How Politicians and Citizens Should Deal with Depression

0:00Our next speaker is an adjunct scholar at the Mises Institute, and a faculty member at Mises U. And I always hate to point this out, but he was born the year after I graduated from high school. So he's one of our young guns. In fact, I mentioned Mises University earlier today, and he was in the class of 2000 and 2001. So you can see the product of the Mises Institute's work with our next speaker. He has a Bachelor of Arts from Hillsdale College, Ph.D. from NYU and worked for Laffer & Associates.

0:45Probably should have something clever to say about that, but I'll just let it pass. He runs a blog called Free Advice, which I think is curious because he never wants to do anything for free. He is the author of The Politically Incorrect Guide to Capitalism. We have all of these, by the way, out front. He wrote a study guide to Man Economy and State. He wrote the study guide to Human Action. He wrote a dandy little book that's out front, if they haven't been sold out, called Chaos Theory. And his latest book is very topical, The Politically Incorrect Guide to the Great Depression and the New Deal.

1:30Please help me welcome Robert Murphy. Well, thanks for that kind introduction, Doug. I should mention that, you know, he's sort of lamenting the fact that I'm so much younger than he is, but actually, when I was in high school, I had about as much hair as he has right now. And so, you know, there's sort of a give and take there. I realize it's a little bit tricky here. We drew straws, and I get to go after lunch, so I know you're all sort of dozing off. I'm supposed to talk about business cycle theory and things. I actually am a sword swallower, and I thought that would be interesting to keep you all interested, but the TSA didn't want me bringing those things on the plane.

2:15Another reason to be mad at George Bush. All right, so this part is actually true that my speech and my things I was going to talk about, and we actually, the speakers, don't coordinate beforehand. I mean, I can see what their titles are, but I mean, it's true that a lot of the stuff I was going to hit, the previous speakers have talked about, talking about how what they did during the Depression is very similar to what's going on now, given the explanation of the Austrian business cycle theory. So I had toyed with the idea for a little bit of variety. Maybe I would get up here and give you the case for Barney Frank. But, in retrospect, I think maybe what I'll do is just try to, you know, say the same themes, but maybe with a little bit of a twist. Because I know, actually, talking to some people that some of you, as Doug mentioned earlier, may have been dragged here and you

3:05had no idea what you were getting into, and you're just, you know, looking for the exits right now. And also, some of you aren't really, you know, as I say, I talk to some of you and people are telling me that, you know, I'm new to this, I don't know that much about Economics. So a lot of what I'm going to say is a little bit of a repetition, but I think it'll be useful because this really is important. I've noticed just in terms of writing articles for Mises.org, and again, for those of you, I'm sure most here know what we're talking about, but if you're new to this stuff or if you're hearing me online, where all this stuff is available is Mises.org. And really, there's just a whole wealth of information there, not just daily articles that take the news and translate it. through an Austrian prism to show you this is what's really going on.

3:51And because just to let you in on a secret, the stuff that the media tells you that's actually not correct, right? And so, I mean, a lot of times they're actually saying things that are just simply untrue, but more often than not what happens is they'll report technically true statements, but yet the spin they'll give it, and a lot of times the reporters aren't even aware of it, is just completely backwards. Just to give you a recent example, there was a poll that just came out, I don't know, I think it was Gallup, but I could be wrong about that, saying that right now Americans, they're asking to rate, they're giving approval rating for various federal agencies, and the Federal Reserve got a lower approval rating than the IRS even got, right? And so that, if you think about it, that's kind of impressive, that somebody could say I actually dislike you more than the IRS.

4:43And so, I mean, in that respect, I think Bernanke has been doing a good job, and this is also true. It sounds like I'm setting up a joke, but I'm not. This is true. On the way here, in the cab, sorry, from the airport to the hotel yesterday, the cab driver, he was, I don't know, I would say late 20s, and he was real chatty, and normally I'm extremely Unchatty

6:12the Federal Reserve, fiat money, fractional reserve banking, Human Action, Man Economy and State, The Theory of Money

6:42Bernanke's Dissertation It's a coincidence that they have one Fed chair, you know, build up this huge bubble and just as it's popping, they say okay, now you take the fall, let's get a new guy in here and who should we put in there? How about somebody who knows how to turn a financial pop into a Great Depression? Yeah, how about you? You want to become Fed chair?

7:31I'm not endorsing that theory, I'm just saying it's a little bit odd that that's how it happened, but anyway it is the case that Bernanke's specialty was in the Great Depression and of course he was following Milton Friedman's tack and saying that what happened back then was that the banking system was collapsing and the Fed, at the time in the early 1930s, for various reasons, one of the strong Fed governors had died and so they were blaming it on incompetence and bureaucracy. in fighting and things and but what's saying basically the Fed didn't do enough the Fed sat by and didn't intervene enough and that's why what should have just been a severe but run-of-the-mill depression with a small D back in the early 1930s festered into the Great Depression because the Fed didn't do enough they didn't act swiftly and boldly enough and so that like I said that was Bernanke's academic specialty but but I think that's amazing that the cab driver knew that and I think really that that's that is

8:59Electric bill goes up and things like that, but you get to print money, it's not too bad. And so, what the Fed had going for all these years was that it was so incredibly boring and complicated. I mean, just to talk about open market operations, when I was a college professor, I dreaded going into class and giving that particular lecture because it was just so boring. I mean, really, it's, you know, I would dress as a woman just to keep the kids awake for that sort of thing. and really that was the reason I did it really alright so so now like I said people did not really know who the fed chair was, I mean I think Greenspan, and maybe it's partly Greenspan, well everything is Greenspan's fault but maybe this aspect that I'm talking about is also that maybe he was a bit too flamboyant and you know liked the spotlight too much and was but I mean really if you're one of these huge bankers that's profiting from this system of you know money

9:55Money Creation and all the new money that comes into the economy filters through the banks first. I mean, if you think about it, you know, people say, you know, who was behind the foundation of the Federal Reserve? Again, if you go back and look, he was, you know, big bankers, connected people on Wall Street. And why would they do that? Well, it wasn't merely because they were the most altruistic people saying, I really don't like these boom-bust cycles and, you know, let's do what we can to fix the economy. Another main reason that they were instrumental in that is because the way the Fed gets money into the economy, it goes through the banking sector. And so, you know, if you think about it, it's a bit of a simplification, but if there's a printing press cranking out new $100 bills, it eventually trickles out through the whole economy and prices in general rise and there's a new equilibrium after that injection. But certainly it helps to be at the front of the line. And if you get that money before somebody

10:42else does, who's, you know, a widow getting her social security checks, she's going to be the one that sees prices go up at the grocery store, you know, far before any of her income

11:22to People, you know, really pushing this, blaming this on Greenspan, that now people are awake to the fact that the Fed is doing these things and that it's even a possibility that maybe the reason the economy is like this is because of something the Fed did, right, that I think before it wouldn't even have been on people's radar. So I think that's an encouraging sign, another encouraging sign, and partly I'm doing this, I want to give you some hope for optimism because the rest of my talk is really going to be depressing. Part of the cause for optimism here is, I've been writing for Mises.org for, I don't know, six or seven years probably, and before, I would get fan mail, and incidentally Tom DiLorenzo said the reason he went into Austrian Economics was because it studied the real world. The reason I went into it was for the girls, right? I mean, seriously. Okay. So, but no, you actually I do get fan mail, this is true too, I did a book signing in Nashville, and so my wife

12:24came and some of her friends came, they knew, oh yeah, Rachel's husband, that's my wife's name, is an economist, but they don't really know much about me, and then there was a guy who showed up and he introduced himself to me, I'm signing books, and he said, hey, can I buy you dinner, and they were going out too, and I said, well, do you want to go with my wife and her friends? And he introduces himself to the group as, yeah, I'm one of

13:14Professor loves Austrian economics, he made me read Hayek, and this is great stuff, and I had a question about whatever. But now the email I get is largely, or at least a big portion of it is from somebody saying, hey, you know, I'm a fund manager at this company, and I'm really worried about which way the dollars go, and I just want to bounce some ideas off your head. That kind of thing that it's regular, real people who actually are in the financial sector, whereas before it was just people, you know, we were just like a hobby for people, and And now it's not a hobby anymore, that really this is serious. And I guess the last point in terms of optimism that I'll share before then getting into the bad news is that we really have, and I say we because I think it's the efforts of people like the Mises Institute, Ron Paul in particular, have gotten out the theory that maybe the

14:04reason we had this housing boom and crash was the FED, that that now is a serious contender And it's no longer just, oh, the Austrians say this, but we all know how crazy those guys are. Regular mainstream commentators are now saying that, yeah, in retrospect, we think Alan Greenspan maybe provided a little bit too much liquidity. You know, back during the housing boom years, he should have raised rates earlier, he shouldn't have brought them down so low in the first place, that you will see mainstream economists talking like that. And so that's a very encouraging sign. Or then you saw people talking about that for the dot com boom and bust, like the Austrians we thought, look it's so obvious that that's what happened there, but a lot of economists wouldn't have subscribed to that theory at the time, but now, like I say, it's certainly you're not some lunatic fringe group if you say, I think the reason we had the housing boom was because of Alan Greenspan. As Tom alluded to, the other explanation is, oh,

15:00those Chinese people were saving too much, and I think most normal people realize that sounds kind of like an odd explanation, especially if you delve into the numbers and you see that the savings rate of the global savings rates was higher before the housing boom than at the peak of the housing boom. And then the global savings rate kept going up throughout the housing boom year. So even as housing went up, it's true, global savings rates were were increasing and then housing crashed and global savings rates kept going up. So in terms of just raw empiricism and trying to fit two curves together, it doesn't really work at all. And so in addition to sort of the theoretical problems of why is it that if people are becoming more frugal in Asia, that's going to make our economy blow up.

15:51All right, so that's what they're saying. Okay, so let me try to give you a run through some things here. I think, again, let me sort of try to tie in. We've all been touching on this, but in case some of you have never really heard this, let me try to encapsulate the Austrian theory of where does the business cycle come from? And here, even a lot of ostensibly free market economists will say things like, hey, you know, booms and busts are a normal feature of market economies and the government should just keep its hands off. It's true the government should keep its hands off, but it's not true that the boom-bust cycle is a normal part of markets. And the answer is they would normally accept you've got this non-market player in there, namely the central bank in the United States, the Federal Reserve. And the Fed does everything that it can when it doesn't like the direction it's going.

17:00the Austrian view as to where these business cycles come from in the first place and then we do agree with most every other normal free market economist who then says and then during the recession you know you don't want to do all these other government interventions but the Austrians are fairly unique in saying the boom bust cycle itself is because of government intervention that that's not a market outcome so let me just very briefly remind you that prices Hayek used to talk about, the way he would illustrate it, he'd say, look suppose that there's a tin mine in some foreign country, in Africa somewhere let's say, and the mine collapses and so that means there's going to be less tin coming onto the market over the next six months than otherwise would have been the case, if it hadn't been for this mine collapse.

18:00and so what needs to happen and so clearly there's less 10 being available you need businesses to cut back on how much 10 they use in their operations so businesses right now they're using it there's just not enough 10 to go around and so somebody has to cut back or they all have to cut back a little bit it's just a physical requirement of what happened and so in a market economy what happens is of course the price of 10 goes up speculators might you know read And that's what gets everyone who is an industrial consumer of TIN to scale back. And so Hayek's point is that what market prices do is sort of, you know, take the relevant information. In other words, the people around the world who need to cut back to economize on TIN, they don't need to know why. They don't have to know the specifics of what happened to that mine. That's irrelevant for their purpose.

18:56In order to affect the necessary change, the response to this new condition, all they need to know is tin is now more scarce than it was yesterday. And again, when you say, well, what do you mean by scarce? What we mean is, well, what's the new market price of tin? That's what we mean. And so it's that market prices, it's not merely that they reflect something or that they're a signal, but actually that's a new type of information. As economists, when we say that something is scarce, that tin is more scarce than a bottle of water, that a pound of tin is scarcer than a bottle of water, we say, what does that mean? Really what it means is that it has a higher market price. There's various things you could say about that, but really what you mean is that it's got a higher market price.

19:42So anyway, that's one way to see it, that the price there communicates information, and so if the government were to come in and say, well gee, that's not fair, you know, if there's some operation here that relies on TIN, it's not fair to them to see their cost of production go up, they might have to lay off workers and scale back their output and the price of whatever it is they produce using TIN and other resources is going to go up for consumers, so let's just pass a law making it illegal for the TIN miners to raise their prices, Well, then that's going to cause a problem, right? It's going to screw things up. It's going to prevent the market from reacting to that. You're not doing anybody a favor by preventing that information from getting out. I mean, it's like when the government messes with prices, it's really equivalent to them after a natural disaster, cutting all the phone lines and turning off email and not allowing, you know, the CBs to be used, right? And clearly that's going to make it hard for rescue teams to come in and coordinate the response if all of a sudden all means of communication

20:42and it's an analogous thing when there's an economic disaster or crisis that prices need to adjust to tell people this is the new reality adjust your behavior that that's what market prices do and so what's happened here with this crisis is the government has done everything in its power to prevent market prices from telling people this is the new situation right that we had this huge boom bust cycle in the housing market the most recent crisis and also in Wall Street that there were huge and the huge profits being earned on Wall Street that clearly were not reflective of the true value those people were providing. A lot of that was phony profits and they were actually putting their companies in serious jeopardy, but at the time they were getting big bonuses.

21:27And so, you know, there's numerous ways of describing the mistakes that were made, but just from an individual household point of view, they thought they had much more wealth than they really did, right? If your home price is rising at double-digit rates year after year, you're going to save less out of your paycheck. Because, and that's rational, if that home price appreciation were legitimate, if it were going to be sustainable and not just get erased in a few years' time, that makes sense. You should save less out of your paycheck than you otherwise would have if your house is appreciating, right, that if, I don't know, if some movie star for some reason buys the house next to yours and moves in, and that all of a sudden makes your house go up five times in its market value, and you think the movie star is going to stay there, and that he's not going to be real obnoxious, and that people are going to want to live next to the movie star, and so your house, its price appreciation is real, then yeah, you probably shouldn't save as much

22:25as much as you otherwise would have. That really isn't an influx of wealth, and so it makes sense for you not to take as much out of your paycheck and put it into your retirement account, and so on. So that's what people were doing, Americans were doing during the housing boom years, and that partly explains those statistics as we're, I'm sure, mostly familiar with about how low the savings rate got during those years. I think it actually went negative for a while. And so that was partly what was going on there, that people thought they were wealthier than they were, and so they were misled. were misled. So now when the home prices crash, people need to, you know, they need to get a slap in the face and realize, whoa, whoa, whoa, you've been doing something very wrong these last few years. You need to start saving a lot more. And the way, one of the ways you get people to do that is interest rates have to go up, right? Or at least interest rates

23:12on certain types of securities or certain types of loans, right? So, and that's, that's one complication. People talk about the interest rate. There's actually all sorts of interest So that's just one example where, of course, what did the government, the Federal Reserve do in response to this crisis? They brought interest rates down to practically zero, which that's just the exact worst thing to do, that now people don't have the incentive to save more, they actually have the incentive to save less. Now to their credit, Americans are saving more, because they realize this is crazy, we have to replenish, and everyone is just so panicked that they want to build up cash reserves and other really liquid forms of money. of Wealth, just because, again, everyone's so uncertain, but my point is, can you imagine how much more people would be saving right now if we had interest rates, you know, had gone up to 10 percent or whatever the number would have been, at least for a while?

24:07And certainly you would have seen interest rates on corporations, you know, the ones that were really in big trouble, you would have seen their interest rates for capital when they were trying to raise money in the private markets for them to continue with

24:51The stuff they did back in the thirties is the exact same thing they're doing now. And first people don't believe me. And I said, why don't you believe me? The media tells you that. Every single time right now when the government does something new, what do they say? They say, not since the 1930s has the government done this. Right? So I'm not making this stuff up. But then you have to just ask what they don't say. Then the follow-up question is, well, gee, if the last time they did all these policies, we had a depression for 10 years, why are we doing it again? Right? They're telling you that these are the same policies the last time we did these policies. It went hand-in-hand with a 10-year depression. So the response they'll give you, of course, the official response, is your confusing cause and effect. That it's only, you know, the politicians love the free market. They hate taking more power and money for themselves.

25:36And it's only very reluctantly do they say, well, gee, I guess if you want us to regulate the financial sector more, we'll do it. You know, twist my arm, but okay. And, you know, gee, if you want me to hand out $700 billion to the most powerful bankers in the world, okay, I guess I'll do it, but, you know, I really don't feel right about it. So their mentality is, we sat back, the market blew up on its own, and now we reluctantly come in to save the day, just like during the 30s, you know, FDR loves the free market, and he would have loved to have sat back and been, you know, a Jeffersonian, but Herbert Hoover tried that and look what happened. So FDR had no choice but to raise the scope of the government or increase the scope of the government. So again, as Walter Block mentioned, you can't have a controlled experiment in economics. I can't prove to you that that's

26:27not true. It's theoretically possible that that's what happened. So it's undeniable empirically that the two times in U.S. history when the federal government and the Fed have have been this interventionist and activist also happen to be the two worst periods in U.S. economic history. I mean, nobody can argue with those statements. But in terms of interpretation, what caused what? Did the Fed become so interventionist because the market really needed a shot in the arm, or was the shot in the arm really poison? You know, that's a matter of economic theory. But again, I just want to stress to you that how implausible the other side's theory is and I use a medical analogy that if you had a certain medical clinic and they specialize in some certain illness and time after time people would come in and they would give a certain pill to these people and say, this is what you do for that illness, okay, those are your symptoms, here you go, this is the pill

27:24and that throughout history, since that clinic has been open using that standby original Classical Medicine Pill you know that the recovery times would vary you know maybe sometimes it would be better in six days maybe sometimes it would take the person eighteen days to recover but you know, always the person ended up okay and that's what happened and then some new doctor comes in and he says you know this pill isn't very good pill i had this new pill that i've designed and the first patient that comes in with the same symptoms he gives him a new pill and then that patient is sicker five times longer than

28:29the Great Depression and the New Deal, but just to sum it up for you, it's not merely that it's a little bit off to say Herbert Hoover was a laissez-faire ideologue, it's completely backwards, that Hoover was the most interventionist, with the exception of wartime, the most interventionist president in U.S. history to that point, and that's true, FDR was more of an interventionist than he was, but FDR was more of an interventionist than anybody ever in terms of U.S. presidents, right? not saying much to say Hoover was the lesser interventionist compared to the guy who came after him. I mean, they've all talked about these things so I won't dwell on it too much, but just to give you two examples, a lot of the Keynesians will say that the problem of the 1930s, what happened was that the fiscal policies were too low, that Herbert Hoover, he didn't spend enough money, right?

29:26He was panicked about the deficit, he didn't have the wisdom of Keynesian demand analysis at his disposal at the time, and so in his ignorance he tried to balance the budget in 1932. And that is technically true. He did try to reduce the deficit in 1932. And then they'll say, and then FDR came in, ran bigger deficits, the economy started to improve, but then FDR chickened out in 1937. He tried to balance the budget and then there was this double dip that if you're familiar, the economy was just awful. It was in free fall from 29 to 33. FDR gets sworn in in March of 33. The economy did recover according at least to the conventional statistics, recovered somewhat, and then it collapsed again in 37, 38. And so the Keynesian explanation has to do with fiscal policy. They'll basically say the big deficits went hand in hand with the recovery and then the smaller deficits led to collapse and that's actually just that's really a very tenuous case just to give you an example Herbert Hoover in the year 1933 the fiscal year 1933 when he allegedly you know had done all these horrible deficit cutting devices the deficit that year was I think 4.5 percent of GDP and then FDR's first three years when he was supposedly doing a good job running huge deficits before he chickened out the deficit average I

30:465.1 percent of GDP, right? So it's only a difference of 60 basis points in terms of the deficit size compared to the size of the economy, and yet that's supposed to be the difference between 25 percent unemployment and robust recovery is a difference of 60 basis points in the deficit relative to the economy. That doesn't make sense, that can't be right. So I'm running low on time here, let me jump ahead. So the Austrian explanation is that the Fed, when it lowers interest rates, and it does that by pumping money into the financial sector, that lowers interest rates and it makes longer-term investments look more profitable. So Walter talked about this a lot, I won't dwell on it. And what happens is you have resources get re-diverted away from where they should be into sectors like housing and other real long-term capital-intensive industries. And so then eventually the Fed The Fed chickens out and starts raising interest rates back, and if you look at the history of interest rates, you'll see that after the dot-com crash, Greenspan brought interest rates down to one percent by June of 2003.

31:54He held them there for a year, and then he started hiking them back up, and it looks like a staircase from June of 2004 onward that every time the Fed met, they would raise rates like 25 or 50 basis points. and so they thought they were being responsible you know trying to ease off of this thing and cool this this booming housing market but obviously that the damage was done at that point there are all these irrevocable fixed investments that had been made in durable goods like housing and so forth and and so what happens is the economy needs to adjust to that mistakes were made right just like Americans weren't saving enough because they were misled by these phony signals by the same token people were rushing into the housing market and and some of it is in Theoretaginist, meaning that once the Fed set this thing in motion, it sort of took on a life of its own. So I'm not going to deny that. That once home prices were appreciating so quickly, people, regardless of interest rates, were jumping in thinking, well, I don't care what the interest rate is, if the price is going to go up 10% year over year, that's a good investment to be in. Plus, you get to live in it. That's what's so unusual about housing, is that it also provided a flow of services in the sense that you could live in it. And so that was happening, but then once the Fed back

33:05The fact that that stuff raises interest rates and in reality reasserts itself, the bubble pops. And so what needs to happen in terms of, you know, forget economics for a minute. Just think of it physically or in terms of engineering. Well, you had way too many resources going into housing and the financial sector. Resources need to flow out of there. People who are building homes, they need to stop doing that. They need to do something else. And if the economy were centrally planned, it would just take a dictator who, you know, If it were in the command of all the information, if socialism really worked, if it were a viable system, what would happen is he would just say okay well we don't need this many people building homes, we don't need this much lumber going there, we don't need cement and so forth to pave the cul-de-sacs for these new neighborhoods, we have these extra resources, let's put them somewhere else and we can figure out where they're best used because clearly we don't need more houses right now. And that's what would happen, but in an actual market economy obviously there is no central planner or at least

34:02There is one in Washington, but there shouldn't be a central plan, I'll put it that way. And that doesn't work. What happens the way a market deals with that sort of situation is prices adjust and you do have a period of idleness. In a labor market it's called unemployment, that people get laid off and then they have to go figure out where should I go work now. And that's the way in a market you take workers, you know, if one sector is bloated with workers and other resources and they need to go elsewhere, market prices Effect of that change, that recovery, that adaptation to the new information. And so, when people say, you know, to the, to Austrians, jeez, well, you guys are just so negative. You know, you're against everything. What would you have the government do?

34:47And first of all, that's, I think that's fine, that's a useful service, that, you know, somebody, I wrote an article one time that if we're, and some guy gets stung by a bee and he's allergic and you can see him start to swell up and everyone's panic, oh no, what do we Let's take this dirty needle right here, let's jam it into his leg, pull out the blood, put it into his arm and inject the blood into his arm and we'll get the blood flowing. That's what we should do. And I think I'm contributing if I say, I don't think that's a good idea. I don't think that's going to help. And if that's all I said, I would be helping that guy. And so by the same token, if the problem is that, you know, there's too many resources in this one sector, and that real resources need to adjust, and that's the situation we're in, and then somebody says, I know, how about we'll have politicians borrow $700 billion or $787 billion, and we'll spend it on a bunch of projects that are connected to politically powerful groups, and that'll get money circulating. So we'll take money from this group of taxpayers, and we'll spend it over here to this group of politically

35:50to People. And that's what we'll do. If somebody just says, no, that's not going to help, that's a contribution to the political discourse right there. But I'll go beyond that and I'll say, so what should the government have done? You know, if Ron Paul had won and he called me up and said, hey, can you give me some advice? You know, what I've said, well, first of all, massively cut taxes, right? That would be one good thing. Think of it this way. The deficit this fiscal year is going to be, they revised it downward recently, but it's It's going to be, I think, around $1.6 trillion, right? Just the deficit. And I mean, just to remind you how huge that number is, I ran across this funny thing. It was in, I think, July of 2008, so not this last July, but the previous one, when at that time it was the Bush White House. They came up with their forecast for the fiscal 09 deficit. So fiscal

36:39year 09 started last October 1st and goes through this September 30th. And so at the At the time, they were saying, yeah, we think the next, so at that time, it was next year's fiscal year deficit, and they said it was going to be something like $450 billion. And everybody was freaking out, and the news article I saw that, like the bullet, you know, extra clicks that you could follow, other stories were saying, you know, Democrats castigate, you know, quote, reckless spending of the Bush administration, stuff like that. I mean, now, if they came out and said, actually, the deficit this year is going to be $450 billion, we'd be throwing a party, right? That would be great if they were only going to borrow $450 billion. So that much money, given that they were going to have that deficit, instead of spending that all, they could have just lowered tax receipts. And in fact, I was just looking up some numbers, in tax year 2008, the corporate and individual income tax receipts were something like 1.5 or 1.6 trillion.

37:33So instead of spending all this money or committing it to be spent on stimulus and all these things and the TARP and all the other things that are making the deficit so big, They could have just said, wow, we're in this big recession, tell you what, everybody right now, your employer's been taking money out all during 2008 for your taxes, tell you what, you can have it all back. How's that? You know, on April 15th, we'll send you all your money back and any income you earn is going to be tax exempt right now. I mean, can you – that's so inconceivable, like we're not even really taking it seriously, but imagine The Theory of Money and Credit

38:35Since it would be guided by the market, not by government stimulus, that would actually be productive. The people would be taking short-term things, so the market would be steering people saying, well, since you're laid off right now, at least go into this sector or this sector over here. Okay, and then let me just, if I just take a few more minutes, I have five minutes left, she's telling me, let me answer the question a lot of people want to say, oh, let me mention one thing about the government as well. The other thing too, all those bailouts, they They should have just, you know, undone them or not done them in the first place. And you know, people are just horrified when I tell them that, and they say, oh, but those firms would have failed. I say, exactly. That's what you want to have happen, that you want to have the, you know, capitalism is a profit and loss system, that everyone likes to focus on the profits, and that, hey,

39:19you have a sharp entrepreneur that sees the future, introduces a new product, lowers prices, what have you, and then gets rewarded for that, and that's true. But the other aspect of that, the other side of the coin is if the entrepreneur screws goes up, makes a bad forecast, he or she needs to go out of business eventually. And that's the way the market disciplines people, and that's how you ensure that resources don't continually get wasted year after year, is the people that aren't good stewards of the resources, if they misdirect them, then they eventually go out of business and they lose the ability to be able to steer those resources. Whereas right now, the very same or at least largely the same class of people who either or people who even knew full well it was coming but they were so politically connected they knew we make more money during the good time to compensate and plus we're going to get bailed out.

40:14Whatever the motivations, those same people are largely still running the U.S. financial system. And then not only that, but the precedent of seeing those bailouts, even the people People who normally were prudent, they see now that, well, that didn't pay off. So if you think of it this way, in the year 2005, there were some investment banks that weren't nearly as leveraged and into mortgage-backed securities and these other so-called toxic assets as some of the big players were. And they were reporting lower earnings those years than these other guys who were just hip deep in this stuff. But the justification should have been and would have been at the time, that stuff is really risky. And we're going to stay clear that, don't worry, we're making less money now, we're making fewer bonuses now, but those guys are going to blow up and then we're going to own the market.

41:00But that's not what happened because the government came in and rescued those guys. Okay, let me, in the remaining few minutes I have, let me just talk about, you know, what can individual consumers do? Because obviously, it's too late. What the government has done, it's already a done deal and they're going to continue to do things that are really bad. and let me in terms of really depressing let me just remind you at this stage in the Bush administration 9-11 hadn't even happened yet right so think about all the things you didn't like about the Bush administration and we're not even up to you know that aspect yet so you know the best is yet to come I think so as far as you know individuals what what can you do and I'm not going to have time to get into it now maybe during the panel discussion someone wants to talk about I don't know about this, I'm sure. But I do think large price inflation is on the horizon and the economy is just going to be in the tank for many years.

41:56The two minute, or even one minute, why do I think that? As far as the inflation, I can't get into right now. The answer is because Bernanke pumped in so much money. But as far as the, why is the economy going to be so awful? I mean, just imagine all this stuff hadn't happened. We are a normal economy, and then all of a sudden the government decided to partially nationalize the banking sector, to take over car companies, to try to take over the electricity and energy sectors with this Waxman-Markey bill, cap and trade, so on. And incidentally, there is so much awful stuff in that bill, it's really, I mean, it's not just a cap and trade bill, and I'm not going to have time to get into it here, but there's all sorts of regulations, even if they took that aspect out, it's just a huge power grab of centralizing control over the energy sector. Oh, and they're going to take over health care too, right? So imagine the government did all that during a normal healthy economy. That would be awful, wouldn't it? They would just, you know, really ruin the economy for years to come. And they say, okay, now they're doing all that, and they're borrowing $1.6 trillion in one year, and they're doing it when the economy is on its knees already, right? And then you say, so do you believe in green shoots? No, I do not believe in green shoots. All right, so given all that, you know, people say, okay, what do we do? Now, let me just clarify.

43:09I'm going to give you some very general principles here. If you go ahead and do this and you lose a bunch of money, don't sue me. Sue Doug French. He's the one that you want to sue. First of all, obviously you write a big fat check to the Mises Institute. That's a great place to put your money and you're never going to regret that investment. But then you say, okay, well how do I protect the rest of my money that I don't give to the Mises Institute? Again, first of all, I think we need to really understand that we are right now, it's like we're in 1931, and at the time, well, more like 1930, I mean, people really were, you know, the stock market was bouncing around, and it went up, and there were plenty of people at the time that said, phew, I'm glad we're, you know, that was awful, but now it's over with. And people were talking like that in, you know, 1930, and even early 31, that they thought, this is, you know, this is unusually long, but at least now, we must be over this thing by now. I think the same thing here, that this talk of green shoots is crazy.

44:04You don't want to be running your finances thinking, you know, honey, we just got to hold on for another six months and then we'll be through this nightmare. No, you won't. That this is going to just be awful at least as far as long as the current administration is in power. And I think they're going to get re-elected because, you know, FDR managed to get re-elected many times. So don't fool yourself and think, well, if the economy is awful, they're going to lose power. That's not going to happen with FDR. And so that's one thing. And I think another thing you need to do is ideally you want to have income streams. So you don't want to be tied to one source.

45:03I don't have a luxury jewelry store right now, probably not. So things like that, what you're going to do, you don't want to be dependent on the economy being in really great shape. So maybe the thing I tell people is something like, and not everyone can do this of course, but if you were thinking of it anyway, now would be a good time to really think about it seriously, is low income housing. If you were a landlord of low income rental housing, and People have to live somewhere and, you know, even if the economy is awful, you're probably going to be able to keep, you know, that thing fully rented out and then also that would be good that you ideally, because of this possibility of large price inflation, you want your income streams to be things where once inflation really kicks in, that income goes up right away, that you're not the one waiting years for your income to rise. So the thing with rental housing would be, you know, once the contract or you could write the contract such that this is the

46:30Watches, anything I gave you that was that specific, obviously, we can't all do that. So I'm just saying that that's, I think the way you want to be thinking is in terms of, first of all, getting different sources of income and then also try to get things that if price inflation does come, and I think it will, that it responds sooner rather than later. On that optimistic note, I will stop. Thank you.