 --> 00:45:06.280 yourself it could be for your family it could be for the Mises Institute to contribute to 463 00:45:06.280 --> 00:45:13.720 that or whatever it could be for you know purposes of that sort but Adam Smith I think 464 00:45:13.720 --> 00:45:18.360 right it's not look if you want to do something and something is very 465 00:45:18.360 --> 00:45:22.120 important then it behooves you to mobilize all human emotions in that 466 00:45:22.120 --> 00:45:26.320 direction benevolence yes no one's against benevolence I mean charitable name 467 00:45:26.320 --> 00:45:31.560 donations or benevolence but also mobilize greed in that direction what 468 00:45:31.560 --> 00:45:37.920 what's wrong with greed one last question yes sir 469 00:45:43.720 --> 00:46:12.020 Oh, yes. Let me reiterate what you said. I'm not sure everyone heard. What he's saying 470 00:46:12.020 --> 00:46:18.940 The thing is that if you have a theory that cannot be falsified, isn't it akin to a religion 471 00:46:18.940 --> 00:46:21.940 or a cult or something like that? I'm putting words in your mouth, but I think I got the 472 00:46:21.940 --> 00:46:27.440 gist of it. Well, you see, I don't believe as an Austrian that economics is a branch 473 00:46:27.440 --> 00:46:33.300 of the natural sciences such as chemistry or physics or biology where you can have controlled 474 00:46:33.300 --> 00:46:37.940 experiments. We can't have controlled experiments. I can't say, okay, look, the people on this 475 00:46:37.940 --> 00:47:07.940 Let me finish answering your question. Take East Germany and West Germany or North Korea and South Korea, which are as close as you can get to control the experiments in the real world, and we say, look, East Germany and North Korea both followed one system and were starving, and the others were following another system, and they did pretty well. This part of the world is a little bit different. 476 00:47:07.940 --> 00:47:12.860 proves. But the opposite argument is, well, no, no, no, it doesn't prove it. They just 477 00:47:12.860 --> 00:47:16.780 didn't have good leaders in North Korea or in East Germany. If they would have had better 478 00:47:16.780 --> 00:47:23.020 leaders it would have been fine. So you can never prove it. Austrian economics is not 479 00:47:23.020 --> 00:47:28.380 a branch of the empirical sciences as we see it. It's rather a form of logic. Milton Friedman 480 00:47:28.380 --> 00:47:34.300 used to and James Buchanan and others would call us cultists or religious fanatics or 481 00:47:34.300 --> 00:47:47.300 and so what have you because of this very point and Milton Friedman would say, well suppose two Austrian economists disagree, what do they do, fight? 482 00:47:47.300 --> 00:47:58.300 That was his knockout blow. Well the response to that is, well suppose two logicians disagree or two geometricians disagree as to the shape of the triangle, what do they do, fight? 483 00:47:58.300 --> 00:48:07.420 No, we see economics as a division or a subset of logic and pure math, not empirical science. 484 00:48:07.420 --> 00:48:15.180 And it's no more a religion than is geometry or trigonometry or symbolic logic or anything 485 00:48:15.180 --> 00:48:16.180 else like that. 486 00:48:16.180 --> 00:48:17.180 I'm out of time. 487 00:48:17.180 --> 00:48:18.180 Thanks for your attention.