Government Bailouts: Picking Winners

0:00Now, our first speaker earned his Ph.D. at Columbia University. He's author, editor, co-editor, co-writer of many books, a few of which we have out front, Defending the Undefendable, a wonderful little read, Labor Economics from a free market perspective. He was the editor of Man Economy and Liberty Essays in honor of Murray Rothbard. Of course, that's very near and dear to my heart because I was a student of Murray's. Our speaker has, if there's students in the audience wondering how to get a PhD in economics and eventually teach in an Austrian tradition, our next speaker is the guy to talk to.

0:52He's written hundreds of journal articles. He's co-written hundreds of journal articles and he still has hundreds that he wants to write, as near as I can tell. He has a very hot new book out front called The Privatization of Roads and Highways. And today he is speaking on government bailouts picking the winners. Please help me welcome Dr. Walter Block. Thanks for the kind introduction. I remember when I got my PhD in economics, my mother said, now will you go to law school? So I guess it didn't impress her all these things, but Jewish mothers are a tough sell.

1:49What I think all of us, I think I speak for my colleagues who are speaking today, are attempting to do is to explain why we're in the present recession, depression, whatever it is we're in the midst of. And I think one of the benefits is you'll hear several different voices, we're all pretty much on the same page on this, but each of us will emphasize different things. So the way I'd like to start is to consider several hypotheses as to why we are now in the difficulties economically that we are in. The first hypothesis, the first theory is greed. Due to greed. Nancy Pelosi, I'm sure, would agree with this.

2:36There's a thing in the newspaper, a stewing greed. I guess the people in the front row can see this. Harvard MBA students pledge to be ethical. I don't know what they're doing at Harvard. It must be in the water or something. These Harvard MBA students are signing an MBA oath, a voluntary student-led pledge quote that states the goal of the business manager is to serve the greater good. The vow promises that the Harvard MBA graduates will act responsibly, ethically and refrain from advancing their their own narrow ambitions at the expense of others. I mean, these guys are going to go into business, or as we used to say in Arkansas, bidness, that's the way they pronounce it there.

3:22Well, when you go into bidness, it's a mutual exchange, there's benefit. I mean, if I trade you my tie for your pen, I must like something about your pen more than the tie, and you must like something about the tie more than the pen. Every time anyone does anything in business is mutual gain. So what is this at the expense of others? I mean the only way you can do something at the expense of others is grab their wallet when they're not looking or engage in fraud like social security or Ponzi scheme or what have you. But that's not what they mean, they're attacking greed. Well, greed has got a bad press somehow. In the 80s was the decade of greed because Ronald Reagan was there, which is a little silly because when he was governor This attack on greed runs counter to what Adam Smith said, it's not from benevolence that the butcher and the baker and the candlestick maker give us their wares, it's rather out

4:32of a Keen Appreciation of Their Own Self-Interest or greed. Greed is good, says Wall Street, Gordon Gekko. Remember that magnificent speech about how greed is good? Well, these guys ought to go see that movie. So I reject, with due respect, the theory that it's greed. The second hypothesis that I have for our consideration is that it's due to laissez-faire capitalism. Now you might think this is silly. Who would ever say that? But here are a few Alan Greenspan admitted that he had put too much faith in the self-correcting power of free markets, head of the Fed, which is the central Politburo, planning bureau for money. Here's Jacob Weisberg in Newsweek under the title, End of Libertarianism.

5:20The financial collapse proves that its ideology makes no sense. Another one, Sarkozy, President of France, said laissez-faire economics, self-regulation and the view that the old powerful market always knows best are finished. Another one, the German finance minister, Peter Steinbrück, America's laissez-faire ideology, America's laissez-faire ideology, I don't know what world these guys are living in, as practice during the subprime crisis was as simplistic as it was dangerous and The New York Times, a little respect please. We love The New York Times. The United States has a culture that celebrates laissez-faire, capitalism is the economic ideal. I mean these guys are imbibing controlled substances or something. We don't have a free enterprise system. Free enterprise system means government is night watchmen state, you know, armies, courts and police, that's about it. But here the government takes over 40% of GDP, which is a little higher than the surf days when they only made you work two out of seven days for the government. We're doing, and this doesn't count off-budget spending like Fannie

6:32Mae and Freddie Mac and recent bailouts. The Federal Departments of Housing, Transportation, Healthcare, Education, Energy, Mining, Agriculture, Labor and Commerce, they're not really compatible with laissez-faire capitalism. Then you have more than a hundred federal agencies such such as IRS, FRB, FDIC, CIA, EPA, FDA, SEC, CFTS, I don't know what half of these things mean but there's a long list and I won't bore you with it because it takes a long time to read it. A year ago the Federal Register had 73,000 pages of detailed government regulations up by 10,000 pages since 1978. You know how big the Federal Register would be under laissez-faire capitalism? That big, zero. We have local rules about how you should flush your toilets and ladders and drugs and sex and all sorts of rules and regulations. We had the New Deal, the Fair Deal, the New Frontier, the Great Society, Obamonomics. I'm not sure what his society will be, the Obama Society.

7:34The U.S. is not really a laissez-faire society, so this hypothesis, too, has to be rejected. The next theory is the Keynesian Theory, and there are several subheadings of the Keynesian in Theory. The first one is due to lack of good animal spirits. You people are just dispirited. We need more optimism, hooray optimism, boof of pessimism. That's why they keep talking about green shoots. You know, their theory is that if you tell people that we're having green shoots, they'll be optimistic and then they'll spend more money or whatever it is and then we'll get out of the depression. This is sort of like a psychological view of Depressions. I can imagine how the cartoonists are going to do it. They're going to make Obama into Freud, Rogers, Albert Ellis or Jung. You know, put a little beard on him and he'll give him an Austrian accent. And you know the body politic? We talk about the body politic. Well, think of the body economics. So the body economic walks into Freud's office,

8:35a darker Freud with an Obama face, and says, sit down on my couch and free associate. Is to try to get people spiffed up. Well, this is silly. I had a full head of hair before I heard of this and now look at me. This is just preposterous that if people just felt good about themselves, we should all, I don't know, eat ice cream and get a massage or whatever it is that turns our crank and the economy would be better. And that's what they teach in Graduate Schools and Economics Departments. Okay, the next Freudian, next Freudian, that was a Freudian slip, the next Keynesian explanation.

9:20Well, Freud, Keynes, not much difference. The next one is that savings are evil and investment and consumption are good. You know, if you were going on a desert island and you had to pick people to help the economy and you had four fat guys over here who were champions of eating hot dogs, you know, if you go to a hot dog eating contest they'll kick butt or kick hot dog or whatever it is and here you have four guys that aren't fat but work hard. According to the Keynesians you're supposed to take these guys because it's consumption and these guys are good consumers, look at them, I mean, you know, you give them a hot dog and it's gone like that whereas these guys, you know, they're not such great consumers. Well, this is just preposterous, is silly that we can consume our way out of depressions and the way to have a good economy is to have everyone should eat like a pig or something.

10:15The next one is the Keynesian theory that if you have a problem with inflation, what you're supposed to do is cut spending. And if you have a problem with depression, what you're supposed to do is increase spending. Well, what about if you have both? See, the The way that Keynesians see it is sort of like a car. If it's going too slow, you hit the gas. If it's going too fast, you hit the brake. The gas is spending. The brake is less spending. And what if you have both? Arthur Burns, when he was the head of the Fed, was once asked, well, suppose you have both. And you know what his response was? We'll have to resign. Well, we've had both. Why don't they resign? They're all Keynesians. Which leads me to another statement in, what was it?

11:00In Samuelson's book, he quoted Milton Friedman saying, we're all Keynesians now, and I was, I won't say associate or friend, but I knew Milton Friedman, I attended conferences with him, and I said, Milton, what is this, we're all Keynesians now business, that Samuelson said, and he said, oh, Samuelson got it wrong as usual. The full quote, and I'll give it from memory, is when it comes to the tools of economic, when it comes to public policy analysis, There's a gigantic difference between us monetarists, this is Friedman speaking, and them the Arkansians. But when it comes to the tools of analysis, we're all Keynesians now. So I don't think that Samuelson got Friedman out of context. Truly, the tools of analysis are more important than the conclusions you make, because the conclusions you make are conclusions based on the premises of the tools of analysis.

11:51So the tools of analysis come first. The big difference between Chicago and Harvard, if I can put it in those terms, is that for the Chicago types, the breaks in the gas is monetary. They're the monetarists. Whereas for the Keynesians, they're fiscalists. It's tax and spending and things like that. Not a dime's worth of difference. It's the same Keynesian stuff. And this is the big debate among the mainstream economists, not the Austrians, which have a slightly different view. Well, If it was really money, then Zimbabwe would be in great shape, or Germany in 1923 with hyperinflation. I mean, they had the million-dollar and zillion-dollar marks or whatever it is they have in Zimbabwe.

12:36And if it was fiscal policy, the USSR would be good, because they had a lot of fiscal activity. I mean, the government counted for 98% of the economy. So this, too, I think, has to be rejected. A more recent one, another hypothesis is the speculation. Speculation is evil. This is James Tobin from Yale and sort of a left wing. I mean, the whole thing, left wing and right wing. The left wings are Yale and Harvard and MIT and the right wing is Chicago and they're all Keynesians. So, you know, what's the big deal? Well, James Tobin has this thing we should have a tax on speculation in exchange, especially foreign exchange. But speculation, I think I even have a chapter on this in my book, Defending the Undefendable, but it's a very basic thing. What speculation does, if prices are going like this, up and down, up and down, and what you do is you buy when it's low and sell when it's high, what you

13:32do is you even out the oscillations. So speculation, if it's successful, evens out oscillations and prices and makes things run more smoothly. And if you're not successful, you exacerbate Exasperated but you lose money. Of course when the government does it, they exacerbate it and they don't lose money so it doesn't work, only under private enterprise. So this too I think is a silly hypothesis. The last one I've got is, the reason we're in trouble is wages are too low. We have to increase wages. But anyone who's ever had econ 101 knows that if wages are above equilibrium, You create unemployment. I mean, if supply is greater than demand, above the equilibrium point, you're creating unemployment. This is what Hoover did. This is what FDR did.

14:21This is what Bush and Obama are doing, or did and are doing. They do it in several ways. One, they just raise the minimum wage. They keep raising it every, I forget when, a buck or two every time. Well, if the minimum wage was such a great thing, why be such pikers? Why be niggardly about it? You're not supposed to say that word, but it's a legitimate word. Why not make the minimum wage 100 bucks an hour and then everyone will be rich? Obviously the reason is because if you have to pay someone 100 bucks or not employ them, it's a no-brainer. You just don't employ them. We'll have vast unemployment. Another way of raising wages higher than they would otherwise be on the market is unions. And a third one is this Lily Ledbetter law, do you know about Lily Ledbetter? This is the idea that women get paid less than men and therefore we have to raise women's wages. You wonder why not just

15:17lower men's wages? That would do it too. No, no, no, we have to raise wages so you get a sort of impetus both from the curing of unemployment by raising wages and also this Feminist stuff. I got in a little spot of difficulty when I, it's all Tom DiLorenzo's fault. He invited me to speak at Baltimore, Loyola University, our sister school at Baltimore. And I made the very, very pedestrian statement that the reason I said that wages depend upon productivity and male and female productivity is about the same this century. Okay, a century or two ago, male productivity was slightly higher than female because men have more upper body strength and a lot of jobs like chopping down trees and digging, shovel, mining stuff takes effort like that, physical effort, and men are stronger than women.

16:12But nowadays, the way most of this stuff is done is you push a button and women are perfectly capable of doing it. And so why do women make less than men? Well, because they're married and when they're married, they have unequal distribution of of a Household Care and Child Rearing Care. And one of the evidences of this is that if you take never marrieds, people who have never been married, widows, separated, divorced, anything, there is no gap. The gap comes about because of married people and the 30% gap is an amalgamation of a zero gap for the never marrieds and a much bigger gap for the ever marrieds. So this whole thing is silly and yet Obama is making great play, you know, helping the feminists. Okay, so these are some of the theories that I would reject as explanations of why we have depression. Drumroll, what's the correct theory? Thank you, thank you. I paid him five bucks for that. It was only a four dollar drumroll, but that's better. It's the Austrian business

17:11The Austrian Business Cycle Theory is, I hate to do this to you, it's a nice Saturday morning and interest rates are boring, but I do this with my students and you people are at least as bright as my students and probably a lot brighter because most of them are commies when they come into my class, hopefully when they leave they're a little bit better, but They're all total commies, most of them anyway. On the colored sheet, the one in yellow, this is the interest rate table that you're all accustomed to and all aware of and creates no theoretical difficulty for anyone.

18:00Everyone sees this, namely if you put a dollar in the bank at 2%, at the end of the year The higher the interest rate that you leave for one year, you get $1.10 at 10% interest. And then the more years you leave the money in the bank at any given interest rate, now we're going down the rows instead of across the columns, well, the more money you get. So if you leave money in the bank for 50 years at 4%, you get $7.11. That's the easy one. Now before turning the page over, let me offer you people the following deal.

18:47Here is the deal. I have here in my hot hands a dollar bill, U.S. currency, you can trust this stuff. I feel like Cartman in, what is it, South Park, you can trust this. And we have to assume, just for the sake of argument, that there will be no inflation from now until a year from now, and also you can trust me that I will indeed give you this dollar in a year from now. And the question comes, what will you bid for it now? And if you're smart, the first bid ought to be minus infinity, namely you'll pay me minus infinity, namely I pay you everything in order to take this, but after we get rid of the The Minus Numbers, the best bid is zero, or a penny, right? You're all with me, you'd bet, you'd bid a penny for this dollar in a year from now, and a dollar and a penny doesn't mean much, but if we put a few zeros on it, it gets serious. So if it's a million

19:46dollars and you know, you'd bet, you'd bid ten thousand for a million dollars in a year from now. But what is the equilibrium bet, or bid? What is the bid such that there is There is no profit and in equilibrium you never make any profit. Does anyone know what the answer is? That's it. That's the answer. What's the interest rate? The interest rate is very determinative, definitive in telling you what the present discounted value of a dollar is. And now we turn to the other table, the black and white table, the non-color table. And what that is, is a present discounted value of a future dollar for sure and no inflation because if you're not sure then you stick in a risk premium and if there's inflation you stick in an inflation premium but I'm trying to make it simple.

20:38Okay, so for example, what's a dollar worth in a year from now at the 8% interest? Well it's worth 92.6 cents right now. If you bid 92.6 cents right now, you'll neither make money nor lose money, because if you would have put 92.6 cents in the bank and you turn it all around the other side at 8% and you multiply 92.6 times 108, you ought to get one, namely these tables are reciprocals of each other. So the present discounted value of money receivable in the future is determined by this blank or non-colored black and white interest rate table and you can see that as you go from left to right on the same row, the numbers get smaller because you're more heavily discounting a dollar receivable at 20% than you are at 1%.

21:39Everyone see why that is? At a 20% interest rate, you're heavily discounting the future, whereas at a 1% interest rate, you're not so heavily discounting the future. So you only have to pay 99 cents at 1% and you pay 8 or rather you pay a full 99 cents at the 1% but you only have to pay 83.3 cents if it's 20% okay this is going to be a quiz so you'd be people better shape up on this you don't get lunch until you, no I'm kidding. So the numbers go down as you move to the right and they also go down as you go down the Roe. So, for example, at 3%, the present discounted value of a dollar receivable in one year at 3% is 97 cents, which means if you put 97 cents in the bank at 3%, you get about a dollar. Are you getting about rounding problems? Yes? Everyone with me? Whereas, in 50 years, all you have to do is put in 22 cents in the bank, 22.8, and you'll get

22:37a dollar. So, the present discounted value of a dollar receivable in 50 years from now Now is worth squat or worth a lot less, okay? Now for the Austrian business cycle bit. Suppose the government, you see what I'm trying to say is that the interest rate is a crucially important price, inter-temporal price. And prices are important. Prices determine things. Prices help us cooperate with each other. Look, if we all decide we're too fat and we've got to go on a diet and we're going to stop We're going to stop eating chocolate and we're going to start eating carrots, right? Well, what happens to the price of chocolate as our demand for chocolate recedes? Well, the price of chocolate goes down. And the price of carrots goes up as people start wanting to pig out on carrots.

23:25And this price of chocolate and carrots allocates resources between chocolate and carrots. So we don't have to write a letter to President Obama and say, Obama, we're too fat, we want less chocolate, we want more carrots and we have to hold hearings, is this really true and how should we do it? I mean, in the Soviet society, that's what they would do and they'd, bureaucrats would go berserk, you know, picking out on whatever it is, filet mignon and discussing this. Well, no, we don't do that automatically. When the price of carrots rises, entrepreneurs are led as if by an invisible hand out of chocolate and into carrots and as they get out of chocolate the profits rise in chocolate and as they get in the carrots the profits fall so we get some sort of equilibrium or not perfect the market isn't perfect but it works well what the interest rate does is it allocates resources not at the present time namely present chocolate and present carrots but rather chocolate

24:28versus chocolate beans or land on which chocolate is built or made or whatever or chocolate factories, Hershey, Pennsylvania kind of places. So the interest rate is a crucially important thing, much more important than any one price. I mean, you know, if you have to have price controls, you might as well have price controls on toothpicks or rubber bands where it's not really important, but you shouldn't have price controls on important stuff because important stuff, you need a free price system to make the thing work. Well, the interest rate is a very important price. Okay, so suppose the Fed in its infinite wisdom, and we love Bernanke, he's our man, he's free enterprise. They even have the audacity to say, well, this is the free enterprise Fed. I mean, there's this group, OPPE, Association of Private Enterprise Educators, where half the presidents are from the Fed.

25:19And the Dallas Fed or the St. Louis Fed is the free enterprise. It's sort of like saying, you know, that this planning bureau in the Soviet Union is the free enterprise planning bureau, and this one isn't. I mean, it's... If I didn't tell you that joke about my hair, I would employ it again right now. Okay, so let's suppose we're at 8% and the Fed, in its infinite wisdom, lowers the interest rate to 6%. Well, what does that do to the present discounted value of a dollar receivable in a year from now, well it raises it from $9.26 to $9.43, which means that if you make an investment that will come into the consumer in one year, you get a slight boost, very slight boost, call it 2%, from 92 cents to 94 cents, roughly 2%. What about an investment 12 years out, namely an investment that you make right now that will come into fruition in 12 years, namely, what's the present discounted value of that? Well, it used to be 39.7 cents,

26:25everyone with me on the table, and now it's 49 cents, call it the 20% increase, 10 cent difference over 50, roughly 20%, a little less. What about 50 years? Well, now it's That's a real big, you've got a real big booth. You go from two cents to five cents, which is an increase of 250 percent, give or take. Namely, what the lowering of the interest rate does is it pushes investment way out into the future. More toward, well, the way the Austrians sometimes illustrate is with a triangle and you talk about very early investments and later investments. For example, one way to look at fishing is if you're really hungry and you have great impatience, you're like a bear, you go into the water and you just try to grab a fish. Not very efficient, but it's quick if you can get one. Next one is you get a fishing pole or a net or a rowboat or a ship. Well, just how much investment

27:24are we supposed to be making? Well, what's the right chocolate carrot allocation? Whatever the chocolate, carrot, tastes are of the public, and what's the right inter-temporal allocation? Well, whatever the time preferences of the people. If people are very, very impatient and they've got to have it now, well, we're not going to have too many investments that take 50 years to bring about because the interest rate will be so high that it'll be very difficult. On the other hand, if we take a very long-term view, Hans Hoppe got in a lot of trouble for talking about this stuff. I mean, you wouldn't think that this stuff is very politically incorrect, but it is.

28:10He said that gay people have fewer children than heterosexual people, and therefore their time horizons is less. And for this, he probably got kicked out of the school. I mean, it was just amazing. But that's the Austrian business cycle theory. I mean, you know, he's trying to, Hans was trying to give an interesting example to get the kids to understand what's going on. as am I now trying to do with you. I'm trying to make this thing, this interest rate stuff come alive. So, the Austrian business cycle theory in a nutshell is the government artificially lowers the rate of interest. It encourages investments that never should have been made in the first place that are not compatible with the interest rate determination of the people, which I'm assuming is 8%, not 6%. They lower it to 6%. They make investments that never should have been made.

28:58And there comes a time when not all these investments can come through. And what are these investments? They're in heavy industry, stuff that's 10, 20, 30, 40, 50 years away. Houses, cars, anyone? For example. And what are you going to do if you're up to your armpits and unneeded carrots and you want more chocolate? Well, those carrots, I guess you've got to burn them or lower the price of them instead of supporting carrots like they're now doing with supporting housing, with the CRA and the HUD and the Fannie Mae and the Freddie Mac and all these other kinds of things. So this is sort of the Austrian theory in a nutshell. What they do now is they exacerbate the problem. In addition to lowering the interest rates, they have the CRA which is, you know, building We're getting more houses, not because of interest rate considerations, but because of racism situation, namely black people aren't getting enough houses, so we've got to give them houses even though they don't have any credit worthiness or anything like that or

30:04any ability to pay the mortgages and then we pyramid these mortgages and we get toxic assets. So that's one exacerbation. Another exacerbation that occurred in the Great Depression was the Smoot-Hawley Tariff with this buy American stuff that Obama's now pushing, you know, that he'll give you money but you have to promise to buy American. Well this is just a way of messing up international trade. There was this episode with the Mexican trucks. They wouldn't allow the Mexican trucks in because their truck drivers aren't up to snuff and their trucks aren't up to snuff. Well, this is just disguised protectionism. If that were all they were considering was the safety, what they would have said, okay, look, Mexican truck drivers and trucks, you want to come in this country, fine, you just have to pass the same test that American trucks and truck drivers have to pass. And then presumably we'd be on some equal playing field or what have you. But to say that they can't come in, period, is protectionism.

31:05Another aspect of the Austrian business cycle theory is this thing called cluster of error. What is the cluster of error? Look, businessmen make mistakes, and when they make mistakes, they go broke. To get back to chocolate and carrots, if they were investing in chocolate and we no longer want chocolate, well, half the chocolate has to go. Or the hula hoop. The Hula Hoop is good and then the Hula Hoop isn't good, so when people make mistakes they go broke. That's one of the benefits of the free enterprise system, if you make a mistake you go broke. I teach in New Orleans and in New Orleans we had the Katrina, it really wasn't the fault of Katrina, it was the fault of the Army Corps of Engineers which screwed up the levees and The FEMA, which stopped everyone from coming down and helping us, and 1,500 people died.

32:03Now it might sound cruel and heartless to say, I don't mind that 1,500 people died, I do, but what really ticks me off is that the people responsible for it are still at the same lemonade stand. They're still the FEMA-ing it up, and they're still Army Corps of Engineering it up, if I can make verbs out of those names. That's the problem, that there is no exit for inefficiency. That's why these bailouts and picking winners is silly. There was this thing, the Mustang Ranch in Nevada. You all know a cat house. And they took it over for a non-payment of taxes or something, I'm not sure about that.

32:48And they couldn't run it. The government couldn't even run a house of prostitution where they sell booze. How do you expect them to run an auto company? I mean, you know, we'll have Pelosi motors and Obama motors or something like that. The Soviet Union failed for two main reasons. Hayek emphasized the fact that the information flows are not there unless you have market prices and Mises emphasized that unless you have free market prices, you're in a sort sort of a chaotic system you really have no way to understand if you want to build a bridge should it be made out of platinum or silver or steel or aluminum or what because you have no prices happily for the Soviet Union they had the Sears and Roebuck catalog without the Sears and Roebuck catalog and you know going to the Chicago Board of Mercantile Exchange the Soviet Union never would have lasted 70 years but if the whole world were sovietized in which our people in Washington, both Obama and Bush, not just Obama, I think libertarian

33:58is equidistant between liberals and conservatives. I don't think that somehow we're really conservative. We're a branch of conservatism. I see us as unique from both of those groups. So this is the Austrian business cycle theory in a nutshell. I wanted to close with a different Consideration, and that's this business of prediction. There was this wonderful thing in England that the Queen of England wrote to the economists and said, you know, you guys were asleep at the switch. Why didn't you predict this? Why didn't you tell us what What one of them said is quote from the permanent secretary of British Treasury, no this is Goldman Sachs chief economist, Jim O'Neill, in summary, your majesty, the failure to foresee the timing, extent and severity of the crisis and head it off, while it had many causes Mises was principally a failure of the collective imagination of many bright people, both in this country and internationally, to understand the risks of the system as a whole.

35:16Well, maybe that's part of it. There was another, what do you call it, another commentary from the British people and here it says, 10 leading British economists wrote to Her Majesty claiming that the training The meaning of economist is too narrow, quote, mathematical technique should not dominate real world substance. If you go to a graduate school in economics, you're not going to learn any economics. I tell my students, if you want to get a PhD in economics at most graduate schools, don't major in economics. Major in math and minor in economics, because math is sort of taken over like a virus And all they do is these models of proving, you know, the fifth derivative of something or other and, you know, like range multipliers and very fancy mathematical techniques.

36:14And they don't do economics. They don't understand economics. And if they have any smattering of economics, it's just Keynesian economics. And they learn nothing from that. So, I think, I wanted to get to the Austrian view of prediction. See, Austrianism, methodologically, is an apedictic science. It has synthetic a priori statements, undeniably true statements that can't be tested empirically. For example, I gave you the example, if I trade you my tie for your wristwatch, it means that I like something about your wristwatch better than in the tie. You like something about the tie better than the wristwatch. You might not like the tie. You might think that I'll be your best friend if we make the trade. Who knows what's on your weird minds. But perverts have, no, I'm kidding. How do you test that?

37:06You don't test that. I mean, if you understand the English language, you understand the necessity for that. It's an undeniable statement. Austrian economics is pretty much predicated on that That sort of a thing. For example, with the minimum wage law, we don't say that if the minimum wage law goes up, unemployment will go up. What we say is that if the minimum wage goes up or gets instituted, unemployment will be higher than it otherwise would have been had the minimum wage not existed or gone up. It's a contrary to fact conditional which cannot be tested. You might say, well, we're a bunch of sissies and wimps, but, you know, That's the Austrian theory. It gives us an insight into what's going on, even though you can't test it.

37:55My PhD dissertation was under Gary Becker, mainstream economist, Nobel Prize winner, University of Chicago now, although he was my teacher at Columbia when I was there. And I did an econometric regression on rent control, and my hypothesis was that the more The more rent control a city had, the worse the housing would be. And I had to get the right sign, namely, the more rent control, the worse the housing, so I'd get a minus sign for quality of housing. And I'd try to get statistical significance at the 5% level, and most of the times my regressions worked out fine. Every once in a while, I'd get the wrong sign, and every once in a while, very embarrassingly, not only the wrong sign, but it would be significantly significant.

38:41Now according to the mainstream economic view, the methodology that they employ, what Becker should have said is, oh, I've got this genius student, Block, who's going to overturn everything we ever learned about rent control. Instead, he was too kind to say it, but what he meant was block you moron, go out and do it again until you get it right. We know what's right. We know what the answer is because it's an apodictic statement. So while Austrians can't can't predict and don't predict. On the other hand, we have an insight into what's going on in a way that none of these other theories have. Thanks for your attention.

39:30Okay, I have a few more minutes in my time. Tom DiLorenzo isn't scheduled to come up till 10.30, and I think I'll leave at 10.25, but I've got seven or eight minutes. If anyone has questions or comments, I'd be glad to discuss them with you. Yes, way in the back. Sorry, I can't hear you.

40:10Well, I think their control over the short term is greater than the control of the long term, but the two are not unrelated. So if you can control one, you can control the other. So I would reject that argument. Bob Murphy did his PhD dissertation on these things and he would be a very good person during the panel discussion afterward. He, I think, could probably elaborate on what I said. Michael? You said, Austrianism is made to be self-evident, but it's hard to believe when you say something like this, that there's more right to control than it seems to be probably. How do you feel about that?

41:05Well, yes and no. In one sense, we are predicting that housing will be worse than it otherwise would have been, but we don't know what it otherwise would have been. Look, suppose during the time of rent control, Bill Gates, unbeknownst to us, starts giving money to landlords, and housing booms even though rent control occurs. Then we would say, rent control is doing well in spite of, rather housing is doing well in spite of rent control. Control. So, look, suppose I say that there's a tendency for profits to equalize in all industries, assuming equal risk. Another apodictic statement, because, you know, if profits are much higher here than there, resources will go out of here and into here, pushing down these profits and pushing them up. Well, is this testable? Is this a testable hypothesis? No, it's just a tendency. No Austrian ever would say that we're always at equilibrium, that profits are always the same in every industry. We just say there's a tendency in that direction.

42:07So we understand economics in a way that you can't understand economics if you're just a positivist. If you're a positivist and you believe in empirical testing determines everything, well, then there are no true economics. There's no true economic understanding because you can always have another empirical test 10 minutes later which will change it like my Mistaken Regressions on Run Control, yes, young man in the back.

42:57well I guess I think everyone heard that he's far enough away from me he's got a Good Voice. Let me just summarize it very quickly. Am I really serious or am I tongue-in-cheek on the Gordon Gekko? Greed isn't that good. What about government greed? Well, what I'm saying is that greed per se, there's nothing wrong with greed per se. Of course, the murder incorporated is motivated by greed, and so is the rapist motivated by greed. So greed certainly can be funneled in very bad ways, but what I meant was market greed, and that's That's what Gekko was talking about. What he was saying is that buying and selling and trying to make a profit honestly is unobjectionable and indeed Adam Smith says it's not only unobjectionable but it's very beneficial. So I don't take that tongue in cheek. I think that some of the things that Gordon Gekko did were not legitimate but other things were good. One of the great quotes he says, well when I was younger I'd make a hundred thousand a day

44:19and that's peanuts and now if I don't make a million dollars a day it's a bad thing. Murray Rothbard once had this quote that a man's profit or a man's wealth earned honestly is an indication of his contribution to society. Look, Bill Gates is doing a lot of bad things now with the money he's got but when he earned that money he earned zillions of dollars and how did he earn it? He earned it by giving people computers at 500 bucks that they valued and more than 500 bucks otherwise they wouldn't have bought them and he valued it in less than 500 bucks and he did it a couple of zillion times and he made a lot of money he pretty much created a whole industry I assume I mean greed doesn't have to be personal greed for yourself it could be for your family it could be for the Mises Institute to contribute to that or whatever it could be for you know purposes of that sort but Adam Smith I think

45:13right it's not look if you want to do something and something is very important then it behooves you to mobilize all human emotions in that direction benevolence yes no one's against benevolence I mean charitable name donations or benevolence but also mobilize greed in that direction what what's wrong with greed one last question yes sir

45:43Oh, yes. Let me reiterate what you said. I'm not sure everyone heard. What he's saying The thing is that if you have a theory that cannot be falsified, isn't it akin to a religion or a cult or something like that? I'm putting words in your mouth, but I think I got the gist of it. Well, you see, I don't believe as an Austrian that economics is a branch of the natural sciences such as chemistry or physics or biology where you can have controlled experiments. We can't have controlled experiments. I can't say, okay, look, the people on this Let me finish answering your question. Take East Germany and West Germany or North Korea and South Korea, which are as close as you can get to control the experiments in the real world, and we say, look, East Germany and North Korea both followed one system and were starving, and the others were following another system, and they did pretty well. This part of the world is a little bit different.

47:07proves. But the opposite argument is, well, no, no, no, it doesn't prove it. They just didn't have good leaders in North Korea or in East Germany. If they would have had better leaders it would have been fine. So you can never prove it. Austrian economics is not a branch of the empirical sciences as we see it. It's rather a form of logic. Milton Friedman used to and James Buchanan and others would call us cultists or religious fanatics or and so what have you because of this very point and Milton Friedman would say, well suppose two Austrian economists disagree, what do they do, fight? That was his knockout blow. Well the response to that is, well suppose two logicians disagree or two geometricians disagree as to the shape of the triangle, what do they do, fight?

47:58No, we see economics as a division or a subset of logic and pure math, not empirical science. And it's no more a religion than is geometry or trigonometry or symbolic logic or anything else like that. I'm out of time. Thanks for your attention.