WEBVTT

NOTE The Core of What Economics Teaches

1
00:00:00.000 --> 00:00:08.760
Our first speaker is a senior fellow here at the Ludwig von Mises Institute and he teaches,

2
00:00:08.760 --> 00:00:19.400
by the way, at Auburn University across the street. In fact, he just got back and he is

3
00:00:19.400 --> 00:00:25.040
giving us our time today, giving you his time, rather than the folks over at Auburn. So we

4
00:00:25.040 --> 00:00:27.240
We feel good about that.

5
00:00:27.240 --> 00:00:29.540
He's one of the few people in the building who

6
00:00:29.540 --> 00:00:32.640
used to work for the government.

7
00:00:32.640 --> 00:00:34.760
And I'm not sure he ever wants to do that again.

8
00:00:34.760 --> 00:00:36.880
But he was the assistant superintendent

9
00:00:36.880 --> 00:00:41.320
of banking, of all things, under Governor Fobb James,

10
00:00:41.320 --> 00:00:43.840
way back in the late 90s.

11
00:00:43.840 --> 00:00:47.160
But now he's a senior fellow of ours.

12
00:00:47.160 --> 00:00:48.840
He's written a number of books.

13
00:00:48.840 --> 00:00:52.120
The Economics of Prohibition, Tariffs, Blockades,

14
00:00:52.120 --> 00:00:58.800
and Inflation, Economics of the Civil War, the Bastiat Collection, the quotable Mises,

15
00:00:58.800 --> 00:01:04.360
graduate of St. Bonaventure University and received his PhD in economics right across

16
00:01:04.360 --> 00:01:10.900
the street at Auburn University. He's talking about the core of what economics teaches.

17
00:01:10.900 --> 00:01:13.900
Please help me welcome Mark Thornton.

18
00:01:13.900 --> 00:01:28.900
Thank you, Doug. It is a real pleasure to be here, and I don't know if you're happy to have me here, but my students across the street are happy to have me here today.

19
00:01:28.900 --> 00:01:35.900
Now, there are tons of things. My lecture today is about what the core of economics teaches.

20
00:01:35.900 --> 00:01:40.600
and believe me there's a ton of things that I don't understand I don't

21
00:01:40.600 --> 00:01:46.900
understand for example air conditioning and I don't understand how planes fly but

22
00:01:46.900 --> 00:01:53.660
I do know that economics tells us how the world works and this is a very

23
00:01:53.660 --> 00:02:00.420
important thing it tells us the rules basically of success and failure why

24
00:02:00.420 --> 00:02:05.260
Why things work in the economy and why sometimes they don't.

25
00:02:05.260 --> 00:02:12.580
So this is very important for each individual person for their own selves in terms of understanding

26
00:02:12.580 --> 00:02:18.780
the world and it's also important for all individuals to understand this material because

27
00:02:18.780 --> 00:02:25.500
of our actions as citizens and as voters and as participants in society.

28
00:02:25.500 --> 00:02:26.620
So it is very important.

29
00:02:26.620 --> 00:02:32.100
It's like mathematics, you know, I liked mathematics for a while in school and then in high school

30
00:02:32.100 --> 00:02:38.680
I learned to sort of hate it because they never told us why it was important and it

31
00:02:38.680 --> 00:02:45.320
wasn't until I was long gone out of college that I finally figured out is that most people

32
00:02:45.320 --> 00:02:51.540
end up working in their careers under somebody who is better at math.

33
00:02:51.540 --> 00:02:56.020
So that's the main reason to study math.

34
00:02:56.020 --> 00:03:04.400
Now, in the United States, we have a very successful economy, one of the most successful

35
00:03:04.400 --> 00:03:09.880
economies in the world, in the history of the world.

36
00:03:09.880 --> 00:03:14.820
Countries around the world, some of them don't like everything about the United States, but

37
00:03:14.820 --> 00:03:20.760
they all want to emulate our economic success and even parts of our culture.

38
00:03:20.760 --> 00:03:27.920
And if we look at places like Africa, what we find is the polar opposite of a very unsuccessful

39
00:03:27.920 --> 00:03:36.080
economy of people dying of starvation and of billions of people around the world living

40
00:03:36.080 --> 00:03:39.240
on less than one dollar a day.

41
00:03:39.240 --> 00:03:41.680
And that, of course, is a bad thing.

42
00:03:41.680 --> 00:03:43.880
And we want to know why it happens.

43
00:03:43.880 --> 00:03:49.360
Okay, so we want to know success and we want to know failure.

44
00:03:49.360 --> 00:03:53.800
And we can also look at an example of the city of Atlanta, for example, which most of

45
00:03:53.800 --> 00:03:55.360
you have probably visited before.

46
00:03:55.360 --> 00:04:01.960
It's a city of millions of people, a diverse group of people from many different places

47
00:04:01.960 --> 00:04:11.440
spread out over a large area, and yet somehow everyone gets fed every day pretty much what

48
00:04:11.440 --> 00:04:15.760
they want, when they want it.

49
00:04:15.760 --> 00:04:21.280
And we have to ask ourself, how can that possibly get done? That's a very complicated task.

50
00:04:21.280 --> 00:04:28.000
If you had to sit down and write out all of the inputs, all of the ingredients, and where

51
00:04:28.000 --> 00:04:31.620
is this food going to be delivered, and when is it going to be consumed, and how should

52
00:04:31.620 --> 00:04:38.520
it taste, you realize the complexities of the world we live in. And economics is what

53
00:04:38.520 --> 00:04:45.120
What explains why the United States is so successful, why Africa is so unsuccessful,

54
00:04:45.120 --> 00:04:50.360
and how such a complicated thing is feeding the entire city of Atlanta, actually gets

55
00:04:50.360 --> 00:04:53.280
done successfully every day.

56
00:04:53.280 --> 00:04:57.260
So that's what economics is all about.

57
00:04:57.260 --> 00:05:02.900
In Austrian economics in particular, because there's different flavors of economics and

58
00:05:02.900 --> 00:05:07.900
and you're going to be exposed to the Austrian flavor of economics.

59
00:05:07.900 --> 00:05:12.900
We're the oldest continuously existing school of economics.

60
00:05:12.900 --> 00:05:18.900
We're also the smallest school of economics.

61
00:05:18.900 --> 00:05:24.900
And we're also the fastest growing school of economics.

62
00:05:24.900 --> 00:05:27.900
So you can chew on that one for a little while.

63
00:05:27.900 --> 00:05:31.900
But it's Austrian economics that actually explains

64
00:05:31.900 --> 00:05:36.900
How we got into the mess, the economic mess that we are in today.

65
00:05:36.900 --> 00:05:41.900
Today in the United States we have 10% unemployment.

66
00:05:41.900 --> 00:05:45.900
That's twice as much as normal.

67
00:05:45.900 --> 00:05:51.900
That's 7 million people who want to work and who cannot find a job today.

68
00:05:51.900 --> 00:05:57.900
And 10% unemployment is basically the cutting edge of the difference

69
00:05:57.900 --> 00:06:04.140
between a Recession and an Economic Depression.

70
00:06:04.140 --> 00:06:08.340
So we're in a big economic mess currently.

71
00:06:08.340 --> 00:06:13.140
And the federal government has been spending trillions of dollars to try to clean up the

72
00:06:13.140 --> 00:06:16.380
mess that they have made of this economy.

73
00:06:16.380 --> 00:06:22.200
And the Austrian economist placed the blame for this economic depression on the government

74
00:06:22.200 --> 00:06:24.200
itself.

75
00:06:24.200 --> 00:06:27.540
And a trillion dollars is a big pile of money.

76
00:06:27.540 --> 00:06:36.820
It's enough money to give each and every one of you in this room today one million dollars

77
00:06:36.820 --> 00:06:41.220
every day for two whole years.

78
00:06:41.220 --> 00:06:42.940
So that's a lot of money.

79
00:06:42.940 --> 00:06:48.260
As a matter of fact, if we decided to put the trillion dollars in the bank and we could

80
00:06:48.260 --> 00:06:57.460
earn 5.5% interest, 5.5% interest, we could give everyone in this room a million dollars

81
00:06:57.460 --> 00:07:07.220
Wars a day, every day, forever, and never touch the original principle.

82
00:07:07.220 --> 00:07:11.880
So this is a big mess if they're spending more than a trillion dollars to try to clean

83
00:07:11.880 --> 00:07:13.500
it up.

84
00:07:13.500 --> 00:07:18.400
So the next time your parents bring up the big mess that you have made, just remind them

85
00:07:18.400 --> 00:07:26.660
that it's still not as big a mess as the politicians have made in Washington D.C.

86
00:07:26.660 --> 00:07:35.780
Now in economics, simple things can be complicated and complicated things can be made very simple.

87
00:07:35.780 --> 00:07:41.620
Take for example that pencil that you have and pick it up and take a look at it.

88
00:07:41.620 --> 00:07:43.980
What do you see?

89
00:07:43.980 --> 00:07:47.300
Well, it's not much.

90
00:07:47.300 --> 00:07:53.700
There's wood, there's paint, there's the graphite that we write with in the middle,

91
00:07:53.700 --> 00:07:58.140
And there's some metal and a rubber eraser at the end.

92
00:07:58.140 --> 00:08:04.420
So this is pretty simple stuff in terms of the economy compared to like an iPod, which

93
00:08:04.420 --> 00:08:11.700
is another thing I don't understand.

94
00:08:11.700 --> 00:08:17.740
Despite its apparent simplicity, there is no one in the world that knows how to make

95
00:08:17.740 --> 00:08:20.940
a pencil.

96
00:08:20.940 --> 00:08:27.460
Not a single person on earth knows everything that's involved in making a pencil.

97
00:08:27.460 --> 00:08:32.140
And I know that sounds a little unbelievable given that millions and millions and millions

98
00:08:32.140 --> 00:08:36.180
of pencils are made, but think about it.

99
00:08:36.180 --> 00:08:43.340
Each component in this pencil, the wood, the graphite, the metal at the end, the paint

100
00:08:43.340 --> 00:08:51.540
and the rubber eraser is made of raw materials that have been individually harvested using

101
00:08:51.540 --> 00:08:56.020
specialized labor and specialized tools.

102
00:08:56.020 --> 00:09:03.460
These materials have also been processed and transported to the pencil factory.

103
00:09:03.460 --> 00:09:08.380
Each and every piece has to be cut into precise size pieces.

104
00:09:08.380 --> 00:09:13.740
And finally, these pieces have to be ultimately assembled at the factory.

105
00:09:13.740 --> 00:09:22.340
And so at each stage of production of each of the inputs requires a whole lot of specialized

106
00:09:22.340 --> 00:09:26.300
labor and specialized tools.

107
00:09:26.300 --> 00:09:31.600
The people who harvest the trees, for example, for these pencils, as well as the people who

108
00:09:31.600 --> 00:09:38.040
harvest the rubber, for the rubber erasers, they don't even know one another.

109
00:09:38.040 --> 00:09:42.400
They never come in contact with another, with one another. They probably couldn't do each

110
00:09:42.400 --> 00:09:47.760
other's job very well. For example, somebody who's harvesting rubber plants is probably

111
00:09:47.760 --> 00:09:55.640
not going to be a good lumberjack. And they also probably have no idea that the products

112
00:09:55.640 --> 00:09:59.660
that they're harvesting are actually going to be made into pencils. And they certainly

113
00:09:59.660 --> 00:10:07.220
don't know that their efforts have ultimately gone into the production of pencils for students

114
00:10:07.220 --> 00:10:16.060
Students and Parents here at the Ludwig von Mises Institute in Auburn, Alabama.

115
00:10:16.060 --> 00:10:25.820
All of the tools that all of those people used for their individual roles in the production

116
00:10:25.820 --> 00:10:32.980
process, they also are using tools made by a whole entirely different set of workers

117
00:10:32.980 --> 00:10:39.180
using an entirely different set of machines and inputs.

118
00:10:39.180 --> 00:10:45.140
So this goes on and on all along the chain of production and when we get to the factory

119
00:10:45.140 --> 00:10:52.340
floor of the actual making of pencils we find yet still another specialized set of labor

120
00:10:52.340 --> 00:11:00.960
using highly specialized machines and as well as million dollar machines in some cases.

121
00:11:00.960 --> 00:11:08.000
So all of these tools are in turn made by another set of people in another locations

122
00:11:08.000 --> 00:11:15.240
and it's a very, very complicated process that's almost difficult to imagine.

123
00:11:15.240 --> 00:11:21.560
So that you can see something as simple as a pencil involves a very, very complicated

124
00:11:21.560 --> 00:11:27.520
production process involving thousands and thousands of people working in different places

125
00:11:27.520 --> 00:11:31.560
Often in Different Countries.

126
00:11:31.560 --> 00:11:38.760
The question then becomes how do all these people cooperate with one another?

127
00:11:38.760 --> 00:11:45.760
How do all these individuals, companies and individuals within companies coordinate all

128
00:11:45.760 --> 00:11:52.320
of their activities so as to bring us a product that has a useful life of a very long period

129
00:11:52.320 --> 00:11:53.320
of time?

130
00:11:53.320 --> 00:12:01.320
I mean, how many times have you actually gotten down to where the pencil is so small to write with before you lose it or give it away or something?

131
00:12:01.320 --> 00:12:04.320
And it actually costs less than a dime.

132
00:12:04.320 --> 00:12:21.320
Okay, so it's a very remarkable result that we get using this highly complex means of production that is fairly smoothly operating and involves the cooperation of many people both within companies

133
00:12:21.320 --> 00:12:30.320
and between all of the companies along the chain of production from raw materials to finished consumer products.

134
00:12:30.320 --> 00:12:35.320
How does all that get accomplished? Well, basically, it's the price system.

135
00:12:35.320 --> 00:12:45.320
The price of consumer goods is established by competition between competing producers and their potential consumers.

136
00:12:45.320 --> 00:12:51.320
Consumers, of course, get to choose amongst all the various brands of pencils offered

137
00:12:51.320 --> 00:12:58.280
at different qualities and different prices and they also, of course, get to choose between

138
00:12:58.280 --> 00:13:04.760
alternative to pencils such as pens, mechanical pencils and so on.

139
00:13:04.760 --> 00:13:12.480
The revenue from the selling of pencils is then used to pay for workers, to buy the inputs,

140
00:13:12.480 --> 00:13:16.120
to pay for the machines and all the other expenses.

141
00:13:16.120 --> 00:13:19.080
And if there's any money left over,

142
00:13:19.080 --> 00:13:23.140
okay, that is the profit to the owner of the company

143
00:13:23.140 --> 00:13:26.900
and all the various companies along the chain of production.

144
00:13:26.900 --> 00:13:28.880
If there's no money left over

145
00:13:28.880 --> 00:13:32.720
and there's not enough money to pay all the expenses of the workers and the raw

146
00:13:32.720 --> 00:13:34.120
materials

147
00:13:34.120 --> 00:13:36.360
and the machinery,

148
00:13:36.360 --> 00:13:40.240
then the company is going to suffer a loss.

149
00:13:40.240 --> 00:13:47.200
and the important thing here is that we have this system of profit and loss which keeps

150
00:13:47.200 --> 00:13:54.160
everything in line with the satisfaction of the consumers.

151
00:13:54.160 --> 00:14:01.240
The owners of companies have to put up a large investment in order to build the company itself,

152
00:14:01.240 --> 00:14:07.360
to hire the labor, everything has to be there before they can make one single pencil or

153
00:14:07.360 --> 00:14:10.940
for make the product along the chain of production.

154
00:14:10.940 --> 00:14:16.060
So owners have a large investment in their company and therefore they have an automatic

155
00:14:16.060 --> 00:14:21.140
incentive to want to keep the company going and to make profits because if they suffer

156
00:14:21.140 --> 00:14:27.300
losses on a regular basis, they go out of business.

157
00:14:27.300 --> 00:14:36.360
So we have an automatic system in the economy of profits and losses and incentives to protect

158
00:14:36.360 --> 00:14:43.360
to protect your capital and to make profits that keeps that whole system along that entire chain of production

159
00:14:43.360 --> 00:14:51.360
moving smoothly and cooperatively in a coordinated fashion.

160
00:14:51.360 --> 00:14:58.360
Now in order to get to profits and losses, we need prices.

161
00:14:58.360 --> 00:15:05.360
Everything along the chain of production to get to this pencil is going to be priced out.

162
00:15:05.360 --> 00:15:33.360
and so we want to know how do prices get set. Well, the curious answer to how prices are determined is that no one gets to actually set prices. For example, I, as a professor, if I was in charge of setting the price for my services, my wages, I would naturally set the price for my services.

163
00:15:33.360 --> 00:15:44.360
I would naturally set my wages at what I truly deserved, which I'm guesstimating here is around one million dollars a year.

164
00:15:44.360 --> 00:15:53.360
Well, what are you laughing about? I mean, what I do for society is certainly more valuable than the average baseball player on the Atlanta Braves.

165
00:15:53.360 --> 00:16:00.360
I mean, they're just playing a game, especially the way they've been hitting lately.

166
00:16:00.360 --> 00:16:07.080
So, I mean, I don't think one million dollars is really out of the question, but if I went

167
00:16:07.080 --> 00:16:13.380
to my employer at Auburn University, you know, they have a certain amount of money and a

168
00:16:13.380 --> 00:16:19.000
certain amount of revenues that they have, and they have a lot of alternative uses for

169
00:16:19.000 --> 00:16:26.240
those revenues, improving the football stadium, paying higher salaries for administrators,

170
00:17:26.240 --> 00:17:32.240
The supply side, in my case, being all those people who are offering their services as an economics professor

171
00:17:32.240 --> 00:17:41.240
and the demand side being all of those people who are in need of or want to hire people to give economics lectures.

172
00:17:41.240 --> 00:17:49.240
And so in that fashion, market wages and market prices get determined.

173
00:17:49.240 --> 00:17:59.240
There are always competitive forces in existence to force prices that are out of competition back into competition.

174
00:17:59.240 --> 00:18:07.240
For example, if the University of Alabama was paying economics professors twice what Auburn University is paying economics professors,

175
00:18:07.240 --> 00:18:15.240
then you would have all the economists at Auburn University filling out application forms to the University of Alabama,

176
00:18:15.240 --> 00:18:20.440
in Alabama, even if they weren't an Alabama football fan.

177
00:18:20.440 --> 00:18:25.320
And you'd have other people also applying to Alabama so that they could lower their

178
00:18:25.320 --> 00:18:31.320
wage rates, and of course Auburn, as they see their economists leaving for other institutions,

179
00:18:31.320 --> 00:18:35.240
they would have to say, well, we're going to have to pay more to keep what we have and

180
00:18:35.240 --> 00:18:39.200
to bring more people to Auburn to teach economics.

181
00:18:39.200 --> 00:18:46.120
So prices are determined by the competitive forces of supply and demand in a free and

182
00:18:46.120 --> 00:18:50.980
open marketplace.

183
00:18:50.980 --> 00:18:56.440
So it's these same competitive forces that set the prices of everything involved in the

184
00:18:56.440 --> 00:18:58.620
production of pencils.

185
00:18:58.620 --> 00:19:03.620
Everything from the trees standing in the forest, to the wages of lumberjacks, to the

186
00:19:03.620 --> 00:19:09.180
wages of the truckers who bring the raw materials to the factory, to the people who sell the

187
00:19:09.180 --> 00:19:21.180
to itself, machines and tools, to all of those productive laborers, to the factory itself, and even ultimately to the pencil salesman himself.

188
00:19:21.180 --> 00:19:31.180
Now, in order for the system of prices and the system of profits and loss to remain effective,

189
00:19:31.180 --> 00:19:37.180
here we're getting into enough different things that I'll give you my little graphic there,

190
00:19:37.180 --> 00:19:58.180
So, this whole system to be fully functioning and to be fully efficient and also to be fair requires a system of property rights, of private property rights in all aspects of the economy.

191
00:19:58.180 --> 00:20:06.180
First of all, you have the right to your body, to your person. So that's the first and most important property right.

192
00:20:06.180 --> 00:20:14.180
No one has the right to make a slave out of you, except, of course, your parents.

193
00:20:14.180 --> 00:20:21.180
You have the rights to the fruits of your labor and to any material objects that you may own.

194
00:20:21.180 --> 00:20:27.180
And finally, you have the right to make contracts with others.

195
00:20:27.180 --> 00:20:33.180
And actually, there is a legal stipulation that minors cannot make valid contracts,

196
00:20:33.180 --> 00:20:39.740
Contracts, but as soon as you reach the age of majority, everyone has the right to make

197
00:20:39.740 --> 00:20:43.780
contracts.

198
00:20:43.780 --> 00:20:47.820
You also have the right to any unclaimed natural resources.

199
00:20:47.820 --> 00:20:54.140
Of course, most natural resources are claimed by someone or another, but there probably

200
00:20:54.140 --> 00:20:57.440
still are some out there yet to be found.

201
00:20:57.440 --> 00:21:04.000
As a matter of fact, the first use of a pencil occurred almost 500 years ago, or at least

202
00:21:04.000 --> 00:21:10.980
the first use of the graphite in the pencil occurred 500 years ago when a Scotsman discovered

203
00:21:10.980 --> 00:21:17.360
a solid graphite rock formation on his property.

204
00:21:17.360 --> 00:21:25.600
He used chunks of the graphite for purposes of marking his sheep.

205
00:21:25.600 --> 00:21:29.760
So he was a sheep farmer and of course they didn't have fences so the sheep were always

206
00:21:29.760 --> 00:21:39.080
wandering away and like branding the cattle, the Scotsman started the tradition of putting

207
00:21:39.080 --> 00:21:46.820
his mark on the sheep so that they knew whose sheep was whose and so he was in a sense branding

208
00:21:46.820 --> 00:21:52.780
his sheep with the graphite and he also sold chunks of the graphite to other sheep owners

209
00:21:52.780 --> 00:21:59.780
so that they could likewise mark their sheet and have a better claim, a more solid claim

210
00:21:59.780 --> 00:22:02.900
to their property.

211
00:22:02.900 --> 00:22:08.180
It wasn't, it took more than 200 years for someone to figure out how to put the wood

212
00:22:08.180 --> 00:22:14.120
around the pencil and to form the modern pencil as we now know it.

213
00:22:14.120 --> 00:22:19.160
Now violations of property rights are very important.

214
00:22:19.160 --> 00:22:29.640
So we need a system of valid, protected property rights to make this whole economy thing work.

215
00:22:29.640 --> 00:22:37.540
And in the United States, we have one of the better forms of protecting property.

216
00:22:37.540 --> 00:22:42.720
People respect property naturally in the United States.

217
00:22:42.720 --> 00:22:51.720
It's almost customary, for example, that you don't walk across your neighbor's yard.

218
00:22:51.720 --> 00:22:56.720
Violations of property rights, however, make us poor.

219
00:22:56.720 --> 00:22:58.720
Think of Africa.

220
00:22:58.720 --> 00:23:04.720
If someone enslaves you, then you are obviously poor as a result.

221
00:23:04.720 --> 00:23:09.720
If somebody steals your stuff, you're going to be obviously poor as a result.

222
00:23:09.720 --> 00:23:39.620
If somebody taxes your income, you're going to be poor, so that theft and taxation, especially if they occur on a regular basis, makes us lose our incentive to work hard, to produce, and to save, and everyone is going to be poor as a result if we have systematic violations of property rights in society.

223
00:23:39.620 --> 00:23:53.620
And that's true even of the thieves themselves, or the government itself. If the government is systematically taking away all of our stuff, then we're going to be less likely to produce more stuff.

224
00:23:53.620 --> 00:24:01.620
The most common fallacy in economics is that you can make everyone better by violating property rights.

225
00:24:01.620 --> 00:24:12.620
Consider what happens any time the government tries to direct the economy in any particular way, including the current effort to stimulate the economy.

226
00:24:12.620 --> 00:24:22.620
Any time government does this, the problem is that government must first take away resources from the taxpayer.

227
00:24:22.620 --> 00:24:28.620
Because government itself has no resources, it has no money of its own.

228
00:24:28.620 --> 00:24:39.620
It has to get everything that it uses from us.

229
00:24:39.620 --> 00:24:44.980
So even if government were to actually solve any kind of problem, which I've yet to come

230
00:24:44.980 --> 00:24:51.420
across really, it has created a whole bunch of unseen problems, a bunch of unseen new

231
00:24:51.420 --> 00:24:55.180
problems for us.

232
00:24:55.180 --> 00:25:01.060
Thomas Frederic Bastiat tells a story of a young boy who was throwing rocks and broke

233
00:25:01.060 --> 00:25:02.300
a window.

234
00:25:02.300 --> 00:25:09.600
He broke the window of Felix's shoe store and a crowd gathers around the broken glass

235
00:25:09.600 --> 00:25:16.520
when somebody remarks that this will be good news for Oscar the Glazier, or the person

236
00:25:16.520 --> 00:25:24.920
who actually fixes windows, because he will probably earn more than $1,000 from installing

237
00:25:24.920 --> 00:25:30.960
The New Window for Felix. Then Thelma says, well that's good news for me because Oscar

238
00:25:30.960 --> 00:25:39.160
and his family are overdue to buy new clothing at my clothing store. And then Louise then

239
00:25:39.160 --> 00:25:44.120
says well that's also good news for me too because Thelma now can purchase the necklace

240
00:25:44.120 --> 00:25:49.820
that she has been looking at in my jewelry store. And then George explains, well this

241
00:25:49.820 --> 00:25:54.900
here broken window thing is the greatest thing that ever happened in our town. And then Barack

242
00:25:54.900 --> 00:26:13.160
The fallacy of the broken window is basically that Felix could have still had his thousand

243
00:26:13.160 --> 00:26:20.960
dollars to spend and still have his unbroken window, and spent the thousand dollars on

244
00:26:20.960 --> 00:26:22.880
something else.

245
00:26:22.880 --> 00:26:31.000
So there is no silver lining to the broken window. It's a loss, plain and simple. But

246
00:26:31.000 --> 00:26:37.000
it's a fallacy that is alive and well. And every time we have a natural disaster, someone

247
00:26:37.000 --> 00:26:43.440
brings up this fallacy, and unfortunately it's often an economist. For example, headlines,

248
00:26:43.440 --> 00:26:50.040
the earthquake destroys hundreds of homes, but economists say it will stimulate the economy.

249
00:26:50.040 --> 00:26:54.740
Or the hurricane destroyed buildings, homes and knocked down power lines for several miles,

250
00:26:54.740 --> 00:26:57.720
but experts expect it to stimulate the economy.

251
00:26:57.720 --> 00:27:00.400
Okay, there's no silver lining.

252
00:27:00.400 --> 00:27:02.440
This is nonsense.

253
00:27:02.440 --> 00:27:05.420
Destruction does not stimulate an economy.

254
00:27:05.420 --> 00:27:11.320
It simply forces people to rebuild who would rather spend their time and money on other

255
00:27:11.320 --> 00:27:13.800
things.

256
00:27:13.800 --> 00:27:20.400
If we had a choice to push a button that would prevent any future earthquake or hurricane,

257
00:27:20.400 --> 00:27:25.820
is there anyone in favor of not pushing that button?

258
00:27:25.820 --> 00:27:32.240
This nonsense about destruction also applies to government efforts to stimulate the economy.

259
00:27:32.240 --> 00:27:36.840
When government spends a trillion dollars on a stimulus package, they must take that

260
00:27:36.840 --> 00:27:43.420
money away from taxpayers or borrow the money, which means higher taxes and more inflation

261
00:27:43.420 --> 00:27:45.540
in the Future.

262
00:27:45.540 --> 00:27:48.580
What this really means is four things.

263
00:27:48.580 --> 00:27:54.540
One, taxpayers have fewer resources to solve their own day-to-day problems.

264
00:27:54.540 --> 00:28:02.340
Two, higher tax rates give people less of an incentive to work, produce and save.

265
00:28:02.340 --> 00:28:11.100
Three, higher taxes inflation discourage investment in the future, which means less economic growth.

266
00:28:11.100 --> 00:28:20.520
And four, government spending rarely ever that I can think of actually stimulates an economy.

267
00:28:20.520 --> 00:28:25.060
It actually retards the economy.

268
00:28:25.060 --> 00:28:32.100
So there's an opportunity cost to all of this government stimulus, bailout, package money

269
00:28:32.100 --> 00:28:35.680
that seems to come out of thin air.

270
00:28:35.680 --> 00:28:39.260
An opportunity cost is important in economics.

271
00:28:39.260 --> 00:28:46.220
For example, you can buy a half a gallon of milk at the grocery store for about $2, or

272
00:28:46.220 --> 00:28:49.300
you can buy it at a gas station for $3.

273
00:28:49.300 --> 00:28:55.580
So why would anybody ever buy milk at a gas station?

274
00:28:55.580 --> 00:29:01.780
It's because sometimes our opportunity cost is too high to take the time to go to the

275
00:29:01.780 --> 00:29:05.920
grocery store simply for one half gallon of milk.

276
00:29:05.920 --> 00:29:10.520
So we always have to think of the alternative.

277
00:29:10.520 --> 00:29:17.600
And when it comes to government stimulus packages, we have to finance those stimulus packages

278
00:29:17.600 --> 00:29:23.240
with our taxes, both in our current and our future tax bills.

279
00:29:23.240 --> 00:29:28.080
And what this really means is that there's a whole lot of things that we could have done

280
00:29:28.080 --> 00:29:34.280
with that money, but that we will never actually see to fruition.

281
00:29:34.280 --> 00:29:42.860
And I must say that government spending is really often no better than breaking windows.

282
00:29:42.860 --> 00:29:49.560
What they are actually spending the money on is things like keeping government bureaucrats

283
00:29:49.560 --> 00:30:00.360
in their high paying, no work job, hiring census workers and building bridges to nowhere.

284
00:30:00.360 --> 00:30:07.360
This type of spending, I suggest, is every bit of destruction, is the bad boy with his rocks.

285
00:30:07.360 --> 00:30:08.360
Thank you very much.