Apoplithorismosphobia

0:00The fear of deflation. When I started working on this topic, and this is part of my more general research project on the economist Richard Cantione. When I started working on this topic of deflation, and specifically the fear of deflation, why were economists, central bankers, growing increasingly fearful of falling prices in the late 1990s? in the 1990s with the case of Japan and falling levels of inflation or disinflation in many countries around the world. And so when I looked at the general topic, the fear of deflation, I thought, well, maybe there's a term for this fear.

0:47You know, there's a term for all sorts of fear, fear of cats, fear of high places, fear of closed places, fear of open places. and so I started looking around the internet and in some psychology textbooks and there was no term for the fear of deflation so I thought well I'll create one and so I looked into what do you have to do to name a phobia and I found the general rules which is basically you get the Greek term and place the word phobia after it. So I contacted some Greek people that I knew, and it turns out that there is no term in Greek for deflation, and so a Greek translator helped me concoct the best available phrase for this, and it was ap hop lit horosmos phobia.

1:48It's a mouthful, I know, but that's the term. Now, most of the fear of deflation has subsided, at least temporarily, but this recent book by Chris Farrell suggests that deflation is going to be the economic phenomenon for the next couple of decades. This is something likely to resurface and as I said, this is a fear that is gripped economist. It's basically the fear, not so much of falling prices, but the association many economists, many mainstream economists make between deflation of prices and depression, economic depression.

2:42Now we had falling prices during the Great Depression in the United States and around the world and also a similar situation in Japan in the 1990s where they had a very sluggish economy, rolling recessions and falling price levels, either stagnant or actually falling price index levels. Now, on the surface of it, it seems bizarre that economists would be afraid of deflation or falling prices because the general population loves it. They love falling prices. That's why Wal-Mart, the home of falling prices, is so popular. Wherever prices are falling, you find people collecting and buying whatever it happens to be in terms of falling prices.

3:34So on the face of it, economists and central bankers are at odds with the general population and at odds with Austrian economists who generally see price deflation and even monetary deflation as a good thing. Now generally throughout this paper and throughout the lecture, deflation is going to be defined in the mainstream way of in terms of falling prices rather than the Austrian way of falling money supply. There are four basic types of deflation and this is outlined by Joseph Salerno in a paper in 2000 and then again in 2002.

4:22The first is growth deflation, and growth deflation is simply the normal process in a capitalist economy where you have savings, investment, Entrepreneurially bringing in new technology that increases productivity of labor and results in an increased production of goods and falling prices of those goods. With an ever-expanding supply of goods and a given stock of money, there's an increase in demand for money, the purchasing power of money rises and the prices of goods falls.

5:14and Austrian see this type of deflation is good and just a normal part of the market process and there's no unemployment to worry about so this is really the win-win form of deflation. The second type of deflation is called cash building deflation as labeled by Salerno. Now, the mainstream economics profession puts this type of deflation down. They don't like this. It's very often derisively called hoarding, where people hoard their cash, and they try to build up their cash balances. In other words, as the money comes in that they earn, they don't spend it all, and they're building up a storehouse of cash balances.

6:02Now, normally, in fact, in virtually every case that I've ever come across, hoarding is a reaction to some sort of exogenous event, okay, where there's a war coming, there's a plague coming, there's an invasion coming, there's a recession coming, There's unemployment coming and the process of building up cash is a natural reaction to that. You're building up large cash balances to avert some sort of coming catastrophe. So you've got an increase in the demand for money, rising purchasing power money and falling prices in the economy.

6:48This form of deflation is also viewed as good or benign by Austrians and the unemployment that results in this type of deflation is, of course, attributable to the exogenous event, that war that's coming, those catastrophes that are coming, and also to any kind of labor regulations which prevent wages from falling under those circumstances. The third form of deflation is called bank credit deflation. Bank credit deflation is associated with bank runs and bank panics. Basically, the population perceives real problems such as a recession coming, banks that have made speculative loans, Bank Runs, they don't have enough reserves to meet their depositors demands and so depositors begin to withdraw their money.

7:54So depositors are bringing their money out of the bank based on the new perception of real problems in the economy. So you get bank runs starting with bad banks or if it's systemic you get bank panics and banks actually go bankrupt. They can't meet all their depositors' demands, but at least depositors get most of their money out of the banks, and the assets of the banks are sold off to help redeem some of the remaining deposits or depositors, but the money supply is going to be reduced associated with the losses in the banks and deflation results.

8:40Austrians also view this as a good form of deflation because, number one, it helps depositors get their money, most of their money, as quickly as possible. So you try to satisfy the demands of depositors as quickly as possible and also by liquidating the banks very quickly through the process of bank runs and bank panics, You also bring to the surface the economic problems, the bad assets, and you set the stage for a quick recovery. The fourth and final form of deflation is labeled by Salerno as confiscatory deflation. And this is basically the same thing as number three, except here the government intervenes and stops the process of depositors having the ability to withdraw their money from their accounts.

9:40So they basically close the banks. This process helps the elites, the bankers, the financiers, and hurts the little guy who doesn't get access to their money or only gets access to their money or part of their money after a long period of time where the money has probably been devalued and in the meantime they don't have any money to make payments so as a result there's a more sharper cut off of the money supply in this case, the impact on the economy is much more severe, Unemployment is much more severe and the recovery is delayed to the extent that the banks are closed and people don't have access to their money.

10:36This was the case in several countries including Argentina, Brazil, Ecuador and the Soviet Union. This is the one form of deflation that Austrians consider bad or malign. It's not part of the normal market process, it doesn't help the economy discover error, mistakes, bad investments, and it delays that recovery. So in general, except in the case of the fourth form, Austrians view deflation as a normal part of the market process, Part of the process of normal adjustment in the economy and also part of the process of recovery in the business cycle.

11:28We see the fear of deflation as due on the part of the mainstream economist to a confusion between cause and effect. And of course, politicians, from their part, love the idea of being able to blame this mysterious deflation. There's no person we can blame, there's no institution we can blame, it's just deflation happening everywhere. It's kind of like a ghostly function that's causing the problem, rather than any real, tangible thing that we can deal with. Naturally, fear is a result.

12:14We also have to note that deflation and depressions are not necessarily related to one another. You can have falling prices with no depression, for example, and that these are not independent events. They don't just happen. We don't believe that Austrians don't see depressions as just happening independently. We think that there's a cause for those type of things. Now in terms of diagnosing this fear of deflation, you can view it as a doctrinal disease. What type of economist you are, what school of thought you are from, impacts what form of the disease you will or will not have.

13:09For example, the broad classification of Keynesian economists, they certainly have this fear of deflation. As a matter of fact, some Keynesian economists have this severe form of this disease or fear. They're severe apoplychorismophobes. Keynesians, of course, place more emphasis on fiscal policy than monetary policy, Policy, but in the area of monetary policy, they accept the idea of inflation, they in some cases think it's a good thing, they think that inflation can help cure economic ills, and so their fear of deflation makes them systematically biased in favor of inflation, So they like the idea of increasing the money supply. They like the idea of low interest rates.

14:21You never hear Keynesian economists say, well, you know, I think we ought to raise interest rates in this economy. They're always pushing for lower interest rates. They're monetary doves, so to speak. The monetarists, the broad classification on the other hand of the monetarists, They also have a fear of deflation, but they don't exhibit this fear externally or give tangible signs that they're afraid of deflation. They have less fear of deflation, but they couple that with an obsession for stable money. All of the stable money people, Irving Fisher and Milton Friedman and all the rest, have an obsession with stabilizing the purchasing power of money.

15:23Now, of course, they have many different standards for achieving this, you know, keep the money supply constant, increase it at 1%, increase it at 3%, to increase it at the rate of growth of the economy, increase it at the expected rate of growth in the economy, increase it at the average rate of economic growth in the economy. So they've got a lot of different, often conflicting standards for achieving this monetary stability and all of these standards have a lot of tangible problems associated with it. So even though they have this outward appearance that they don't fear it, underlying their system is a lot of uncertainty.

16:10For example, there's no good way of measuring the money supply, and even they admit that now. They don't have any really good ways of controlling the demand for money, and so this creates a lot of uncertainty. And then, of course, there's the political issues of who's actually controlling the money supply. As a result of this, you can sometimes see this group experiencing panic attacks. For example, recently, within the last year, Ben Bernanke, a prominent monetarist and now on the Federal Reserve Board, on the occasion of Milton Friedman's 80th, 90th birthday, gave a speech in which he had said, well, you know, I'm going to do this.

16:59He addressed this issue of deflation and he said, Milton, we're not going to let the Great Depression happen again. Whatever it takes, no matter what it takes, we will increase the money supply at horrific rates in order to prevent this evil from making its appearance once again. Within these two groups, the basic underlying problem of their fear is that they don't have any understanding of what causes the business cycle. It's still very much mysterious. All they have to go on is observation and measurement. So if you don't know what causes the business cycle, it just makes some sort of independent appearance with depressions and recessions and so forth.

17:46That lack of knowledge leads to this fear, because it's a fear of the unknown. In fact, all of their theories, the Keynesians and the monetarists, propose an unknown cause of business cycles. For example, a mysterious decrease in aggregate demand, the Keynesian general view. Technological shocks cause business cycles. Well, there's no cause for the technological shock, they just happen so you don't know when they're going to happen. And then of course you could have collapses in the money supply. They just happen too. The third group, the Austrians, is the smallest of the groups in terms of numbers.

18:34And Austrians don't have this fear of deflation. In fact, you could even call us deflationists. Austrian view deflation is good, generally it's mild deflation in a market economy, and it's part of the market economy, it's part of the market process. So we don't have any fear on that level. We see it as helping to correct for problems that are either caused by government, war for example, or caused by the inherent instability of a fractional reserve banking system. So it's good on that level and it's nothing to fear. And we also see the market economy is picking the best money, the commodity which provides for the best monetary services, and that if there were problems of instability, for example, or stability in a particular commodity money, that the market economy would switch to a better form of monetary standards.

19:47In the paper I deal with a special case in the economics profession, Paul Krugman, who of course writes for the New York Times, very prolific, and one of his most important books is The Return of Depression Economics, in this area at least. and I label him as having an incase of acute apoplet-horosmosphobia. So he's got the severe form of this disease. He's somebody who's obsessed with the problems of the Great Depression of the 1930s and the Japanese economy of the 1990s and all he, you know, he's very much into this issue of fear, fear, fear, fear.

20:41Although he tells us in one of his New York Times column that the only thing we have to fear is fear itself. For Krugman, Keynesian animal spirits are alive and well. And he finds, for example, that there is no obvious cause of the Great Depression. Now, in a sense that's true, but there certainly have been a lot of fairly well-worked-out theories of why we had the Great Depression. And there's a lot of evidence that suggests a general cause and effect relationship there, but for Krugman, there is no obvious cause. And in Japan, that just demonstrates that it can happen here in the United States.

21:30and he says that the monsters of the 1930s are back and he describes the situation in Japan and the United States as if we are falling into a black hole in space and I quote, The economy crosses the black hole's event horizon, the point of no return, beyond which deflation feeds on itself, prices fall in the face of excess capacity, businesses and individuals become reluctant to borrow because of falling prices, raise the real burden of repayment, with spending sluggish, the economy becomes increasingly depressed and prices fall all the faster. When he sees us in the United States, the early 2000, 2000, 2001, as moving to this event horizon and then we're going to get sucked into this black hole, the pull of which is increasing on us.

22:29So you can think of like a Star Trek episode where they're getting pulled closer to the sun or they're getting pulled into a black hole. And I quote Krugman where he sort of falls into a sophomoric circular reasoning regarding this deflation, quote, If you think about this a bit, the story gets even worse. After all, prices are falling because the economy is depressed. Now we have just learned that the economy is depressed because prices are falling. That sets the stage for return of another monster we haven't seen since the 1930s, A deflationary spiral in which falling prices and a slumping economy feed on each other, plunging the economy into the abyss.

23:16It's pretty scary stuff, not just for Japan, but for the rest of us. If Japan slides into the abyss, that will have a direct adverse effect on our economy, dwarfing anything the terrorists did. So what do we do? What does Krugling suggest? Now it's obvious he doesn't have any clue as to what causes the business cycle, but he's manufactured this fear of combining deflation and depression. What do we do? Well, for the Keynesians, monetary and fiscal policy in Japan has been tried, but has failed. And, of course, everybody knows that interest rates during the 1990s and early 2000s and even today, interest rates in Japan have been kept down close to zero, as close as you can get to zero.

24:11Other people don't know that they've also tried fiscal policy. Policy, massive public works projects. It's been said that Japan is engaged in a level of public works projects on a similar scale to the Egyptians building the pyramids. And in terms of deficits and debt, they've gone from being a fiscally responsible to a fiscally irresponsible country in a very short period of time. And Krugman gives away, he just loves And he loves government. He just loves government spending and public works projects. So he's a big New Dealer and all that. And he gives away his love for government when he compares Japan's public works to the public works projects of the New Deal as being on steroids.

25:11Quote, think of it as the WPA on steroids. Over the past decade, Japan has used enormous public works projects as a way to create jobs and pump money into the economy. The statistics are awesome. In 1996, Japan's public work spending as a share of GDP was more than four times that of the United States. Japan poured as much concrete as we did, though it is a little less than half of our population and only 4% of our land area. One Japanese worker in 10 was employed in the construction industry far more than any advanced country. The only problem with this is that it didn't work. Even Krugman admits that it only had a temporary mild effect on the economy and that it had lots of nasty, negative economic side effects.

26:06For example, environmental damage associated with all this public work spending in Japan has been enormous. And it's really, in many people's eyes, has ruined the beauty and ecology of that island. It's also caused systematic, systemic corruption in the Japanese political and business institutions. And third and finally, although there are other negative effects, the national debt in Japan is now the worst relative to its gross domestic product than any other advanced nation in the world. And it was one of the best, and now it's one of the worst. Krugman's answer in the face of all this, I mean, they've tried all this stuff, right, and it's all failed and he's admitted that.

26:57So his recommendations are naturally for the Central Bank of Japan, the Bank of Japan, to become more aggressive in all this. He wants the Bank of Japan to buy stocks and bonds, long term government debt, and these are things that it's never done before, to print yen in large quantities, to buy dollars, to drive down their currency and to guarantee the Japanese public of inflation. In other words, for the government to come out and say we're going to have at least 3% inflation and we guarantee that. In other words, he's admittedly recommending radical and irresponsible economic policy, and he admits this, but he said we should do it anyways.

27:49He says this is a psychological problem and we need to do everything to overcome it. So he even admits that deflation is really a psychological problem, we just have to get over it. So, in looking at Krugman and his public pronouncements, I started to dig a little deeper into, you know, just what basis is he making all of these very influential policy pronouncements, and it turns out that he bases his recommendations about deflation and depression on A little four-page paper that appeared in the Journal of Monetary Economics, or the Journal of Money, Credit and Banking, excuse me, a very important journal, a paper on babysitter economics, and this paper was, this four-page paper was written about a babysitting co-op in Georgetown near Washington, D.C., where members of the co-op would be, if you perform babysitting services for another Remember, you'd be given one unit of script in the co-op, and if you babysitted for four hours, you'd get four units, and then you could turn the script in, in order to get babysitting services for yourself, or your children, obviously.

29:20But the problem with this system in the paper was that people wanted more script to hold than they could acquire. In other words, they wanted to have like an inventory, you know, like money in your wallet, they wanted to have scripts so that they could go to the co-op, leave their kids off and they'd have a means of payment. But this is where a problem developed and there was a lack of, in Krugman's words, aggregate demand. People wanted to perform babysitting services, but they didn't want to buy babysitting services. They wanted to build up their cash balances, in other words, and a recession hit the babysitting co-op.

30:08So this is the basis of his macroeconomics, or largely, and his solution, of course, was to inflate, to print up extra scripts and just hand it out to everybody in the co-op. Now, this is a very simplistic and flimsy foundation for macroeconomics and macroeconomic policy, where you have one good, one price, an homogenous good, there's no capital, there's no investment, there's no technology, there's no individual labor markets, it's all very simplistic and not reflective of the real world. World. The biggest problem in the co-op was that it had one fixed price which could not adjust. You get one unit of script for one hour of babysitting services. And price adjustment, which is so important in the market economy, is something that Krugman doesn't even bring up in his analysis of either the co-op or the macroeconomic economy. So there's no adjustment.

31:18And so naturally what follows from this babysitting economics, Krugman's pronouncements about the real world are that recessions and depressions do not have a cause. It's simply a case of the unfettered market going bad. When we look at the real world and the case studies that Krugman analyzes and gives advice about, we see that in Asia, Latin America, Japan, in all of these cases, these were countries and economies that were subject to several years of double-digit monetary inflation prior to the crisis.

32:05So these were not cases where the economy just melted down. These are economies which experienced severe monetary inflation and then went into crisis. So there was an obvious cause to the effect of the recessions and crises, but Krugman simply ignores all that. So he ignores price adjustment. He ignores inflation. And what does he recommend as a cause? More inflation. It's similar to an alcoholic who's coming off a five-year bender, a five-year drunk, and trying to recover, and Krugman coming in and recommending to go out and get a couple bottles of whiskey and see if that will help the problem.

32:56And when you read the original article, the four-page paper that Krugman is using, you find that the authors of that original paper issued a clear message of caution. They realized what they were doing and they said, don't take it seriously. This is just something for fun, this is just an illustration that might be of interest to macroeconomists, and they know. Now, if good-hearted people in the area that offers little scope for chicanery can so bungle economic management, the case of the babysitter co-op, Can we really be surprised at the results of turning over our economy over to the tender mercies of political experts?

33:53Indeed, unlike the co-op, the national economy seems virtually indestructible, not having died yet. So the authors of the original paper said, don't take this seriously and don't take the idea of economic management of the economy seriously. And while Krugman places great emphasis on that original four-page paper from 1977, there have been no citations to the paper in the Social Science Citation Index, which covers over 7,000 different academic journals. So in all the economics journals and every other scientific journal in the social sciences, no one has thought this paper was significant enough to cite at one time.

34:47And yet Krugman uses it as a foundation to explain his economics and his economic policy pronouncements. Now, the idea of this paper in the fear of deflation was to describe it, to diagnose it, and to help treat it. In terms of diagnosing the disease, the sphere of deflation, I've devised what would be similar to the Rorschach ink blot test In psychology, where you give your patient an ink blot that's randomly, you know, it's not meant to look like anything, and you ask the patient, what does this look like to you?

35:44And if they say, you know, it looks like my mother, then you give them another one, you know, that looks like my mother, you know, the idea is you're supposed to be able to dig into their psychology. What's their problem? What's their background? What are they thinking about? And so I've designed this test, sort of jokingly, as a way of trying to determine whether or not somebody might have the fear of deflation. And on this graph up here, I have a hypothetical set of data of inflation rate versus the unemployment rate in the United States and the United Kingdom over the last 200 and some odd years. And the idea here is to ask the patient, the economist, what do you see in this scatter diagram?

36:37And if the patient answers the Phillips curve, you know you have somebody with this problem. If you see somebody who believes in that, and you can use inflation to fight unemployment, then you're probably on to somebody who ultimately has that underlying fear of deflation, and in the paper at the end, I give a 12-step program to help cure the patients who might suffer from these diseases, and I'll just go over them fairly quickly, 1. Revisit and relearn the basic principles of economic analysis, such as supply and demand.

37:242. Remember that the cause of misallocations and unemployment is government interventions, such as price controls, inflation and regulations. 3. Re-examine the effects of monetary policy other than on the price level. 4. Stop thinking about the price level. level, five, pay less attention to statistics in general, six, forget modern macro all together and I note here that you know the term modern macro has become very popularly, dropped out the economics and of course in modern macro they have dropped out the economics, 7. Note that macroeconomic problems are usually preceded by large increases in the money supply.

38:168. Remember that the Great Depression occurred after central banks were established, not before. 9. Remember the Fed's mistakes took place well after the Great Depression began. 10. Recall that Herbert Hoover and FDR, in modern Japan as well, pursued activist policy regimes to keep wages high and prices high. 11. Remember that monetary and fiscal policy do not cure recessions or prevent deflation, they only exacerbate the problems and delay recovery. and Recovery, 12, remember that some of the best periods of economic development in human history have occurred during the deflations, and hopefully this 12-step program, I haven't noticed that Mr. Krugman has picked up, gotten on the program, but hopefully it will help swage your own fears of deflation and hopefully that of many other economists. That's it.

39:22Any questions or comments? Well, it's hard to tell. They seem to have given up on curing their problems and they also seem to be starting to recover a little bit over there, so that may have something to do with the general problem, which has been that they've, I think the reason they've had such a prolonged period of economic malaise is that they've been so activist in trying to treat the problems.

40:18In other words, they've done everything possible to keep the banks from failing, they've done everything possible to keep people employed, to keep wages up, the public works projects, you know, for example, the idea there is to keep the construction industry, the people in the construction industry employed and actually the only thing they've done is they've sucked more people into that sector the economy which is probably increasing the long-term problem rather than improving it. So the efforts of monetary inflation, keeping the system going as it is rather than allowing it to correct, rather than allowing all those bad loans to come to the forefront and to shut down some of those banks, I think has been the reason why the problems have lasted so long.

41:26There's the only reason, you know, in a market economy where markets are allowed to adjust, typically you see the problems of inflation being washed out of the system very quickly. So that in the 19th century in the United States, for example, if you had these monetary inflations and then crashes and crises, they typically were resolved in a very short period of time and so I think the reason, you know, the reason for the problems was the inflation, the reason they lasted so long is they didn't allow the market economy to adjust, they needed everything possible to prevent it from adjusting by keeping the money flowing into those bad companies, bad investments, and to keep the labor markets from showing large increases in unemployment, it was their own doing basically.

42:29This is the Japanese economy, also just a little bit larger than us in America and the United States economy because they, just for cultural reasons, for instance, if you get hired in Japan, it's almost unheard of to be fired by a large company. You're brought on, you're expected to stay your entire life, and if you get fired, you're almost unemployed. No one hires you because they think you're tainted for some reason. The cultural attributes in Japan give a different flavor, they don't like foreign investment, they don't like immigration, so there are some problems in terms of being dynamic, their system certainly can't adjust.

43:27And they also have the, it's part of their good fortune in that their economy was so successful after World War II, one of the most successful economies and largely because it was a relatively free market economy with very low taxes, they had a very long string of economic progress and economic growth in that country. There really wasn't any need, for the most part, to have large layoffs in their economy for such a long period of time. But as we come closer, you know, from the 50s, 60s and 70s, and we start to get into the late 70s and 80s, we see that the Japanese bureaucracy is gaining larger and larger control of their economy.

44:20they're becoming much more interventionist in the economy and tax rates are rising and the central bank is even more interventionist than it ever was and to keep the system going and so they had that history of not having much unemployment and so that certainly is part of the problem. But there was no need on the part of the government to add to that problem, I don't think, and they just basically did that. And they're learning now that they do need to lay people off, and there's a subsidy problem associated with that in Japan And because a lot of the companies now have created subsidiaries, they want to fire people, and they in fact do fire people, but they relocate them in these other companies, and these other companies really aren't profit-making ventures, and so they're forestalling the problem in sort of an economically irrational way, I'm not sure how that's going to turn out.

45:45After the Second World War, the plan implemented to measure internationalist policy, industrial policy and management policy. Industrial policy, the government took up the mystery of industry and investment and technology to build a business one industry development sector who still invests and has the government's support. Second, the government provides some programs, but with threshold, pre-primary threshold, subsidized interest rates to the development enterprise, which invests in sub-industry, the government guides, and many economies in late 1990s, And then in early 1980, they rushed to say, ah yes, government intervention is good for newly developed countries like Japan, South Korea, Singapore, because the government has reason.

46:51Free capitalism cannot work very well because in the international competition among countries, we need the government help, support for the sector. And then finally, in 1990, the government, Japan has suffered and many South Asian countries collapsed in South Asian crisis. Then the people again say that the big side has not been interventionist. Would you explain more about the government policy of Japan after Second World War, industrial policy?

47:33investment and preferential lending has also been adapted by China now as well and you know this leads to all sorts of problems in terms of investment in the economy where the government is directing or favoring the direction of investment there's really nothing worse than having the government direct your capital investment because chances are, very good, that they're not going to be able to I want to find the accurate type of investments that the economy needs to be making, and this is the source of a lot of the build-up of bad investments in Japan and elsewhere. I think the only thing that could possibly be worse is if there was no private sector involvement.

48:23At least the private sector does get to, for example, pick and choose amongst the technologies that the companies actually implement. So there is a little private sector choice and direction. The government isn't completely deciding and managing those investments. At least it's the private sector, but it's a very big problem. There's lots of wasted resources throughout Eastern Asia. And I think right now what we're seeing is a massive misallocation of resources in China as a result of this kind of government-directed and preferential interest rates and that's going to create a tremendous economic mess for us, for the world economy because they're now a big player in the world economy so it's...

49:22You know, and you're right, American advisors and academics thought that this model was really great because the stock market in Japan went up to 36,000, the Nikkei average went up to 40,000, close to 40,000, and everybody thought this was the greatest thing since sliced bread. One of my former colleagues at Auburn University, the management department, was a so-called expert on this Japanese mixed economy with government, bureaucratic, bringing together of industry to act cooperatively, and all the aspects of that process were being extolled here in the United States.

50:11He actually had some impact in terms of our policy in areas like semiconductors, for example. But what he said in an interview in the local newspaper in 1990, he said if we don't adopt the policies of Japan and the way Japan does it with respect to investment and technology and funding, said in five years that interest rates in the United States will reach 45% and that the unemployment rate will be 25%. So while this phony boom was going on in Japan, it had all of those people in academia, especially in management and economics, completely taken in.

51:02Laura D'Andrea Tyson, for example, who was President Clinton's, President of the Council of Advisors, Chairman of the President's Council of Advisors, Academic Advisors, said the same thing. We need to adopt the Japanese system or we'll be doomed. And basically everybody was saying that, outside of Austrian economists. and unlike Krugman who offers more inflation as a way of Japanese reviving itself, what the Austrians would say is you need to take a look at not just the inflation and the central banking, but you need to take a look at these structural problems, these regulatory bureaucratic management of the economy. You need to undo all of that. You need to let these industries survive, thrive or die on their own accord.

51:55So that would be an important component of what the Austrians would say. How does Japan need to revive itself? What is Korea going to do about all these bad debts? That sort of thing.