All right, y'all.
Welcome back to the show.
It's anti-war radio.
We're on Chaos Radio Austin and the Liberty Radio Network.
And our next guest is Ludwig von Mises Institute scholar Bob Murphy.
Welcome to the show.
Thanks for having me, Scott.
Tom Woods and Bob Murphy, both on the same day, right on.
All right, well, I lost the link, so now I'm looking for it to your most recent article on lourockwell.com about the Chicago School, the corporatists that make real libertarians look bad.
Is that a fair way to put it?
Well, I'll let you say that because I know some of them.
Oh, OK.
Well, the Fed, the Chicago School's Achilles' heel is the title.
It's at lourockwell.com.
And, wow, I had missed David Frum's post, so let's start with that.
David Frum, the second or third worst person on earth, apparently wrote an article called Triumph of the Austrian Economists.
Well, we're right.
So, yeah, Frum was lamenting the fact that apparently there had been some polling done.
I don't remember what he was referring to, but there was some research that came out, and there was this disturbing trend in Frum's mind that, oh, my gosh, it seems like among the right-wingers of this country, the rank-and-file who are out there, you know, Tea Party types and those people, that they no longer are, you know, their loyalties don't go with the Chicago School economists, you know, people like Milton Friedman and that sort of thing, but more and more of these people are turning to the Austrian School.
So David Frum can't believe that, and he thinks this is, you know, just a bunch of idiots taking over, and he's trying to explain in his piece why it is that, you know, the Austrians are idiots, and that, you know, why can't these Republican conservatives see that it's actually the Chicago School that you should be listening to for your advice?
Well, and he says that Herbert Hoover, I guess, or his officials, they were Austrians, I guess, and it didn't work out so well, and that's why we needed Franklin Roosevelt, according to David Frum.
Well, right, yeah, but specifically what he was saying is that, look at these people right now who are just, you know, real small government, real activist types, just saying, hey, just, you know, no bailouts, no deficit spending, just let the system fall if that's what happens, stop bailing everybody out.
Frum says, yeah, that's exactly the mentality that Herbert Hoover, you know, his advisors implemented back in the day, but as I point out in my article, that's simply not true, that where that comes from, where this myth arises, is that in Hoover's memoirs, you know, after the fact, he's trying to paint himself in the good light, and he said that after the stock market crashes in 29, his advisors, you know, he's in the White House, there are the advisors all get together, and they say, what do we do?
And Andrew Mellon, who was his Treasury Secretary, according to Hoover, said, liquidate labor, liquidate stocks, liquidate real estate, you know, let the market find a bottom.
And that's what people quote nowadays to try to prove that Herbert Hoover was a liquidationist, just like in the Austrians today, who say, just let stuff fall, don't bail it out.
But actually, in his biography, or his autobiography, Hoover, the very next page says, but I rejected Mellon's advice.
I knew that we couldn't just stand back and do nothing, and that's why I implemented all sorts of federal programs.
So, and it's not just his personal testimony, I mean, you know, my work, I've gone through the numbers, you can look at the federal budget and all the things that Hoover did.
I've even quoted an FDR official years later, saying, yeah, we wouldn't have admitted at the time, but actually the stuff we did under the New Deal, Herbert Hoover had started all that, we just expanded it.
So, I mean, this idea that Herbert Hoover was a liquidationist, and is the, you know, the predecessor of what now the Austrians are calling for, that's just crazy.
Well, and you point out in your article that Fromm completely ignores the early 80s here, because it doesn't fit with his program.
That's something we've talked about numerous times on the show, was what amounted to demand side economics for rich people.
The market wasn't demanding a lot of expansion of new factories and supply and whatever.
All this money that rich people were making off the really high interest rates was going to diamonds and Porsches and cocaine and that kind of thing, like in an Oliver Stone movie.
But this was basically, those high interest rates was Paul Volcker mimicking what he thought that the market would do from basically an Austrian perspective, right?
We need to liquidate the bad debt.
Carter and Nixon and LBJ had tried to stimulate and stimulate and stimulate, and they had gotten them nowhere.
So they deliberately crashed the economy, basically mimicking what you would have predicted the market would do if they would just let it be.
Right, and of course, it's not that Paul Volcker is necessarily a good guy or anything like that, but...
Well, no, he helped take us off the gold standard in 71 in the first place.
He was Dave Rockefeller's man at the Chase Bank, and Nixon's man at the USG.
But you're right, so just for your listeners who haven't seen the piece, which you're alluding to there, so from when he's complaining about these crazy Neanderthals nowadays who don't understand economics the way I do in my inner core of people who are really sophisticated, from his saying it used to be that economists associated with the Republican Party were smart and they knew that there was no problem with low interest rates and they didn't care about the price of gold, and so what he's doing there is he's complaining about people now who are going nuts, saying, oh my gosh, how can Bernanke have 0% interest rates, look at the price of gold, this is bad, the Fed needs to reverse course, from making fun of them, saying, well, we didn't used to worry about that back in the glory days of the Reagan years, and so what I'm pointing out there that you're talking about is, from just the he doesn't even know what he's talking about, that the way Volcker got rid of the stagflation of the 70s and ushered in what conservative Republicans nowadays think of as the golden Ronald Reagan years, the way he got rid of that is he jacked up interest rates, and beyond that, the Volcker Fed aimed at stabilizing commodity prices.
That was the way they knew that they were doing a good job in their mind, was if commodity prices started rising, then they would tighten up, and then when prices fell back down, they would loosen, but again, they were looking at commodity prices, they weren't looking at the CPI, and so you're right, and what does it mean to say the Fed jacked up interest rates?
Well, how does the Fed do that?
It means they stop printing money and injecting it into the financial system.
That's the way the Fed raises rates, it stops inflating, and so the interest rates bounce back up to where they would normally be.
But so basically then, Volcker, beginning in 78 or 79 or whatever, accepted what would have been your premise at the time, Mr. Austrian Economist, which is that you're stimulating prices that don't belong, that aren't supposed to be that high, and you're stimulating and making permanent distortions in the market.
What we need is a great liquidation.
He accepted that premise, but then he forced it with a central bank that you would object to.
Right, and again, just to clarify, so it's not that, as an Austrian Economist, I'm going to say, you know what, I think that interest rates right now are too low, I think they should be 3.6%.
That's not the issue.
When I say I think interest rates are too low, it's because I know the Fed is keeping them that low because they keep printing money and lending it out to people, and that's what pushes down the interest rates.
So it's not that interest rates are high or low in an absolute sense, it's that we know they're lower than they otherwise would be if it weren't for all this inflation.
So yeah, what the Austrian policy prescription would be, yeah, just the Fed needs to stop injecting new money, new funny money in the system, and step back, let interest rates go to where they should be, and then, because the interest rate is a price.
It's just communicating information, right?
So the economy is in a bad state right now.
People need to know that.
You're shooting the messenger, or not shooting the messenger, but like putting tape over his mouth if you push interest rates down to zero.
That prevents those prices from communicating to people, and yeah, what would have to happen, the way the economy gets fixed after a bubble, is resources have to get shuffled around, right?
During the housing bubble years, there was too many resources going into real estate and there were too many resources going into Wall Street, and that stuff needs to get shuffled around.
And again, too many not, to your point of view, too many as to what the market would have done without all that intervention, obviously.
Right, right, exactly.
So in a system where you don't have a dictator who just tells people what to do, I mean, how do you get workers, if one sector's bloated and there's too many workers and resources in one sector, how do you redistribute it?
Well, that's what a recession is.
I mean, it's not fun, but that's what has to happen.
People get laid off and they have to find work elsewhere, and that's the way a market economy, where people get to choose their own occupations, that's the way it sort of communicates that necessity to people, is you get laid off and then you have to go look for work.
So yeah, that's not fun for anybody, they don't like to be out of work, but the point is that's the way the system corrects itself, and so if the Fed comes in and tries to blow the bubble back up and suppress prices, they just prevent the recovery.
All right, everybody, it's Bob Murphy from the Ludwig von Mises Institute.
We're talking Chicago and Austrian economics here.
It's anti-war radio.
We'll be right back.
All right, y'all, welcome back to the show.
It's anti-war radio.
Scott Horton, I'm talking with Bob Murphy, and we're talking about, well, we're comparing and contrasting a little bit of what I call the right socialists, basically, the national socialists at the Chicago school.
I mean, after all, Keynes said you can intervene on the demand side or you can intervene on the supply side, and the Chicago schools then are just a subsidiary of Keynesian economics.
They picked the right side, subsidized the rich and the powerful instead of the demand side, a democratic approach, subsidized the poor to spur their demand for more supply and that kind of thing, both of which are interventions which the Austrian school rejects.
I basically sum that up about right, Bob?
Well, yeah, and it's funny because we just see these debates right now among the so-called responsible, respectable economists.
I mean, you're right.
They both agree with the Keynesian premise that what the economy needs to get out of the recession is more spending, and the only difference between Paul Krugman and some other people from the Chicago school is that, gee, should the spending come from the Treasury issuing more debt, or should it come from Ben Bernanke writing more checks on thin air?
Right?
That's the thing.
You have these huge debates over fiscal versus monetary policy, but they're all agreeing that the market economy left with its own devices would be a basket case, and we need to have more spending, and it's just a matter of, should the government run out more debt, or should Bernanke print more dollars?
And that's part of what I was getting at in the article, is the problem there is that a lot of the people associated with the Chicago school, they don't all think the same, but a lot of them, they think as long as CPI is not rising at double-digit rates, that the Fed is doing a good job, and they don't see any contradiction in being claimed to be free market, and yet thinking there should be a Fed setting interest rates.
That doesn't strike them as odd.
Why should we have this central organization determining interest rates, whereas in another market, they would strike them as socialism.
Right.
And also, the legalized counterfeiting, too.
It seems like anyone with an actual sophisticated understanding of economics and morality combined in the same head would be against fractional reserve banking.
How's that not just counterfeiting, only with a license from the government to do so?
I agree with you, and you're right, and it's when you explain it to the average person when I try to explain it to you.
What I mean is these open market operations, those quantitative easing, and you say, well, Bernanke just buys stuff and he writes checks on thin air.
A lot of times people think I'm dumbing it down, but no, that can't be what it is, and you're just talking down to me because you're an economist.
And I say, no, that is what he's doing.
He writes checks based on thin air and creates money and gives it to people and buys stuff, and that's supposed to help the economy.
So, yeah, I agree with you.
It's inconceivable when you think about how much power they give this one person.
Well, not only that, but then he gets to tell Citigroup and JP Morgan Chase and Bank of America and Wells Fargo, you guys go ahead and do your own quantitative easing all you feel like if you want to.
Right.
I mean, that's where the real inflation comes from, right?
His new money hits their accounts and then they go and create even more new money based on that phony money.
Right.
If your listeners had to endure lectures on banking when they went to college, yeah, they remember the stuff about the process of the fractures of the banking system and how an initial injection ends up having a multiple effect.
And you're right, that's exactly what it is, that a bank gets a certain amount of deposits and then it can lend out, you know, the rule of thumb is about ten times as much.
And so, yeah, even just a regular commercial bank, when it advances loans in the way our system is set up now, in a very real sense, it is creating more money out of thin air.
Well, now, when the crisis comes and they create these giant bubbles by creating all this money out of thin air and then comes the inevitable correction and then the massive creation, massive amounts of new inflation created to bail out all the banks who create the bubbles and participate in them.
Do the Chicago school guys come out against any of that, all this, you know, basically class warfare by the billionaires against the regular people of America?
Are any of them opposed to the bailouts, to the corporatism?
Because, you know, in Austrian economics, you hear criticisms of corporate power that almost sound like they're coming from communists until you read closely and see that what they oppose is these corporations, these devils, using the state to beat everybody else over the head.
Do you hear that from the Chicagoites very often, Bob?
You put your finger on a good difference there.
You're right.
So it is true, I should say, that a lot of the...
See, my beef is I think that the average guy, when he hears about libertarianism, he thinks basically of a bunch of corporate apologist types who have no problem whatsoever with billionaires controlling congressmen and sucking off of the government teeth, but sits around complaining about black single mothers on welfare all day and the enormous cost of food stamps, and that most cynical kind of rich white man's anarchy, when the libertarianism that you and I believe in is everybody's anarchy, right?
Exactly.
And yet, I mean, let me give you a specific example, because I think this goes along with what your point is.
The thing that really bothered me about all this is there were lots of guys, and I'm picking him just because his name comes to mind, Larry Kudlow, if you know who he is.
And he, you know, real famous commentator, real right-winger, you know, big on Reagan, stuff like that, you know, supply-side guy.
And he was all for the TARP when it was under the Bush administration, and when Paulson was proposing it, Kudlow was just cheerleading for the thing.
And then Obama takes over, and then the political climate change, and all of a sudden Kudlow was saying, is TARP a criminal enterprise?
And he was, you know...
And I say that like Glenn Beck did it too, but, you know, Glenn Beck is just a clown, so you don't really care what he...
But Glenn Beck was for TARP when it was being proposed under the Republican administration.
Then when it was the Obama administration and the Tea Party was bigger, all of a sudden Glenn Beck, you know, TARP is from the devil.
So, I mean, that's...
You're right.
These guys, they didn't oppose bailing out Wall Street when it actually was happening, when they might have been able to make a difference.
But then after it was a done deal and the people already got their bailouts later on, they're like, oh, yeah, we're with the people.
We were against that.
All right, now, so what if in 2008 they just said, you know what?
The guys over at LewRockwell.com and the Mises Institute, they're the ones who got this bubble right the whole time.
What do they say we should do?
Nothing?
All right, fine.
What if they'd done nothing and JPMorgan, Chase and Citigroup and Wells Fargo and Bank of America had all just fallen apart just like Bear Stearns?
Then would we have all died or things would be much better now or what?
Well, yeah, we wouldn't have died.
I mean, the thing to remember is when a company goes bankrupt, it's not that like a factory physically blows up or something.
It's not that there are like software engineers who now all of a sudden don't remember how to program computers.
Okay, when a company goes bankrupt, I mean, it's just a legal process.
It just means, okay, they have liabilities that are higher than their assets, and so something's got to give.
You know, this corporation owes more money to people than it has, so someone's got to take a hit.
And then the bankruptcy proceeding just says, okay, well, you know, who's going to take the haircut is what they call it.
So, I mean, the damage was done, right?
Those companies, they lent out more money.
They approved loans that they shouldn't have, okay?
So, I mean, the damage was done during the bubble years, and then if the issue was just in the fall of 2008, investors realized, holy cow, this stuff we thought was worth a lot now isn't worth as much as we thought.
What are we going to do?
And instead of just dealing with that, instead Bernanke decided to create a bunch of money and just start handing it out to people behind the scenes, right?
So, that didn't really fix the problem.
It just postponed the inevitable.
So, to answer your question, yeah, it would have been bad.
I think there would have been a really awful recession maybe six to nine months if the Fed and the government just stood back and let the financial system deal with it.
I mean, it's melodramatic.
The whole financial system, I don't think, would have collapsed, but you're right.
Some major ones would have gone down, but the firms that were more responsible during the housing bubble years, they would have prospered, and they would have taken over market share, and then everyone would have learned the lesson, okay, next time around let's be more careful when we lend people money, whereas now the lesson is go ahead and lend money and just get leveraged like crazy, make tons of money during the bubble, and then hopefully you know the guy who's in the Treasury office when the thing collapses and so you can get bailed out.
Yeah.
Well, and I guess people would learn the lesson, too, that don't do business with whoever takes over the chase.
Those guys can't be trusted with your money.
Right.
Yeah, and also just to elaborate, too, that I think things would have been awful for six to nine months, and in that sense it's true, things would have been worse than they were that we just, in reality, went through, but then it would have been over with.
So I think unemployment right now would be lower in this alternate universe, because yeah, it would have gone up, but then it would have come down because we would have had genuine recovery, whereas right now we're not in a genuine recovery.
We're going to be stuck like this, and we still might crash in the future, right?
It's not like we're out of the tunnel yet and the old few Bernanke and Paulson saved us with the Fed interventions and TARP.
All they did, in my opinion, is push back the inevitable, so we're still going to have to deal with the mess that we should have dealt with back then.
Yeah.
Well, you know, I think it's Newsweek.
This week has a cover.
Last week has a cover story.
Americans just won't save, and they keep spending like the money's burning a hole in their pocket.
How to explain this with this really high unemployment and all of this?
But the answer is simple, right, is that basically it's a felony to save money.
You put your money in a savings account, you get no return on it whatsoever.
So that's why everybody got in the stock.
One of the reasons regular people were forced to invest their money in the stock market is the only way to try to get any return on it.
Then, of course, they lose it all when the bubble cracks.
Yes, exactly right.
It really is class warfare like the commies say, you know?
I think it is.
All right.
It's them against us anyway.
All right.
Well, thanks very much, Bob.
Everybody, that's Bob Murphy from the Mises Institute.
All kinds of great books.
Check them out.
