08/20/13 – Sheldon Richman – The Scott Horton Show

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So, our guest today is our good friend Sheldon Richman.
He is the vice president of the Future of Freedom Foundation at fff.org and editor of their monthly journal, The Future of Freedom.
Welcome back to the show, Sheldon.
How the hell are you?
I'm doing fine, and thanks for having me back, Scott.
Hope you're doing well.
I'm doing great.
Good to talk to you again.
It's been too long.
And by the way, also, you keep a blog at sheldonrichman.com.
Free Association, it's called.
Free as a tethered ass.
That's right.
So, everybody, please check that out.
And so, this one is TGIF from the 16th.
The goal is freedom.
The only tradeoff between privacy and security.
Well, you know, come on.
Seriously, Sheldon?
In order for people to live their life and be free, they've got to have a local government monopoly security force in order to protect their rights, right?
Wrong.
No, they don't.
In fact, it's the government that gets them into trouble and then comes along parading as the protector.
But the things it protects us from, you know, wouldn't, for the most part, wouldn't exist if the government weren't, you know, being what it has to be because of its nature.
Oh, yeah?
Well, give us some examples, then.
Well, I guess, you know, the most relevant examples to the piece refer to foreign policy.
And, you know, Ron Paul's off-line about they're over here because we're over there.
And as you well know, because I've heard you say it many times, history didn't begin on 9-11.
The U.S. was not just minding its own business on 9-11 when those guys flew their planes over here, which is not to say they should have flown planes into the World Trade Center or the Pentagon.
But the point is there was a history to that and there's a context.
And if we refuse to understand it, we do nothing to make ourselves safer from such things.
So now let's say we're real cynical and realistic and we face the fact that we live in this crappy world and that George Bush and Barack Obama have triple, quadrupled down on Bill Clinton's sins that provoked this terror war against us in the first place.
Well, and George H.W. Bush's and whatever before that, too.
But since, you know, we really do, we being the people who live between Bangor and San Diego here somewhere, between Miami and Portland, we have a threat.
Yeah, there are people who want revenge and have a strategy of actually making our government madder and dumber.
And so they very well could try to do some harm to us.
And so, come on, shouldn't the NSA be tapping somebody's phone to prevent that?
Come on here, we're talking about getting blown up to death.
You can't separate that from the drone campaign and the other forms of aggression in the Muslim world, which is making people mad at us.
I mean, the point of the article you referred to was the Obama and other members of Congress making statements about how, especially in light of the Snowden revelations, that we need to strike a balance, we need to have a debate about the proper balance between security and privacy and privacy in general.
And I wanted to point out that that's the number one sophony debate.
I mean, they wouldn't even be going through the motions had it not been for Snowden, who they have demonized.
On the other hand, they say, we welcome the debate.
Well, he made the debate, I put quotes around the word because it's not real, but he made the debate even happen, and yet he's being demonized.
So is he a good guy or is he a bad guy?
We wouldn't be having even the shell of the debate without him.
But this idea that we engage in a tradeoff with the government is nonsense.
First of all, it's not any kind of contractual tradeoff.
I mean, as I point out in the piece, if you hire a security company, they may need to ask you for certain information you don't normally give out.
But you would have a contract which said that they wouldn't disclose the information, and if we really lived in a competitive world, a truly freed market, competition would put pressure on companies to only ask what they really required and not ask for information beyond that.
And you'd shop around, and you'd find the best combination of features that suited you, and every other person would do that.
So if you want to call that a tradeoff, you could, but the point is you would knowingly be doing it, it would be contractual, and you'd have recourse if the company violated it, like if it disclosed your information.
That's not what Obama and Mike Rogers and Peter King mean when they talk about a tradeoff.
They mean they will set the so-called balance, but my point was when they said it, it's really not even a balance because to the extent they're invading our privacy, they're undermining our security.
And as I say in the piece, if you've read 1984 or any of the other dystopian novels or seen the movies, you know that when government can spy on us and get information on the people that live under it, those people are less secure because of that.
It inhibits their activities.
They're concerned that somebody's always looking over their shoulder.
So that's a sacrifice of security along with the sacrifice of privacy.
In other words, it's not a tradeoff.
It's not a balance.
Both of them go together because privacy slash freedom and security are bundled up.
And so you can't give up something to get more of the other thing because they both go together.
That's my point.
Well, and even if you're talking about lethal consequences, the government that can spy on you with impunity can kill you with impunity too.
So it's not like, well, you know, I'll take a little spying if you'll keep me from getting killed.
That doesn't even hold up, you know?
Well, you know, and we shouldn't be looking, you know, to the government for, you know, to keep us safe from being killed.
I mean, how many Americans have, you know, never come home because government sent them off to some crusade in a foreign land and they got killed and never made it home?
Or how many people who came back just a shell of their former selves because their inner life was shattered, if not their biological life, then, you know, their psychological life.
So government, you know, the U.S. government, which supposedly is our protector, kills Americans all the time.
I mean, they're still dying in Afghanistan.
We know that.
And so it's just bogus all around.
I just tried to, you know, rip the shroud off.
Other people have done this, of course.
I don't claim to be the first by any stretch of the imagination.
I just wanted to further rip aside that shroud and let people see what it is we're talking about.
Yeah.
Well, you know, I remember back before I was, well, I guess I was kind of born always a hardcore libertarian, but, you know, especially going to government school and all that, one can get really committed to the whole mythology of there's some things that you just don't question about the basis of the society, like having the Constitution, for example, you know.
Maybe it's more trouble than it's worth kind of a thing rather than our last-ditch protection.
Maybe it's the cause of all our problems.
That kind of thing is you get to people's emotions at that point where, you know, that's one of the things that we don't talk about, you know, like publicly questioning your faith on Sunday morning in front of everybody at church or whatever.
You know, people don't like that kind of thing.
Sometimes you've got to hold their hand a little bit and go, you know what, it's all right to question whether George Washington was actually a decent person at all, or whether his legacy has really been a net benefit, you know?
Well, I think, you know, for the government to remain in power, it needs to convince people, basically, that it ought to remain in power.
A long time ago, you know, there was a thinker by the name of Etienne Labuette who pointed out that in any society, the number of rulers his way is dwarfed by the number of people ruled.
So for the rulers to stay in power, there's got to be a certain popular, if not consent, that's probably too strong a word, acquiescence, because they could overwhelm the rulers, not even by violence, just by non-cooperation.
I mean, imagine if people just decided they didn't recognize these people as legitimate rulers anymore, and they just stopped cooperating with them, paying taxes, et cetera.
Sure, the state's forces could, you know, kill some people, beat some people, imprison some people, but if the numbers of noncompliant people were large enough, you know, the government would be out of luck.
So they have to maintain the acquiescence and minimize the questioning, which is what I think the government schools do, and what the whole constitutional edifice does.
I mean, it begins with we the people, and this idea is to convince us that this is really us, right?
The government is us.
Like, you know, toys are us while the government is us.
And as long as we keep believing that, then we're going to be less reluctant to object, because, you know, how do you object against yourself?
How do you object against your so-called representatives, if you really believe they're your representatives?
But if you start to strip the stuff away and see that they can't be your representatives, that's a joke.
They're part of the ruling elite, and we're on the other side of the divide.
They're not of us.
And so we need to wear away that ideological facade so that people can see through, you know, to the true nature of things.
Yeah.
Well, and, you know, I want to talk about your piece from today too, Delete the Fed, because I think this is really good.
Oh, yeah, good.
Because this is, to me, obviously it's at the root of so many problems.
That's just a fact.
Never mind to me.
But to me, this is like the greatest scam ever.
It's like if anybody ever fed a line of crap to anybody else that they believe, other than, you know, in general the state is here to protect you or whatever.
But as far as a specific set of crap, this whole thing about you've got to have the government and these goons work together to control your money supply for your own good has got to be some kind of world record here anyway.
And also, when people learn the truth about it, that, wait a minute, the very money that we use in our every transaction is corrupt.
It's like the biggest light bulb going off over their head about, hey, this isn't a republic at all.
What is this at all?
I don't know what's going on here.
And was it right for me to go serve them in a war?
Well, you just have to understand that since 1914 when the Fed opened the doors up and opened the stores, the value of the dollar until this day has fallen 95%.
I mean, I don't think people generally know that.
But, okay, so it's worth a nickel today.
What you could buy with a nickel back then takes a dollar today.
And people don't generally know that.
We need to go deeper and explain, because people don't understand this, is that money is not some creation of government.
It's not some benevolent creation.
Money is a spontaneous, natural, emergent institution that came out of just people trading and trying to facilitate exchange and overcome the inconvenience of barter.
And a couple of things became more readily tradable than other things because of particular features.
In the case of precious metals, it's obvious.
They were relatively scarce.
They could be melted down.
They could be coins.
You could make coins out of them.
It had good features to serve the purpose of being a readily tradable thing so that even if you didn't want those gold disks for your apples, you knew that you could take the gold disks because when you went to buy something, the sellers would be happy to take the gold disks because they knew that someone else was going to take the gold disks and so on.
So money is not a creature of government, and therefore government is not needed to be a steward of the monetary system.
And we know what happens when the monetary system is turned over to the government.
It wrecks the money.
Plus, it enables the government to engage in profligate, reckless spending and borrowing, which then is used to finance war as well as other things.
But war, particularly in the context of your program, we can put the emphasis on war.
Yeah, but I heard from a teacher in school somewhere or on TV or something like that that the Federal Reserve is the restraint because without them, the banks would create even more money out of nothing all the time.
They would make even more bad loans because they're such lousy businessmen, and they would cause the terrible booms and busts all the time.
That is the break on that.
I cite in my article, which you can find at ffs.org, today's op-ed, which is called Delete the Fed, a link to a great paper published by three very good monetary economists, people I have great respect for, Larry White, George Selgin, and I think it's William LaStraps, who go through the Fed's history.
It's sort of a report card on the Fed as it heads into its second century.
And they show that by no measure are things better in the Fed era than they were in the pre-Fed era.
And don't forget, and they point this out, the pre-Fed era was not a free banking, free market era.
So that was a flawed system as well.
There were national banks.
There was interference at the state and federal levels.
But even using that as the comparison, the Fed does not look good.
Recessions are longer, have been longer.
Recoveries have taken longer.
I already mentioned inflation, the devaluation of the dollar.
We're down to a nickel.
And they use other criteria, too, to show that the Fed's record is terrible.
And that's even if you take out the 20s.
It was pretty new in the 20s.
Of course, we'd get the crash in 29 and then the depression in the 30s.
But a lot of economists call the 20s the practice decade because the Fed was just getting its legs.
But even if you take out the 20s, the Fed's record looks very bad compared to the pre-Fed period.
People don't generally know that.
It's taken as an article of faith because it's reinforced from the media and the schools that without the Fed, there'd be chaos.
And that's just nonsense.
Well, and so here's the thing, too, is it's sort of like the bias built into the term intelligence.
If government claims to know something, they automatically categorize it as being smart, even though that ain't necessarily true.
And with this, they just from the very get-go, they've got the jargon all rigged against the truth.
It's the business cycle is the boom and the bust because that's how businesses are.
They just, I don't know, I guess they never think further than a couple of years out or something.
And so they way over invest in certain things when they have too much when they're making too much money.
Then they make a bunch of bad investments and a bunch of extra stupid stuff.
And then those bubbles pop.
And so, you know, damn businessmen, that's that's why we need the Fed.
And even if they haven't done a real good job, it's just been their practice century.
And but now a hundred years out now, they're good at it.
And now they can restrain that boom and bust and smooth that boom and bust out.
They have to.
Well, a couple of things.
It's true that they've gotten better than than they were.
I mean, they're they're intelligent men and women and they're going to learn.
But as something else I cite in my piece, Jeffrey Rogers Hummel, who's a very good money and banking economist, but the San Jose State points out that while they've gotten better at controlling inflation, I mean, that that hyperinflation that people have predicted, you know, for a firm for many, many years, for some reason, has not arrived.
So that they have gotten better at controlling inflation and keeping it kind of small and low.
But what they've done now since 2008 under Bernanke is become a central planer of capital allocation.
And Hummel, I have a link, Hummel documents this in an article that was in the Independent Review to show that the Fed for the first time, never done this before before 2008, is directing capital to particular companies.
You know, in the old days, the Fed would, you know, increase credit and then the banks would just sort of lend it out.
And the Fed wasn't trying to direct it here or there.
Now they're in a whole new mode where they are directing it to particular industries and companies even.
And so we now have a central planner for the allocation of credit and capital.
And that obviously has no place in a free society.
So it's another reason to get rid of the Fed.
Well, you know, I can tell that the people on TV are getting a little smarter about this too because they talk about, well, geez, they're not ever going to quit creating new money and buying up all this bad debt, are they?
Because what would happen to the markets if that happened?
I mean, that's the way they talk on CNBC and what have you.
Well, right.
You know, the Fed does manipulate the whole market process.
It's been buying mortgage-backed securities from banks and so relieving the banks of what might be very dubious quote assets.
At the same time, you know, we're not seeing that money generate a price inflation because the Fed, what the Fed has been doing mostly is borrowing the money back immediately by paying interest on the bank's Fed account.
So they're leaving the money, you know, in their Fed account and drawing interest.
It's also a secure way for the banks.
They're only getting .25 percent, but it's a secure loan to the government.
And so it's safe and it's attractive.
And the demand for, you know, the loanable funds is not booming because people are uncertain about different things, Obamacare, Dodd-Frank, et cetera.
And so there's not a great demand for loans either.
So, you know, that's why we're not seeing inflation despite the fact that the federal government, the Fed has been creating money.
But they found a way to keep the money bottled up.
So I don't think that's the great danger right now.
The great danger is that Bernanke is allocating capital.
What people don't understand is, I mean, it shouldn't take much to see that the Fed is not a good source of security.
In a market, a truly free marketplace, there's a high degree of decentralization, which means anybody who makes a mistake is making a fairly local mistake.
And so a lot of people, even if a few people around, you know, the center where the mistake occurs get hurt, it's still going to be fairly contained.
But when you take an economy like the United States, what is it, $15 trillion, and you have a Fed, a centralized Fed, if it makes a mistake, everybody suffers.
Well, except for the few privileged people that are going to rake in profits.
But the whole society and maybe the whole world will suffer.
So you don't want centralization.
You want decentralization.
But the Fed makes things as centralized as they could get.
Yeah.
Well, and you still have inflation in certain sectors, like in housing and in the stock market.
It's always the stock market that benefits, while, you know, the average person actually is sort of, if they have any money at all, they're sort of forced to invest in speculative things like that, when really they're not that kind of expert.
They ought to just have a local savings account.
But it might as well be a crime to have a savings account, because inflation will kick your ass on that interest rate.
Well, Chris, when you say inflation in certain sectors, I mean, you've got to be careful, because inflation usually means, I mean, typically price inflation.
You mean like widespread price inflation, yeah.
A general, yeah, a general increase, sustained increase in prices.
So to say, you know, gold's going up, that's not inflation.
Or say the stock market's booming, that doesn't count as inflation.
There could be a lot of explanations for that.
It's true, interest rates are low, and that's a reason why people will turn to the stock market, because they want to try to get a better return.
But, of course, you're right.
It's riskier.
You need to know more.
And not everybody has the ability to spend the time to become a knowledgeable investor.
And it's never going to be the case that anybody can walk into the stock market and do as well as anybody else, because if somebody who puts the time in and studies and approaches it as a real vocation, you know, you might expect that person to do a little better than someone who just wanders in and says, you know, I'll buy some stocks.
So, yeah, that's a shame.
And, like I said, I also point out in the article that we have this myth that the Fed controls interest rates.
And, again, that lies in the face of good economics, because, you know, the Fed can target its own overnight bank rate, the federal funds rate, but even there it doesn't always hit its own targets.
But the idea that it controls or sets or even heavily influences mortgage rates and other kinds of interest rates is a myth.
And this is only good economics, because, look, if the Fed is doing something to lower rates, people respond to that.
People aren't robots, right?
They see what's going on.
If they get a sense that the Fed is creating money in order to lower interest rates and the money is flowing out of the economy, lenders are going to raise rates, aren't they?
They're going to want an inflation premium.
They don't want to get screwed by the fact that price inflation is going on, and they don't want to get paid back in cheaper dollars.
So rates might go down in the very short run, but then they're going to go up soon when people see what they're doing.
And these days people are much more sophisticated.
I mean, the markets are much more sophisticated at watching what the Fed does.
It's easier than ever to switch from one currency to another, because currency controls over the years have fallen away under various kinds of deregulation.
And so people are able to adjust their behavior much quicker than they could previously.
So the idea that the Fed can inflate and hold down rates is really the opposite of the truth, and it assumes that people are sort of automatons just walking around oblivious to the surroundings.
Well, at the same time, in the sectors where the Fed is directly injecting capital here and there, people can wise ride up to that and just short housing stocks or short whatever it is that's being propped up, right?
Well, there's more information available than ever before, and it travels basically at the speed of light.
So you're right, sophisticated people who are keeping an eye on things can switch from sector A to sector B in response to a change in Fed policy.
So, you know, the Fed, I've heard the Fed compared to a kid sitting in a little car seat that has a phony steering wheel on it, and the kid believes he's steering the car, and the parents encourage him to believe he's steering the car, but he ain't steering the car.
So there's this illusion that the Fed steers the economy, and that's just not true.
I mean, it could wreck it if it did certain things, but it doesn't steer it.
Yeah, well, although who knows what steer means exactly in that case.
I mean, I know a guy, for example, who he was a student of Murray Rothbard.
He had read America's Great Depression, I guess, and he's a construction guy.
But he would just watch the federal funds rate, and as soon as he saw Bernanke was beginning to raise the rate to try to prick the bubble and let the air out in 2007, I think it would have been in 2007 when he started, he knew, a la Rothbard, that you can't let the air out slowly.
Eventually it's going to pop.
And so at that point he sold his construction company and waited until the whole market collapsed and whatever, and then went to get back in the business later, I guess.
Keep in mind, even the Fed doesn't set, and I emphasize that word, the federal funds rate.
It targets it by buying or selling securities to the banks or the securities dealers.
Well, yeah, but I mean it was a deliberate policy beginning to deflate or to slow the rate of inflation or something at that point, right?
Well, like I said, it targets it, but it often doesn't hit its target.
So I don't know how reliable, I guess if you were this guy, you want to err on the side of caution, and so I suppose you did the right thing.
But I don't know generally how good a guy that is.
I don't give investment advice.
I'm the last person in the world anybody should listen to about what moves to make in response to the Fed.
Oh, yeah, no, I didn't necessarily mean that.
I guess, well, I'm still kind of stuck on the difference between just, or maybe why there's a difference between just having inflation across the economy, price inflation across the economy versus having the kinds of distortions.
I mean because after all, in the Bush era, price inflation on the shelf, I mean fuel and food prices were up some and that kind of thing, obviously housing, but mostly housing, right?
That kind of thing.
It wasn't widespread price inflation.
It was huge distortions and bubbles in certain markets.
Right, but we don't have that inflation.
Sure, the government can adopt a whole series of them, which it did, a whole series of policies to stimulate demand for housing, you know, mortgage deduction and the Community Reinvestment Act and Fannie and Freddie jumping in.
So they've got all kinds of policies that make it attractive to buy housing rather than something else.
And then you'll see a rise in demand and a rise in prices.
But that's not what we mean by inflation in general.
We mean by a general rise in prices.
Well, we ought to do this more often because we've got to go.
We're all out of time.
Thanks, Sheldon.
Okay, pleasure.
Appreciate it.
Everybody, that's Sheldon Richman from FFF.org.
See you tomorrow.
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