06/24/15 – Mark Thornton – The Scott Horton Show

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Hey guys, how's it going?
Why is it so peaceful in here?
It's because I forgot to turn on Fox News in the background, man.
For the corner of my eye, you know to keep me fearful.
I'm Scott Horton.
Today on the show, Mark Thornton and Reza Murashi, but first, Mark Thornton.
Hey Mark, welcome to the show.
How are you?
Hey Scott, I'm doing great.
It's great to be shaking things up a little bit here today.
Yeah, yeah, happy to start the show with a Mark Thornton interview for a change.
Everybody, you know Mark.
He is senior fellow at the Mises Institute.
That's mises.org, and he calls the bubbles before everybody else.
That's basically his shtick, and so you've written this very interesting article, Gold and Economic Inequality, and I think I want to start with this, and then we got some other things to talk about too, but it's all kind of the same thing.
Gold and Economic Inequality.
Now, I know you're libertarian, which is not necessarily the same thing as being Austrian school economist, and so I know that you don't favor egalitarian policies for their own sake or, you know, attempted ones, but you're arguing here that the less control the government has over the economy, the less inequality there will be between those who own the capital and those who work for them, broadly defined, and yet, but that's not what I learned in government school, which is that capitalism tends towards monopoly and richer and richer people getting richer and richer and taking more and more of the pie at the expense of everybody else, and so government has to come and intervene with progressive taxation and take some of that extra money and give it to the poor people and all this kind of thing in order to balance this stuff out.
So, who's wrong?
You or them?
Well, you put it very well, Scott.
The traditional propaganda is that we need the state in order to suppress monopolies, in order to redistribute money and resources to poor people, but the reality is that capitalism on its own produces a very fair distribution of income with a small lower income class, a very large middle income class, and what I call revolving upper income class.
The market economy doesn't provide people with monopolies, it doesn't provide them with privileges, it doesn't take away money in the form of taxes, and so it gives everybody the opportunity to work and to save and to invest and to be entrepreneurial and to move up the economic ladder, so to speak, so there's no need for welfare, there's no need to tax, there's no need to provide monopolies for extremely wealthy people.
I think in a real capitalist system, a real free market, you wouldn't see these tremendous, outrageous, like billion-dollar-a-year income situations for a small number of people while millions of people don't have access to jobs, have no incentive whatsoever to invest, and who face heavy taxes on the income that they do earn.
All right, now, okay, I gotta admit that we do have the biggest government in the history of all of mankind, and so, okay, you got me there, but on the other hand, a Republican or a Democrat listening is saying, come on, Mark Thornton, you're being utopian, like every poor person is going to become a businessman as soon as you deregulate the rich people.
Come on.
Well, Scott, I mean, that's what happens in the real world.
When there's no blockages and there's opportunities, people take advantage of them.
So, I mean, in the absence of government intervention and taxes and regulations and minimum wage laws and licensing requirements and all that, people would have easy access to jobs.
There wouldn't be any real unemployment problem, and then there would be open opportunities to become entrepreneurs, usually small business people who employ other people.
Right now, we have a situation where if you want to go into business, you're usually going to have to get a license, you're going to have to meet all sorts of government regulations, red tape, paperwork.
In the American economy, other countries, it's even worse, but it's very, very difficult to become your own entrepreneur today compared to 10, 20, 30, 40 years ago in this country.
And so, you know, there's a lot of talk in these days about, you know, the minimum wage is too low, and Thomas Piketty's book, Capital in the 21st Century, calling for wealth taxes.
We've got a socialist in Bernie Sanders running for the U.S. president.
Everybody's focused in on this economic inequality issue, and both the left and the right don't have the right solutions.
You know, the left, the progressives, they want more welfare, they want better schools, they want free college, job training, on and on and on, whereas the conservative right wants welfare reform, charter schools, tax reform, and the negative income tax.
And none of that stuff really gets to the heart of the issue.
That's just taking wealth and resources from some and giving it to another, where the government takes a big cut in the process.
And so, neither side really understands it, and so neither side is really offering the real basic reform, which is less government, less government regulations, less licensing requirements.
And most importantly, what I point out in this article is that you need an honest monetary system.
Gold is an honest monetary system, and it provides, you know, a much better system in which workers, savers, investors, entrepreneurs are grounded in the fact that money is a real tangible thing.
And I know, Scott, in your heart, the gold standard also is a check against aggressive foreign policy and running up huge national debts, because under a gold standard, countries just can't borrow trillions of dollars to finance overseas empires.
And so, the gold standard is, you know, has always been a key issue with the Mises Institute and its members and its donors and its faculty, because it does provide this level playing field in which everybody benefits, and which also substantially constrains the ability of government to do the outrageous things that it does overseas.
Yeah, absolutely.
But, you know, I learned in junior college that, uh-uh, because inflation is good for the middle class, because they get to borrow in dollars and pay back in dimes.
And that's why we have so many homeowners in America, such huge percentages of the population that own homes, is because they get to pay 30-year loans back in depreciating dollars.
And thank goodness.
Otherwise, they'd all just be living in boxes in apartments stacked on top of each other.
So, what about that?
Yeah, that's a good one.
Home ownership is all fine and good, but in the modern economy, we don't need home ownership the way we did in previous decades.
Now, we have a more dynamic economy where people have to move around.
And you're right, inflation does help borrowers.
But the biggest borrower is the U.S. federal government, which has 17 trillion dollars of debt.
And so, in comparison to, you know, your home mortgage, that's just, you know, you're comparing dollars to donuts there.
It's the federal government that is the biggest winner from this inflationary process.
And workers and savers are the most disadvantaged in the economy because of inflation.
Inflation eats away the purchasing power of your wages.
Inflation eats away at your return on savings.
And so, workers and savers, which is the real productive economy, that's what's getting hurt the most.
And so, if you go on to a gold standard, historically, what you've seen is a small deflation of prices in the economy so that every year the price of things goes down.
So, it's not just computers and flat-screen TVs, but bacon, coffee, hamburger, all the things that we consume see lower prices year after year.
So, your wages actually buys more in your savings if you're holding gold or if you've got money in a bank account and you're earning three percent interest and you've got deflation, then you might be earning five percent purchasing power on your money.
Hold it right there, Mark.
We'll be right back.
Mark Thornton, y'all.
Phone records, financial and location data, PRISM, Tempora, XKeyscore, Boundless, Informant.
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All right, you guys.
Welcome back to the show.
I'm Scott Horton.
Yeah, we started right away with an interview here on the show today.
It's Mark Thornton, Senior Fellow at the Mises Institute, Editor of the Quarterly Journal of Austrian Economics, the author of The Economics of Prohibition, Terrorist Blockades and Inflation, The Economics of the Civil War, The Quotable Mises, The Bastiat Collection, An Essay on Economic Theory, and The Bastiat Reader.
And it goes on and on like that.
You can check them out at Mises.org.
Senior Fellow there.
And so we're talking about how the free market capitalism is the solution to what ails the economy, despite what you may have heard.
And of course, it's always the mythical laissez-faire 1920s in America.
No matter how many new deals we have, the answer is always just, man, that laissez-faire is bringing us down.
We need more regulation.
We got to have politicians iron out what's wrong in the society, and people just can't get over it.
And I wanted to mention one thing, and obviously, well, I don't know, obviously, but we probably don't have time to get too far into this, Mark.
But the part about, you know, inflation benefiting homeowners, that's true in a sense.
But then again, we also have these gigantic bubbles, which, as you teach, the Austrian School of Economics teaches, the bubbles and the distortions and the so-called business cycle are really the government inflationary money cycle.
And that without a gold standard, that this always happens, and you end up having people who, yeah, in theory, all things being equal, they'd have bought a house in depreciating dollars.
But in fact, what they did was bought it in 2006, and now they're upside down and foreclosed, and their credit's ruined, and they can never own a house again.
And, you know, who knows what kind of mess.
And that happened to millions of people because of the distortions of the economy, because of the lack of sound money right there.
So I don't know who said it first and best.
I guess Mises or something about how all they ever do is just cause a problem and then intervene to cause more and more problems in the name of fixing the ones that are their fault in the first place.
And if they would just call it all off, just like with the empire in the Middle East, just call the whole thing off and everything would be fine.
That's basically the economics you're preaching here.
Is that right?
Absolutely, Scott.
You're absolutely right.
It's not just inflation.
It's not just depreciation and depreciation of your currency.
But the Fed also causes economic bubbles to take place.
And so, you know, since going off the gold standard and monetary deregulation, the Fed has caused the technology bubble, the housing bubble, and it's causing a current bubble, of course, in the stock market, in the bond market.
And we're on high alert for trouble ahead as far as that's concerned.
So yes, the Fed does cause the business cycle.
It does blow up bubbles.
And it's currently blown up a bubble in the stock market and in the bond market.
And you can see some of these stocks, like in social media stocks and biotechnology stocks, that the valuations are outrageously high.
And the fundamentals are not nearly supportive of it.
It's the Federal Reserve that's supporting this bubble in the stock market.
And those things did happen under the gold standard, but not nearly as much in the 19th century when we were on the gold standard in the national monetary legislation.
We did have banking panics, but they tended to be very short-lived.
And they were related to the federal government's regulation of banks.
But the money was sound, the purchasing power was sound, and the business cycles were much, much less severe.
All right.
Now, I actually read recently in, I don't know, Forbes or The Economist or some mainstream type of newsweek sort of a publication or something about how, oh, come on, this support for gold standard is crazy.
You know, it hurts the poor the most.
Poor people don't save.
And I thought, well, come on, obviously they're begging the question there in the proper use of that term, assuming their own conclusion about why the poor don't save.
Maybe they don't because the only place they could would be, I don't know, a local savings account, where, as you said, they're going to lose ground to inflation every year.
It's basically a crime for them to try to save.
Why would they bother?
And then when you have generations of artificially low interest rates in a row, then you just have entire segments of the population who don't even know what it means to save.
Because, again, government policy is basically forbids such a thing.
But on the other hand, they also did point out, Mark, and I guess I assume you agree with that mostly, but they also did point out, though, but high interest rates hurt for a poor person to try to borrow some money.
How is somebody supposed or poor middle class, working class people trying to come up, trying to be entrepreneurs?
Isn't it much tougher for them to afford loans to expand their businesses when interest rates are high?
And doesn't that kind of hold the economy back?
Well, Scott, under the gold standard, Americans on average saved about 10 to 12% of their income each year.
They could put it in the bank, and realizing it would not depreciate in value, but they would earn interest on their money, and then we would build a substantial nest egg.
And so most Americans saved, and they tended to save in double digits of their income.
But under the current system of fiat money, which is rapidly depreciating in value, and not appreciating in value, you have no incentive to save.
And so as a consequence, if you did save, you're going to earn very little interest because of what the Fed is doing.
And then they're going to tax the interest that you do earn.
So it's a losing proposition.
So Americans, quite naturally, have gone from being frugal, saving for the future, providing money to banks to make mortgage loans, which typically were like 4% all the time in the 1950s and 1960s.
So mortgages were readily affordable.
In the current situation, Americans don't save, and our savings rate has actually been negative in some of the past few years, and now it's still less than 5%.
And I think that the only reason Americans have got positive savings now is that they're so concerned about instability in the economy, and they're so concerned about the future of their jobs.
And so I think it's just emergency-type savings that people are doing today.
And in the absence of that perceived instability, which I think is justified, Americans wouldn't be saving anything at all.
It's all policy-driven.
Yeah, you're saying they're willing to stuff paper money in their mattress at a loss just to be safe because, hey, it's better than not having it at all, leaving it in the bank, and, oh, it's gone.
Yeah, people are putting money in the mattress all the time.
The government's got a war on cash, but people are saving money outside of the banking system.
And that's true in the United States.
It's true in many of the European countries.
It's obviously very true in Greece and Italy, Spain and Portugal, places like that, that they're afraid of the banking system.
And the central governments of the world have put in bail-in provisions into their banking system so that if large banks go under, it's not the taxpayer that's going to have to pay for it.
It's the depositors who are going to lose a certain percentage of their deposits.
And so, you know, that's the type of war on cash and war on people that governments are doing systematically throughout the world.
Yeah.
All right.
Well, there's the music.
Thanks very much for your time, Mark.
Great to talk to you again.
We need to do this some more.
We only got to half of what I wanted to ask you about, in fact, after all that.
Yeah, well, come see us.
Come see us at Mises.org.
There you go.
Mises.org, the Ludwig von Mises Institute.
Appreciate it.
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