WEBVTT NOTE Gold is Free Market Money 1 00:00:00.000 --> 00:00:08.640 While the young people are distributing the interest rate tables, the reason I'm doing that is because nerds are us. 2 00:00:08.640 --> 00:00:12.400 You know, if you don't have an interest rate table, you can't be a nerd. 3 00:00:12.400 --> 00:00:17.840 So I'm trying to promote nerddom here and geekiness. 4 00:00:17.840 --> 00:00:25.360 While it's being passed out, let me make a few comments about what Ron Paul said about Arthur Burns. 5 00:00:25.360 --> 00:00:50.360 Here's an inside story that perhaps people don't realize, that Murray Rothbard had a lot of trouble getting his PhD, dissertation approved, because Arthur Burns didn't like it, the panic of 1819, and while Arthur Burns was at Columbia, Murray wasn't getting his PhD, it took him like 8 or 9 years to get his PhD, which is a lot longer than usual. 6 00:00:50.360 --> 00:00:58.360 It was only when he, Arthur Burns, went to the Fed that Murray snuck in while the cat's away, the mice played, and Murray got his Ph.D. 7 00:00:58.360 --> 00:01:02.360 So I guess it's a very ill wind that blows no good. 8 00:01:02.360 --> 00:01:08.360 Now I don't want anyone to say, well, Block came out in favor of the Fed, on the other hand. 9 00:01:08.360 --> 00:01:15.360 If I were to summarize all the speeches that went on before, I would say it was a bunch of symphonies. 10 00:01:15.360 --> 00:01:20.360 It was Mozart, it was Bach, it was Handel. These are my favorite composers. 11 00:01:20.360 --> 00:01:24.360 Telemann, Vivaldi, Beethoven. 12 00:01:24.360 --> 00:01:27.360 What I'm going to do is something very different. I'm going to do scales. 13 00:01:32.360 --> 00:01:36.360 I better shut up, otherwise I'll lose my audience because I'm not a very good singer. 14 00:01:36.360 --> 00:01:43.360 But I think that it would be very important to understand Austrian business cycle, 15 00:01:43.360 --> 00:01:49.200 not theory, but Austrian business cycle explanation. I stand corrected by Ron Paul, although it'll 16 00:01:49.200 --> 00:01:55.000 be hard to get the theory out of me because I'm so used to seeing it that way. In terms 17 00:01:55.000 --> 00:02:00.560 of interest rate tables, interest rate tables are very important for an understanding of 18 00:02:00.560 --> 00:02:06.700 Austrian business cycle theory or explanation. Looking at money through time dimension is 19 00:02:06.700 --> 00:02:12.440 a crucial part of Austrian economics. I think it would be too much to say that the only 20 00:02:12.440 --> 00:02:16.760 Anything that Boehm-Bawerk did in undermining the Marxian system is use interest rates. 21 00:02:16.760 --> 00:02:23.240 He did much more than that, but surely interest rates are crucial to the Boehm-Bawerkian analysis 22 00:02:23.240 --> 00:02:27.200 of Marxism and the utter annihilation of them. 23 00:02:27.200 --> 00:02:31.840 I have to apologize to my colleagues because we learn from each other, and I doubt that 24 00:02:31.840 --> 00:02:35.760 my colleagues will learn much from this because it's very, very, very basic. 25 00:02:35.760 --> 00:02:40.640 On the other hand, not everyone in the audience is a professional economist, and as a sob 26 00:02:40.640 --> 00:02:48.640 I can offer this that this is perhaps the best way that I've ever been able to convince my students of the veracity of Austrian business cycles. 27 00:02:48.640 --> 00:02:54.640 And so even if my colleagues won't learn from this, perhaps they can use it for pedagogical reasons. 28 00:02:54.640 --> 00:03:02.640 Okay, we have several interest rate things going on here. Can I still be heard when I'm away from the microphone? 29 00:03:02.640 --> 00:03:12.640 The first one, the amount to which one dollar will grow, is the basic, easy interest rate table. 30 00:03:12.640 --> 00:03:15.640 This is the table that when you were six years old and your parents told you, 31 00:03:15.640 --> 00:03:18.640 well, if you put money in the bank, you'll get more later. 32 00:03:18.640 --> 00:03:27.640 For example, if you put a dollar, and I'm assuming that you'll get the money back for sure, 33 00:03:27.640 --> 00:03:31.640 and that there's no inflation, namely we're abstracting from reality 34 00:03:31.640 --> 00:03:34.340 to the essence of what interest rates are. 35 00:03:34.340 --> 00:03:36.440 For example, if you put a dollar in the bank 36 00:03:36.440 --> 00:03:41.440 at 4% for five years, you'll get $1.21 or $1.22. 37 00:03:43.320 --> 00:03:45.120 Everyone follow that? 38 00:03:45.120 --> 00:03:47.920 If you put a dollar in the bank for 10 years 39 00:03:47.920 --> 00:03:52.720 for 24% interest, you get $8.59. 40 00:03:52.720 --> 00:03:55.200 Okay, so that's the easy stuff. 41 00:03:55.200 --> 00:03:58.440 Now, the more difficult stuff to understand 42 00:03:58.440 --> 00:04:00.820 is this thing, the second table, 43 00:04:00.820 --> 00:04:30.820 The present value of a dollar and what's going on here is I offer you a dollar and I say look here's a dollar I promise to give it to you in one year for sure and no inflation how much will you bid for it now and you would be silly to bid more for it than you could get from the bank and according to this let's take this right here if the interest rate is 2% you could 44 00:04:30.820 --> 00:04:38.820 You could put $0.98 in the bank right now, and we assume that the bank is secure, but let's assume. 45 00:04:38.820 --> 00:04:42.820 You could put $0.98 in the bank at 2% and in a year get a dollar. 46 00:04:42.820 --> 00:04:48.820 So this table gives you the maximum that you would bid for any future money. 47 00:04:48.820 --> 00:04:57.820 Or we sometimes say that the present discounted value of money receivable in a year from now at 2% is $0.98 now. 48 00:04:57.820 --> 00:05:10.820 You have to have this way of conversion because if you're going to invest 98 cents, you want to get at least a dollar and if you're not going to get at least a dollar from a commercial enterprise, you wouldn't do it, you would put the money in the bank. 49 00:05:10.820 --> 00:05:16.820 So the interest rate sort of serves as a barrier under which you will not voluntarily sink. 50 00:05:16.820 --> 00:05:25.820 If you don't think you're going to make more than that, you wouldn't invest it in the widget that you might think of investing in, you would just put it in the bank. 51 00:05:25.820 --> 00:05:31.820 Notice that the first two rows, or the first row of A and the first row of B are reciprocals. 52 00:05:31.820 --> 00:05:41.820 So if you multiply, say, this number, 102 times 98, you'll get 1. 53 00:05:41.820 --> 00:05:45.820 That whole row is the reciprocal. 54 00:05:45.820 --> 00:05:54.820 Namely, if you put money in the bank here, the present discounted value of it, you multiply it, you get a 1. 55 00:05:54.820 --> 00:06:02.820 Okay, so now we have a whole bunch of exercises as to what is the present discounted value of money receivable in various years at various interest rates. 56 00:06:02.820 --> 00:06:13.820 In this table you'll notice, table A, that as the interest rate goes up, the numbers go up, goes from 101 to 1.3 on the first row, 57 00:06:13.820 --> 00:06:22.820 and as the years go up, namely down the columns, also the numbers go up, namely the higher the interest rate at any given year the more money they'll give you, 58 00:06:22.820 --> 00:06:37.820 Notice that things are very different in Table B. In Table B, the higher the interest rate, looking along the first row from 0.99 to 0.73, the higher the interest rate, the lower the number is. 59 00:06:37.820 --> 00:06:42.820 Why is that? Because the higher the interest rate, the more heavily you're discounting the future. 60 00:06:42.820 --> 00:06:46.820 Because the higher the interest rate, the more heavily you're discounting the future. 61 00:06:46.820 --> 00:06:52.820 At a 36% interest rate, money you receive in one year isn't worth all that much. 62 00:06:52.820 --> 00:06:58.820 It's only worth 73 cents. Why? Because if you put 73 cents in at 36%, you'll get a dollar. 63 00:06:58.820 --> 00:07:04.820 So at a high interest rate, we heavily discount the future, even a year away. 64 00:07:04.820 --> 00:07:08.820 At a lower interest rate, we don't so heavily discount the future. 65 00:07:08.820 --> 00:07:24.820 and also notice here that as you go down the columns, the numbers get lower, namely the further away in time, the more heavily you discount it. 66 00:07:24.820 --> 00:07:30.820 Not because the odds are less of getting the money, because we're assuming perfection here that you'll get the money for sure and there's no inflation. 67 00:07:30.820 --> 00:07:37.820 It's just that because the more number of years away, 50 years away from now, well if you put money in the bank for 50 years you're going to get a ton of money. 68 00:07:37.820 --> 00:07:42.820 So you're going to get a ton of money, so you have to discount it by that amount. 69 00:07:42.820 --> 00:07:44.820 Okay, so let's do some quick exercises. 70 00:07:44.820 --> 00:07:52.820 What is the present discounted value of a dollar receivable in 10 years at 9%? 71 00:07:52.820 --> 00:07:57.820 42 cents? Everyone follow how to do that? 72 00:07:57.820 --> 00:08:06.820 Now, the third table is the present value not of a dollar receivable in the future, but of an annuity. 73 00:08:06.820 --> 00:08:10.820 And what an annuity is, is a dollar a year for a certain number of years. 74 00:08:10.820 --> 00:08:16.820 So what's an annuity of one year? Well, an annuity of one year is the same thing as a dollar receivable in one year. 75 00:08:16.820 --> 00:08:22.820 So the two rows in B and C are the same thing, they're identical. 76 00:08:22.820 --> 00:08:25.820 Everyone with me on that? 77 00:08:25.820 --> 00:08:29.820 And what this is, is a cumulation. 78 00:08:29.820 --> 00:08:32.820 C is a cumulation of B. 79 00:08:32.820 --> 00:08:45.320 So, for example, let's take, I don't know, a dollar receivable in one year from now is 97 and 94. 80 00:08:45.320 --> 00:08:50.320 Well, if you take 97 and 94, you get 191. 81 00:08:50.320 --> 00:08:56.320 Namely, these two numbers here add up to that number and so forth. 82 00:08:56.320 --> 00:09:01.320 Okay? Oh, I'm sorry. I zigged one. I should have zagged. 83 00:09:01.320 --> 00:09:07.320 Namely, this number here, 1.193, is the same as these two. 84 00:09:07.320 --> 00:09:13.320 So if you take any two numbers of present discounted value, in other words, what this table B is doing is saying, 85 00:09:13.320 --> 00:09:17.320 well, what's the present discounted value of a dollar receivable in a year from now? 86 00:09:17.320 --> 00:09:23.320 And that's 97 cents. Then it says, what's the present discounted value of a dollar receivable in two years? 87 00:09:23.320 --> 00:09:38.320 In two years, that's 94 cents, and what this one does, sort of the lazy man's way out, it says, well, what's the value of an annuity of a two-year annuity, and a two-year annuity is a dollar receivable in the first year and a dollar receivable in the second year. 88 00:09:38.320 --> 00:09:43.320 Okay, let me take a few more examples. 89 00:09:43.320 --> 00:09:56.320 For example, what is the value of a four-year annuity at 6%? It's that. And how do I get it? 90 00:09:56.320 --> 00:10:06.320 What I do is I add up these four numbers, which are right here, and they add up to 3.465. 91 00:10:06.320 --> 00:10:18.320 Or I can go to table C and also get $3.465, $3.465. And if it was $10, I would just move the decimal point over a little bit. 92 00:10:22.320 --> 00:10:25.320 Let me do one more. 93 00:10:27.320 --> 00:10:31.320 Suppose I wanted to get an annuity. 94 00:10:31.320 --> 00:10:39.320 This is a little complicated. I want to get the present discounted value of an annuity going from the years 10 to 19 at 12%. 95 00:10:39.320 --> 00:10:45.320 What would I do? Well, first I'd get an annuity of the years 1 to 19. 96 00:10:45.320 --> 00:11:00.320 And annuity of the years 1 to 19 at 12% is, if I've done this right, yes, 7366, right? 97 00:11:00.320 --> 00:11:07.320 And then what I would do is I would subtract an annuity of 1 to 9 because I want the years 10 to 19, right? 98 00:11:07.320 --> 00:11:28.320 And 1 to 9 is 5,328. And where is 1 to 9 at 12%? 5,328. And I would subtract that. And when I do it, I get $2.38. 99 00:11:28.320 --> 00:11:38.320 Okay, so these are just exercises that I give to students to get them familiar with the analysis, with the analytic interest rate tables. 100 00:11:38.320 --> 00:11:46.320 Okay, now we should have a little drum roll. Oh, thank you, thank you. We have a little drum roll. 101 00:11:46.320 --> 00:11:51.320 And now what I want to do is I want to illustrate what happens when the Fed... 102 00:11:51.320 --> 00:12:01.320 When the Fed increases the money supply, and when the Fed increases the money supply, what it does is it lowers the interest rate. 103 00:12:01.320 --> 00:12:05.320 Whoops, I've got to get back down here. 104 00:12:05.320 --> 00:12:11.320 Okay, so this is very mainstreamish. When the Fed increases the money stock, it lowers the interest rate. 105 00:12:11.320 --> 00:12:16.320 Okay, well when the Fed increases the money supply and lowers the interest rate, 106 00:12:16.320 --> 00:12:23.320 What I'm going to do is illustrate this with a decrease from 4% to 3%. 107 00:12:23.320 --> 00:12:31.320 Before I do that, I have to introduce the Austrian Structure Production Triangle. 108 00:12:31.320 --> 00:12:41.320 Now, my buddy Bill Bonnet and I have a long 95-page attack on this, mainly used by Hayek and Garrison and Murray Rothbard and others. 109 00:12:41.320 --> 00:12:46.320 I believe that it's a very good heuristic device, so I like to use it. 110 00:12:48.320 --> 00:12:55.320 And what the Austrian business cycle theory structure reduction triangle is, 111 00:12:55.320 --> 00:12:59.320 it's got money on this vertical axis and time or stages of production, 112 00:12:59.320 --> 00:13:07.320 and time is measured back this way, so that the longer the period of time, the further to the left you are. 113 00:13:07.320 --> 00:13:17.320 And the interest rate here is the angle of that triangle, namely, I'm going to illustrate a lowering of that interest rate angle. 114 00:13:17.320 --> 00:13:25.320 But think of the first, the closest one, one year away or three years away is consumption, retail, wholesale, manufacturing, mining. 115 00:13:25.320 --> 00:13:30.320 Namely, the further you go to the left, the further away it is in time. 116 00:13:30.320 --> 00:13:38.320 So think of the linkages between the interest rate table, which is very denominated in time, and interest rate, and this triangle. 117 00:13:38.320 --> 00:13:42.320 Okay, so that's the first triangle that I want to use to illustrate. 118 00:13:42.320 --> 00:13:48.320 And let's assume that the triangle that we get when we have a 4% interest rate is like that. 119 00:13:48.320 --> 00:13:59.320 Sort of a short, fat triangle compared to this longer, skinnier triangle that we get when we go to 3%. 120 00:13:59.320 --> 00:14:06.400 you got the difference here is a shorter fatter one with fewer years if you can 121 00:14:06.400 --> 00:14:10.320 look at that you can see that the 4% has got fewer years and the 3% stretches 122 00:14:10.320 --> 00:14:15.520 out the years because it makes investments in the long run more valuable 123 00:14:15.520 --> 00:14:21.640 and here what I do is I compare the two triangles and what I'm saying in effect 124 00:14:21.640 --> 00:14:26.000 and like here is consumption here are these other stages what I'm saying is 125 00:14:26.000 --> 00:14:38.000 is that what the lowering of the interest rate does is it makes the 3% triangle more viable. 126 00:14:38.000 --> 00:14:43.000 In other words, had the Fed not done anything, I'm assuming that our time preference is such 127 00:14:43.000 --> 00:14:46.000 that we would have been right here at the 4% triangle. 128 00:14:46.000 --> 00:14:52.000 And that represents the decisions of the electorate or the society or the economy. 129 00:14:52.000 --> 00:14:58.280 that's based on our voluntary saving and investment decisions but when the Fed 130 00:14:58.280 --> 00:15:03.280 lowers the interest rate it leads entrepreneurs as if by an invisible 131 00:15:03.280 --> 00:15:08.440 hand says Adam Smith to engage in longer run production processes which are not 132 00:15:08.440 --> 00:15:13.160 justified by the saving and investment and time preferences of the the folk now 133 00:15:13.160 --> 00:15:17.280 let me illustrate this in a very dramatic way very dramatic for nerds 134 00:15:17.280 --> 00:15:24.280 In other words, that is, in terms of the interest rate tables. 135 00:15:24.280 --> 00:15:33.280 So what I'm going to do is I'm going to say what happens when we go from 4% to 3%. 136 00:15:33.280 --> 00:15:40.280 And 4% to 3% is not really a big number. 137 00:15:40.280 --> 00:15:52.280 Namely, what we do is we go from the value of a dollar of 9.1, we go from 8.89 to 9.15. 138 00:15:52.280 --> 00:16:00.280 Namely, we make a dollar receivable in the year 3 worth a little bit more. How much more? 3% more. 139 00:16:00.280 --> 00:16:07.280 Namely, if you divide 9.15 by 8.89, you get 102.9 or 3%. 140 00:16:10.280 --> 00:16:14.280 Is everyone following this? This is the crucial part, this is where we had the drum roll. 141 00:16:14.280 --> 00:16:20.280 I'm now on this line, and what I'm saying is that when the government perverts the interest rate, 142 00:16:20.280 --> 00:16:28.280 it makes a dollar receivable in three years worth 91 cents instead of 88 cents or 89 cents, 143 00:16:28.280 --> 00:16:36.280 and it increases the value of a dollar receivable in three years away by 3%, which is not much, only by 3%. 144 00:16:36.280 --> 00:16:51.280 However, when it does it for 60 years away, and here is the 60 year number, it increases it from, wait I'm confusing, annuity and present value. 145 00:16:51.280 --> 00:17:03.280 Let me get back to this number right here. Take a dollar 60 years away, and this is the key number right here. 146 00:17:03.280 --> 00:17:20.280 It increases the value of a dollar receivable in 60 years from now, just from a stinking lousy 1% interest rate from 4% to 3% from 09% to 17%, namely, it increases it by 79%. 147 00:17:20.280 --> 00:17:26.280 And here is the crucial number, and that's why I put three red marks under this. 148 00:17:26.280 --> 00:17:29.280 So this is the key element. 149 00:17:29.280 --> 00:17:52.280 What the government does is it says in effect to people that if you invest far out, 60 years out, namely a mine or a coffee plantation or something, or eucalyptus trees or redwood trees or something that will take 60 years away, it will increase the value of that by 79%, which is way more than 3% for a short term. 150 00:17:52.280 --> 00:18:07.280 This is why what we have is this triangle, which I'm going to get back to, namely, what it's saying is that it's making stuff over here very valuable and it's deprecating this. 151 00:18:07.280 --> 00:18:16.280 So what the Austrian analysis of this is, is that the Fed is lowering interest rates. 152 00:18:16.280 --> 00:18:23.280 It's making long-term investments more valuable, artificially so, because it's not compatible with people's desires. 153 00:18:23.280 --> 00:18:28.280 It's making them more valuable, and it's making this stuff relatively less valuable. 154 00:18:28.280 --> 00:18:36.280 So what we do is we shrink this, and we increase this, and this is the bad stuff. 155 00:18:39.280 --> 00:18:44.280 Here is my next illustration. 156 00:18:44.280 --> 00:18:52.280 So what I'm saying is that what we do here is we have a misallocation theory of the business cycle. 157 00:18:52.280 --> 00:18:59.280 It's not that we have too much or too little, it's rather that we have investments in the wrong places in the structure of production. 158 00:18:59.280 --> 00:19:07.280 We don't have them, in other words the 4% triangle is the good triangle, and the 4% triangle would include B. 159 00:19:07.280 --> 00:19:18.280 But when the government artificially lowers the interest rate, what it does is it encourages businessmen to invest in the A area which is unsustainable. 160 00:19:18.280 --> 00:19:24.280 And what's out here in the unsustainable area? I'll give you one guess. 161 00:19:24.280 --> 00:19:31.280 Houses, autos, long run things. I mean it takes a long time not to just make an auto, but to make an auto factory 162 00:19:31.280 --> 00:19:34.720 and to get all the steel and the rubber and the plastic and this and that together 163 00:19:34.720 --> 00:19:42.760 and houses not only takes a long time to build but also houses last a long time 164 00:19:42.760 --> 00:19:49.920 so if you compare the Austrian and the mainstream views 165 00:19:49.920 --> 00:19:55.160 the mainstream, what they have, they have this crazy idea 166 00:19:55.160 --> 00:19:59.360 that the economy is sort of like a car 167 00:19:59.360 --> 00:20:02.480 And if the car is stalled, what you do is you hit the gas. 168 00:20:02.480 --> 00:20:07.840 And if the car is going a little too fast, you hit the brake. 169 00:20:07.840 --> 00:20:11.560 Now the differences in the mainstream are between the Keynesians and the Friedmanites. 170 00:20:11.560 --> 00:20:14.760 They're all Keynesian-Friedmanites. There's no difference. 171 00:20:14.760 --> 00:20:19.160 The only big difference is these guys think that fiscal policy is a better vehicle 172 00:20:19.160 --> 00:20:21.640 to put on the brakes and the gas, 173 00:20:21.640 --> 00:20:26.680 whereas the Friedmanites think that monetary policy is a better way to do it. 174 00:20:26.680 --> 00:20:28.720 But between the two of them, 175 00:20:28.720 --> 00:20:34.480 There are no great differences as to the understanding of what's going on. 176 00:20:34.480 --> 00:20:38.900 So what you have is whether it's done through fiscal policy or monetary policy, the way these 177 00:20:38.900 --> 00:20:42.560 people are operating is, well now the car is stalling. 178 00:20:42.560 --> 00:20:46.800 So what we've got to do is kick-start it, or kick it, or turn the crank or something. 179 00:20:46.800 --> 00:20:49.200 And what they're going to do is bail out. 180 00:20:49.200 --> 00:20:53.040 Now it seems a little strange how you're going to improve things by taking money from 181 00:20:53.040 --> 00:20:58.320 Peter and giving it to Paul, and you're going to say, let's look at Paul, he's increasing, 182 00:20:58.320 --> 00:21:02.320 He's kick-starting the economy, and we forget all about Peter. 183 00:21:02.320 --> 00:21:07.320 I mean, if you'd read Hazlitt's economics in one lesson about the seen and the unseen, 184 00:21:07.320 --> 00:21:11.320 everyone, let's look at Paul and forget about Peter. 185 00:21:11.320 --> 00:21:15.320 But Peter's got less money, so he's reducing the car, 186 00:21:15.320 --> 00:21:19.320 even if we admit that the car analogy is sensible, which it's not. 187 00:21:19.320 --> 00:21:23.320 But even on their own terms, if you take money away from one guy and you give it to another guy, 188 00:21:23.320 --> 00:21:25.320 why do you expect anything better? 189 00:21:25.320 --> 00:21:30.320 Now, you might say, well, he'll spend it. And he wasn't spending it on consumption. 190 00:21:30.320 --> 00:21:35.320 But this is the idea that what really drives the economy is consumption. 191 00:21:35.320 --> 00:21:40.320 But I've got a bit of news for people. Before you can eat, you have to produce. 192 00:21:40.320 --> 00:21:44.320 Production is first in line. You just can't... 193 00:21:44.320 --> 00:21:48.320 You know, I'm a good eater, so I'll have a good economy. 194 00:21:48.320 --> 00:21:51.320 Whereas you're a good producer, so you'll have a lousy economy. 195 00:21:51.320 --> 00:21:54.320 No, the whole thing is ludicrous. 196 00:21:54.320 --> 00:22:04.820 Now, another Arthur Burns story, Murray tells this story, or told this story, and Arthur Burns was once asked, 197 00:22:04.820 --> 00:22:11.820 well, you know, you guys say that if the economy is doing badly, you have to increase it, 198 00:22:11.820 --> 00:22:18.220 and if it's doing, if it's doing very, too well, if it's too exuberant, you have to slow it down, 199 00:22:18.220 --> 00:22:21.320 you will have inflation, if it's doing poorly, you have to boost it up. 200 00:22:21.320 --> 00:22:26.120 Well, what about if it's doing both? Namely, stagflation? 201 00:22:26.120 --> 00:22:30.320 And Arthur Burns said, ha ha ha ha, then we'd have to resign. 202 00:22:30.320 --> 00:22:34.520 Well, too bad. 203 00:22:34.520 --> 00:22:39.920 Now, this business over here of homes and autos, 204 00:22:39.920 --> 00:22:45.120 there are certain parallels between what's happening now and what happened in the Depression. 205 00:22:45.120 --> 00:22:49.120 During the Depression, you had the same sort of triangle situation. 206 00:22:49.120 --> 00:23:19.120 Joe Salerno made a very good point that it was masked in the 20s, the inflation, for Austrians inflation is just an increase in the money supply but for the mainstream it's the price level but they pumped a lot of money in and the price level didn't rise in the 20s because of certain improvements and Joe mentioned that there were certain improvements in the more recent period with efficiencies and computers and other things like that so it's a little masked but there's inflation for the Austrians even though the prices don't rise but there are ominous parallels to use the title of a book of some random 207 00:23:19.120 --> 00:23:36.120 between now and the 20s depression, one of them was not only the same triangle story, not only the same structure production story, but in the 20s you had the smooth holly tariff, which just screwed up things royally. 208 00:23:36.120 --> 00:23:45.120 And you also had this thing, keeping wages up, and you had the inception of unions to keep wages up because, God forbid, any wage should fall. 209 00:23:45.120 --> 00:23:49.360 fall. You see, the point is that if you're going to solve this, you've got too much of 210 00:23:49.360 --> 00:23:54.800 this stuff out here. You've got to have those prices fall. Namely, the solution is laissez-faire 211 00:23:54.800 --> 00:23:59.920 capitalism and the way laissez-faire capitalism would work is to deprecate the prices of 212 00:23:59.920 --> 00:24:05.120 investments that never should have been made in the first place. Complicating things nowadays 213 00:24:05.120 --> 00:24:09.400 is not so much the smooth-holy tariff, although if Obama gets in, we're going to have more 214 00:24:09.400 --> 00:24:14.280 tariffs I presume because, you know, we have to buy American or whatever. But instead what 215 00:24:14.280 --> 00:24:27.280 What you have is the CRA, the Community Reinvestment Act, where you have ninja loans, NINJAA, no income, no job, no address, no assets. 216 00:24:27.280 --> 00:24:37.280 You know, there was this wonderful Eddie Murphy skit, Eddie Murphy is one of my favorite comedians, and he dresses up as a white person because he wants to show racism. 217 00:24:37.280 --> 00:24:41.280 And he goes to the bank and he goes to this bank teller who's a black guy 218 00:24:41.280 --> 00:24:44.280 And the black guy is saying, well, you know, do you have any assets? 219 00:24:44.280 --> 00:24:48.280 Do you have any collateral? What about your payment history? What about your credit record? 220 00:24:48.280 --> 00:24:51.280 And Eddie is sort of looking, you know, very unhappy 221 00:24:51.280 --> 00:24:56.280 And then the white banker comes and says, okay, black banker, you know, go away, I'll take care of this client 222 00:24:56.280 --> 00:24:59.280 He says, you need money? Here, take it, you know 223 00:24:59.280 --> 00:25:02.280 We don't need any proof or anything like that 224 00:25:02.280 --> 00:25:05.280 You have this, there's a whole new lexicon of liar loans 225 00:25:05.280 --> 00:25:12.280 I'm not making this stuff up. I mean, I could argue that it would be preposterous to make it up, because I guess Murray used to say, you know, you're not going to make a lot of money, you're not going to make a lot of money, you're not going to make a lot of money. 226 00:25:35.280 --> 00:25:39.980 You can't improve on reality in terms of making fun of it. 227 00:25:39.980 --> 00:25:42.240 The other thing is with bailouts. 228 00:25:42.240 --> 00:25:46.880 Look, I used to teach in Holy Cross and Worcester Mass 229 00:25:46.880 --> 00:25:49.500 where they made metal ball bearings 230 00:25:49.500 --> 00:25:51.900 and ball peen hammers and things like that. 231 00:25:51.900 --> 00:25:53.500 There were vast factories there, 232 00:25:53.500 --> 00:25:56.500 seven stories high, a quarter mile by a quarter mile 233 00:25:56.500 --> 00:25:59.060 where they'd make these factories. 234 00:25:59.060 --> 00:25:59.900 They're all empty. 235 00:25:59.900 --> 00:26:01.900 They're trying to yuppify one or two of them. 236 00:26:03.660 --> 00:26:04.500 Why? 237 00:26:04.500 --> 00:26:11.500 Why do we have the Rust Belt? Because of unions. Unions are like a tapeworm. They just sort of seize everything. They don't allow for expansion. 238 00:26:11.500 --> 00:26:17.500 So instead, what happened? All those companies came down to Birmingham, Alabama or Mississippi or places like that. 239 00:26:17.500 --> 00:26:25.500 Well, Detroit is now hurting. Why? Because they've got unions. And they're also here. So it's sort of a double whammy. 240 00:26:25.500 --> 00:26:31.500 We shouldn't have as much investment in housing and cars as we do. Plus, we shouldn't have unionized ones. 241 00:26:31.500 --> 00:26:38.500 What the government is now planning to do is just the exact opposite of the Austrian public policy analysis. 242 00:26:38.500 --> 00:26:39.500 Thanks for your attention.