Free Markets: An Interview with Robert P. Murphy

0:00I want to go ahead and jump right in and introduce today's special guest. My guest today is Dr. Robert Murphy. Bob is the author of The Politically Incorrect Guide to Capitalism and his recently released book, The Politically Incorrect Guide to the Great Depression and the New Deal. Dr. Murphy holds a PhD in economics from New York University. Bob is an adjunct scholar at the at the Mises Institute and a Senior Fellow in Business and Economic Studies at the Pacific Research Institute. Bob has testified before Congress on economic issues, is a frequent radio guest, and writes a column for townhall.com. Bob, welcome to the show.

0:46Thanks for having me. Well, I guess, Bob, I should say welcome back. You know, it's been a while since our last visit together on the air in October. What's happened since then, to say the least? The government's certainly grown since the last we talked. Yeah. Hasn't it? Well, what I wanted to start off with, Bob, is let's talk a little bit about your new book, The Politically Incorrect Guide to the Great Depression and the New Deal. What was your inspiration for this book? Well, I had known for a while, ever since reading Rothbard's History of the Great Depression, that what you learn in school is wrong, that it's not true that Herbert Hoover sat back And I want to dig into, that's one of the issues I'd like to dig into, the Obama FDR Comparison.

1:56But one thing I was going to ask you here, Bob, on the first page, you say most of what we've been told about the Great Depression and the New Deal was utterly false. So what were the three biggest lies we've been taught in school? I think one of them is the claim that it was pure unregulated capitalism that led to the stock market crash and the Great Depression. Another lie is that Herbert Hoover sat back and did nothing. And then another lie is that FDR, New Deal got us out of it, or a related thing that's just false is that it was World War II military spending that got us out of the Depression. Okay. So, let's talk a little bit about this comparison you make in your book, Bob, which I think is really well done in your book. You compare George W. Bush to Hoover and Obama to FDR.

3:01So if we start off first with the Bush-Hoover comparison and the whole idea of the laissez-faire, hands-off, free market advocate, you're saying that that's false for both Bush and Hoover, is that right? Right, so it is ironic that the people who typically are fans of Barack Obama and are saying that Bush was like Hoover and Barack Obama is going to be like FDR, I actually agree with them, but not for the reasons they think, because like you just said, they think that George Bush was this big guy who trusted in free markets and cut the government, and that's what led to disaster, and they think the same thing of Herbert Hoover, but the opposite is true, that Hoover was a big interventionist. He actually, when the stock market crashed in 29, he called on all the big business leaders and told them, don't cut wage rates.

3:51He thought that was, it made sense from an individual business' point of view to try to restore profitability by cutting wages or firing people. But Hoover thought that no, if all businesses at the same time do that, it's collectively crazy because then the workers lose purchasing power and so it just intensifies the depression. So what you had was the fact that wages were staying the same while prices in general were falling in the 29, 30, 31 and so workers got artificially more and more expensive because their price stayed the same while everything else got cheaper and so that's why unemployment went up so much. So I think that was the single biggest mistake that Hoover made and again that was pure intervention from DC, him telling businesses how much to pay their workers but he did all sorts of other things too.

4:37and Massively Increased Government Spending. He ran what at the time were record deficits for peacetime. He started all sorts of public works programs, including the Hoover Dam. And he even started a Reconstruction Finance Corporation, which had over a billion dollars at its inception to prop up banks that had made bad loans during the 20's. All the types of things that actually George Bush started and FDR, you know, his New Deal wasn't some qualitatively different approach from what Hoover had done. was just, you know, he upped the ante. And the same thing, what Barack Obama is doing is in the same spirit of all the things that George Bush did under his administration, it's just he bumped up the numbers. You know, I don't, let me ask you this, Bob, I don't know the exact numbers on this, but as I recall reading recently, Bush actually doubled the federal debt, if I'm not mistaken, isn't that right?

5:32I don't know the exact numbers off the top of my head, but that sounds like it's probably Correct. Because I thought I read numbers, and don't quote me on this, but I think it went from like four and a half trillion to nine trillion or something in that range. So I think, back to your point, Bush obviously did a lot to grow the government. He certainly wasn't trying to restrain the government in any kind of way. Right. I mean, just at the end of his administration, and I think he was acting under horrible advice from his Treasury Secretary and the Fed Chairman, but be that as it may, George Bush signed off on partial nationalization of the banks. What more could he do to show that he's not a laissez-faire guy than having Washington take over the banking system? Good point.

6:18Bob, let me go back to... We'll talk about Obama and FDR in a few minutes, but you made an interesting point there about Hoover trying to hold wages up, which I guess, at first glance you might say, well, that's a nice thing to do for the workers, but I think as you talk about it in the book, if you hold wages artificially high, that's what created such terrible unemployment. As I recall too, I think Henry Ford was actually talking about raising wages, which to me For me, it seems obvious that that would cause tremendous unemployment, and a point you make in the book too, Bob, and let me see, it's page 176 here, you talk about wages need to fall.

7:11I remember about a year ago, I made the statement that American auto workers were overpaid and I got just countless ugly emails about that, but talk about that a little bit, Bob, when you're talking about wages need to fall, are you just me and mean or why are you saying Well, I hope I'm not just being mean. But yeah, I mean, this is Econ 101 here that if there's too much of a product, if a store is trying to sell TVs and the TVs are just sitting on the shelf and they can't get them off the shelf, what do they do? They cut the price. That's how they get rid of them. That's what you do when you have a surplus or a glut of something. You have to lower the unit price until people buy up all the available supply. So what does it mean when unemployment keeps rising? It means that workers are priced too high.

7:58I mean that they're immoral or greedy or that there's something wrong with them. It just means for whatever reason, the conditions in the economy are such that at that particular wage rate, businesses don't want to hire as many people as people want to work. That means people can't find jobs, so the way you fix that is the wage rate has to come down. So, again, what happened under the Hoover administration, because this was unprecedented. went up to, by some estimates, it got up to 28% in March of 1933, right when Hoover handed over to FDR and that is just hands down the worst that's ever been in US history before or since. So the question is, what was different about the Hoover administration, why did unemployment get so bad?

8:43Because there had been depression with a small D before then and there had been recessions because they call them depression after that one since then, but unemployment never got anywhere near that. The difference was here that the U.S. was still on the gold standard, and so that meant the Fed really couldn't print too much money, and so prices in general started falling. Because people were scared, they took their money out of the banks, and that tended to shrink the money supply. So there was less money in the economy, so that means prices were falling, except the one price that wasn't allowed to fall because of the president's moralizing from the bully Poll Pit and some other action he leaned against the businesses behind the scenes, they didn't want to cut wage rates and so there's no way around that. If wage rates are staying the same while every other price is falling, if you're a business person, you're getting less revenue from your customers, but you're still paying the same

9:35per hour of labor, you're going to cut back on how much labor you hire and so that means unemployment. So it's true, if you kept your job during the Depression, ironically you actually did much better. The real wages, the wages adjusted for the cost of living, rose more quickly in the early 30s than they had during the roaring 20s. So the people who kept their job, their paycheck kept going farther and farther because all the prices around them kept falling, but that really wasn't much consolation for the up to 25% of the people who couldn't get a job by 1933. So it helps workers if you keep your job, but it certainly doesn't help you if you get laid off and then you can't get work. Yeah, that is a great point.

10:25When you look at situations like, and the comment I'm referring to, Bob, is I was talking about American auto workers being overpaid and you can't imagine how many ugly emails I got about that. But are we starting to see that in some industries now where they actually are lowering wages and isn't that ultimately a good thing? Yeah, I mean that's what needs to happen because part of what's going on here in our current situation and this is also true back in the early 30s is there was a big boom that I would to argue was caused by the Federal Reserve. And so lots of different lines were started in our time with our current crisis. Obviously, a lot of those resources went into housing, a lot of resources went into the financial sector.

11:13And so you had too many workers flowing into those industries and their profitability was exaggerated because of the bubble mentality. And now the bubble pops, people realize, wait a minute, these workers aren't worth as much as we had been paying them. And so something needs to give. You need to get workers flowing out of those sectors into other sectors, and the way you do that in a market economy is not that some dictator orders them around and tells them where to go and says, okay, you guys were building houses in Nevada, now you need to go do something else. No, the way it happens in the market is wage rates fall, and so workers leave that particular sector because it's not as attractive, and they go somewhere else. And there's no way around that. the government comes in and tries to prop up those bloated sectors like the government has been doing to try to keep house prices up all it's going to do is

12:05perpetuate this unsustainable bubble that the quickest way to resolve this to get on with life is that overpriced housing needs to come down and workers who are in housing who are also overpriced their wages need to fall so they need to so some of those workers need to flow in other sectors so I guess To sum up the Bush-Hoover comparison, we're really saying that they were both painted as a hands-off, laissez-faire, free market, when they actually did a lot to grow the government. So is that a good way to sum that comparison up? Sure. I mean, just to go back to George Bush a little bit, by almost any metric you pick, he was a big government person. It would be, first of all, just how much he added to the debt, as you mentioned, before Before the break and the size of government, a lot of people say, oh, well, sure, he spent a lot on the military.

12:58But even if you just look at domestic expenditures, they rose at a fairly sharp clip under a bush. He had the prescription drug benefit plan and even things in terms of regulation. I mean, people forget that Enron collapsed and then the SEC got all sorts of extra money for its budgets to hire new regulators and so forth because people thought it was because So, there are a lot of numbers of poorly regulated markets that Enron was allowed to run wild and that's why we need to beef up the SEC. So it may be that the SEC didn't do anything useful in terms of watching companies, but again, that just proves the point that it's silly to trust people in Washington to ensure financial integrity. But my point is just this idea that George Bush was gutting domestic programs because he was a small government man, I mean, that's just absurd.

13:46Just look at the numbers of budgets of various departments. That's absolutely true. So let's move on and talk a little bit about this Obama-FDR comparison. Obviously there was staggering growth in government programs in the 30s under FDR. I guess my thought there, Bob, is how can people deny that Obama is basically just following the FDR? Plan. Well, I think actually a lot of his proponents or his supporters don't deny it. They probably like the comparison between the two because they think that FDR, New Deal got us out of the Great Depression and just as they think it's going to take Barack Obama's large interventions to rescue us from the deregulated economy that George Bush bequeathed to us.

14:42So, I actually haven't seen too many people denying that Barack Obama is like FDR. The only thing I do see people saying is a lot of people will say, you know, it's silly to say the current crisis is anywhere near as bad as the Great Depression. And I think that is true by several measures. If our economy all of a sudden was back to normal tomorrow, what we just went through the last two years would not have been considered to be anywhere in the Great Depression, but it's what I think is coming in the future that will make future historians look back right now and say this was the beginning of a pretty bad downturn. Let me ask you a question there, Bob. I talked about this on other shows and my listeners are interested in this whole idea.

15:27Obviously, we all know that the Federal Reserve expanded the money supply in the late 20s and then contracted it dramatically in the thirties. So, tell me if I'm wrong here, because it seems like we'll have a different effect now, because here we had the Federal Reserve expanding the money supply dramatically in the nineties, and then expanding the money supply even more now. So, isn't the effect here, Bob, that would just push the problem into the future? to put it a different way what happened after the dot-com crash number in 2000 2001 is that you know there would have been a pretty bad recession then and Alan Greenspan didn't want to tolerate that he said no no let's give a soft landing he took interest rates down to 1% held him there for a year from June 03 to June 04 and then we got through that without too much pain and everyone was calling him the maestro and saying wow that was amazing And so we managed to recover from the dot-com crash without any significant impact to the

16:40real economy. And so Alan Greenspan is a genius, but of course now more and more economists are blaming the housing bubble on what Greenspan did and they realized that maybe we should have just taken our lumps back after the dot-com crash and we could have avoided the boom bust of the housing sector. And so just as you say, I think that's what's going to happen now, that Bernanke is now Now taking rates down to basically zero percent, pumping in truly an unprecedented amount of money into the banking sector, doing all sorts of measures to prop up banks that made bad loans and investments in mortgage-backed securities, and it might provide some short-term relief that I think certainly unemployment would be higher right now if it were not for all these Fed interventions.

17:26But still, you can't get around the fact that malinvestments were made during the boom. Too many resources went into housing, too many resources went into the financial sector. You can't undo those mistakes just by printing up green pieces of paper and so at some point the piper is going to have to be paid and it will be that much worse because of all these interventions now, just like the housing bubble in Boston was a lot worse because of Greenspan's unwillingness to suffer the recession after the dot com crash. I think what you're saying, too, it's really interesting, Bob, because you're talking about when the government prints all this extra money, you have malinvestment because it's sending false signals to the economy.

18:13So I guess we'd all be billionaires if we knew this, but where is all that extra money going? Are we going to have another commodity boom of some sort? I guess we're going to inflate the economy in general. Gas prices will go up and everything else will go up, but does a large amount of that, is it heading for another housing kind of boom or dot-com kind of boom? It's a great question and you're right. If we knew the answer to that with any certainty, if we wouldn't be on the radio, we'd be out at a pool somewhere in the Bahamas. I'm not sure exactly, I think there's a couple of things going on. So one thing for sure is that if Bernanke had not increased the money supply so much, then, and just to make sure your listeners understand, so there's two separate things.

19:04There's what's called the monetary base, and that's the reserves that the banks themselves hold with the Federal Reserve. So it's like the checking account of a bank with the Fed, is the Fed being the banker of the bank, and then the cash in the vaults, and so those are the high-powered money. So those things have literally basically doubled in about six months, and so that's just the unprecedented increase. But beyond that, just the money held by the public, checking account balances and cashing people's wallets and so forth, that figure went up about 17% over the course of 2008. So that's not unprecedented, but that's a pretty big increase. And yet, as we all know, prices were fairly flat over the course of the year. They actually came down a little bit in the last quarter of 2008.

19:52So I think what you would have seen if Bernanke had just stayed pat and not pumped in all this new money, you would have seen prices come down a lot, which is what we were earlier saying needs to happen for the economy to adjust and to correct for these mistakes. And so I think you see inflation in the sense that relative to what the baseline would have been, prices are a lot higher now because of that money pumping, the things that would have come down a lot in price, you know, homes would have fallen in price, milk, eggs and and so forth. Gasoline would have fallen even more, but those things were propped up a little bit. Their fall was arrested by pumping in all this new money. But other than that, if people ask me what sector right now do I think is in a bubble, I think it's U.S. treasuries to be honest. It really doesn't make much sense when the U.S. is running a $1.8 trillion

20:42deficit and there's just more deficits as far as the eye can see and everyone is becoming and more and more alarmed at the financial solvency of even the US government and they know that if the economy continues to nosedive all these investments that Fannie and Freddie have made, FDIC, all these other things are very vulnerable, it's odd that US treasuries have become a sort of safe haven and I think that once that spell is broken, it'll just take a central bank somewhere to stop buying US treasuries and I think there'll be a stampede at that point. And so that's the one commodity or one asset that I'm worried about just collapsing overnight if psychology changes with the U.S. Treasuries and indirectly the dollar itself. That is a fascinating point and I guess what we're saying there too, Bob, is the dollar is fairly strong against some of the other major currencies because the other governments are inflating as well.

21:39Well, I mean, that's certainly a part of it, but if you look at the relative amount of how much each central bank has pumped in, I mean obviously Bernanke has been more responsible than the central banker of Zimbabwe, I'm not saying he's in that league, but I mean compared to the European Central Bank and some other ones, Bernanke, especially in the last half of 2008, just left them all in the dust with how much money he pumped in, and And I think partly it was because he could get away with it, that because the dollar still is the world's reserve currency, other countries around the world, their central banks stockpile dollars as if it's gold, right? They view that as a safe asset, as something backing up their own currencies, they have the US dollar.

22:26But I think more and more people are backing off that. You see central bankers around the world openly discussing, well, maybe we should move away from the dollar. Maybe we should have a basket of currencies. And they didn't talk like that even just three years ago. That would have been unheard of for central bankers to question the integrity of the dollar. And so I think it really is a matter of no one wants to be the first one to start a stampede, especially like China that's sitting on hundreds of billions of dollars worth of assets denominated in dollars. You know, they have all these treasury bills. It's not in China's interest for the dollar to crash, but at the same time, they don't I just want to keep accumulating these huge reserves and never growing stockpile of dollars when Bernanke is running the printing press like crazy. So it's sort of an odd strategic situation.

23:11All the central bankers are locked in where they all are sitting on dollars and they don't want it to collapse. But yet, Bernanke just keeps printing with reckless abandon. Right. Well, that's an interesting and terrifying point. My guest today is Dr. Robert Murphy. He's the author of The Politically Incorrect Guide to the Great Depression and the New Deal. And Bob, during the break, I made a comment to you that I've been watching CNBC and there seemed to be a number of people talking about, well, it's all over and everything is up from here. And the question I was asking you during the break, Bob, was is there a possibility that we're going to have one of these 1937-38 style depression within the depression type of things?

24:00Because initially when FDR took the reins, it looked like things were going to turn up and then we had an even deeper depression within that depression. Is there another bump in the road coming? Oh, I definitely think so. And I mean, this is something where if you believe in free markets, if you think that capitalism works better than central planning, then how can you not think the US economy is just in store for a decade of stagnation at this point? Because look at all the things they've done. Let me put it this way. If you two years ago gave me a pen and paper and said, go ahead and write out a plan for crippling the US and then also the cause you know price inflation while you're at it I would say okay well the government takes over the banks how about to take over car companies how about they take over health care how about they take over energy markets with cap and trade let's run oh gee a 1.8 trillion dollar

24:56deficit in one year let's plan on doubling the debt is a fraction of the economy from 40% to 80% over 10 years let's let's strengthen unions let's start changing the rules and bankruptcy proceedings so that investors don't know whether their secured bonds will actually be honored according to the terms of the contract. I mean, I think you see what I'm doing here and I can just keep going on and on and these are all things that have been done and there's plenty more where that came from. So I mean, again, if you think that the free markets work better than central planning, how can you not think that the economy is just going to be awful and this is by far the most interventionist government since the 1930s, and we saw what happened the last time governments did this, that we were stuck in the Great Depression for a decade.

25:43So I think that, yes, this is people who are looking at certain indicators and saying, oh, things are turning around, we have green shoots, I guess is the phrase they use. I think that's very naive. And that, I mean, what happened in 1930, there were plenty of times when the stock market dipped back up a little bit and people at the time thought, okay, finally we're out of this thing. And they kept thinking that as it kept going down and down and down into 1933. So I think that unemployment is still going to keep going up. Now unemployment is not going to get nearly as bad as it was in the 30s because we're not going to have the price deflation that they had back then coupled with sticky wages. But I mean, other indicators besides unemployment I think are going to be pretty awful for at at least the next eight years.

26:28Yeah, it's hard to argue with that, Bob, if you give us that list of all the things that have been done just in the last year. At some point, as you've said, we have to pay the piper at some point. Right, and a particularly insidious intervention, I think, is the government partially nationalizing the banking system. And people, by the way, who think, oh, well, don't worry, those banks will repay the TART money and then that'll be the end of it, we'll be back to a free system. I think that's very naive, too, because look, the government, these banks have wanted to pay back the TART. Many of these banks were forced to take the TART money in the first place under Treasury Secretary Paulson. He called them all in and gave them, you know, their handouts explaining how much of the TART money they were going to take.

27:14And he basically told them, we're not leaving this room until you all sign off on this. And so now as we know, there are banks who want to give back the TART money.

27:51to grow over time, if that process gets sabotaged, which it will because now it's all politicized, that has to affect the growth of GDP and other more standard measures of economic performance if you sabotage the banking system. Yeah, it's hard to argue with that. Let me ask you, there's an interesting point in your book, too, Bob. You talk about before the Great Depression and before the Federal Reserve and so forth, there were panics, bubbles, business slowdowns throughout history, but they didn't last long. They would last 18 months, two years at the most where the Great Depression lasts more than a decade.

28:36So what can we learn from that? Could we just take the hit and have some high unemployment for a short period of time and suffer the pain but be done with it and move on? Is that a better strategy than what we're trying to do? I think it is, Mike. And again, just for your listeners to reiterate the point that the Great Depression was not the first major downturn in the American economy in US history. There were plenty of depressions with a small d or they actually called them panics before then which is sort of funny that I think under the Hoover administration the term depression was really pushed because it was a euphemism that it sounded better to say, oh, no, no, we're not in the midst of a panic, it's more of a depression and economic activity.

29:27And so they had plenty of those but like you say, they were typically over within two years, for years at the most, and when you ask, well, what did they do differently? Before Hoover, U.S. presidents really did adopt the laissez-faire stance. They didn't think that they had the constitutional ability for Washington to try to come in and micromanage the economy. They just thought that business cycles were natural and that you just had to suck it up and let things run their course, and eventually you'd return to normalcy, and that's what did happen. that, for example, the 1920-21 Depression was a pretty severe one. It was after World War I was over, the U.S. government massively cut its budget, the Federal Reserve tightened interest rates, and the money supply because there had been large price inflation during the war.

30:16And so all of the conventional explanations for why the Great Depression was so awful, those factors were all present times too during the 1920-21 Depression. Yet most Americans probably don't even know there was a depression during those years because we never learned about it because it was over within two years. And so it was only when you had activist government first under Hoover and then more so under FDR that the downturn lasted a decade. And so again, we know from the grand sweep of history that central planning doesn't work. And so why should it surprise us that when the US government comes the closest to outright socialism in its history that we also get the worst economy in US history? This is very simple stuff. You have to do mental gymnastics to twist it the other way so that it was a new deal that actually is a good idea.

31:06That's a really good point. Yeah, really interesting. Another related thing that I find really disturbing, Bob, is that we have some people saying, well, FDR's new deal got us out of the depression. of the Depression, and then I think what's even more disturbing is the people who are talking in terms of World War II got us out of the Depression, it seems like the implication there is just horrible, I mean people are basically saying to mass destruction and death would help the economy, we're not going to end up with something like that, or the government programs don't work and we end up in some massive war to try to stimulate the economy that would be a dreadful path to take. Right, exactly. And so you're right that it's important intellectually for people to realize that war is not beneficial to the economy and so not only is war awful for humanitarian reasons, it's also bad on the economy. That what you do during war time is resources that otherwise could have gone into homes and cars and television sets

32:19and other things that consumers want instead of going to making bombers and missiles and bullets that don't directly serve consumer welfare. So obviously if you're getting attacked and you need to defend yourself, you might argue that those resources are well spent towards military defense, but don't fool yourself into thinking that that's helping your economy at the same time because then, like you say, And you come to the perverse conclusion that whatever else he may have done that was awful, at least add up Hitler, fix the U.S. economy, and that's just crazy, it's not true. So in the book, I go through some of the statistical arguments, because on paper, it does look like the Depression ended when World War II started, that you see the official GDP figures go way up, you see unemployment rates come way down when the U.S. enters the war.

33:10So it's understandable how just naively looking at those statistics you would think that the war got us out of the depression. But just to give you a quick example of some of the fallacies involved, the reason unemployment fell is because FDR started taking millions of men and shipping them overseas to go fight the Nazis. So what is unemployment? It's measuring how many people are standing around without a job compared to the size of the workforce. So if you round up a million men and ship them across the ocean obviously the official unemployment rate is going to come down And it's nothing more mysterious than that and that's what happened. That's why those statistics turned around like that But clearly the economy itself in terms of the people on the home front and their standard of living suffered even more because of the war effort Yeah, it's a great point that people would be able to to spin those statistics like that because obviously in this country, as you're saying

34:07on the home front, we have rationing of absolutely everything and what a miserable period of time to live through. Sure. I mean, psychologically, they might have...the war might have been good in the sense that it took their minds off the depression, right? That during the depression, everyone's very self-centered and just worrying about getting a job and feeding their family and now all of a sudden, you're in a war against tyranny to save the free world from being dominated by dictators, so in a sense, people might not have perceived that their standard of living was lower in the 1940s than it had been like during 1938, but actually it was. If you look at the GDP figures of the size of the private sector, that continued to shrink through the 1940s. So even though the official GDP figures that went up, they were being inflated by military Purchases of Hardware, and so forth, that those numbers are basically nonsensical because the government comes in, spends a million dollars on ammunition, that's not the same

35:07thing as if a bunch of consumers spend a million dollars collectively on radios and automobiles. The government doesn't have the same incentive to watch how much money it spends, so to say the government spent a million dollars isn't really the same type of statement about economic

35:53General Motors is obviously in absolutely horrible shape, and as I was saying during the break, I used to do some consulting work for them, and I still have some friends working there. Where do you think that's going? Are we going to end up General Motors becomes government motors and we're producing green cars at taxpayer expense that nobody wants? Where's that going to end up? Yeah, I think you just hit the nail on the head. What they needed to do, the only way to make those companies viable was they really needed to just clean house. They needed to impose all sorts of cuts, both to the management, but also just the workers, how much they're getting paid, and it may have been necessary for some of the bondholders to take a haircut and so forth if they went bankrupt.

36:41But what's happened now is this is sort of the worst of both worlds where the private investors feel like they were defrauded. and they feel like their contractual rights were violated and so who in his right mind would lend more money to them or to any other sector that has a large union presence because they have seen now that if it goes to court, the government might just intervene on behalf of the unions and impose an unfair outcome on the private lenders. So those companies, nobody in the private sector is going to pump any money into them and then, yeah, with this latest cafe standard adjustment by pushing it forward four years, I mean, it's going to force them to have to produce cars that Americans don't want to buy. That the Americans who do want to get weak, fuel-efficient cars, they typically have gotten them from foreign manufacturers, whereas if you want a big SUV or a big truck, that's what the American producers were known for.

37:38And so these crazy cafe standards, I mean, it would be like passing a law that you're You're worried about Americans being overweight and so you pass a law saying that McDonald's has to have 20% of its sales being devoted to salads or something. That's what's going on here. It's understandable if you want to increase fuel efficiency, but then do something like change the tax code so that you get a tax credit if you buy a fuel efficient car, but just to mandate that the big three have to have a certain proportion of their cars being very highly fuel efficient to raise the average miles per gallon. It's the crazy regulation. So yeah, the big three at this point, and only two of them of course have been effectively nationalized, their future to me is hopeless at this point, they're just wards of the state right now.

38:28It's interesting too, I guess this is a whole different topic Bob, but what I see Obama's team promoting is that class war between the autoworkers and these nasty, greedy bondholders, but I think my heart goes out to the bondholders, I mean, as you were saying, these are people who invested their hard-earned money and supposedly had some kind of rights, legal rights that have just been trampled on, I'm really concerned about that. Yeah, that's true, and the thing that was very misleading was when the president got up on national television, I'm sure many of your listeners saw this clip, where he was saying something to the effect that, you know, I'm not going to side with these, some of these creditors, they want everyone else to take the pain, but not them, and they're insisting on twice the rate of return as some of the other people are, but the reason the other lenders agreed to those unfair terms was because they were banks that had taken TART money,

39:29So they weren't in a position to challenge the president because they were effectively controlled by the government already. This shows how insidious it is when the government starts taking over various sectors, it just multiplies its power and it can really lean on any of the remaining holdouts of people that are relatively private because not only does it seem like the government's against you but it seems like all the other big banks are against you because those in turn have that have been taken over by the government. That's right. Well, let's talk about this for a minute, Bob. I know both you and I are really concerned about inflation, about the rear edge, ugly head. With all the printing that the Federal Reserve is doing, isn't that just a matter of when it's going to explode?

40:20I think it is, and I should say as a caveat that other economists whom I respect, They think that I'm wrong and they think that the US is in store for a decade of low growth and deflation the way Japan went through. So there is some dispute, but even so I come down, you're right, I think that the great danger right now is that Bernanke has just printed so much money and that not only that, but the Obama administration, its planned deficits, as far as the eye can see, they're We're going to need to be borrowing more and more money, and if other countries stop lending it to us, I think what's going to happen is the Fed is basically going to just start printing up the money to cover the deficit, that the Fed already has really started buying not just short-term but long-term government debt, and I think you're just going to see that practice multiply once foreign creditors are no longer willing to finance our budget deficit.

41:19I personally think we're going to see it by the end of this year, but whenever it does hit, it's going to be bad because it's the sort of thing where everybody knows that Bernanke has printed up a bunch of money and we're sort of like the Wiley Coyote in the Roadrunner cartoons when he runs off the cliff but hasn't looked down yet and so he doesn't start falling. I think that's the situation we're in that everyone knows if for some reason everyone expected there to be massive inflation, it would be a self-fulfilling prophecy and right now we're in this limbo where Bernanke has printed an unbelievable amount of money and Let me ask you this Bob, we have about a minute and a half left here, so let's consider this scenario. Suppose President Obama comes to you and says, Dr. Murphy, I'm lost, what do you suggest I do at this point?

42:08What's your one minute answer to the President? I would say to roll back, massively cut tax rates to give people the incentive to go work Work and Produce More, to just slash government spending across the board as many areas as possible, to return resources to the private sector, to immediately get the government to let those banks pay back the cart money, to unwind all of the other loans and so forth that keeps the government interlocked with the financial sector, and to just try to completely return as much of the resources back to the economy as possible, and for the government to start running budget surpluses because it was overconsumption that got us into this mess. The way you get out of that is by saving more.

42:55That's very well put. Well, let me do this now, Bob. I want to tell my listeners in these few seconds we have left here, Bob Murphy actually has two books that I highly recommend. The first one was The Politically Incorrect Guide to Capitalism and then his latest book The Politically Incorrect Guide to the Great Depression and the New Deal They're both published by Regnery and obviously they're both available on Amazon.com Well, Bob, many thanks today. I appreciate having you. Thanks for having me, Mike. And to my listeners, you've been listening to Free Market. I'm Mike Beitler, your host.