01/30/14 – Mark Thornton – The Scott Horton Show

Hey, y'all.
Scott here.
So you made a little bit of money in this horrid economy, only to find that the Fed is more or less outlawed saving.
So into the treacherous waters of the stock market bubble you go, but how to make a little money without too much risk of losing it all?
Check out wallstreetwindow.com.
Mike Swanson is a successful former hedge fund manager who opens a very real window into his main account, updating his subscribers on the facts of and the reasoning behind all his market moves.
Follow along on paper or with real money and see what happens at wallstreetwindow.com.
So now, our guest today is our friend Mark Thornton from the Ludwig von Mises Institute.
That's mises.org.
Welcome back to the show, Mark.
How are you doing?
Hey, Scott.
I'm doing fine.
Great to be back on the show.
You know, and I think it's the NSA that's going after you and causing all these technical difficulties for you.
Yeah.
You know what?
If only I was that important.
You know what the real problem is?
Me.
Stupid.
Completely, ridiculously stupid.
You know what it is?
The one program is looking for audio in a place where it's not.
And it's my fault.
Anyway, it's going to take me an hour and a half to fix later, too, but oh well.
So yeah, here's what's funny.
I was reading in the New York Times and it says in there that Ludwig von Mises abandoned his own stupid theory of the business cycle back in maybe even before the 30s, 29, 1930, something like that.
And at least by the Roosevelt years, anyway.
And so what a bunch of idiots.
Murray Rothbard and Hans Sendholz and you and Bob Murphy and all the rest of you guys are for still thinking that the, Ron Paul, for thinking that the Misesian business cycle theory means anything when the guy who invented it already abandoned it.
So what do you have to say for yourself, Kook?
Well, that's the New York Times and that's Paul Krugman and it is totally music to our ears here at the Mises Institute because, you know, first they ignore you, then they laugh at you, then they fight you, then you win.
And so we're at the third stage of a four stage process where ultimately Austrian economics is going to come out on top.
And Paul Krugman is going to lose his job and the New York Times is going right down the toilet.
Basically they're getting desperate, I think.
They realize that the economy is not getting any better, that we're mired in the quagmire of caused by the Federal Reserve and the Congress and the president and all the rest.
And you know, basically the idea that Mises gave up the Austrian theory of the business cycle is just wrong.
I mean, it's just wrong on a giant scale.
Mises correctly predicted the Great Depression as well as some of his students.
And by 1931 they were looking for reasons why the economy was mired in a long depression.
Because in a market economy, even if you have the central bank that's screwing up money and interest rates, well, I mean, you're going to have a business cycle, you're going to have a boom and bust.
But historically speaking, you know, the boom and the bust was a very quick reaction and we very quickly cleared out all the bad investments and the economy got back to a period of economic growth.
Now, of course, this didn't happen during the Great Depression.
It was one of the few times that it didn't happen.
And you know, and so Mises and others started looking around for alternative explanations for the depth and the length of the Great Depression.
And you know, Mises found that efforts on the part of government to get the economy out of the bust were actually responsible for the economy not being able to heal itself.
And so this was a theme that Mises developed.
It was a theme that Rothbard in America's Great Depression in 1962 went through in great detail to show that labor markets were being distorted, that product markets were being distorted, that FDR and the American Congress were trying to keep prices high and trying to keep union wages and union jobs in place.
And that made it difficult for the economy to recover.
Now, in more recent years, economist Richard Vetter and Lowell Galloway have shown basically the same thing, that real wages in the Great Depression were very high, actually, because prices were falling dramatically and wages were set.
And so real wages, the real purchasing power of wages, the expense to business was going up.
And then even more recently, a former Federal Reserve official, Leo Hannion, a big mainstream economist, stumbled across the exact same idea that the Austrians had been promoting for the length of America's Great Depression, which was government intervention into labor and product markets to keep prices high.
So Mises never abandoned the Austrian theory of the business cycle.
Krugman, as usual, is fast with his figures and with his information, but ultimately he's a storyteller.
All right, now, so if the business cycle theory, I mean, never mind the recovery for a second, but if the business cycle theory hinges upon, yeah, if you're suffering a bust right now, it's because you just had an artificial boom built up by expanded bank credit, but without any corresponding expansion, or it would have to be, I guess, exactly the same expansion of productivity or whatever to make up for it, then I don't really understand why, if he brings up whether high wages after the bust comes, whether that's prolonging the depression, what's the logic there in that kind of disproving the cause of the bust in the first place?
Or is there any logic there at all, or just really that lousy of a smear job?
In terms of the keeping wages high?
No, I mean, in terms of Krugman's argument that if Mises is saying that keeping wages high prolonged the depression, somehow, what's the somehow that means that an artificial boom wasn't the cause of the liquidation that's going on now in the first place?
Yeah, well, the basic logic of it, of course, is that the high real wages were occurring as the market topped and then going forward in the depression.
And usually you think of causes of effects, that the cause comes before the effect.
So I think that's one of the logical fallacies of all other business cycle theories, basically, is that the Austrians rely on the cause occurring before the effect.
So we show in several different ways that it was the central bank policy before the stock market crash and before the Great Depression that caused malinvestments in the economy that couldn't be sustained.
And the other theories of the business cycle are things that took place after the stock market crash and while we were already in the Great Depression.
So Milton Friedman's explanation, for example, is that the Fed didn't increase the money supply fast enough.
But he's putting the cause of the Great Depression in the early 1930s.
Well now, Bernanke is actually saying that he learned that lesson from Milton Friedman, that that's what the Fed should have done once the crash, never mind the bubble before it, but once the crash came, that's what he should have done.
And that Bernanke followed Friedman's advice and he saved us from the Great Depression too.
Yeah, right.
Yeah, Bernanke's take on Friedman is that Friedman says they didn't increase the money supply enough.
Bernanke said that they failed to bail out the banks.
And so Bernanke is all about bailing out the banks, not necessarily the money supply angle on it.
But again, both of those are things that occurred after the Great Depression was already underway.
And so Bernanke is claiming that his policies have worked.
But we're six years into this economic mess and you can point to a few good economic statistics, like the frontline unemployment rate.
But underneath those statistics, you have a very weak economy, you have a very weak job market, you have declining labor participation rates, you have declining real incomes, you have declining median family incomes.
All of the basic statistics of economic health in an economy are actually negative.
And you've got a record number of people on food stamps.
You've got a record number of people who've been statistically taken out of the job market because they haven't had a job in so long they no longer count as either unemployed or even as a member of the labor force.
So it's really hard to say with a straight face that the economy has somehow recovered.
And they've been at it for six years, at least, with all of their policy manipulations, you know, other than the stock market itself, which is a direct manipulation by the central bank.
Everything else is weak.
These are all talking points for the regime.
I mean, I hate to say it, and I know that that's not what you're saying, but what you say kind of rhymes with sounds similar to the kind of rhetoric we hear from Robert Reich and whatever, you know, pet MSNBC economists saying, oh, it's just terrible.
This income disparity and the failure of real wages to keep up with inflation and to keep up with the times and to keep up with productivity.
And somehow this is still all a prescription for we need more of what the Democrats are giving us because somehow the last six years and the Republicans before that, too, everybody knows I'm not partisan, but for the past six years, we've seen only the tenth of one percent get richer at the expense of everyone else.
And so clearly we need the people who've been in charge for the last six years to do more of what they're doing so that it won't be like this anymore.
Yeah.
And Robert Reich and MSNBC and CNBC and all the rest, they want even more government intervention.
They want even more public work spending.
They want even more government deficits and easy monetary policy, Scott.
And you know, basically what got us into this problem in the first place was easy money and government borrowing on a massive scale.
What the mainstream economists have offered up as a solution to the problem is even more easy money and even more government debt and bailouts, of course.
That hasn't worked.
What we're saying is don't add to these problems, reduce these problems, balance the budget and go to a sound monetary policy rather than an easy monetary policy.
Let the market work.
Allow prices to adjust.
And of course, the most important price in the economy, as you could put it, is interest rates.
And the central bank has been not just manipulating interest rates, but directly controlling them on a massive scale.
And so, you know, what the problem, the mainstream solution and what Robert Reich and his ilk are recommending is just more government spending, more government borrowing, more public works, easy monetary policy, continuing deficits.
You know, you can't have any austerity in government policy according to their...
And you know, the Austrians have a completely different prescription, and it's a prescription that's worked over and over again.
And when they don't listen to the Austrians, you get scenarios like the Great Depression.
Yeah.
This Great Recession.
Although, you know what makes us look bad, though, is when, you know, Rand Paul gets up there and takes a brave stand against unemployment benefits for people who've been thrown out of work by this government policy.
But we don't hear a thing, not anymore, not really, about the banks.
I mean, just think of how many unemployed people on the low end could be, you know, have their paid benefits while their, you know, so-called benefits, whatever, which they have been taxed to pay for in the first place, could be paid with the money that they would spend if they would just quit spending, you know, $70 or $80 billion a month buying bad debts from Citigroup or from JPMorgan Chase.
And it seems like, especially libertarians, when everybody figures that we're all just a bunch of rich, greedy white guys or whatever, we ought to always be attacking the banks and aiming up at the richest people on welfare, the F-35 boondoggle for Lockheed.
There's nothing but a welfare program for a bunch of golfers.
And instead of attacking people who've been thrown out of work by a policy that, as we're discussing, is all the government's fault, not theirs.
Yeah.
I mean, I always take my aim directly at the top, the corporatocracy.
I'm sorry.
I know you're not Rand, Paul.
I was like complaining about that guy.
Well, you know, it's really hard sticking your neck out in public on mainstream radio and saying, you know, yes, we've got to get rid of these unemployment benefits.
It obviously hasn't worked.
And you know, there's basic economic insights here that says that eliminating unemployment benefits or keeping them to a well-defined period of time is the right thing to do.
And recently, the state of North Carolina was basically forced to cutting its unemployment benefits because it simply didn't have the money to continue to pay them.
Its fund had run out.
Its government was in debt.
They had to do something.
And so they cut unemployment benefits.
And what they've seen in the last six months, I guess it's seven months now, is that the unemployment rate in North Carolina has fallen from 9% down to 7%.
And there's a lot of reasons for that.
But the big reason is, is that they've taken people off of unemployment benefits.
And those people have found some job or another.
They didn't find necessarily the job they were looking for, but they found some means of economic support.
And I think we have to keep that in mind, is that instead of being a burden on the taxpayer and the productive economy, once we eliminate these unemployment benefits, is that people find jobs, they start adding to the economy, and they start moving the economy from a quagmire into a more productive, more efficient economic system.
And everybody is ultimately better as a result.
And so we've got to keep in mind the pragmatic reasons why unemployment benefits are a deterrent to finding a job.
And if you can get on unemployment benefits for an unlimited period of time, and you can pick up some work on the underground economy working for cash or barter, and you don't have to go into work every day, it's a pretty good deal, especially if you can't find your preferred job.
And so taking away those benefits unburdens the taxpayer and gets people back in the workforce where they really need to be.
Yeah, no, I completely understand the economics of that.
And of course, I'm not for the government existing one more day.
So how's it supposed to give any kind of benefit to anybody?
It just seems like we really ought to start with the highest income people being kicked off the welfare rolls first.
And since all of the highest income people on the planet are on America's welfare rolls, we ought to, you know, have a real good time making sure that they have to operate in the free market.
And then, you know, get around to everybody else, too, it seems more fair to me.
Yeah, you know, I agree.
So you know, when people say, well, I know what you're against, but where would you start?
I said, well, I wouldn't start with food stamps, right?
You wouldn't start with unemployment benefits.
What you'd start with is the military industrial complex, where, you know, hundreds of billions of dollars are being siphoned off from the productive economy and put into what's called national defense.
But, you know, there's no way anybody is going to attack the United States.
We've got a nuclear arsenal larger than all other nuclear arsenals combined.
We could destroy the planet 31 times over.
Our military budget is larger than all of the other military budgets combined.
You know, and that doesn't include the big spy state, where we've got 11 different agencies spending untold billions of dollars, where the employees are all making $100,000 to $200,000, $300,000 a year, spying on the American people.
And when it comes time for us to know about terrorists and, you know, threats and stuff, despite spending all this money, they never catch anybody.
It's always some average private citizen who ends up catching this bomber or that bomber or this killer or that murderer.
And so it's easy to cut huge swaths of the corporatocracy government, and it all starts at the top.
It starts in Washington, D.C., New York City, and in all those corporations which feed off the taxpayer for almost their entire budgets.
So I agree entirely.
You know, that's where we want to slam on the brake, get out the knife, and get to work.
All right.
Now, on the bubble, I don't know if we really covered two bubbles at the very same time like this or not, but it sort of seemed fun to me to, well, I guess back when I was in high school and I first really read about the bubble of the late 20s leading up to the crash and how it was, and I think Bob Higgs writes about this in Depression War and Cold War, how it was Benjamin Strong, the chair of the New York Fed, who basically the chair of the Open Market Committee of the day, he was the one in charge of all Federal Reserve policy basically.
And he had a policy of inflating the dollar in order to help prop up the British pound, which was having an inflationary crisis because of all their war spending on all their imperialism in Africa and that kind of thing.
And yet the head of the Bank of England was a guy named Montague Norman, and he was the mentor basically for Benjamin Strong.
And so Strong did him this favor by really pumping up the money supply.
And I guess Rothbard writes in America's Great Depression that they had been inflating all through the 20s.
And even though there wasn't much widespread price inflation because the increases in productivity at the same time were kind of disguising it, but the distortions and the malinvestments were really still there disguised beneath the surface.
But then 27 to 29, they blow up this giant bubble, which then pops.
And to me, like when I first learned this for the first time, it's such the opposite of the way they teach the story in, you know, seventh grade social studies that, yeah, well, they used to have a free economy and it completely blew up in the late 20s and 30s.
So we had to have this mixed quasi free market FDR New Deal to save the economy, to rein in the excesses of the wild free market when the whole damn thing was engineered by the government central bank in the first place.
So it's important for me to hear people or to see people, give people a chance to pick up on that for the first time if they've never heard that before, if they're only, you know, to get to the government story about the free market of the 20s and all that.
But then the real corollary I was trying to make here is with the bubble that crashed in 08.
And I forget if we've spoken about this before, but there's this movie that's narrated by Matt Damon, the Democrat, called Inside Job.
And that's not an actual truth or reference.
It's a reference to just like a bank robbery, an inside job bank robbery, like where that phrase originally comes from.
And so anyway, the whole thing, I think that, I don't know if you've seen it or not, but I think I would guess that Mark Thornton could give it like a 9.9 out of 10, this movie about these criminals on Wall Street and how they rigged all these derivative markets and everything.
And yet in the whole movie, there's this gigantic question that's left begging the whole time, that's left hanging the whole time that they never ask, which is where are the banks getting all this money from in the first place?
What is a reserve ratio?
What does it mean when the government monetize, when the Fed monetizes government debt and introduces new credit into the whatever, whatever.
So they follow the money all the way to the second to last step.
And it just seems like so many people are, can be led so wrong by just that one almost small error of omission.
You know what I mean?
Where they still, even though we heard, we already have the whole narrative that free markets in the twenties didn't work.
So we had the new deal and that was 70, 80 years ago.
But now for some reason, we're supposed to believe that the George W. Bush years was the Ron Paul years of a lousy fair free market economy, a libertarian economy rather than a conservative crony federal reserve one.
And so now, you know, I guess whatever the Democrats can do to control the economy, results notwithstanding, we've got to let them try because of how dangerous the free market is.
And I see, I follow these left-wingers on Twitter and I see their conventional wisdom all day long about the end of capitalism, which has done this to us, you know?
Oh yeah.
And I haven't seen that, that movie, but it, it requires a federal reserve and easy monetary policy with guaranteed bailouts.
Otherwise, these people wouldn't take on these risks if they knew they weren't going to get bailed out.
If they were using their own capital rather than free capital provided by the central banks, they'd never, ever engage in this kind of behavior.
And so if you look at the, you know, if you look at the movies, you know, The Wolf on Wall Street, you know, that's a, that's a situation where a firm is, is in a regulated market supposedly by the government, but it's skirting all those regulations very easily.
And you know, the same is true with the great Gatsby.
He's got all of this, this tons of money.
And the reason he he's got it is because he's got easy access to selling liquor during prohibition.
So it's always, you know, you, you've got to have the government in order to create these crazy, ludicrous, incredibly risky scenarios.
Otherwise, it just wouldn't take place.
It's the government bailouts and it's the government subsidies that always generate these kinds of crazy off the wall type of scenarios that we're living through right now.
And you know, they're back at it.
They're back.
Let re-leveraging the financial markets on a massive scale.
So hey, unless that sound like an apology for the bankers, it was the bankers who created this government agency, the Federal Reserve in the first place, just so they could screw us in this very fashion.
So it's not like we're here as their defense lawyers here by blaming the government.
It is a fascist combine between Wall Street and Washington DC, correct?
Yeah.
It's the classic public private partnership.
It's the classic crony, capital cronyism.
It's you know, and the banks, you know, the banks are the ones that induce the government to put this system together.
And you know, they tentatively have ownership.
They tentatively have minor voting rights.
But you know, basically, especially with Bernanke in control, the central bank, the Federal Reserve has been acting in the interests of the largest banks and financial firms in the United States and against the interest of the average American who has seen no relief, has seen no way out of the quagmire that this whole system has created.
All right, everybody, that is Mark Thornton from the Ludwig von Mises Institute.
And let me tell you, at the Mises Institute, they got, Mark, what would you guess, 100,000 pages of economic writings that people can look at and in every kind of format or what?
Oh, a lot more than that.
I mean, it's millions of pages.
And you know, you go to mises.org, M-I-S-E-S dot O-R-G, and you have the access to everything in economics about liberty, about history.
It's almost all there available for sale or for free.
And there's audio, video, written materials.
There's daily articles, and there's journal articles, and there's huge economic tomes that cover all of economics.
And so, you know, it's all there for the taking.
Please come and visit us.
Look at our events.
We've got the great Austrian Economic Research Conference coming up with Judge Napolitano and James Grant.
It's going to be wonderful, and I encourage everybody to come.
And where's that?
That's going to be here in Auburn, Alabama, in March.
Judge Napolitano is going to be here, James Grant from Wall Street, the Austrian Wall Streeter, and all of the leading Austrian economists are going to be here.
And it's open to the general public, and it's just a great event.
It's one of my favorite events, and this year is going to be more special than any of the years in the past.
Okay, great.
Well, maybe I'll see you there, if I'm lucky.
Excellent, Scott.
Thanks very much for your time, as always, Mark.
Appreciate it.
You're welcome.
See you soon.
So, you're a libertarian, and you don't believe the propaganda about government awesomeness you were subjected to in fourth grade.
You want real history and economics.
Well, learn in your car from professors you can trust with Tom Woods' Liberty Classroom.
And if you join through the Liberty Classroom link at scotthorton.org, we'll make a donation to support The Scott Horton Show.
Liberty Classroom, the history and economics they didn't teach you.
Hey, y'all.
Scott here.
First, I want to take a second to thank all the show's listeners, sponsors, and supporters for helping make this show what it is.
I literally couldn't do it without you.
And now I want to tell you about the newest way to help support the show.
Whenever you shop at amazon.com, stop by scotthorton.org first, and just click the Amazon logo on the right side of the page.
That way, the show will get a kickback from Amazon's end of the sale.
It won't cost you an extra cent.
And it's not just books.
Amazon.com sells just about everything in the world, except cars, I think.
So whatever you need, they've got it.
Just click the Amazon logo on the right side of the page at scotthorton.org, or go to scotthorton.org slash Amazon.
Hey, y'all.
Scott Horton here for The Future of Freedom, the monthly journal of The Future of Freedom Foundation at fff.org slash subscribe.
Since 1989, FFF has been pushing an uncompromising moral and economic case for peace, individual liberty, and free markets.
Sign up now for The Future of Freedom, featuring founder and president Jacob Horenberger, as well as Sheldon Richmond, James Bovard, Anthony Gregory, Wendy McElroy, and many more.
It's just $25 a year for the print edition, $15 per year to read it online.
That's fff.org slash subscribe, and tell them Scott sent you.
Hey, y'all.
Scott Horton here for TheBumperSticker.com.
I created it, but quickly sold it to Rick so I could do this instead.
In the decades since, he's made one hell of a great company.
TheBumperSticker.com makes digitally printed, photo-quality, full-color bumper stickers for your band or your business, as well as magnets, adhesive vinyl decals, and labels for products and industrial use, and your political cause or campaign, too.
TheBumperSticker.com also offers full custom graphic design for bringing your idea to reality.
Let TheBumperSticker.com help you get the word out.
That's TheBumperSticker.com at TheBumperSticker.com.
Tell them you heard it here.
Hey, y'all.
Scott Horton here to tell you about this great new book by Michael Swanson, The War State.
In The War State, Swanson examines how Presidents Truman, Eisenhower, and Kennedy both expanded and fought to limit the rise of the new national security state after World War II.
If this nation is ever to live up to its creed of liberty and prosperity for everyone, we are going to have to abolish the empire.
Know your enemy.
Get The War State by Michael Swanson.
It's available at your local bookstore or at Amazon.com in Kindle or in paperback.
Just click the book in the right margin at scotthorton.org or thewarstate.com.