WEBVTT NOTE Ticka, Ticka, You Need Good Timin' 1 00:00:00.000 --> 00:00:06.000 Our next speaker is a guy who's always looking for an argument. 2 00:00:06.000 --> 00:00:15.000 He has a PhD from Columbia University. 3 00:00:15.000 --> 00:00:27.000 He's author and co-author of a number of books, a number of articles, but we have a couple of books out front I urge you to buy. 4 00:00:27.000 --> 00:00:35.260 One is Defending the Undefendable, it's a wonderful little book to learn economics with. 5 00:00:35.260 --> 00:00:44.800 He also has a very, very hot new book called The Privatization of Roads and Highways, which 6 00:00:44.800 --> 00:00:50.400 if you got stuck in traffic here, you can see how the free market might have handled 7 00:00:50.400 --> 00:00:51.400 that. 8 00:00:51.400 --> 00:01:04.400 But he's a professor at Loyola of New Orleans, but lives part of the year right up the road in Vancouver, and it's our pleasure to have him here. 9 00:01:04.400 --> 00:01:13.400 He'll be speaking on Ticca Ticca, You Need Good Timing, Dr. Walter Block. 10 00:01:13.400 --> 00:01:29.280 It's a little cold in here, isn't it? Well, you're in luck. Hot air is coming. Before 11 00:01:29.280 --> 00:01:35.980 I start in my own talk, I just wanted to add on an addendum to Peter's excellent talk. 12 00:01:35.980 --> 00:01:41.000 One of the reasons that the Fed is very popular among the economics profession is because 13 00:01:41.000 --> 00:01:45.240 Half of the economists either work for the Fed or hope to work for the Fed or try to 14 00:01:45.240 --> 00:01:48.320 get published in the journals that they do. 15 00:01:48.320 --> 00:01:53.440 It's amazing that we have to have Fed independence in the view of these people. 16 00:01:53.440 --> 00:01:56.400 And the reason it's only half because only half is macro. 17 00:01:56.400 --> 00:02:01.600 I think every macroeconomist works for the Fed in some way or other. 18 00:02:01.600 --> 00:02:08.000 Another point about the Keynesian that really impresses itself upon, to me, is stagflation. 19 00:02:08.000 --> 00:02:12.500 You see, according to the Keynesians, the economy is sort of like a car. When it's going 20 00:02:12.500 --> 00:02:19.280 too slow, you have to hit the gas, and the monetarists and the pure Keynesians argue 21 00:02:19.280 --> 00:02:24.440 whether the gas should be fiscal or monetary policy. And when it's going too slow, when 22 00:02:24.440 --> 00:02:29.720 it's going too fast, you have to pull back expenditure, whether monetary or fiscal, and 23 00:02:29.720 --> 00:02:34.640 when it's going too slowly, if you have depression, then you have to hit the gas. Well, the problem 24 00:02:34.640 --> 00:02:39.040 The question is, what about when it's doing both? What about when you have stagflation? 25 00:02:39.040 --> 00:02:44.060 And the answer is, as Ayn Rand would say, blank out. You just don't have any answer 26 00:02:44.060 --> 00:02:49.460 to that one. Murray Rothbard tells the story that Arthur Burns was once talking about this 27 00:02:49.460 --> 00:02:54.000 before stagflation started, and he said, well, if that ever occurs, we'll all have to resign. 28 00:02:54.000 --> 00:02:57.160 Well, it's about time for these guys to resign. 29 00:02:57.160 --> 00:03:03.800 Okay, let me start my own talk, and my message is, economics is beautiful. Okay, you might 30 00:03:03.800 --> 00:03:08.040 I think I'm a weirdo, economics is beautiful, give me a break, but that's what I get out 31 00:03:08.040 --> 00:03:12.160 of economics, it's sort of an aesthetic jolt, it's sort of like Bach, Mozart and Handel, 32 00:03:12.160 --> 00:03:15.560 my three favorite composers all rolled into one. 33 00:03:15.560 --> 00:03:22.560 The story I'd like to give you is the ancient one from several centuries past, Bastiat, 34 00:03:23.120 --> 00:03:29.280 how does Paris get fed? He looks up from the Eiffel Tower down on Paris and everyone's 35 00:03:29.280 --> 00:03:59.280 People are scurrying around. We could look at the Space Needle here in Seattle and people are scurrying around and there's no central direction and yet everyone gets fed. How can this be? It's a miracle in my view. It ranks up there in beauty with the sunset, the rainbow, the smile of a baby. It's just a gorgeous thing. That is the free market part of it. I have a confession. I have various motivations for being an economist and in the order of 36 00:03:59.280 --> 00:04:04.400 Less Importance and Toward the Greater Importance, the first one is I like to see light bulbs 37 00:04:04.400 --> 00:04:10.720 lighting over my students' faces when they get it. It's just a big jolt for me. Another 38 00:04:10.720 --> 00:04:17.720 one is tweak noses. I like to take noses and tweak them, especially big fat noses. 39 00:04:19.780 --> 00:04:25.280 Another one is I'm against poverty and I'm pro-prosperity. I like to see us be rich and 40 00:04:25.280 --> 00:04:28.440 Cure Poverty, and economics is the key for that. 41 00:04:28.440 --> 00:04:31.200 And then an even more important one is liberty. 42 00:04:31.200 --> 00:04:33.760 Economics is a key element in understanding 43 00:04:33.760 --> 00:04:36.360 what liberty is and how to promote liberty. 44 00:04:36.360 --> 00:04:39.400 Another one, a personal one, is I want to pass on the baton 45 00:04:39.400 --> 00:04:41.400 that Murray Rothbard passed on to me, 46 00:04:41.400 --> 00:04:43.320 pass it on to younger people. 47 00:04:43.320 --> 00:04:46.460 But the most important one, this is my true confession, 48 00:04:46.460 --> 00:04:48.560 it's just the sheer beauty of it. 49 00:04:48.560 --> 00:04:51.440 The idea of how we can have social cooperation 50 00:04:51.440 --> 00:04:54.240 without any central direction. 51 00:04:54.240 --> 00:05:00.240 and it just, it turns my crank. Now, on the other hand, there are people that say economics 52 00:05:00.240 --> 00:05:05.800 is boring and there's some reason for that and I sometimes joke around and I say, well, 53 00:05:05.800 --> 00:05:11.160 you know, I'm one of the few doctors who still makes house calls and if you have sleep apnea 54 00:05:11.160 --> 00:05:15.000 or you can't sleep too well, I'll come over to your house and I'll give you an economics 55 00:05:15.000 --> 00:05:22.000 lecture and you'll be out like a light. And Keynesian economics is like that, but not 56 00:05:22.000 --> 00:05:30.560 Reagan, Ronald Reagan, talked about the magic of the marketplace and he was a great 57 00:05:30.560 --> 00:05:35.520 rhetorician. He was really good at that, but you know, when push came to shove, when he 58 00:05:35.520 --> 00:05:40.120 was governor of California, the budget went up and so did regulation and when he was president. 59 00:05:40.120 --> 00:05:45.680 But at least he was good on rhetoric, if nothing else. And how does this work? Well, the magic 60 00:05:45.680 --> 00:05:50.080 of the marketplace is based on free prices, property rights, free enterprise, laissez-faire 61 00:05:50.080 --> 00:05:54.080 Capitalism, trust, that's one way to look at it. 62 00:05:54.080 --> 00:05:57.080 Another way to look at it is profit and loss. 63 00:05:57.080 --> 00:06:02.080 The reason Seattle gets fed or Paris gets fed is because those people who are not successful in feeding it, 64 00:06:02.080 --> 00:06:08.080 who don't provide services or goods that the people want, they go broke. 65 00:06:08.080 --> 00:06:11.080 And they leave room for other people to come in and take their places. 66 00:06:11.080 --> 00:06:13.080 And that's why things are pretty good. 67 00:06:13.080 --> 00:06:15.080 That's why in the Soviet Union they're pretty bad, 68 00:06:15.080 --> 00:06:28.080 is very bad because you don't have this automatic feedback mechanism that rewards success and penalizes failure and as long as that sort of a thing is allowed to occur, people get fed and we have prosperity and we don't have starvation. 69 00:06:28.080 --> 00:06:39.080 There was this movie, what was it? Moscow on the Hudson where they sort of showed what the Soviet economy was like and if you see a long line you get on it. You don't ask what it is and you know it might be toilet paper. 70 00:06:39.080 --> 00:06:43.800 Well, you can always use toilet paper, but the situation here is you're up to your armpits 71 00:06:43.800 --> 00:06:49.920 in toilet paper, but you've got no oranges or vice versa. In other words, in the market, 72 00:06:49.920 --> 00:06:54.600 if we had so much toilet paper, the prices of toilet paper would go down, the profits 73 00:06:54.600 --> 00:06:58.100 in it would go down, and if we have too few oranges, it would go up, and we'd have some 74 00:06:58.100 --> 00:07:03.480 sort of equilibration. That's the sort of thing that we rely on. It's sort of like we're 75 00:07:03.480 --> 00:07:13.480 But the reason that we have a civilized, non-barbaric, non-starvation economy is because of this market, this beautiful marketplace. 76 00:07:13.480 --> 00:07:23.480 Leonard Reed once talked about eye, the pencil, you know, the pencil is made of wood and rubber and metal and graphite and this and that and the other. 77 00:07:23.480 --> 00:07:26.480 And he said, no one person knows how to put together a pencil. 78 00:07:26.480 --> 00:07:30.480 The pencil is put together by people who, if they met each other, they'd hate each other, 79 00:07:30.480 --> 00:07:34.080 by people who, if they met each other, they'd hate each other, they'd start fighting with 80 00:07:34.080 --> 00:07:40.120 each other, and yet the market can coordinate this cooperation in a very humble example 81 00:07:40.120 --> 00:07:43.040 of the pencil. 82 00:07:43.040 --> 00:07:49.120 One dramatic way of putting this is to look at a place where it doesn't work. And I was 83 00:07:49.120 --> 00:07:54.120 living in New Orleans when Katrina came. It really wasn't Katrina's fault, it was the 84 00:07:54.120 --> 00:07:58.760 government's fault. The government's fault in several ways. One, the Army Corps of Engineers 85 00:07:58.760 --> 00:08:04.080 allowed the thing to fall apart and to FEMA prohibited private people from helping, but 86 00:08:04.080 --> 00:08:09.360 even more important, the very Katrina itself was government's fault. You know, they say 87 00:08:09.360 --> 00:08:13.120 you can't blame government on bad weather, you can blame government on bad weather. They 88 00:08:13.120 --> 00:08:18.480 took half the GDP for decades. If they hadn't, we probably have had enough research to stop 89 00:08:18.480 --> 00:08:24.680 Katrina's and earthquakes and everything else, so it's all the government's fault. They don't 90 00:08:24.680 --> 00:08:32.680 Don't call me Walter Moderate Block for nothing. 91 00:08:32.680 --> 00:08:37.580 Okay so I've just explained, I think, why things run pretty well. 92 00:08:37.580 --> 00:08:42.040 Why if there are errors, people go bankrupt and they leave, if there are too many frisbees 93 00:08:42.040 --> 00:08:46.880 and we don't want frisbees anymore, or hula hoops, or this is out of style, or if you 94 00:08:46.880 --> 00:08:51.920 make a woman's dress with the hemline too high or too low, you go broke. 95 00:08:51.920 --> 00:08:54.540 Why then do we have a cluster of errors? 96 00:08:54.540 --> 00:09:00.700 And what is a cluster of errors? A cluster of errors is all of a sudden all the businessmen 97 00:09:00.700 --> 00:09:08.460 make mistakes. How can this be? How can it be that businessmen who are selected and deselected 98 00:09:08.460 --> 00:09:14.140 for success or failure respectively, how can it be that they all sort of go berserk all 99 00:09:14.140 --> 00:09:19.860 at one time and we have a recession or a depression? Is this part of the market? Well, the Keynesian 100 00:09:19.860 --> 00:09:23.620 would say, yes, we didn't have enough animal spirits and we've got to go see a psychiatrist 101 00:09:23.620 --> 00:09:29.860 to get more animated or something like that, but for the Austrians, it's not true at all. 102 00:09:29.860 --> 00:09:33.980 And what I'm now going to do is talk about not intra-temporal cooperation, which I've 103 00:09:33.980 --> 00:09:40.300 been talking about with Frisbees and Feeding Us, but rather inter-temporal cooperation, 104 00:09:40.300 --> 00:09:44.420 namely cooperation through time. And that's why I came up with that title, Ticka Ticka 105 00:09:44.420 --> 00:09:48.380 Ticka, You Need Good Timing. Don't ask me to sing it, because if I have to sing, we'll 106 00:09:48.380 --> 00:09:52.700 be in trouble. But there was this rock and roll song from the 70s, wasn't there? Ticka 107 00:09:52.700 --> 00:10:04.460 Okay, so what's going on here? What's going on here is, now please pick out these little 108 00:10:04.460 --> 00:10:08.920 thingies that you've been given. There'll be a quiz on this, so if you don't pay attention 109 00:10:08.920 --> 00:10:14.700 you're going to fail the quiz. And I was kidding about a quiz, but I really do want to take 110 00:10:14.700 --> 00:10:21.140 a survey because I do go around the country with Lou and Doug and the Mises gang and all 111 00:10:21.140 --> 00:10:25.800 All of us, I think I speak for my fellow speakers here, are trying to come up with the best 112 00:10:25.800 --> 00:10:30.820 way to get this across to a lay audience, and this may or may not be a good way, so 113 00:10:30.820 --> 00:10:36.340 after I go through it, if you would indulge me with a show of hands as to, was this a 114 00:10:36.340 --> 00:10:41.700 waste of time and really boring, or was this, did it help you understand Austrian business 115 00:10:41.700 --> 00:10:47.700 cycle theory, I would appreciate it, so I'd know whether to voice this on the next group. 116 00:10:47.700 --> 00:10:56.700 Okay, we have two tables, and first turn to the one in color yellow, flip it over. 117 00:10:56.700 --> 00:11:07.700 And here's, you know, when I come to your house and I start with the boring lectures, I'll start 1.02, 1.04, 1.06, and that's my way of putting you to sleep. 118 00:11:07.700 --> 00:11:12.700 But this interest rate table is the one with which you're most familiar. 119 00:11:12.700 --> 00:11:15.820 When you were six years old and your parents told you, well, if you save your money, you'll 120 00:11:15.820 --> 00:11:21.620 get more money and your eyes lit up with greedy glee and you started, wow, this is great. 121 00:11:21.620 --> 00:11:23.920 That's the interest table you had. 122 00:11:23.920 --> 00:11:28.660 Notice that if you put a dollar in the bank for one year at 2% at the end of the year, 123 00:11:28.660 --> 00:11:30.460 you'll have a dollar too. 124 00:11:30.460 --> 00:11:34.260 And the implicit assumption behind all these interest rate calculations is that it's for 125 00:11:34.260 --> 00:11:41.740 sure you can trust me, you'll get the money, just stipulate that, and also that there'll 126 00:11:41.740 --> 00:11:47.900 Theoretically, in other words, what we're doing is using Ceteris Paribus, we're assuming 127 00:11:47.900 --> 00:11:54.660 away these complications to focus intensively on the interest rate, the way the Austrians 128 00:11:54.660 --> 00:11:57.500 see the business cycle. 129 00:11:57.500 --> 00:12:03.140 Notice that the numbers go higher to the right, namely at the one-year level, the higher the 130 00:12:03.140 --> 00:12:09.100 interest rate, the more money you get, and they go, as you go down the column, the more 131 00:12:09.100 --> 00:12:13.420 In years, say at 6%, the more money you'll get, like you'll get more money if you leave 132 00:12:13.420 --> 00:12:17.980 the money in at 6%, you'll get 18 bucks in 50 years, whereas if you only leave it for 133 00:12:17.980 --> 00:12:20.260 two years, you'll get just $1.12. 134 00:12:20.260 --> 00:12:22.540 Okay, everyone with me on that? 135 00:12:22.540 --> 00:12:23.660 Any questions on that? 136 00:12:23.660 --> 00:12:27.500 That's a very simple straightforward interest rate table. 137 00:12:27.500 --> 00:12:33.280 Now before we turn it over, I have here in my hot hands a dollar bill, and I promise, 138 00:12:33.280 --> 00:12:37.420 you can trust me because I'm a trustworthy person, I used to be a Boy Scout, that I'll 139 00:12:37.420 --> 00:12:41.180 I'll give you this dollar here in one year from now and there'll be no inflation and 140 00:12:41.180 --> 00:12:46.900 you'll get this money for sure and now I'm offering opening bids. Who will bid for this 141 00:12:46.900 --> 00:12:55.900 dollar in a year from now and what bid will you offer? Anyone? 50 cents. Wrong answer. 142 00:12:55.900 --> 00:13:00.460 I pull this on my students so you'll have to forgive me. You have to know what the interest 143 00:13:00.460 --> 00:13:06.140 rate is before you can make a rational bid because suppose the interest rate was so high, 144 00:13:06.140 --> 00:13:12.440 It was 10,000%. If you put 50 cents in the bank at 10,000% interest, you get way more 145 00:13:12.440 --> 00:13:17.180 than a dollar. You get it? So you have to know what the interest rate is before you 146 00:13:17.180 --> 00:13:19.100 can make a rational bid. 147 00:13:19.100 --> 00:13:24.460 Okay, now turn the interest rate table over to the other side. And what we have here is 148 00:13:24.460 --> 00:13:32.860 the present discounted value of a future dollar. Namely this dollar in a year from now at 5%, 149 00:13:32.860 --> 00:13:37.520 The proper bid for that or the bid at which you'll make no profit or the equilibrium bid, 150 00:13:37.520 --> 00:13:42.580 so here 50 cents would be a good bid if the interest rate was 5%, the proper bid would 151 00:13:42.580 --> 00:13:51.580 be 95.2, 95 and two-tenths of a cent. Why? Because if you put 95 cents rounding at 5% 152 00:13:51.580 --> 00:13:56.300 in the bank, you'll get a dollar. Namely, these two tables are reciprocals of each other. 153 00:13:56.300 --> 00:13:59.900 If you flip them over, they're reciprocals. You multiply the same box, and you'll get 154 00:13:59.900 --> 00:14:07.540 of One. Or another example is if the interest rate is 15% and I promise to give you this 155 00:14:07.540 --> 00:14:13.740 dollar in two years, then the equilibrium bid would be 75.6 cents. Why? Because if you 156 00:14:13.740 --> 00:14:19.580 put 75.6 cents in the bank and leave it there for two years, at 15% you get a dollar. So 157 00:14:19.580 --> 00:14:24.060 you wouldn't pay any more than that and you couldn't pay any less than that if we had 158 00:14:24.060 --> 00:14:29.180 a wide market where a lot of bidders, sophisticated bidders were. 159 00:14:29.180 --> 00:14:33.400 So notice that the numbers as you move to the right on the one year, the higher the 160 00:14:33.400 --> 00:14:38.780 interest rate, the more heavily you discount future income, namely at 20%, it's only worth 161 00:14:38.780 --> 00:14:45.780 right now 83 cents, right? You're heavily discounting it at 20%. Whereas at 1%, you're 162 00:14:46.980 --> 00:14:52.860 not discounting it too heavily, it's worth a full 99 cents. And also as you go down the 163 00:14:52.860 --> 00:15:01.860 In the columns, the numbers get smaller. For example, at 3%, a dollar receivable in a year from now is worth 97 cents right now. 164 00:15:01.860 --> 00:15:05.860 The present discounted value of a dollar receivable in a year from now is 97 cents. 165 00:15:05.860 --> 00:15:13.860 Whereas, the present discounted value of the same dollar for sure, with no inflation, receivable in 50 years, is only worth 23 cents. 166 00:15:13.860 --> 00:15:17.860 22.8 cents, everyone following that? Yes? 167 00:15:17.860 --> 00:15:24.860 Okay, now, drum roll, tick-a-tick-a good timing. What happens when the government lowers the 168 00:15:26.760 --> 00:15:33.760 interest rate, say, from 8% to 6%? Well, a dollar receivable in one year gets a little 169 00:15:34.860 --> 00:15:41.900 bit more valuable. You go from 92 cents to 94 cents, a change of roughly 2%? Not much. 170 00:15:41.900 --> 00:15:44.960 It doesn't change much. It doesn't change the value of a dollar receivable in a year 171 00:15:44.960 --> 00:15:50.800 from now, very, very much, at all. Whereas, say a dollar receivable in 12 years goes up 172 00:15:50.800 --> 00:15:57.800 from 90.39 cents, 39.7 to 49 cents, a change of 20%. That's a hefty change. A dollar receivable 173 00:15:59.440 --> 00:16:05.720 in 12 years is worth the increase when you lower the interest rate, you get a big jolt. 174 00:16:05.720 --> 00:16:11.520 So entrepreneurs are led as if by an invisible hand out of investments that only take a year 175 00:16:11.520 --> 00:16:18.240 Herein into investments that take 12 years. Now let's look at 50 years. A dollar receivable 176 00:16:18.240 --> 00:16:26.660 in 50 years at 8% is worth 2 cents, whereas at 6% it's worth 5 cents, which is an increase 177 00:16:26.660 --> 00:16:32.920 of 250%. So there's a gigantic, stupendous push toward heavier investment like houses, 178 00:16:32.920 --> 00:16:36.800 cars, things that take a long time to do. Don't think of a car just on the assembly 179 00:16:36.800 --> 00:16:49.800 The assembly line, it only takes, I don't know, five hours to get through the assembly line, but it's got metal that has to be mined and the house takes just a year to build, but the stuff that's in it takes many years of mining and heavy industry. 180 00:16:49.800 --> 00:17:05.800 So what the bloody government has done by artificially lowering the interest rate is fooled entrepreneurs into producing for the long run when the inter-temporal cooperation is ruined. 181 00:17:05.800 --> 00:17:13.080 You see, what they're doing, people are saving as if, they're saving as if, they're only 182 00:17:13.080 --> 00:17:17.200 saving nine bricks worth, and the interest rate is telling entrepreneurs that there are 183 00:17:17.200 --> 00:17:20.800 ten bricks out there. So they're building heavier, they're building longer, they're 184 00:17:20.800 --> 00:17:25.200 building bigger, they're building more housing or cars than they should be building, and 185 00:17:25.200 --> 00:17:29.520 the government is bailing them out. But the cause of the business cycle from the Austrian 186 00:17:29.520 --> 00:17:33.840 theory is they lower the interest rate which leads entrepreneurs as if by an invisible 187 00:17:33.840 --> 00:17:38.240 General Hann Adam Smith said to promote the general good, but they perverted because the 188 00:17:38.240 --> 00:17:42.800 interest rate signals are all wrong. The interest rate is very important. I had a full head 189 00:17:42.800 --> 00:17:46.480 of hair before I discovered what they were doing. Look at me now, it's all because of 190 00:17:46.480 --> 00:17:53.640 the interest rate. And Bob Murphy, who you'll see later, is in roughly my same position. 191 00:17:53.640 --> 00:17:59.800 Okay, now let me take the survey. I've spent five minutes out of my 30 minutes and I don't 192 00:17:59.800 --> 00:18:03.800 I don't know whether it's good or not, and I bored you with interest rates. 193 00:18:03.800 --> 00:18:07.800 If you would just raise your hand and say, I'll give you three choices. 194 00:18:07.800 --> 00:18:11.800 This was very helpful, this was moderately helpful, it was a waste of your time, 195 00:18:11.800 --> 00:18:15.800 because you don't understand how I'm talking about it, and I might as well talk about other stuff. 196 00:18:15.800 --> 00:18:19.800 How many say this was a good use of the five minutes? 197 00:18:19.800 --> 00:18:23.800 How many say it was moderately good, it was some help? 198 00:18:23.800 --> 00:18:27.800 And how many say it was a total, utter, silly waste? 199 00:18:27.800 --> 00:18:31.800 Shut up! 200 00:18:31.800 --> 00:18:36.800 Bob Murphy did his dissertation on interest rates, so he's bored with that, so he's the only one. 201 00:18:36.800 --> 00:18:42.800 Okay, well thanks, I appreciate that, so I'll have no compunction about, you know, spending time doing this. 202 00:18:42.800 --> 00:18:46.800 I mean, I do this with my students, but I have them for a whole semester, and I can really drum it in, 203 00:18:46.800 --> 00:18:51.800 but I'm glad to see that this is sort of the way that got to me. 204 00:18:51.800 --> 00:18:56.920 When I saw this, the light bulb lit over my head in a way that other ways of explaining 205 00:18:56.920 --> 00:19:01.680 Austrian business cycle didn't, namely that the government is making people, encouraging 206 00:19:01.680 --> 00:19:06.220 them, making it more profitable for them to do stuff that is incompatible with our decisions 207 00:19:06.220 --> 00:19:10.880 as savers. They're telling businessmen that there's more resources out there and they 208 00:19:10.880 --> 00:19:17.760 should invest in longer terms than is justified by people's actual decisions. 209 00:19:17.760 --> 00:19:23.280 So what is the government doing? It's propping up these things that never should have been 210 00:19:23.280 --> 00:19:30.000 in the first place, that were mistakes. Tom Woods, the author of Meltdown that Peter mentioned, 211 00:19:30.000 --> 00:19:34.800 says it's sort of as if there's a circus coming to town and you have a restaurant and you 212 00:19:34.800 --> 00:19:38.000 double the size of the restaurant even though the restaurant is only going to be there for 213 00:19:38.000 --> 00:19:42.800 a week. And you do very well during that week and now your restaurant is double the size 214 00:19:42.800 --> 00:19:49.400 and now the circus goes away and all the circus performance and all the people in the audience 215 00:19:49.400 --> 00:19:53.240 go away from this little town and now you're left with double capacity and you're about 216 00:19:53.240 --> 00:19:57.480 to go broke and what the government is doing is giving you money to keep double capacity. 217 00:19:57.480 --> 00:20:01.400 No, you shouldn't have made double capacity. What you should have done with that money 218 00:20:01.400 --> 00:20:08.400 is something else that was more in sync with consumer desire. 219 00:20:08.400 --> 00:20:26.400 They say sometimes, well, it's too big to fail, you know, Chrysler is too big or talking about vampires or ghouls, you know, the big three, especially Chrysler is really a ghoul that, you know, sort of walks like this and tries to get the pretty girl in the movie. 220 00:20:26.400 --> 00:20:32.880 Too big to fail is silly. I mean, at one time in the beginning of our country, agriculture 221 00:20:32.880 --> 00:20:40.280 was some 97% of the labor force and now it's 2%. Well, 93% of it failed in the sense that 222 00:20:40.280 --> 00:20:45.840 it was diverted into things that we now need more. Look, if all the people had to be farmers, 223 00:20:45.840 --> 00:20:49.720 we couldn't have a lot of other things that we now have because, happily, not everyone 224 00:20:49.720 --> 00:20:55.500 has to be a farmer. The horse and buggy industry, it was a horror. I mean, all those blacksmiths 225 00:20:55.500 --> 00:20:59.780 and all those horsebreakers and horse trainers and leather and the saddles and whips. They 226 00:20:59.780 --> 00:21:05.820 all went broke and the evil Henry Ford and other people started these horseless carriages. 227 00:21:05.820 --> 00:21:10.900 Well, the economy improved. You don't have to keep these things going. 228 00:21:10.900 --> 00:21:15.580 Another, I think I got this from Tom Woods, it's sort of like taking water out of the 229 00:21:15.580 --> 00:21:19.700 shallow end, no, taking water out of the deep end of the pool and trying to put water into 230 00:21:19.700 --> 00:21:24.180 the shallow end of the pool in order to increase the level of the shallow end of the pool. 231 00:21:24.180 --> 00:21:31.180 I mean, if you take money away from Peter and give it to Paul, well, yes, Paul now can spend, but Peter can't, so where did you get anything from? 232 00:21:31.180 --> 00:21:40.180 Well, the Keynesians say, well, when the government does it, it has this multiplier, but what they do is they ignore savings, only consumption, 233 00:21:40.180 --> 00:21:49.180 which leads you to think that the way the economy prospers is if people eat like pigs, not if they produce anything, which is a little silly. 234 00:21:49.180 --> 00:21:57.860 Okay, what I want to do with the rest of my time is criticize a few people who haven't 235 00:21:57.860 --> 00:22:06.900 yet seen the light, but who maybe one day will. And high up on my list is Peter's friend 236 00:22:06.900 --> 00:22:13.580 Paul Krugman, who just came out with something in the New York Times. You know, it's interesting 237 00:22:13.580 --> 00:22:19.660 that one of the pictures, here's the New York Times thing, and one of the pictures, there 238 00:22:19.660 --> 00:22:25.300 are pictures in this, and here's this mad, he does one good thing and he does one bad 239 00:22:25.300 --> 00:22:29.540 thing, the good thing is he attacks mathematical economics, and here you have, I don't know 240 00:22:29.540 --> 00:22:33.700 if you can see it, but you have some sort of weird mad scientist who's got all sorts 241 00:22:33.700 --> 00:22:37.620 of numbers on the blackboard and he's saying math is no good, well yes, and Austrians would 242 00:22:37.620 --> 00:22:41.820 agree with that, but the Keynesians are very heavily mathematical, so I don't really understand 243 00:22:41.820 --> 00:22:47.660 Another criticism I have, here's a bunch of economists, there's no black and no women. 244 00:22:47.660 --> 00:22:54.700 How politically correct is that? I mean, we can't allow that. They don't call me Mr. Walter 245 00:22:54.700 --> 00:22:59.620 Moderate Block, they also call me Walter Politically Correct Block too, for other reasons. Now 246 00:22:59.620 --> 00:23:04.860 here's a picture of Hayek. I mean, it looks to me like Hayek, and it says descending economists 247 00:23:04.860 --> 00:23:08.500 were marginalized. Well, Hayek is a descending economist who was marginalized, but they never 248 00:23:08.500 --> 00:23:14.220 I want to mention the word Hayek just to have his picture, which is a little strange. What 249 00:23:14.220 --> 00:23:22.860 else do I have here? Note that I'm only criticizing the cartoons because I think the piece is 250 00:23:22.860 --> 00:23:29.460 worthless and the cartoons are the only thing worth mentioning. Here, however, is my second 251 00:23:29.460 --> 00:23:34.860 person that I want to criticize. This guy, Jeffrey Miron, who writes for the Cato Institute. 252 00:23:34.860 --> 00:23:44.860 This is sort of an anomaly or a puzzle because you'd think the Cato Institute would be free enterprise and on the side of the good guys and, you know, Austrian economics, but unhappily it's not really true. 253 00:23:44.860 --> 00:23:52.860 So what does Jeffrey Miron say in his In Defense of Doing Nothing, a Cato letter from spring 2009? 254 00:23:52.860 --> 00:23:54.860 Well, he does two good things. 255 00:23:54.860 --> 00:24:07.620 First he says that house ownership, CRA, Fannie and Freddie, and people like that hurt us 256 00:24:07.620 --> 00:24:13.260 and he's absolutely right there. But this really isn't the Austrian key. It doesn't 257 00:24:13.260 --> 00:24:16.820 address the cluster of error. It's sort of like the Smoot-Hawley tariff. It screwed up 258 00:24:16.820 --> 00:24:23.940 things worse. It exacerbated things during the Great Depression. Also, he's against artificially 259 00:24:23.940 --> 00:24:28.180 Raising Wages, which will always create unemployment, but again, doesn't really get to the crux 260 00:24:28.180 --> 00:24:35.420 of it, but still, okay, give them a B+. The second one, and a problem with this also 261 00:24:35.420 --> 00:24:43.820 is that the big housing mortgage debacles are in places like Phoenix, Las Vegas, Florida, 262 00:24:43.820 --> 00:24:48.900 and this isn't really what HUD and Fannie and Freddie and the Boston Fed were doing 263 00:24:48.900 --> 00:24:54.060 in China, as Peter said, put people into houses that they don't belong into because they're 264 00:24:54.060 --> 00:24:57.520 very poor and they have no collateral and they have no job and they have no nothing, 265 00:24:57.520 --> 00:25:02.180 but you give them a house anyway with no down payment. These people were not like that, 266 00:25:02.180 --> 00:25:06.980 so that couldn't be the entire explanation of the housing debacle. The second thing that 267 00:25:06.980 --> 00:25:11.620 he does well is bailouts, yes, we're against bailouts and that's all well and good, but 268 00:25:11.620 --> 00:25:16.820 that pretty much exhausts the thing. What I did is I got it up on the web and I used 269 00:25:16.820 --> 00:25:21.420 He uses the word search for interest because remember interest rates or interest is the 270 00:25:21.420 --> 00:25:27.260 key element to understanding the business cycle from the Austrian perspective. 271 00:25:27.260 --> 00:25:34.620 He mentions interest seven times, twice he decries artificially lowering interest rates 272 00:25:34.620 --> 00:25:38.540 but he never says why which is more than passing curious. 273 00:25:38.540 --> 00:25:42.620 One time he talks about mortgage interest deductibility which I'll get to in a second 274 00:25:42.620 --> 00:25:46.140 and then the other four times that he uses the word interest he talks about it in terms 275 00:25:46.140 --> 00:25:49.660 of Interest Groups, namely, all the bailouts went to interest groups, which is well and 276 00:25:49.660 --> 00:25:53.500 good and correct, but it doesn't really get to the essence of the Austrian business cycle 277 00:25:53.500 --> 00:25:55.420 theory, the cluster of error. 278 00:25:55.420 --> 00:26:01.540 Okay, so those are the two good things. Now let's get into some of the bad things. First, 279 00:26:01.540 --> 00:26:07.540 he talks about the failures of rating agencies. What are rating agencies? Rating agencies 280 00:26:07.540 --> 00:26:13.440 like Fitch, Standard & Poor, Moody's, are supposed to be the do line, the distant early 281 00:26:13.440 --> 00:26:19.840 Warning Line, you know, due line for the Soviet missiles incoming. Well, these places, 282 00:26:19.840 --> 00:26:24.200 Fitch, Moody's and the Standard & Poor, are supposed, they're bond rating agencies or 283 00:26:24.200 --> 00:26:28.680 rating agencies for commercial paper. They're the ones that are supposed to tell us, hey, 284 00:26:28.680 --> 00:26:32.640 you know, something's a little swanky over here and there's a little fraud there. Instead 285 00:26:32.640 --> 00:26:39.640 they're giving all these toxic assets, AAA, quadruple A ratings, the highest ratings. 286 00:26:39.640 --> 00:26:44.720 Now the problem with Miron here and the problem with his Cato's letter is that nowhere is 287 00:26:44.720 --> 00:26:49.760 it mentioned that these are wholly owned subsidiaries of the government. Look, if you try to start 288 00:26:49.760 --> 00:26:53.360 a rating agency, you just can't do it. You'll be in violation of the law because there are 289 00:26:53.360 --> 00:26:58.320 restrictions on entry. These three rating agencies are part and parcel of the government 290 00:26:58.320 --> 00:27:05.320 apparatus. They're not part of the free enterprise system and Miron doesn't seem to realize that. 291 00:27:05.320 --> 00:27:09.600 The second one, and I really fell off my chair, and if I didn't use the bald joke on that, 292 00:27:09.600 --> 00:27:17.960 I would use it on this, when he talks about greed. Greed is the cause of our present problems. 293 00:27:17.960 --> 00:27:23.960 I have here a thing about the Harvard MBA. It says Harvard MBA students pledge to be 294 00:27:23.960 --> 00:27:30.900 ethical and they eschew greed and it says that they will act responsibly, ethically 295 00:27:30.900 --> 00:27:34.820 and refrain from advancing their own narrow ambitions at the expense of others. 296 00:27:34.820 --> 00:27:37.620 What is this expense of others nonsense? 297 00:27:37.620 --> 00:27:40.620 The free enterprise system is a mutual beneficial system. 298 00:27:40.620 --> 00:27:45.620 If I trade you this pen for my tie, you want my tie, I want your pen, it must be that I 299 00:27:45.620 --> 00:27:49.220 value your pen more than the tie, and it must mean that you value the tie more than the 300 00:27:49.220 --> 00:27:50.460 pen. 301 00:27:50.460 --> 00:27:53.420 Whenever we have voluntary trade, there's mutual benefit. 302 00:27:53.420 --> 00:27:57.340 There's none of this expense of others. 303 00:27:57.340 --> 00:28:00.820 Whenever you buy something, look, you bought a newspaper for a buck, you valued the newspaper 304 00:28:00.820 --> 00:28:06.100 more than the buck, they valued the buck more than the newspaper, nobody gained at the expense 305 00:28:06.100 --> 00:28:09.780 of anyone else in the free enterprise system, rather the free enterprise system is this 306 00:28:09.780 --> 00:28:12.460 beautiful way of cooperating with each other. 307 00:28:12.460 --> 00:28:19.460 So Miron, I guess I'm a little bit of a conspiracy theorist because these are Harvard MBAs and 308 00:28:19.460 --> 00:28:23.020 Miron is a Harvard professor, I wonder if there's any connection that they're somehow 309 00:28:23.020 --> 00:28:25.020 coming out against greed. 310 00:28:25.020 --> 00:28:30.100 I mean Adam Smith said it's not from the butcher and the baker and the candlestick maker paraphrase 311 00:28:30.100 --> 00:28:34.260 is here that you get your goods. It's out of a keen appreciation of their self-interest. 312 00:28:34.260 --> 00:28:38.340 It's not from benevolence. It's out of greed. Greed is good, said, what's his name from 313 00:28:38.340 --> 00:28:46.060 that movie, Wall Street, Gordon Gekko. Gordon is our man. I mean, greed is good. Greed leads 314 00:28:46.060 --> 00:28:55.520 us to promote the common good. And what is this attack on greed from the Cato Institute? 315 00:28:55.520 --> 00:29:02.120 They called the 1980s the Decade of Greed. I mean, come on. I lived through the 1980s. 316 00:29:02.120 --> 00:29:07.260 Many of us did. Were people more greedy then? No. Greed works at a white hot fever pitch 317 00:29:07.260 --> 00:29:11.940 all the time. You don't become more greedy. I mean, you can't explain inflation based 318 00:29:11.940 --> 00:29:17.620 on greed. I mean, how do you measure greed? People are always 100% greedy. It's true they 319 00:29:17.620 --> 00:29:22.220 could be greedy on behalf of their wife and their kids and charity and cancer research 320 00:29:22.220 --> 00:29:27.100 Research, or the Mises Institute or other worthwhile places, but they're interested 321 00:29:27.100 --> 00:29:35.100 in promoting their own personal self-interest and sometimes it's defined widely that way. 322 00:29:35.100 --> 00:29:42.700 The third one is market failure. Here's a quote from him and he says, there was no plausible 323 00:29:42.700 --> 00:29:46.020 market failure in the production of housing or in people's decisions about whether to 324 00:29:46.020 --> 00:29:50.140 buy homes or not. The implication here is that if there were a market failure then there 325 00:29:50.140 --> 00:29:55.020 There would be justification for government. This is a code word among economists, market 326 00:29:55.020 --> 00:29:59.140 failure. Market failure is the key. And what Miron is saying, well, there's no market failure 327 00:29:59.140 --> 00:30:05.460 here, so there's no government activity that's justified. But the implication is, if there 328 00:30:05.460 --> 00:30:10.740 were market failure, well, then the government would be justified in intervening in the economy. 329 00:30:10.740 --> 00:30:13.720 Well, I say to you here and now, there ain't no such thing as market failure. There's only 330 00:30:13.720 --> 00:30:15.720 and not any government failure. 331 00:30:15.720 --> 00:30:23.720 Okay, what's his next mistake? 332 00:30:23.720 --> 00:30:25.720 Ah, here we have deductibility of mortgage interest rate. 333 00:30:25.720 --> 00:30:27.720 I said I'd get back to this. 334 00:30:27.720 --> 00:30:29.720 Here's a quote. 335 00:30:29.720 --> 00:30:31.720 A partial list of policies designed to increase home ownership 336 00:30:31.720 --> 00:30:33.720 includes the Federal Housing Administration, 337 00:30:33.720 --> 00:30:35.720 the Federal Home Loan Banks, Fannie Mae, Freddie Mac, 338 00:30:35.720 --> 00:30:37.720 the Community Reinvestment Act, 339 00:30:37.720 --> 00:30:39.720 the deductibility of mortgage interest rate, 340 00:30:39.720 --> 00:30:41.720 the homestead exclusion, the personal bankruptcy code, 341 00:30:41.720 --> 00:30:45.880 Tax Favor Treatment of Capital Gains on Housing, Hope for Homeowners Act, and it goes on with 342 00:30:45.880 --> 00:30:47.880 four or five others. 343 00:30:47.880 --> 00:30:52.380 Now most of these, I agree with them, but what is this mortgage deductibility, mortgage 344 00:30:52.380 --> 00:30:58.320 interest deductibility? Why is he attacking that? I mean, that's good. Whenever the government 345 00:30:58.320 --> 00:31:04.000 taxes you less, that's good. It's not bad. I mean, doesn't this guy favor free enterprise? 346 00:31:04.000 --> 00:31:10.800 This reminds me of the drug legalization debate. Now, drug legalization is good because it 347 00:31:10.800 --> 00:31:40.800 reduces crime, right now there are young black men shooting each other, a couple of years ago, young Italian men shooting each other, not over drugs but over booze, so there'd be less crime, we'd be safer, we wouldn't have bathtub gin or poisonous marijuana, the jails would empty out, 3 quarters of the jails in some cities are filled, or the jails are filled 3 quarters with drug crimes which are no crimes at all, and then there are these libertarians who say, and another reason 348 00:31:40.800 --> 00:31:44.800 The reason for legalizing drugs is now the government would have more tax revenue. 349 00:31:44.800 --> 00:31:53.800 No! Yes, we favor drug legalization, but in spite of the fact that the government would have more money, the government's got too much money already. 350 00:31:53.800 --> 00:32:04.800 I'll just summarize the other mistakes he makes. He's pro-FDIC. Pro-FDIC? I mean, that's horrible. He is. Just read it here. 351 00:32:04.800 --> 00:32:11.800 He doesn't realize that fractional reserve banking is responsible for the banking crisis. 352 00:32:12.520 --> 00:32:18.160 He thinks that education is a market failure, that we should have public education, whereas 353 00:32:18.160 --> 00:32:22.960 free enterprises favor privatization of education. Heck, we favor privatization of just about 354 00:32:22.960 --> 00:32:29.400 everything. You know where they vote for rent control mainly? Santa Monica, Berkeley, New 355 00:32:29.400 --> 00:32:33.480 York City, Cambridge, Ann Arbor. Well, what's true in those places? They're all millions 356 00:32:33.480 --> 00:32:41.080 What they do in school is Queer Studies, Feminist Studies, Black Studies, Marxism, Deconstruction. 357 00:32:41.080 --> 00:32:43.980 If we do anything with education, we ought to tax it. 358 00:32:43.980 --> 00:32:48.000 Not that I favor that, but I say if we do anything we should tax it, not subsidize it, 359 00:32:48.000 --> 00:32:51.760 with the exception of Grove City and Loyal and a few other very, very few places that 360 00:32:51.760 --> 00:32:54.400 are free enterprise. 361 00:32:54.400 --> 00:33:00.880 So I have to give him maybe a B plus for the two good points and then an F for the rest 362 00:33:00.880 --> 00:33:04.880 and maybe he comes out with a C-, not a very good mark. Thanks for your attention.