An Austrian Take on Bernanke and Fed Policy

0:00We're going to talk about Fed policy with Mark Thornton, who is a senior research fellow with the Mises Institute located at, well, it's actually an adjunct, Auburn University in Auburn, Alabama. And Mark, welcome to the program, it's great to have you with us. It's great to be with you, Mark. So you guys are down there in Alabama, we've heard about all the terrible storms and everything. Has Auburn made it through it okay? Yeah, we've had a couple of big storms, but this past storm we've fared fairly well. The Tornadoes went to the west and north of us, and apparently over 200 people have been confirmed dead. Okay. If I were to look at a map of Alabama, where is Auburn on the map? We're in eastern Alabama, about halfway north and south through the state.

0:46We're about 30 miles west of Columbus, Georgia, which is on the Georgia border. Okay. So you're right near the border then? Yes. Okay. We're very close to the eastern time zone. All right. This institute, which is a free market think tank and also an educational institute there in Auburn, you guys are doing something exciting and you've got a bunch of high school students there today for a seminar. Tell us about that. Yeah, we've got over 100 students and their parents and chaperones here with us today and we're going to have a whole day of economic lectures and a tour of the institute to give these people an understanding of what makes society work and what makes society fail. and you know this is something that students are now interested in and we've had a series of these high school seminars here in Auburn and we've also had them sponsored in Nashville, Tennessee and Chicago, Illinois and other places around the country so it's very exciting.

1:37The students are great, they're interested in economics because it's such an important part of their lives now. And these kids are hearing something that quite frankly is heterodox, it is not the the standard teachings of economics that people get either through the media or they would get in their public school. And I just wonder how receptive are they to these ideas? And Mark, do the kids ever say, I've never, in everything I've studied in my life, I have never heard this philosophy expressed before? Oh, absolutely. Economics is boring the way it's taught everywhere else. But we emphasize the rationale of why society works. Why is it that the United States has become so prosperous? Why is it that we've had these bubbles and these crises?

2:23Why is it that China has risen to become a superpower? Why is it that Britain lost its status as a world leader? That's the kind of thing we emphasize, the things that really matter and also the little things, like why toilets don't flush well anymore and things like that. So we get into people's daily lives and yet we give them a worldly global perspective on Things, and that's what turns them on. That's great. You know, Charles Alan Coors, who founded FIRE, was at the Foundation for Individual Rights in Education, and Dr. Coors was talking about the fact that when he started teaching the freedom philosophy, he would teach this introductory course in history and economics to students going into the University of Pennsylvania.

3:13And he said, the kids, those that were really interested would come to him and they say, you know what? All I've ever studied all my life has been about socialism and communism and why it's so good. I never even knew there was a man named Hayek. I've never heard of anyone named Mises. And I mean, it kind of illustrates, Mark, that for the vast majority of our young people out there, they are being sheltered. It may be so deliberately or just through the way things work, but they are not being Exposed to the Freedom Philosophy in our Education System. No, it's not called socialism, it's called Americanism and they're just taught that that's the way things should be. And, you know, just yesterday there was the debut of the new Hayek versus Keynes video on the internet. It's called The Fight of the Century and it's really exciting.

4:00The previous Hayek versus Keynes video on the internet has been viewed millions and millions of times and so we're taking it to the streets, we're taking it to, you know, the regular people and it's turning them on, it's turning their lives around and it's giving them a whole new perspective. Well that's great. Hey, is there any possibility that the next time you do one of these seminars for high school students, you might do one in the Washington D.C. area and invite the Federal Reserve Chairman to sit in as a student? Yeah, that would be nice. Because I think he could use some schooling in economics. That would be nice, but you know, he's had all his schooling. He got his PhD based on the idea of what caused the Great Depression and he came to the conclusion that it was a failure of the federal government to bail out the banks and that's how he got his PhD, that's how he became a famous academic and that's how he

4:52rose to be chairman of the Federal Reserve with the idea that you have to bail out the banks if they get in trouble. So naturally he would rise to the top. Yes, and I guess he probably sat there, you know, and looking back over his dissertation or when he did that and saying to himself, Boy, if I'm ever in the position to bail out the banks, that's what I'm going to do. Absolutely. I mean, you know, that's why he was pushed through the system and pushed all the way to the top. It's absolutely a no-brainer in terms of why he is where he is and why we are where we are right now with the average American in trouble economically and with the megacorporations in the banks sitting on piles of money and guarantees from the taxpayers. 7.19 is our time. Mark Thornton with the Mises Institute is our guest. We're going to get into some of Bernanke's comments from the other day and get Mark's thoughts on those in just a moment.

5:47The economic conditions are likely to warrant exceptionally low levels for the federal funds rate for an extended period. Well, that is Ben Bernanke from his news conference just the other day, the first one ever held by a Federal Reserve chair, and we're joined by Mark Thornton from the Mises Institute, and Austrian think tank, and by the way it is the Austrian School of Economics that they teach at the Mises Institute. Mark, for those who don't know, what differentiates the Austrian School of Thought from say the Keynesian School of Thought that we are going through right now through official Washington? Well, the Austrian School is the oldest school of economic thought. It's the smallest group of economists, yet it's the fastest growing school of economics. And we're more of the traditional approach to economics with logic and theory.

6:37We're not just writing equations and running regressions type of approach. I encourage everybody to go to our website. It's the largest economic website in the world. It's the most trafficked economic website in the world. It's mises.org. It's open 24-7, 365. There's no cost. There's no registration or fees associated with it. So everybody needs to go there and get a look at the Austrian School on their own. And it applies to everybody, kids, adults, seniors, the working class, the entrepreneurs out there. I know your audience is working class people and entrepreneurs and we're the school of entrepreneurship basically. And would it be fair to say that kind of one of the foundational elements or principles within the Austrian School is to always keep in mind that incentives matter?

7:29Oh, absolutely. I mean, that's the whole key is that incentives matter, that it's really important. The entrepreneur fixes our problems. The entrepreneur creates new things. They serve our interests. As long as they don't have government protection, government bailouts, government monopolies, you know, that's the way the system works. And everybody's a part of it. And that's That's why we're against central planning, we're against socialism, we're against Marxism, we're against government regulation and control of the economy and the Federal Reserve's control of the money supply. We want a gold standard where everybody has their own money that has tangible physical value. That's the way the system works. That's how America became the greatest economy in the world.

8:18The other day, Fed Chair Bernanke, Mark, said that he sees continued moderate economic growth and Low Inflation for the United States going forward. Do you share his optimism? That's all a con game. I mean, he's been lying to us from the very beginning. Everything he's said for the last seven years has been basically a lie. He's been talking about green shoots in the economy since 2008. In 2007, he said, you know, all these financial products that were in the economy and the housing market, mortgage-backed securities was a great thing The Theory of Money and Credit

9:22The housing market is not really improving. All of the main drivers and entrepreneurs are scared stiff and they are the ones that hire people. They are the ones that make things work and they are scared stiff about health care, about rising costs, about inflation, about regulation, about environmental regulation, about health care regulation. So they're not participating and we need to free up the system, get those people feeling more secure that they're not going to be threatened by the government in one way or another, and that's the way the economy is going to improve. Mark, one of the things that I noticed, and I've always, you know, I've never liked this. I've always thought it was part of the con game that the government pulls on people and the big banks participating in this, but, you know, backing out things like food and from the CPI, from the rate of inflation and like that doesn't matter when, you know, hey, that's what affects people's budgets. I mean, you know, the average American, once you get past

10:24paying either your rent or your mortgage, the next two biggest expenses in your family budget are the cost of food to feed your family and the fuel that you put in your vehicle. To say that those things don't matter in calculating inflation is a lie. Oh yeah, and you know, oil feeds into the price of everything else as well. It's like they ignore the fact that there's a Kantian effect in inflation. Wow, Kantian effect on the air, that's great. Hey, you know, when they say that the Fed has nothing to do with oil prices, just go So if you go to the Federal Reserve data page at St. Louis, just Google FRED, F-R-E-D as in Fred Flintstone, and put in oil, and look at the price of oil, and look at where the recessions occur.

11:13And basically what happens is the Fed creates easy money, the price of oil rises, and then we hit a recession. And so that's basically been the historical case time after time after time, and the Fed is what's responsible. I mean, there's other things with the price of oil. Oil. I mean, there's a lot of taxes in there. There's a lot of government regulation on supply. But basically, in terms of demand, central banks are what drive the price of oil higher. Of course, in the Middle East crisis and things like that do matter. But in the big picture of things, it's the Federal Reserve pumping in money, pushing the global price of oil much, much higher. It's happened many, many times, and your listeners can go to Fred and see for themselves.

11:58So as we see this going higher, if we're going to head deeper, back deeper into this recession that we're in, it is going to be, quite frankly, due to the rising price of oil, which we were heading into a recession in 2008. And I believe that those very high oil prices that summer hastened the arrival of the recession. Maybe it brought it on three to six months earlier than we otherwise would have seen it. Well, Mark, it's all just part of the process. I mean, you pump the money in, you create the male investments, but those male investments Mark Thornton I have to wrap it up here but I want to thank you very much for joining us and for those who are interested in more information on the Austrian School of Economics check out the website mises.org Mark I want to talk to you again sometime when we can and discuss things like the skyscraper index and how the real damage to the economy is

12:56done during a boom. I'd love to, Mark. All right. We'll do that in the future. Thank you very much for your time this morning. Have a great weekend. Take care. You too.