Sorry, I'm late.
I had to stop by the Whites Museum again and get the fingered at FDR.
We know Al-Qaeda, Zawahiri is supporting the opposition in Syria.
Are we supporting Al-Qaeda in Syria?
It's a proud day for America, and by God, we've kicked Vietnam syndrome once and for all.
Thank you very, very much.
I say it, I say it again, you've been hacked.
You've been took.
You've been hoodwinked.
These witnesses are trying to simply deny things that just about everybody else accepts as fact.
He came, he saw us, he died.
We ain't killing their army, but we killing them.
We be on CNN like Say Our Name been saying, saying three times.
The meeting of the largest armies in the history of the world.
Then there's going to be an invasion.
All right, you guys on the line.
I've got the great Mark Thornton.
He is a senior fellow at the Ludwig von Mises Institute, mises.org.
And he is the book review editor of the Quarterly Journal of Austrian Economics.
And he is the author and or editor of the Economics of Prohibition, Tariffs, 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.
Look him up at mises.org.
And he's got a brand new book out.
We've talked about this subject before, but now here's the complete work.
The Skyscraper Curse.
And you can buy the book, but you can also just get the EPUB or the PDF or whichever you want.
All the links are right there at mises.org, The Skyscraper Curse.
And I read it over the last couple of days and it's great.
So very happy to have you back on the show.
Mark, welcome.
How are you, sir?
Hey, Scott, I'm doing just fabulous.
It's great to be back on the program.
Very happy to have you here.
So I think other than the wars, this is the most important thing in the world.
And part of what's so important about it is that nobody knows about it except the Austrians.
I mean, everyone knows that we live through the boom and the bust.
Everyone knows that sometimes the economy's good and sometimes it's really bad.
And we'll have these bad crashes and this and that.
Dot coms this and housing derivatives and what have you.
But only the Austrians have the real explanation for what's wrong with the economy that it keeps doing this.
It ain't just capitalism.
It's, well, I'll go ahead and ruin it.
It's government-backed artificial bank credit expansion.
That is, yeah, the money supply.
And so that's what this book is about.
And you kind of have a novel approach, basically, for explaining this.
The skyscraper curse, based on a report by a guy named Andrew Lawrence that he wrote back in 1999, where I think he was just kind of being cute, right?
And saying, hey, look at this funny correlation that I found.
And then you read that and said, that's no correlation.
That's a causation.
Let's get right to this.
Oh, that's the core of it, Scott.
No doubt about it.
I was, you know, kind of in a little shock when I was reading about that report by Andrew Lawrence.
And so I followed up and I followed all the business publications of the time and everybody mentioned it.
But most of them made fun of the whole thing that a record, a world record setting height of a skyscraper could somehow be related to economic crises.
And so most people laughed it off in 1999 and early 2000.
But, you know, what I saw was the Austrian theory of the business cycle at work here.
And the whole phenomenon was a beautiful cause and effect relationship between what the Federal Reserve does in lowering artificially low interest rates, causing both a boom in the economy and the tendency for people to want to set new world records skyscrapers.
And so I followed that up and followed it through and have been writing about it now for almost 20 years.
And so I wanted to collect all of my thoughts about the skyscraper curse.
Right.
Andrew Lawrence wrote about a skyscraper index or indicator where he chronicled the history, the 100 year history of the boom bust crisis cycle and world record setting skyscrapers.
And so I put all of that together.
And then I also put together a history, a chronicle of how Austrian economists have been correctly predicting major economic crisis in the economy for that same period of time.
Now, they're separate and distinct.
I mean, Ludwig von Mises and F.A. Hayek and Murray Rothbard were not using the skyscraper indicator, but they did make correct predictions.
And so all of that's in there.
And so you get a big amount of heavy, fun information about the economy and American history over the last 100 years.
That's true.
And, you know, it really is very readable for people who aren't necessarily interested in economics.
You know what?
And I should always add this.
I like to add this, that even if you don't agree with us libertarians about any other thing, this is still right and interesting.
So you could be for the warfare state or for the welfare state or for the regulatory state and still recognize the influence of monetary manipulation on the distortions in the marketplace that we're going to be talking about here.
So this really should be for everyone.
And it is a very readable text.
I really think people will like it.
So now I want to start with this just because it's kind of silly.
And I know all the actual libertarians listening will know better than this.
But there was, I guess, even an article written criticizing you that misunderstood, maybe deliberately kind of refused to understand what you were saying and pretended that you were saying that skyscrapers cause depressions or something like that.
So explain exactly what we're talking about with this correlation and causation here, Mark.
Well, this is kind of irritating for me, Scott, because, you know, a lot of people have been writing about the skyscraper curse, and you can tell that they've been reading my stuff.
But they usually don't name me, you know, as their nemesis.
But I have had a couple of instances in the last couple of years where, in one case, three economists from Rutgers University wrote an article saying that the skyscraper curse was dead.
And it was literally the word myth was used in the title because they ran all these fancy statistical tests, and they find out that the building of skyscrapers does not cause decreases in GDP.
And I thought for a second that, you know, when you first hear the data is, you know, totally damaging your viewpoint, your theory, it's quite unsettling.
But then I realized, you know, come to think of it, that's exactly what I say, too.
It's not necessarily that the building of skyscrapers causes economic depression.
That's not the cause and effect relationship that we're dealing with.
What I'm saying is that artificially low interest rates caused by the Federal Reserve do cause a boom in the economy, a lot of new building, including, if it's long enough period of time, the building of a new world record setting skyscraper.
So the Fed causes both the boom in the skyscraper and eventually an economic crisis, which is the curse.
And so all of their data, you know, properly understood, supports the skyscraper curse.
It doesn't undermine it.
And so we wrote a comment on this academic article, and we sent it to the journal and they rejected it.
And one of the referees to the paper was actually one of these Rutgers economists.
And so we didn't get our point of view known.
I think they were too embarrassed to print our comment.
And so shortly thereafter, I find in The Economist magazine of all places, them saying that the skyscraper curse is a myth.
Right?
And so I wrote out a letter to the editor.
I sent it to The Economist.
And voila, they didn't publish it.
I think it's just they were embarrassed that their understanding of this issue was so juvenile.
And three months after that, I get an email message from the editor at The Economist magazine saying that my email had been misplaced.
And so, you know, it's just been a very, very frustrating couple of years.
And I hope that this book makes a big splash and gets people's head screwed on right because at one time they everybody thought pretty much that skyscraper curse was a legitimate thing to think of.
And so hopefully the book will do well and the skyscraper curse will be vindicated.
Well, you know, to kind of pique everybody's interest right here, they're building the Jeddah Tower right now due to be the world record setting highest skyscraper ever in 2020.
So that's why this matters, maybe.
But now, so tell me why skyscrapers exactly?
Because couldn't we be talking about football stadiums or new super highways or new this, that or the other?
There's always whenever there's a bubble like this, there's a huge bubble in the stock market to go with it.
Tech stocks, other real estate, commercial and residential and everything else.
So why skyscrapers?
Well, that's a very good point.
I mean, we do see during booms in the economy, artificially low interest rates causing new corporate headquarters and new stadiums and all sorts of new buildings.
But this skyscraper is something that we can look at, we can see, we can look at the guts of what's going on in there.
And what we see is, is that in order to build a world records setting skyscraper, all sorts of new technologies have to be invented.
You need to have advanced technology, which the Austrian business cycle theory talks about, about, you know, using new technology that otherwise wouldn't be necessary.
And so when you have a world record setting skyscraper, you have to build all sorts of or invent all sorts of new ways of constructing buildings to get them up to that new record height.
So pumping concrete and things like that.
Elevators have to be more efficient.
Plumbing has to be more efficient.
Heating air has to be more efficient.
You can't just make the existing systems bigger, because every time you make a system bigger, you take away floor space, and you take away floor space on all, you know, 120 stories of the building.
And so that's just too inefficient.
So it's a natural sort of, but artificially caused creation of all sorts of new technologies.
And that's the kind of thing that's going on throughout the economy during the boom phase of the business cycle is we see all sorts of new things happening.
But we don't know if they're natural or artificial.
So with the world record setting skyscraper, we get to see in a microcosm, what's going on in the macro economy.
And that's why it stands out as the best indicator amongst all those other things that are going on.
It makes kind of a nice image, too, of the spire on the top of the skyscraper popping the bubble from the inside to not that it really does the popping itself.
I don't want to screw up the metaphor, but I like it.
But anyway.
All right.
So, Mark, can we go back a couple of steps then to the Austrian theory of the business cycle and what it is that we're talking about here with bank credit expansion and artificially low interest rates?
And why that isn't just a boon for everyone always?
Sure.
The when the central bank lowers interest rates below what would have occurred in the marketplace, had it not had the Fed not been involved, that lower interest rates.
You know, it causes two things.
It causes people to want to invest more and it causes the value of assets throughout the economy to rise.
And so bond prices go up, stock prices go up, real estate prices go up, land prices go up.
And so it just you know, just that automatically creates an encouraging environment for new investment.
But because lower interest rates, another thing that they do is that they reduce the amount of discounting we do concerning future revenue.
And when we do that, we set entrepreneurs eyesight on the very long term because they're not having to discount revenues they expect in year 10 or year 20 or year 30.
And so we make people at least temporarily looking out for very long term projects, projects that otherwise would not be viable.
People would be looking shorter term.
They'd be looking at upkeeping existing assets and so on.
And so that's the distortion that the Fed causes in making entrepreneurs and investors look for advanced technologies.
And, you know, that's I think is the key because later on in the business cycle when resources start becoming very scarce and their price starts going up and revenues are less than expected.
And some of these projects are revealed to be bad investments.
And then entrepreneurs in the face of higher prices and less revenue, they have to start correcting their past mistakes.
And some of the things that are involved there is unemployment, foreclosures, bankruptcies, all of those very unfortunate corrective mechanisms that the market uses to reallocate resources from where they shouldn't have been in the first place to where they should be under current market conditions.
And so Austrians have a different view.
We see the boom and the bubble is the bad part of the cycle where the mistakes are actually made.
And we see the crisis and the recovery and the corrective phase of the business cycle is the good phase where we're putting things back where they should be.
We're reallocating labor and raw materials and land, capital, et cetera, back to where they should be under natural, normal economic conditions.
Well, you have a great section of the book where you talk about the different explanations for the business cycle and make the case why the Austrian school is right and really doesn't contradict them as much as just have the correct bottom line.
They say animal spirits or a bad mood strikes or whatever.
And you say, yeah, exactly, a bad mood strikes because when people realize that, wait a minute, we're way out over our skis here.
At some point, something's got to give.
And then you have the panic and the crash.
So it's not that they're wrong.
It's just that they're not all the way right is the way you put it in the book, I think.
Yes.
I mean, every theory of the business cycle should make some sense.
And all the Keynesian theories rely on psychological factors.
And the better Keynesians include market imperfections.
And then the rational expectation crowd, they look towards technological shocks in the economy.
And so on the one hand, you have the Keynesian theories based on psychology, based on social psychology.
And then you have the rational expectations, Chicago view of technological and economic shocks in the economy.
The classic example of a technological shocks was the oil embargo and shortage in the 1970s, which sent a negative shock in the economy.
And they say that caused a recession.
Well, Austrians believe that it's interest rate manipulation, which is the foundation of the business cycle.
And so we provide an economic cause for the business cycle, whereas the other schools of thought really don't have a starting point or cause based on economic factors.
And so that's, I think, the superiority of the Austrian theory of the business cycle.
And we recognize, as my discussion here has pointed out, that, you know, when the Fed artificially reduces interest rates and causes all asset prices to rise and new investment to occur in the economy, that's not surprisingly, that's going to cause a positive social mood to exist in the economy.
And then, you know, later on, well, also during the boom, as I pointed out, new advanced technologies occur in the economy.
So you're going to get technological positive shocks in the economy.
So the Austrian viewpoint really incorporates the psychology or the psychological factors of the Keynesian school and the technological shocks that run or motivate the rational expectation business cycle view.
So those two things are embedded in our economic theory of the business cycle.
And that's why I think the Austrian business cycle theory is increasingly recognized as a better approach.
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I don't know if you count this as part of the boom and the bust, but you make the case here that inequality is in great part due to the severing of the last vestiges of the gold standard by Richard Nixon in 1971.
And so, first of all, I was wondering, could you talk a little bit about just what you mean by that?
Because I've seen some charts and graphs that make it seem like the CEOs make so much more compared to the average worker at their companies compared to, say, the Nixon years.
Or, you know, just how a smaller and smaller one percent of one percent are the ones who really own so much of the wealth of the nation and the world while everyone else has so little.
And you even cite that guy, Piketty, who made all the headlines a couple of years ago with this.
But you're saying, unlike basically the conclusion of everybody else, well, I guess we need more socialism and higher taxes and these kinds of things.
You're saying that it's monetary policy that's caused this.
Yes, that's correct.
In that chapter, I show that, you know, in the United States, we experienced from World War Two to 1970 greater equality in the U.S.
And there were many reasons for that.
And then after 1971, when Nixon took us off the gold standard and allowed the Federal Reserve and the banking system to greatly expand the money supply and to keep interest rates relatively low for all that period of time, almost 50 years now, has been, you know, using various measures.
We've seen tremendous increase in inequality so that the wealthy are getting very wealthy.
Everybody else is at least staying the same or doing better.
So it's not, you know, we're not saying that the lowest 10 percent haven't had some advances because they have.
Everybody in America is doing well, except for the bottom rung over the last 10 to 15 years has been very difficult.
But in the bigger picture of things, loose monetary policy and low interest rates are going to help capital versus labor.
It's going to help technology versus labor.
And so monetary policy does help to drive the income and the wealth of the wealthy relatively higher.
And so there's a redistribution that's going on from labor to capital in the economy.
Of course, there's many, many factors that ultimately play into income and wealth.
There's no question about that.
That's not the only reason, but I consider it an important reason.
And we've been doing studies here at the Mises Institute, which have confirmed this, that loose monetary policies and central banks are part of the cause of increasing inequality.
So it's not just instability that the Federal Reserve is causing.
It's also causing greater inequality, which is a very important issue these days.
It's something I'm working on right now as a follow up to the skyscraper curse book.
Oh, great.
Well, listen, I mean, it's pretty obvious when you have independent family businesses or what have you that get the rug pulled out from under them and they can't survive the crash.
Like in 2008, you just had failures of so many businesses that were probably pretty good businesses, but just weren't strong enough to weather that kind of storm and that kind of thing.
So we definitely see that.
But is there something else, too?
It's just about all this, just the free money.
You talk about how the people who get it first are the ones who get all the value out of it and everybody else gets the price inflation later on their shelf and that kind of thing.
But like all these derivatives and all the financial instruments, and this is just basically a way of the very richest people passing around all this new money and at the expense of the rest of us.
Absolutely.
You know, it works itself out in a thousand ways, and it actually is involved in the skyscraper curse theory, because one of the things that goes on with ultra low interest rates is that the whole business landscape starts evolving and mom and pop stores grow and get bigger as well as going out of business.
And so there's a movement from mom and pop stores to nationwide corporations.
And so there's you know, it just is a redistribution as we evolve from mom and pop into these very large corporations.
And how that fits into the skyscraper curse is that mom and pops don't need, you know, accounting departments and product development departments and human resource departments.
Their office spaces, you know, you're looking at it.
It's right there in the store.
But with big corporations, they need lots of space for all these bureaucrats and management types.
And so they need larger accommodations in central business districts, and so that artificially low interest rates and easy monetary policy is promoting or speeding up this process of large corporations.
And it also, not surprisingly, encourages mergers and acquisitions so that corporations become ever larger artificially because they can merge and acquire companies with cheap money, cheap credit.
And so like right now, you know, we're going through a mergers and acquisition boom in the economy, just as we have in previous booms over the cycle.
All right.
Now, so let's talk about how right I was when I was a kid about the coming dot com crash that I knew was coming.
And the reason why is because I read The Creature from Jekyll Island, which, you know, some of the history in there is a little bit suspect.
But the economics are sound.
Miss Esty and Rothbardian economics.
And one of the reasons I knew it was good stuff was because it had your name on the back of it.
Well, this is endorsed by a guy named Mark Thornton at the Ludwig von Mises Institute.
Whatever that is.
Sounds official.
You know, cool.
And then Willie Nelson was on there, too.
And and it's funny thinking back that it never occurred to me that I kept reading over and over in the footnotes.
Professor Rothbard says Professor Rothbard says, I don't know why I didn't stick.
I didn't figure out about Rothbard till later.
But anyway, I had Ron Paul on my c-span and I had my G.
Edward Griffin endorsed by Mark Thornton.
And so I was telling everybody, which I could have been making money, you know, as you know, like Robert Kennedy, shoeshine boy, making money on the way up.
But I was just spending all my time criticizing everyone for believing in it and how they were all going to lose everything.
And then it turned out I was right.
And then I was also right that you're still being fooled because the housing bubbles a bubble, too.
And that was because I admit it wasn't because I was listening.
And I'm talking right at the turn of the century when the dot coms crashed.
It wasn't because I was reading Mises dot org.
I didn't find that yet.
But I was listening to Ron Paul and Ron Paul was saying, listen, it's good that we're clearing the bad bets out of the technology stocks now.
As painful as that is.
But where's now we're engineering a bubble in real estate.
And that is going to come to a bad end.
Let me tell you.
You know how he says that.
Let me tell you.
And so that was back in, you know, right around 2000.
And then what's really great about this book is you talk all about that crash, the dot com crash and publish pieces from around that time in here and that kind of thing.
But also you talk about the whole history of this going back to the turn of the last century and how the Austrians, including Mises himself, and then on down have said, oh, no, it's a bubble.
Everyone get your stocks out of the market before it crashes.
And then the crash comes.
So can you give us a little bit of a rundown?
Maybe hit your favorite points on in the last century of Austrians such as Ron Paul and his forebears getting it right.
Well, absolutely.
You know, and it's very difficult to apply this theory.
But one thing you did point out is very important is you see abnormal behavior on the part of people buying multiple houses, talking about cocktail parties, talking about stocks rather than family and friends and golf.
There's always abnormal behavior that's going on.
And so that really very often clues me into where things are going.
And, you know, I heard all sorts of crazy things about tech stocks in 1999.
So it kind of alerts you to the whole fact.
But I've gone back in history and I've looked at what Austrians have been saying about the business cycle.
And it seems very clear that Mises and F.A. Hayek and some of Mises's friends and students knew that there was a bubble going on in the 1920s.
As a matter of fact, Mises wrote a book published in 1928 where he said that Irving Fisher driven monetary policy in the United States was going to cause a very bad problem for the U.S. and the world economy.
And during the 1960s, when the next major bubble in the economy where the Keynesians were taking credit for permanently solving the business cycle.
Well, you know, Henry Hazlitt was writing article after article about the misguided monetary policy of the Federal Reserve, as well as many other bad policies.
And Mises himself, even though he was very, very old and retired and not too much longer for this world, was out giving public lectures saying that the Fed monetary policy is going to cause a major problem, that it's going to bring down the Bretton Woods gold standard.
And he was right.
The 1970s to 1982 was one of the worst economic times in American history.
And we did go off the gold standard in 1971.
And Murray Rothbard was out writing about in-depth monetary policy, about what the Fed was doing, accurately predicting what was going to happen in the economy.
And he actually published a small pamphlet on the causes and cure of the business cycle in 1969, which is the shortest, best explanation for the Austrian business cycle theory.
And he was doing it right before the stagflation of the 1970s set in.
And it was a terrible time for America.
That whole period was, you know, going off the gold standard, high inflation, high unemployment, you know, the oil problems, Watergate, Vietnam.
You just go down the list and it was just a terrible economic period.
And then, of course, if you come closer to the present, I have an article which is embedded in this book, where I show that dozens of Austrian economists were predicting that the tech stock bubble and bust.
You know, I'd say probably 30 or 35 Austrians, including Ron Paul, including Lou Rockwell, many financial economists were Austrians.
It was a lengthy list and everybody else in the economy was saying, oh, you know, this is, you know, this technological revolution is never going to stop.
And people started worrying about the end of work.
What would we do if this continues?
What jobs would be left?
That was their main concern.
Austrians were concerned about monetary policy and the huge bubble that was being created.
And then, of course, with the housing bubble, most recently, I also list, you know, in quote at great length, many, many Austrian economists who saw the housing bubble as early as 2003.
We had people writing about it on Mises.org.
I published something in February of 2004 and June of 2004.
Well, you know, this was still a time when everybody was saying you can't lose money in real estate.
Housing prices always rise.
And you had, you know, luxury game day condominiums being built in Auburn where people would buy a quarter million dollar condo for the purpose of seeing six Auburn University football games per year.
Ludicrous behavior and also just obviously booming conditions.
And the Austrians were calling it, Ron Paul called it very early.
I mean, he saw this problem developing before we even had credit default swaps and mortgage-backed securities.
And so that was a very long bubble.
The only time real estate prices didn't fall was in the bust, the tech bust in 2001.
Real estate went right through that and continued to rise.
And it got to the point where people thought that housing prices really never do go down.
But I list, you know, most of our senior faculty here at the Mises Institute.
Most of our, several of our affiliated scholars were writing in these early years.
And remember, you know, Peter Schift, who is Austrian financial advisor and one of the more famous predictors, he didn't really start talking about this until 2006.
And, you know, so, you know, we were definitely aware of what was going on.
We can't actually predict timing and magnitude of these bubbles and these busts.
But we know that they're going on and we know that there's a possibility of an economic crisis emerging any second.
And so it may not be a matter of timing and magnitude that Austrians bring to the table.
But we can at least tell people about, you know, how cautious you should be and what you should expect over the long run so that you can go to a financial advisor and say, you know, I'm concerned about this.
And I want my assets properly positioned, your mortgage, your retirement funds, etc.
And so that's what we bring to the table.
And I think it's a very helpful thing.
And, of course, right now, Austrian economists are concerned about the bubble in the economy.
We have been concerned for quite some time.
An economic crisis has been possible now for several years.
And it probably isn't going to be much longer until we're going to start to see the next economic crisis emerging.
You know what, Mark?
So back right after the last crash, when they started all this QE, this, that and the other thing, they basically created enough money to make the banks that were all failing whole.
But then they came up with this new gimmick where the Fed would pay the banks whatever interest rate exactly, a little bit above market, to keep a lot of that new money on the books at the Fed instead of loaning it out because they were afraid of the inflation that that would cause.
But then different Austrians, I'm not sure if including you or not, were warning that that could lead to even way worse inflation if the economy ever really does pick back up, if there actually is a better bet in loaning all that money out.
So I wonder if that ever happened or if that money's still sitting there, or maybe we're just at a halfway point or some kind of thing.
Well, yes.
I mean, they've used many, many types of unnatural, untried monetary policies that have helped keep the market going and booming at the same time because they never really did let all of the problems resolve themselves from the housing bubble problem.
They papered over with cheap credit.
They bought up the mortgages and the troubled assets that the banks had.
That's where the unused bank reserves come from.
And they bought up a bunch of government bonds to suppress interest rates so that zombie corporations could continue to operate without having to worry about paying down or paying off the debt that they acquired.
They can even get more debt.
They can add to their debt under these conditions.
And so instead of letting the previous problem resolve itself, they stepped right in and they pressed on the gas, interest rates down to zero, buying up the mortgage-backed securities from the banks, giving them all of these excess reserves and then paying them money just for holding those excess reserves on their Fed accounts.
And so I liken this to a patient in a hospital concerning the banking and financial industries where the patient is given an IV, the patient is put on oxygen and the patient is injected with morphine.
Yes, the patient feels perfectly fine.
But is that the proper approach to resolving the problems in the economy?
And I just don't think so.
I think that you have to allow things like unemployment and bankruptcy to occur to get resources reallocated.
And so what we have now—and it's not just in the United States, it's certainly true in Europe as well—is that these banks are allowed to go out and invest in government bonds of bad credit countries like Greece and Italy, Turkey and so forth.
And they're just extending the problem in time and they're expanding the problem in its size and magnitude.
So I don't think it's a good approach at all.
I think it's a very dangerous approach, by the way.
We've only made these poor quality credit countries and companies continue not only to exist, but actually to expand rather than contracting.
So I think it's a very wrongheaded and dangerous approach.
Well, so right now Trump is cutting taxes and I guess to some degree deregulating.
I don't know how much, but those are both kind of stimulative actions.
And then for what it's worth, there's a lot of military Keynesianism pushing these arms factories forward and this kind of thing.
So those are all expansionist policies, at least in the short run there.
But then I also saw in one of these shows that they're really starting to raise the federal funds rate.
In other words, doesn't that mean, if I read my Rothbard, some of it, that now they're scared that there's too much inflation and they want to start counteracting that and try to let the air out of the bubble slowly?
Which, as he puts it in For a New Liberty in the inflation chapter there, says, never works.
It always pops.
So is that now?
And then also, I wonder, I mean, maybe this is out of what you want to talk about, but it could be political to that.
That's a good way to get rid of a president to make sure that the crash comes before his reelection.
Not after, you know?
Yes, I know.
That's that's all very well put, Scott.
There are members of the Federal Reserve who are and have been desperate to normalize interest rates in the economy instead of, you know, 0.25 of 1 percent.
Normal federal funds rates are usually 3, 4, 5 percent.
And so they're moving in that direction.
But if companies, investors and entrepreneurs who have been anticipating an endless stream of virtually free credit, well, that's going to make some of their plans and their projects not look so good, basically.
And the cost of funds goes up and makes, you know, that raises their cost side.
And even corporations have been borrowing billions and billions of dollars, you know, for long periods of times at low interest rates.
So in the short run, many of the more profitable companies have plenty of cash on their balance sheet.
And with the tax cut, they even have more cash available to spend.
So some companies will have some cushion during this process, but obviously others, not everybody is so well set.
And we're going to start to see problems that have affected companies like the old school companies like, you know, Sears and Kmart and Radio Shack.
We're going to see those type of problems filter into other corporations and other businesses and other little, you know, building projects around everybody's hometown.
Auburn has them.
I just coming into work, I saw a whole complex of apartments and houses being ripped down and they're going to build yet another seven story luxury student apartment building in downtown Auburn.
So it's going to affect everybody up and down the economic scale from very small to very, very large.
And it's not only just higher interest rates, but we are also seeing some higher input costs in the economy, higher energy prices, higher raw material prices.
And eventually we'll probably start seeing higher wage rates in the economy.
And so, you know, the cost projections of entrepreneurs throughout the economy is going to have to be reset.
Yeah, well, and then they're going to blame it on the wage earners and go, yes, see, they got a raise and caused inflation and ruined everything for us.
Yeah, that's the way they always do.
Yeah, we're in a crony capitalist economy.
And so the people at the top always have an advantage over people below them in the economy.
And then, you know, the wage worker sits at the bottom and, you know, has to work hard and has to, you know, pay taxes and all that.
And they're getting virtually no reward in this economy.
And that's typical.
I mean, inflation is a historical process that goes back thousands of years.
And, you know, when economists look back on it, when historians look back on it, they always find that the wealthy did extremely well during the boom.
But the inflation is something that reduces the real purchasing power of wages.
And so wage labor actually is hit in a negative way as a result of the aftermath of the inflationary bubble.
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Yeah.
Well, and then this is the libertarian's lament, too, right?
Is every time this happens, it's, you know, government that does it, but government that always, and media's always on their side, too, always blames it on capitalism.
Well, you know how it is, the excesses of wild free market capitalism.
In their narrative, FDR cured all that back in the 30s, you know, by restraining the wild excesses of capitalism.
So what's their excuse now after all these years that this keeps happening?
But still they go, yeah, you know, wherever there's unregulated abilities of humans to make decisions on their own in the marketplace, that's the hole in the system that's causing the problem.
We need more control, always more and more.
And you know what, it ought to, I mean, it impressed me.
I was educated, you know, by and near leftists or whatever, but I always thought it was, you know, important that the libertarians like yourself are always arguing that, no, it's the capitalism is what's working.
What's wrong here is the distortion caused by police power, basically, intervention by commissars in the market dictating interest rates and reserve ratios and the rest of it.
Well, you know, the mainstream media, it's just maddening.
And thank God for the alternative media such as yourself, Scott, because, you know, we look at the financial crisis and Dodd-Frank legislation to solve it.
And never is there mention that there's like 100,000 regulators, federal regulators over financial markets.
It's much higher than that, actually.
And each one of them, of course, has a staff.
And they're supposed to be regulating these markets and keeping them safe.
But, I mean, wherever the regulation occurs is precisely where the problems come out.
So we have 100,000 financial regulators.
They didn't do the job.
It took, going back in time, you know, there was all sorts of regulators over the company called Enron.
And not a single person saw it except for a financial journalist who uncovered that scheme.
Bernie Madoff, you know, was running rampant with his Ponzi scheme for decades with regulators supposedly visiting his company on a regular basis.
They never saw it.
It took a financial journalist to uncover that story.
And it goes right up and down the entire scale.
The Federal Reserve in 2007, and I don't have this in the book.
It's a paper that I did in 2010.
And I looked at what were the Federal Reserve governors talking about in 2007.
And what they were talking about was what a great job they were doing, what enormous regulatory power they had over things like credit default swaps and mortgage-backed securities, and that whole new industry that had evolved in order to pump money into housing.
And they were saying it was a great thing.
It was causing greater transparency and greater liquidity.
Well, except for the fact that nobody saw it coming until it was too late, and then the entire market froze up.
And so there was no liquidity, and there was no transparency.
It was just another regulatory screw-up.
And the same thing is true with the British petroleum oil rig in the Gulf of Mexico.
That was supposedly incredibly well-regulated.
Only it wasn't.
The mainstream media never said anything about the fact that if it wasn't for regulation, companies like British Petroleum would not be drilling in such dangerous areas.
They would be drilling in safer areas where oil could be contained.
But it was the regulations that forced them out deeper to sea.
So regulation is very often the cause of some of the worst excesses in the economy.
And, you know, I like pointing this out, too, because, you know, maybe people would misunderstand or would presume otherwise, but I think it's a great example when you have an actual Austrian economist, Ron Paul, in the House of Representatives back when he was in there.
In the late 90s, when they voted to repeal the Glass-Steagall Act, which is something that was left over from the New Deal that said that, you know, regular depositors, the bank can't gamble with their money in risky stocks and this kind of thing.
They have to keep that separate.
That was at least one of the provisions in there.
And they repealed that.
Bill Clinton and Newt Gingrich and them repealed that in the late 90s.
And Ron Paul voted against that repeal.
And he said, listen, I'm not a fan of this regulation.
But as long as we have this inflationary money system with this boom and bust and all this, you know, all the things that come with our Federal Reserve system, then this needs to stay in place as an important protection for customers and consumers and whatever.
Which just goes to show, you know, because people I know think, even conservatives and liberals, probably both, would think that libertarianism and this kind of radical free market take is somehow just cover for corporations to get away with murder or whatever, when really the point is that the current system is what helps them to get away with murder.
And it's people like Ron Paul who see these things coming and, you know, would be willing to stick up for an old New Deal law like that in the face of what would be the consequence if we kept the current system except for this restriction and we saw that really did probably help to make 2008 worse, right?
Oh, yes, absolutely.
It's always been known for hundreds of years that central banking creates a moral hazard, which means that people, investors, bankers will take excessive risk because they're not really using their own money.
They're using other people's money.
This is widely known.
It was discussed when they were writing the legislation to establish the Federal Reserve.
And then that was reinforced with the Great Depression.
That's why they created Glass-Steagall to make it more so that bankers were using their own money rather than their depositors or relying on bailouts from the Federal Reserve.
And so this is something we've known all along and only in recent times is that wisdom been forgotten.
And I would oppose abolishing Glass-Steagall unless you set banking on a normal market-based environment where bankers have to only lend their own money, their own capital.
And if that's the case, where they can't really borrow their depositors' money interest-free, that money would have to be set aside in a secure place.
And then bankers could only lend their own money or lend the money that they raised from issuing bonds.
In that case, you can in effect not need Glass-Steagall legislation.
But Glass-Steagall legislation reduced the moral hazard of central banking with basically where bankers get to have access to their depositors' money and can use it.
Yeah.
All right.
Now, so let's get back to skyscrapers for a second here.
They started building skyscrapers right around, what, 110 years ago or whatever, I guess.
You start counting the first world record skyscrapers at, what, eight stories high or something like that in the book?
Well, that's right, because nobody could really build a building higher than four stories without steel beam construction, for example, and without the elevator.
Nobody wants to walk up nine stories to get to their office.
And so technology basically made building of residential and commercial space very limited.
And then we had the technology of elevators and the technology of steel beam construction so that the structure held its own weight.
Prior to that, you had to use reinforcing techniques involving the use of a large amount of stone and concrete.
And so that launched the age of skyscraper building in the late 19th century, and buildings continued to be built to higher heights.
And that tradition obviously has continued.
We've gone from eight stories now to well over 100 by the 1970s.
And now it's gone marginally higher for the last 50 years, and they're in the process of building a new world record setting skyscraper in Saudi Arabia, the Jeddah Tower, which currently construction has been suspended since November, so almost a year, because the builder and the owner of the building were both caught up in that Saudi corruption scandal.
Yeah, quote unquote.
The rounding up of the crown prince's enemies.
Yeah, anyway.
Whatever that was, it put the skyscraper curse on hold.
Well, that's interesting.
We would be approaching the record, you know, right about now, actually, had the princes not gotten in trouble and thrown in house arrest.
All right.
Well, and the way you talk about it in the article here.
So with this exception, this political intervention here, you know, included or notwithstanding, or however you want to phrase that, if you go back, you find the way you put it in here is that by the time the world record, not just, you know, new skyscrapers going up, but the world record skyscraper is built by the time they're done, the bubbles already popped.
And it's always kind of a half-hearted celebration at the grand opening, I guess, because they know they're only going to be able to fill the thing halfway and everything is on a big downturn.
Is that right?
And that's going back since the advent of the elevator.
Yes, and it varies from episode to episode, but the last episode nailed it exactly.
The Dubai Tower in the United Arab Emirates, it set the record in 2007.
You know, they got up to that height of livable space.
The building was not complete.
It was not open to the public.
It took a long time to actually fully complete the building.
But in mid-2007, everything was great.
Markets were at record highs.
Unemployment was at record lows.
Everybody was making money.
And so when you call the skyscraper curse into effect at that time, you're looking pretty bad.
But by the time the building opened, the builders had to get a $10 billion subsidy to keep the government running.
And to complete the building, the building had to be renamed for the cousin who lent the money.
And it opened in January of 2010.
Dubai was bankrupt, basically, and the world economy was in chaos.
And so I guess under normal conditions, the skyscraper curse is kind of like a leading indicator.
And what I'm worried about with these delays is that it's going to be very much a lagging indicator.
Yeah, well, it's interesting, too, and it's in the book.
We don't have to go through all this, but you explain in the book, too, why the low interest rates, how they distort the real estate markets and not just make it easier for somebody to want to do this, to be able to start a project like this, but also how the economics on the ground for driving up prices of land and all that push everybody toward the city center.
And not only that, but into smaller and smaller parcels of land.
So you've got to build higher and higher and all that, too.
Yeah, we try to make short chapters to explain complex economic activity in very simple ways.
And then there are some larger chapters where I go through in detail what everybody was saying about the Great Depression or what everybody was saying about the boom of the 1960s and 70s or about the tech bubble.
And so it's a fairly short book with mostly short chapters.
And then a few in a few cases where I try to provide a comprehensive treatment of the Austrians who were right and the mainstream economists who got things usually very, very wrong.
Yeah, well, it's embarrassing for them and it's horrible for everyone.
But you know what?
So here's the deal.
If I had I Dream of Jeannie and I just asked her to get rid of the central bank and get rid of all these regulations and have it your way, what would that be?
And how much of a change would it be from the current system?
Well, I think it would be a fairly radical change in the system.
People wouldn't notice the radical change that much.
There would obviously be a huge correction in the short run.
And I lay this all out in a reform package chapter at the end of the book, which is based on the wisdom of people like Ludwig von Mises and Murray Rothbard and Hayek and younger Austrians like Joe Salerno and others who have taught me so much about the business cycle and monetary reform.
But basically, we'd all like to get back to a commodity gold based monetary system.
And we'd like to get rid of the central bank.
Starting with day one, we take away their ability to influence interest rates at all.
And so the reforms could actually happen very quickly.
And if it's done in a comprehensive way, it would be lead to a great strengthening of the U.S. economy.
And it would be not only stronger, but it would be much more stable and ultimately it would be much fairer.
And hopefully it would lead to the, you know, if countries had to pay for wars using gold, we'd have fewer wars of shorter duration, hopefully none at all.
But when countries can pay for wars just by printing up money, you get to a situation like we have in the United States where we're seemingly at war or at least stationing troops all around the globe.
It's very much exactly like the Roman Empire, which, you know, essentially conquered the world in a certain sense and then had to maintain troops and engage in battles all around the periphery of that empire.
And that's where we are here today.
So hopefully not only would monetary reform straighten out and strengthen our economy, but most important of all, it would greatly curtail and hopefully end war as we know it.
Yeah.
In fact, sometimes, especially conservatives have been known to argue that, well, that's why we have to have a central bank.
Because what if we need it for a war?
Yeah.
I remember Ron Paul saying, yeah, exactly.
Just like you.
Exactly.
That's exactly why not to have one.
So making our case for us here.
All right.
Well, listen, great job in this book.
I really enjoyed it, Mark, and I hope everyone will check it out.
Really appreciate your time on the show, too.
Thanks for having me on the show, Scott.
And peace.
All right, you guys, that's the great Mark D'Artentain.
He is, of course, Senior Fellow at the Ludwig von Mises Institute.
The new book is The Skyscraper Curse and How Austrian Economists Predicted Every Major Economic Crisis of the Last Century.
And check him out at Mises.org.
All right, y'all, thanks.
Find me at LibertarianInstitute.org, at ScottHorton.org, AntiWar.com, and Reddit.com slash ScottHortonShow.
Oh, yeah.
And read my book, Fool's Errand, Timed and the War in Afghanistan at Fool'sErrand.us.
