Only the Austrians Can Explain Depressions

0:00I'm glad that it seemed like a full room here. I was concerned yesterday. There was a lot of snow, you know, in the northeast, I believe, and I was worried that, you know, gee, I'm giving them a talk. Of course, I'm very narcissistic, and so my thought was not all the millions of inconvenienced people, but rather, are people going to miss my early morning talk? So I'm glad to see most of you got here. I was flying from Nashville, and there was a delay for my first flight. It was a two-hour delay, and I was actually pretty calm about it. I was saying, okay, you know, it's the weather. What can they do? So I wasn't going to be angry at the airline. So we're sitting in the lounge area waiting and then the announcement comes through and they said something like, you know, folks, they kept pushing back the departure date or time by 15-minute intervals. You know how they do that? Like they say, we're going to start boarding in 15 minutes and then 15 minutes

0:46pass and they say we're going to start boarding in another. So they keep pushing back the time of recovery, if you will, sort of taking a cue from the government. And we're all and then one point though they said something like it's the maintenance crew tells us that it should be any minute now and that struck me as odd that you know if it's maintenance what does that have to do with the weather you know is this like some sort of climate engineering and then so I asked one of the other passengers who had been there longer because I had gotten there late and I said what's wrong what what's the delay and he said oh because the plane has a flat tire all right and I thought that was I thought he was kidding at first he was serious and so we're all wondering you know what why would it take two hours to fix a flat tire like what you know is this

1:27Union Work. What's going on here? And it turns out, does anyone know the answer why it would take two hours for them to fix the tire? Because they had to fly the tire in from another city. Come on, don't you guys work in the airlines? So, so of course, you know, I'm gassed and the guy next to me starts, you know, saying, yeah, you would think my Honda Civic has a, you know, a spare tire in the back. You'd think a plane could have that, right? And people are laughing. But of course, I'm an economist and I'm thinking, well, no, that would be stupid because then at any given time you'd have thousands of Spare tires being flown around the country using up all that jet fuel. It would be much more efficient to just have the airlines, you know, have the spare tires, right? So the way I condensed that for the guy is I just said, well, it's not like they could pull over up there and change the tire, right?

2:12And he didn't appreciate that because I was sort of, you know, making fun of him. So we get on the plane, and of course, who's sitting next to me but that guy, right? And incidentally, if he somehow was seeing this on the internet, you were a wonderful companion. I'm not, I'm just doing this for the joke material. And so we're talking, and I actually was interested in the guy because he said he was a defense lawyer. I was like, oh, that's interesting, you know, and he was, he had been complaining about the federal government in terms of the FAA and, you know, complaining about the airlines and so on. So I was like, this is my kind of guy, all right, you know. And so I start talking and And then he starts, I didn't prompt this at all, he starts railing against how the bankers own the politicians and these big banks are taken over and they buy and sell legislators and stuff.

2:58And at first he was a little bit timid and he said, now when I say they buy and sell, I just mean they influence, I'm like, don't worry, you're not offending me, it's, you know, please continue. And so, you know, because I'm sitting here reading the creature from Jack of Ireland in the skies, you know, where he's going to offend me with my sensibilities. So he's going on and on about this, and then he says, and of all the, the two parties are all the same, he said, there's just one politician out there who's willing to stand up and tell these big bankers what's up, and so of course, I'm getting ready to say, you'll never guess what I'm doing tomorrow, thinking he's talking about Ron Paul, and he goes, and that politician is Bernie Sanders, and I was like, ah, all right, so, so anyway, I couldn't impress him with my Ron Paul card but I figured okay the two-hour delay is worth it because now I have

3:51a joke I can tell tomorrow so that was that was my plane trip all right so what I'm talking about with you guys is why the Austrians are the only ones who can explain the depression so what I'll do is I'll first give you in a condensed version obviously in this kind of talk I can't get too technical but I'll give you the basic story of what the Austrians think about the Great Depression and of course the recent you know housing boom and bust in the crisis that we're in right now, what the Austrians think the cause of that is. And then I'll contrast it with two of the other leading explanations, namely the Keynesian explanation and then the monetarists. So just to give you an outline right now, the Austrians obviously think the Central Bank, the Federal Reserve and the United States has something to do with both the Great Depression and then what we recently just went through, whereas The Keynesians attribute it largely to a collapse in aggregate demand.

4:44To put it bluntly, they don't think people are spending enough. The Keynesians think if consumers, because they get skittish or for some reason pull back and stop spending, well then aggregate demand collapses and it's a downward spiral and you need the government to step in and fill the breach and you need the government to run huge deficits to boost up aggregate demand so that income can still be earned and then that's, you know, the economy recovers and then finally the government can sort of pull back once the consumer is willing to spend more. So that's the Keynesian diagnosis and they're going to say that's what happened back in the thirties is you know, the government wasn't willing to run big enough budget deficits and that's why the depression lasted so long and then in our own time the Keynesians will say if only President Obama when he had just come into office had pushed through a much bigger stimulus package then we wouldn't be stuck in this malaise that we're in right now. So that's the Keynesian view, and then

5:37the monetarists, the people that typically follow in the wake of Milton Friedman's explanation of the Great Depression, Austrians in many areas are very similar to them. They're both generally free market, the Austrians and the supply-siders and the monetarists, the Chicago School economists, but when it comes to the Great Depression, there too, Milton Friedman's, with his co-author Anna Schwartz. His big contribution on this topic was he said that what caused the crash in 29 was the Fed tightened the money supply, right? That the Fed jacked up interest rates and pulled back and that caused the stock market crash in 29. And then in the early 30s, Friedman says the Fed should have just pumped in a ton of new money, you know, flood the market with liquidity and slash interest rates and that would have given a shot in the arm of the economy and nipped the incipient depression in the bud, but because the Fed was too timid is partly because they were on still on the gold standard and their hands were tied, right?

6:35So that's the Friedman explanation of the Great Depression, that the Fed was too timid and inflating after the stock market crash. And then in terms of more recent times, again, a lot of people in this tradition of Milton Friedman say, if only Ben Bernanke hadn't been so timid, you know, they can't understand if you read the blogs and so forth of these These guys, PhDs in economics, these aren't hacks, or not that the two are mutually exclusive, but saying with a straight face that, yeah, Ben Bernanke, we can't understand. It's really amazing when you read these things. These people, they're just like, what is wrong with Ben Bernanke? They're going back and looking at his academic papers and seeing the stuff he said back when he was an actual academic economist, and his specialty was the Great Depression, and they're They're looking at his policy decisions now and they say, well, I can't understand, you know, so I'll leave it to other speakers to speculate on the motives and so forth, but

7:31it just, you know, they can't understand why someone who was able to hand out billions of dollars to the world's most powerful bankers might be deviating from his, you know, dissertation committee topic. So in any event, that's their mentality and they think that right now it's only because Bernanke is too stingy and if only he would flood the market with more money would we get out of this. Alright, so that's those two schools, and I'll come back to that after I explain the Austrian view. So the Austrians, what do they think? And again, I know some of you are new here. I was talking with some of the students yesterday, and so don't worry if you don't get it all in this talk. Other speakers are going to come back to these themes. But the Austrians, what they think is, first of all, the interest rate is a price. Okay, it's a special kind of price. If you want to say it's the price of borrowing money,

8:18or Austrians might more typically say it relates the value of consumption now versus later, right? That's one way to think about it, that the interest rate sort of tells you what's the premium on present consumption, that the higher the interest rate, the greater the advantage of deferring consumption, you know, the more, if you put $100 aside today and the interest rate's 10%, you get $110 next year, okay? Whereas the interest rate's lower, you don't get that much of an advantage from waiting, okay? So that's the idea. The interest rate, in a sense, is the market's price showing you the degree of impatience, if you will, in the community. And so the idea is, assume there was no central bank and the market was just a pure free market, the interest rate helps coordinate consumption and production decisions today with the long-term plan of entrepreneurs.

9:10So the idea is just to give you an example, let's say the interest rates originally, whatever, 5% and everyone's making their plans and that's how things are, you're in a nice equilibrium and then the community people, they decide, you know what, let's just save more so that we can send our kids to college or so that we can take a trip five years from now, right? So a bunch of families in the community decide, you know, we're going to stop spending out, going out to eat so much and spending money on restaurants and we're going to, you know, maybe not buy that new plasma screen TV or what have you, so they're going to to cut their consumption spending this year and next year and the third year, and with that extra money, they're going to save and invest more, all right? And because they're thinking 10 years down the road, whatever it is, you know, Sally's going to be going to college and we have to have more money at that point to pay for it, or we're going

9:56to take that trip to Europe 10 years down the road, okay? That's the idea. So we all understand that from the individual household's point of view, how that makes sense. If interest rates are positive, especially the bigger the interest rate, the more advantage there The answer is to not going out to eat today, putting that money aside, letting it roll over for 10 years. That's straightforward. But the Austrians, they say, okay, step back from the individual household and just look at the economy as a whole. How can it be that if everybody is saving more, that everyone can then have that much more consumption 10 years from now? How does that actually work, to go from the individual decision to sort of physically what's happening in the economy? And the answer is that when people all save more, that tends to push down the interest rate, right, because the supply of savings goes up.

10:45So everyone starts saving a lot more, putting more money in the bank or going out and investing in businesses, you know, buying corporate bonds or whatever it is. That tends to push down interest rates. And so that makes it easier for businesses to borrow as it becomes cheaper to borrow. And so the idea is what's happening is people are saving more. They're not eating out at restaurants as much. So the restaurants, their business is down, they lay off some workers, but then other industries that are more future-oriented, they have longer-term horizons, because the interest rate falls, they're able to expand, right? So it's not that you just see unemployment go up and that's it, it's rather certain sectors shrink and that frees up workers and other resources to go into the expanding sectors, okay? So there's a, you know, a coordination problem that if the businesses who are going to be selling more stuff 10 years from now, The companies that are in charge of giving cruises to Europe, they obviously have to, for this all to work smoothly, they have to know that 10 years from now all these people are planning on taking more trips, but you get the idea that physically it's possible that people consuming less now freeze up resources that don't just sit there, they get redirected into some other projects, so the economy can sort of shift from producing plasma screens and sports cars and fancy dinners now, and it just starts producing different things.

12:06and other things, like maybe it produces drill presses or components for an assembly line or other things that are used in long-term production. Okay, so that's the idea that it's not that the economy, if people stop consuming, just withers away, it just reconfigures itself. And yeah, there's a transition period, especially if consumers make this decision and it's unexpected, but that's the idea in the Austrian view. is one of the key ways that the market economy sort of regulates itself that all that information gets communicated around that when people are saving more it pushes down the interest rate and the low interest rate is sort of a green light to the entrepreneurs saying okay it's okay to invest in longer-term projects okay so that's that's the basic idea and that's what would happen if there were a free market so now the issue is what happens if there's a central bank like the Federal Reserve and they just come in and decide to to stimulate the economy by pushing down the interest rate.

13:02And when Ben Bernanke pushes down the interest rate, it's not that he had a bunch of his own saved up funds and he decides to lend them out, right? No. When Bernanke pushes down the interest rate, he writes checks drawn on thin air and buys assets and that floods new money into the economy. So for our purposes, you can think of it just as he's literally running a printing press, The question then is, the Austrians say, well, what effect does that have if the interest rate gets pushed down, not because people are going out to eat less and not because they're saving up more out of their paychecks, but because the central bank is just creating new money out of thin air and dumping it in the credit market? What effect does that have and the Austrians say, well, it leads to an unsustainable boom, that the interest rate goes down and businesses still respond as if it were a legitimate drop in the interest

14:06rate caused by extra saving, and so businesses start hiring workers and they start expanding their operations, making long-term investments, because that's what the interest rate helps to coordinate, but of course that's a false signal. There isn't more saving available. Actually, it's the opposite, that when the interest rate goes down, people save less. And so, the Austrians say, when the Fed tries to stimulate the economy by pushing down interest rates, it creates this artificial or unsustainable boom. And that you can get by with it for a few years, because first of all, the prices are all screwed up, and on paper, it looks like businesses are very profitable, but in fact, the economy is consuming its capital, right? There actually isn't more stuff to go around and it is physically impossible. You can't have people consuming more, buying more plasma screens and going out to eat more, and having businesses building more factories and so on. There's just not enough physical resources to go around.

15:05So again, when it was legitimate and a sustainable expansion, what would have happened is some sectors would shrink, free up those resources, and the other sectors would expand. So there was no free lunch going on there. It was one thing, you know, scaled back while the other thing scaled up. Whereas during the unsustainable boom, there's a period in which it seems that everything's growing at once. And so it's a subtle point, but the Austrians say, of course, that's not possible. What's happening is people are being fooled. So to give you a real world example, during the housing boom years, you had businesses were expanding, of course, especially in the housing sector, you know, people were building new houses as if there was all this extra, you know, resources available, but at the same time, the consumers were going out and buying plasma screen TVs and buying all sorts of electronics goodies from other countries. And what you had was the country as a whole was living beyond its means, right, that it was consuming more than its income.

16:02and you could do that for a few years and we did but the idea is eventually something had to give that's not physically sustainable and so eventually the crisis sets in so the Austrians say the crisis can come sooner if the central bank comes to its senses often it's because the price inflation measures start rising and the central bank gets nervous and starts raising interest rates and not pumping in as much new money and then once the interest rate rises you know that makes prices The closer to what they should have been, people see, oh my gosh, we shouldn't have been investing so much. They start laying off workers and scaling back, okay? And the economy moves back towards where it ought to be. So in the Austrian view, it's almost the exact opposite of the conventional analysis.

16:48The Austrians look at the unsustainable boom and say, that's when mistakes are being made. That's the bad period when resources are getting misallocated. The housing boom, for example, the Austrians would see all these new homes being built knowing there's not going to be enough real demand for that, that there aren't enough new people being born or coming into the country to live in these houses. We're overbuilding. And so every time they lay a new foundation, they start devoting wood and marble and glass into a house, the Austrians say, okay, that's more and more resources that are now being irrevocably locked into that particular structure when they should have gone somewhere else for a certain proportion of them. There shouldn't have been so many houses built, and that was a genuine mistake, a misuse of resources.

17:33So it was during the housing boom, the Austrians would say that things were bad, in the same way in the late 1920s, the boom in the stock market, that was a signal that something was wrong, as far as the Austrians are concerned. And then it's after the panic sets in and the crash, that the Austrians say, yeah, it's painful, but that's actually the recovery, What's happening in a crash period is workers and resources are getting released from those sectors where they shouldn't have been in the first place, where they were just pushed there because of the Fed's manipulation. And so it's in the recovery period when all those workers are getting re-diverted. And so in a free society, you know, just think about it, how would you get, let's say you buy for the moment the argument that, yeah, there were too many workers in housing during the housing boom years.

18:22and there were too many smart people that were in the quantitative finance field. There was all this attraction to Wall Street, these PhDs in physics and so on. They could have been probing the depths of the universe and instead they were cranking out CDOs and stuff. So there was a sense, a great misallocation of the economy's resources. And so then the question is, well, how do you fix that? How do you get those people out of those industries and where they ought to be? Well, if you had socialism, you could just had, you know, the dictator order them and say, okay, tomorrow you guys who used to be, you know, putting shingles on a roof or whatever, now you're going to go do something else. You're going to go build roads in Atlanta, right? You could just order people around and there would be no recession. There would be no unemployment because everyone would just go do the job that the dictator assigned to them. But in a market economy, of course, people have the freedom to choose their occupations. And so the way that occurs when the economy has

19:20has been in an unsustainable configuration. The way it readjusts is there has to be a period of high unemployment. People have to get laid off from the sectors where it's just not profitable to have them, and then they're unemployed, and it's up to them to look around and say, what's the best thing I can do now? And if that happens to millions of people all at the same time, that's what we call mass unemployment. So again, in the Austrian view, it's the opposite of what we're used to, that it's the boom period where waste is occurring. The goal for policy makers, according to the Austrians, is not to say, gee, how can we keep the boom going, because no, every year the boom progresses, that just digs the economy deeper and deeper into this mistaken path, and it makes the bust that much worse. And by the same token, the goal is not to end the bust period from the Austrian point of view, no, it's to sit back and do nothing and let the economy cleanse itself from all

20:12those mistakes made during the boom. Okay, and again, the thing driving all that in the Austrian view is the central bank's manipulation of the interest rate because it's the interest rate in a free market that coordinates production and consumption over time. Okay, so that's the Austrian view. Specifically, when you say, what about the Great Depression? What happened there? You had a boom in the late 20s and if you want the full story, you'll have to buy my book that's available. I was going to tease you now with it. So there was, you know, there's an unsustainable boom. You saw the stock market rise. And again, the issue, most economists, so from your point of view, if here's a chart of US stock markets coming along the 20s, it's appreciating, okay, and then around 26, 27, it really starts taking off, and it gets real high, and then it just crashes in 1929. But if you looked at it, the depth, or sorry, the height of the stock market after it crashed in 29, was

21:10is not lower than it would have been if there had just been normal growth all through the 20s. Okay, so the Austrians say it's not so much what made everything, you know, what pulled the rug out from the stock market in 29 for some reason, and so we're just going to focus on 1929 and try to figure out why did it all fall apart. The Austrians are going to say, no, what pushed it up to these incredible heights in 27 and 28 and early 29? Okay, that's the difference in philosophy, all right. So now let's look at some of the two leading rival schools of thought. We've got the Keynesians as I say, and here the classic example would be Paul Krugman, Brad DeLong if you're familiar with him, but also Christina Romer who is the chairwoman of the Council of Economic Advisors to President Obama. So what they've been doing lately is people of course are concerned about these huge government deficits and they say, you know, gee the government

22:06I can't keep spending money like a drunken sailor and then of course other people say at least sailors spend their own money whereas the government's, you know, spending money that's not theirs and at least if you're a drunken sailor you're probably, you know, spending it on things that bring benefits to people whereas the government is like deliberately wasting money. So they say we're going to pull back and so the Keynesians trot out this argument and they say no no no you're ignoring the lessons of the Great Depression. They say what happened is Herbert Hoover in 1932 got worried about the big budget deficit and he tried to cut the spending and raise taxes and that's why the depression got so much worse from 32 to 33 and then they'll also say in 1937, FDR made the same mistake, that things were going well when FDR was sworn in, the economy, you know, bottomed out and it was recovering very nicely and then things fell apart again in 37 to 38 and the Keynesians were like, and the reason is that FDR

23:06The Recovery in the four years after Franklin Roosevelt took office in 1933 was incredibly rapid. Annual real GDP growth averaged over 9 percent, unemployment fell from 25 percent to 14 percent, Research. Aside from the Second World War, the U.S. has never experienced such sustained rapid growth. And so the idea is, again, what was FDR doing, Romer is going to say, he was running big budget deficits. That's why things were going so well the first four years in office.

23:52But then she goes on, however, that growth was halted by a second severe downturn in 37 through 38 when unemployment surged again to 19%. The fundamental cause of this second recession was an unfortunate and largely inadvertent Switch to Contractionary, Fiscal and Monetary Policy. Spending cuts and tax hikes reduce the deficit by roughly 2.5% of GDP, exerting significant contractionary pressure. So the jargon aside, what she's saying is, again, when FDR first came in, he was running big budget deficits from the New Deal and those other ideas, and the economy is the best recovery in U.S. history, except for the recovery during the Second World War, And then things fell apart in 37 and 38 because Roosevelt, again, foolishly tried to rein in the deficit. So that's her diagnosis of what happened. Well, that just doesn't square up with the facts. So again, to talk like this, I don't want to throw too many numbers at you, but let me just try to give you a few to understand. So one way to see it is

24:54if the story is going to be the reason when FDR first came in, the economy recovered very quickly then because of these deficits well then it sort of has to be the case doesn't it that the deficit was much lower under Hoover than under FDR if the deficits were basically the same then it really wouldn't make sense to say the economy was absolutely awful the literally the worst in US history in the last year of the Hoover administration and then we had the second fastest recovery in US history when Roosevelt came in because of his big deficits that story doesn't really make sense if FDRs deficits weren't much bigger than Hoover And so, of course, they weren't much bigger. The last year of the Hoover administration, the deficit was about four and a half percent of GDP, okay? So don't for one minute believe when people try to convince you that Hoover was a balanced budget freak. No, he wasn't.

25:48He might have been a freak, but he wasn't a balanced budget freak, all right? That Hoover ran unprecedented peacetime deficits, okay? More than any president in U.S. history up Up till that point, Hoover was a big government man who said the federal government has a responsibility to help the economy when it's down and on the ropes. That was Hoover, so he spent money. It's true, FDR was a bigger interventionist, but FDR was the biggest interventionist in US history. Hoover was not a small government man. So again, Hoover's last year in office, there was a deficit, about 4.5% of GDP, which was a huge amount at the time for peacetime. I think it was unprecedented. Okay, the three years after Hoover's out, when FDR is in office and Christina Romer tells us we had this phenomenal recovery, the deficit is a share of GDP over that three-year period averaged 5.1% of GDP. Okay, so we're talking about a 60 basis point difference between unemployment of 25% under Hoover, the worst economy ever, and then the

26:49and the most phenomenal recovery, because of a 60 point increase in the deficit as a share of the economy. So again, my point is, that doesn't make sense, that they can't be right, that that little tweak in the deficit is the difference between the worst economy ever and the best recovery ever, the second best recovery. That just doesn't make sense. Then going the other way, we can look at the end of World War II, all right? So here, the government, of course, was spending a huge amount of money. It had had, in U.S. history, the highest deficit as a share of the economy in its history, you know, when the war was going full tilt. And then, of course, U.S. wins the war, starts calling the troops home and slashing its spending, right? And so a lot of Keynesian economists and Tom Woods has collected some really great Quotes on this that he can share with you, or if you go to Mises.org, I think in the

27:42media archives you can see Tom has read some really funny quotes from Keynesian economists at the time who were predicting the Great Depression is going to resume now, because in their mind the only thing that got us out of it was the huge military spending, the Keynesian pump priming that we were forced into because of Hitler, basically. Say what you will about Hitler, but at least he got us to fix our economy. That's the mentality. So then they were saying, now that the government's going to cut spending because of these moronic republicans and so forth in Congress who want to cut spending and think that government is like a business and it needs to cut back once the emergency's over, we're going to just get plunged back into the Great Depression again. Well, you would think that would happen, so let me just give you the numbers. The deficit in, what was it, 1945, was 21.5% of GDP, right, so just a huge fraction of

28:36of the Economy was being borrowed and spent by the government. Then two years later, because they had been slashing spending, obviously, after the war was over, the budget, the deficit was gone, the budget was in surplus, 1.7% of GDP. Okay, so again, huge swing from a 21.5 share deficit to this slight surplus. So you would think, you know, we would just be plunged into absolute chaos, but no, there was no post-war recession. Technically, if If you look at the official dating committee, there was a recession in 1946, but again, that's mostly because the way they define it is they look at gross GDP figures and what changes. If the government stops spending so much, that's a huge component of GDP that gets knocked out, and so that's a recession, technically.

29:21But the unemployment rate in 1946 was all of 3.9%. and Business. Okay, so again, remember, the reason Hoover allegedly gave us 25% unemployment was he was too timid in deficit spending, and yet here, over a two-year period, the government has a, what was it, a 23-point swing in the deficit, and that, you know, gives a little pinprick of a recession, technically, that there was an unemployment rate of almost 4%. Right, so again, just the numbers, they're not even close. It doesn't make any sense to say that the reason we had that recovery and then the slump and then there wasn't a crash after the war has to do with deficit spending. The numbers, they're not even close.

30:06Let me move on to the other main explanation that you'll hear and that's, again, I'm sort of lumping all these schools of thought. Obviously there's new lines of differences between particular economists who would all The Federal Reserve, fiat money, fractional reserve banking, Human Action, Man Economy and State, The Theory of Money and Credit

30:49that the Fed has a lot of ammunition left. You know, why would they say the Fed has a lot of tonic left or a lot of, you know, medicine left? They don't say that. They say the Fed has a lot of ammunition left. And so that's, you wonder why is the Fed blowing up the economy. So, their view, again, is that what happened in the 30s, first of all, the stock market crash, they will typically say, is because the Fed tightened. The Fed tightened, that's what Milton Friedman and Anna Schwartz said, that the Fed tightened in 29, that caused a crash, and then the Fed, for some inexplicable reason, didn't inflate enough, prices started collapsing, banks started failing, and then there was just a vicious downward spiral, because the Fed didn't just come in and just print money like crazy, and that's what happened with the Great Depression, and then again, in our time, if only Bernanke would pump in more money. So the guy I'm going to pick is the representative of this train of thought, is Scott Sumner, now he's not a household name,

31:39I'm picking him to try to be fair, because he's actually a very sharp guy. He's actually very intellectually honest. I can have a discussion with him, and he'll concede some points, I'll concede some points, and it's not a shouting match. I'm picking him because I think he's a really good scholar, and so to give this argument its fairest hearing, that's why I'm drawing from his work. work. So he's working on a manuscript about the Great Depression right now and on his blog he posts little excerpts from it. So let me just read to you from some of his discussion. So this is Scott saying, I believe the Great Depression had two primary causes. One cause was deflationary monetary policies during 1929 to 33, and then from 37 to 38. And he also talks about some nominal wage shocks in the middle of the 30s due to the New Deal. And this is This is why the Great Depression lasted 12 years, ending about the time of Pearl Harbor.

32:35So I like this part. I don't know what ended the Great Depression, and don't really discuss it in my manuscript, but I suspect it had something to do with the German invasion of France. All right, so that's kind of, that'd be funny to put on somebody's tombstone, I think. And it says, this may have directly raised aggregate demand and indirectly increased expected nominal GDP growth by raising the expected inflation rate. Yours are usually inflationary. So I'm being a bit unfair by not giving you the full context of his views, but his idea is the Fed's job is to make sure that nominal GDP, which is not inflation adjusted, but just the actual dollar amount of GDP produced, he says just as long as the Fed keeps that growing year after year, that's what you need for a healthy economy, and in his opinion, the Fed didn't do that in the 30s, and then Bernanke didn't do it enough in our time.

33:29And then later on, a different post labeled, what caused the 1929 crash? Scott says right off the bat, I don't really know what caused the crash, but I think I have as good an explanation as anyone. All right? So again, it just, you see what I'm saying? That when I say he's intellectually ill, he's just coming forward and saying, I don't really know. So he doesn't know what caused the crash. He doesn't know what ended the Great Depression, but he's going to tell us the Fed should pump in a lot of money then and now, even though in in his story, he can't really get the beginning and the end right. Now, I only have, I think, one minute. Let me just jump ahead and give you some more numbers. This is actually good because I had a lot more numbers to throw at you, but you're being spared because of the clock. Again, let me just show you how, in my opinion, absurd this is. This doesn't

34:15make any sense. It's not even the same zip code, right? These numbers, they don't work. Again, this guy, he's blaming the slump back then and now on the fact that the Fed was and the way to see that is to contrast that Tom Woods has done this a lot in his work too with the 1920 and 21 depression. So again, I'm not going to be able to do it right now, I'm running out of time, but if you go and look there, the government slashed its spending by like 82% over three years because that was the end of World War I. The government totally cut spending, the Fed jacked up its interest rates to record highs, and you had more price deflation than any single year period in the 30s. So everything that the government and the Fed were supposed to do, according to the monitors and the Keynesians, they did the opposite of in the 20 to 21 depression.

35:01And as we all know, the 1920s weren't so bad economically, the roaring 20s, compared to the 1930s. Let me just give you one last factoid. So I emailed back and forth with Scott and asked him, I said, well, how come, you know, what did the Fed do right in the 1920, 21 depression to nip that in the bud and then have the roaring 20s? And he said, oh, because they expanded the monetary base in 1922. That's what got him out of it. And so I just ran the numbers. In the last quarter of 1922 was the biggest growth of the monetary base, and that was an 11.1% annualized rate. So again, this guy who thinks it's all about the money supply, an 11.1% boost in 1922 was what saved the day. And he thinks nowadays Bernanke's just being too timid. In the first quarter of 2009, doing an apples to apples, the number, you know, what's the analog of The thing that did the trick back in 1922, according to this monetarist guy, was an 11% bump up in the money supply, and now Bernanke just did a 245% increase at an annualized rate, and his prescription is to say, well, obviously, Bernanke didn't inflate enough, because we're still in a recession, right? So, duh, Bernanke needs

36:19to Print More Money. Last sentence and I have to get off the stage. Is it just an empirical matter and the Austrians are just number crunchers? No, no, no. I have a theory, now go with me on this one, to explain these results, these crazy results. And my theory is, it's two pronged. First of all, the government seizing resources away from the private sector through borrowing and spending them doesn't make us richer. So that's sort of the way I explain these Keynesian results. And then as far as the, you know, to explain these numbers referring to the monetary experience, My other crazy theory is, printing up green pieces of paper with pictures of the president on them, doesn't make us richer. So, that's my theory to explain all this stuff. Thanks.