All right, everybody, welcome back to Anti-War Radio on Chaos in Austin.
Our guest today is David R. Henderson.
He's a research fellow with the Hooper Institution and Associate Professor of Economics in the Graduate School of Business and Public Policy at the Naval Postgraduate School.
He's the author of The Joy of Freedom, An Economist's Odyssey, and co-author with Charles L. Hooper of Making Great Decisions in Business and Life.
His latest book is The Concise Encyclopedia of Economics.
Wow, I ought to read that.
Welcome back to the show, David.
Thanks, Scott.
It's good to have you here.
How are you doing today?
I'm doing well.
Well, that's good to hear.
Hey, listen, I really like your article that we have spotlighted.
Oh, by the way, I should have mentioned Anti-War.com slash Henderson for David's regular column for Anti-War.com, The Wartime Economist.
But we're featuring as our spotlight article today on Anti-War.com your article for C2C, Canada's Journal of Ideas, The Libertarian Case Against the War in Afghanistan.
And this is directed toward a Canadian audience.
Yes, a Canadian audience of conservatives, by the way.
Oh, an audience of conservatives, you say?
Yes.
That's why it was such a coup to get this article in there without them having made major changes.
So I was very pleased.
Well, that's good.
And I don't remember reading in here anything about, well, only if the U.N. says it's okay first or anything like that.
So apparently you were able to, well, I guess really making the case the way you want to make it anyway is the kind of case that is more likely to appeal to conservatives than something that a liberal might argue, right?
And the reason I think it's a good case to make to conservatives and even some libertarians is the analogy I use.
And my question was, should I go straight to my analogy that I use in the article?
Yeah, sure.
Go right ahead.
Right.
Well, what I do is I set up a hypothetical where someone in one country blows up an airliner that's owned by people in another country or by a government in another country.
And then that person settles in yet another country, and the government of that country refuses to extradite him.
And the reason I set it up that way is that's very similar to what happened with the Taliban refusing to turn over Osama bin Laden when the Bush administration wanted him.
And then I say, is it justified for the country that refuses to turn, the country that wants the person extradited to attack the government and the country that didn't, that refused to extradite him?
And I'm trying to basically, you know, get people thinking the way they normally think and say, well, you know, most people would say it seems, yes, because that, in fact, was the argument.
The argument at the time in September and October of 2001 was that Bush asked the Taliban to turn him over.
The Taliban refused.
And, hey, that justifies bombing Afghanistan, basically.
Well, then what I point out is that the case I was talking about was not Afghanistan and was not September 11th at all.
It was the case of a terrorist from Venezuela who had bombed a Cuban airliner and killed all on board or had been behind the plot and had killed all on board.
And it was the U.S. government that refused to extradite him to the Venezuelans, even though the United States has an extradition agreement with the Venezuelans.
And the judge, the federal judge who refused, he refused because he was worried that if he extradited him to the Venezuelan government, the person would be tortured.
Oh, come on.
You're just making that up for extra irony's sake, right?
No.
And the case, it was in 1976.
And the Venezuelan, the Cuban-born Venezuelan was Luis Posada Carriles, I'm not sure how to pronounce it, C-A-R-R-I-L-E-S.
And on October 6th, 1976, Cubana Flight 455, departing from Barbados to Cuba via Trinidad, blew up and everyone on board was killed.
It was traced back, as I said, to Luis Posada Carriles.
And so there we are.
I mean, and so what I ask the reader is, do you think then it's justified for the Venezuelan government to attack the United States?
Now, when you say it that way, the danger I think I would have, and that's why I'll tell you what I did next in the article, the danger I thought I'd have is people just laughing.
Well, of course they couldn't.
So that's not the point, though.
The point is, is it justified, not will it work?
So I said, let's change it.
Let's make the Venezuelan government have a very strong military, and the U.S. government have a very weak military.
Would it then be justified?
Because then again, then it's doable.
And I think most people would say no.
I think 99% of people would say no.
They'd say, you know what, we're not willing to...
It just doesn't make sense to put at risk, to actually kill thousands or ten thousands of Americans to get one guy.
Well, then let's change it, and let's say there were a thousand such guys who were really bad eggs in the United States who were involved in this.
Would it then be justified to attack the United States?
I think you might get a few percentage of the population that would say yes to that, but again, I think well over 90% of the U.S. population would say no.
And the thing is, I think what I'm getting to in the article is, you can use ethical reasoning to talk about foreign policy just as you can use it to talk about domestic policy, and you should.
I mean, just the fact that it's foreign doesn't mean that ethics go out the window.
Well, but yeah, it does, because that's the thing, is when you talk about the difference between American lives and Afghan lives, you might as well be talking about the difference between humans or even gods on one hand, and as Admiral Fallon called the Iranians, ants on the other.
When the time comes, we crush them.
We don't care about women and children.
That's the other funny thing, right, is the whole time we're slaughtering, our government is slaughtering all these people.
They're calling it freedom for women and all this crap.
That's why I did the article the way I did, because I want people to just have that little opening of a window where they can ask themselves, would it be justified for a foreign government to attack us over this kind of issue?
Because I think you're right that that's the way most people think.
But I think it's the way most people think, because they've never actually had to look at an actual real case where someone could have made the argument the other way for another government to attack or invade us.
Right.
And by the way, this is a side point, but it's, I think, relevant, that the Taliban officially offered to turn over bin Laden if America would make a case or if we would allow him to be extradited to another Muslim country, which they could, which could have included Saudi Arabia, Egypt, Jordan or any of our puppet dictatorships and or turn them over to the U.N.
And all they wanted to see was some proof first, which from what little I understand of Afghan culture, that's really going the extra mile because the way it's at least used to be there, I don't know about after all these years of war, but the way it used to be there was, you know, I'll give you my son before I give you my guest in my house.
The way their culture was here, they were willing to turn him over if our government would only prove their case.
But they didn't feel like they needed to do that.
They wanted an excuse to invade and occupy that country anyway, apparently.
Well, I don't even think they asked for proof.
And I by the way, when I read this article, I had trouble finding much on this, but I don't think they asked for proof.
I think they asked for evidence.
And there's a difference.
In other words, the idea is that there's some minimum level of evidence a government would typically require in order to extradite someone.
And if it hits that minimum, then they'll extradite.
And then proof comes up at the actual trial.
And so I think what they were asking for was quite reasonable.
Now having said that, I'm not positive that they weren't playing a game.
But what would have been lost by waiting a few weeks, presenting the evidence, and seeing if they're playing a game?
You know, it seems that that would be a really good idea if the alternative is a war, which by the way, we're still in seven years later, and oh, by the way, we don't have Osama bin Laden.
Right.
And oh, by the way, we're losing this war.
And people who know about Afghanistan are saying, you know, we're at least running the risk.
I guess Gates and Obama want to put five more divisions in there.
So maybe not immediately, but at least at this point, we're nearing kind of running the risk of facing a Saigon helicopters on the roof of the embassy kind of moment there.
Our guys are losing that war badly.
Yeah.
I mean, the Eric Margulies was on the show talking about how the land route through the Khyber Pass and all that is basically closed off.
The Russians now have given us a land route through Russia and through the north in Afghanistan because our trucks can't even get through the Khyber Pass anymore.
And then back to my case, notice that what I said was that, you know, the Taliban wanted some kind of evidence in order to extradite him.
Well, again, back to this Cuban airliner, this Cuban airliner example, the Venezuelan, the evidence was given to the U.S. government, and so they actually did play by the rules and the U.S. government still would not extradite this guy.
Now, do you know about this guy's connections to the CIA and whether this was one of their operations from the get-go or what?
When I researched the article, I found those claims being made, and they seem to be somewhat backed up that there was some connection to the CIA.
I didn't get to it for two reasons.
A, and the most important reason, it didn't matter.
In other words, nothing in my case mattered.
If you introduce that, that only strengthens my case, but it isn't crucial to my case at all.
Right.
The other thing is, as soon as you say CIA behind it, and remember when you're writing for a conservative audience, you get a whole bunch of minds that you just opened a little closing completely.
Right.
Because the CIA never does anything like, you know, kill people or anything like that.
Right.
And the only people who claim the CIA does bad things are people who wear tinfoil hats, you know, all that stuff.
And so, you get people who just literally will close their mind when you do it.
Just as, kind of, if you think about some of the people on our side, if you try to tell people the Federal Reserve is not privately owned, in fact, it is a government agency, you will often have people close you off there, too.
Right.
Yeah.
Yeah, kind of the populist right, misunderstanding that.
And you know, it's funny, too, because then that's the problem with it, too, is that it's private rather than government, they think.
Oh, anyway, that's a whole different conversation.
Yeah, right, right.
But anyway, I just, I want to give an analogy to just say that every group seems to have its things that it won't listen to, and it will just close off, and I was trying as much as possible in this article to open people's minds, and that's why I started out with that hypothetical that turned into the real example of Cuba, Venezuela, and the United States.
Well, and you know, something that really happened here was that they kind of conflated the Taliban and Al-Qaeda together and pretended that they were one and the same thing.
So we've been fighting a war, it's funny, depending on which news sources you read, a lot of times they'll kind of say the war is against the Taliban types, which simply means, it simply means the Pashtuns, there's a civil war between the Uzbeks and Tajiks on one side and the Pashtuns on the other, and America's fighting a civil war against the Pashtuns.
And that's all that means, the Taliban is the only organized political force among the Pashtuns that they have.
So a war against the Taliban types means a war against the whole population.
Yeah, and by the way, this often happens with government programs, and war, after all, is a government program.
It often happens with government programs at the domestic level, where people start out and they say, we want to achieve goal A, oh, to get there we have to achieve goal B, and that might not even be true, but they say that, and then they start focusing on B, and then they forget all about A. So here, A was capture Osama bin Laden.
Bush had a little clarity on that the first few days, remember his wanted dead or alive, Osama bin Laden.
And then within a month, it had morphed into, displace the Taliban.
And it's still, kind of, keep the Taliban out of power, you know, seven years later.
It's not working, really.
Yeah.
Just like all government programs, you know.
Pretty much all, yeah.
It's hard to find one that does.
Well, you know, you talk about public choice theory, and how that applies to war.
What exactly is public choice theory?
Public choice theory, which was, kind of, created by two main people, James Buchanan and George Tullock, both economists at George Mason University.
And Buchanan won the Nobel Prize in economics for it in 1986.
What they basically do is, they say, can we understand the behavior in the political system by using the same tools of economics that we use to understand the behavior of consumers or firms or workers?
And the basic answer is, yes, there's a lot we've been able to understand that way.
And so, in other words, so instead of assuming that, say, government officials and politicians are out just to do good, and they have this wonderful, just, concern for all of us people.
What if we assume, we don't assume that about GM, you know.
We assume they want to make money, and the way they can figure out to make money is by producing cars they want, although they've had a little trouble with that.
So, how about politicians?
Maybe they want power, they want to, kind of, run things, they want to do things for their own wealth, in the narrow sense, and for their own power.
And so, they do things that will get them that.
And how much of their behavior can we understand that way?
And so, they think we can understand a lot, but, you know, very few economists in public choice have taken the obvious next step of saying, well, can we understand the behavior of the government in foreign policy this way?
And it seems like an obvious, low-hanging fruit, kind of, area to apply public choice.
And, you know, why would the $600 or $700 billion budget of the so-called Defense Department be off-limits for using those tools?
And yet, it pretty much has been.
So I point out that we can use those tools.
And the particular thing I point out that applies here is the issue of what the public choice economists call rational ignorance.
Rational ignorance refers to people being ignorant because it's rational to be so.
So, for example, very few people in America know that the government has a sugar import program, a sugar import quota program, that keeps sugar from coming into this country and raises the price of sugar to roughly double the world price.
That's why Lifesavers, by the way, left Michigan for Canada a couple of years ago.
That's why you have corn syrup in your Coke rather than sucrose, as we used to.
That's why your kid has diabetes.
That's a part of it.
But, although, I still put a lot of responsibility on parents.
So the thing is, think through that rational ignorance thing in this context while we're even more ignorant, because at least when the government does all these other things, it's stuff we can see around us if we care to look into it.
But how do we get information about what the government is doing in other countries?
Our press isn't doing a good job of presenting it.
The TV media are essentially a joke.
So what's left, if you haven't been reading anti-war.com for the last number of years, you don't have much of a clue about what's going on.
And what that means, just again, applying public choice theory, governments can get away with even more in other countries, because people don't have the information here.
And another reason governments can get away with even more in these other countries is that those other people don't vote.
I mean, let's face it, the main losers from any given American foreign policy are foreigners, because a lot of them lose their lives.
And so if they don't get to vote, and I'm, by the way, not advocating that they should, but if they don't get to vote, again, that's a constituency the U.S. government has to pay very little attention to and concern about.
Right.
Well, and we can see with the last presidential election how much interest the rest of the world has in who's elected president.
I don't know if I saw it this time.
I certainly saw in 2004 people around the world saying, hey, why don't we get to vote?
This guy's the emperor of Earth, and we don't get a vote?
It's not fair.
And they had a point.
No, they do.
But somehow we could just have them vote on our foreign policy.
Well, yeah, I don't know.
See, here's the thing, though.
Well, there's a few things there.
First of all, this public choice theory, basically, it comes down to the premise, really, you're challenging the very basic assumption that all American government operates on, which is that once somebody gets a job working for the state, they're no longer an individual but a public-spirited angel who only cares about the greater society, is no longer an individual, has no more personal interest, has no reason to do anything except that they know that it's what's best for the larger public policy or whatever.
And you're saying, no, they're all individuals.
They all want power and influence.
They all will do what it wants.
When you talk about rational ignorance, it reminds me of all the businesses hoping to cash in, many of which did cash in on the war in Iraq, who certainly didn't want to hear a word of dissent.
It wasn't their war, but they were sure happy to glom right onto it.
Right.
And I think even though people say that, and what you stated, Scott, is kind of the official view, it's what's in the civics textbooks and so on, no one really believes it.
I mean, look at the recent decision that President-elect Obama and Michelle Obama made about their kids' education.
Right.
They're going to send them to a very expensive private school, because they know that whatever else he said on the campaign trail, government schooling sucks and especially sucks in D.C.
And so, you know, they know there aren't all these public-spirited teachers at those schools that are going to be looking out for their kids.
They just know that.
And by the way, I'm not blaming them for sending their kids to those schools.
I just think that they should apply that same reasoning to government in general and talk that way.
Government doesn't care about us.
So how the heck can we get government out of our lives?
And because this is the anti-war show, also, let's get government out of the lives of people around the world.
Yeah.
You know, we've talked before about the cost of war.
And I think, you know, you even said that, listen, you know, all this imperialism is bad for a lot of reasons, but in terms of gross domestic product and everything, basically the American people can't afford a world empire, I think was more or less what you said.
It really doesn't cost us that much in terms of revenue going out, relatively speaking, comparatively speaking, to the rest of the economy.
Is that, am I even paraphrasing you correctly?
Here's what I think.
I think we absolutely could afford a world empire, but it would be expensive.
In other words, we are such a wealthy country, and it depends how big an empire, how intrusive, but we could spend easily double the percent of GDP we spend now on an empire.
I mean, the U.S. government spends about 5% of GDP now.
It could spend 10.
How do I know that?
Because it was spending 10 back in 1960, when it was a much smaller economy, and people were poorer on average, substantially poorer on average.
So we could afford it.
It's just Americans wouldn't stand for it.
That's the good news.
Right.
And again, you know, for the audience, to be clear, we're talking economics here, not morality in that sense.
Right.
I mean, I think you know my moral views.
I think it's outrageous.
I think it's just horrible to be planning to run things in other people's countries.
And it's not just running them the way, you know, when you start thinking about it, it means knocking off political leaders, murdering political leaders whom you don't like, maybe preventing people from voting.
You know, just checking people, having checkpoints when they're going from point A to B in their country and shooting them if they don't cooperate.
I mean, that's really what we're talking about.
Right.
I just wanted to make sure, you know, for people tuning in, like, wait, are they just talking about utilitarianism?
I just have this tendency, Scott.
I think it's a good tendency, but tell me if you don't, which is to answer the question that was asked.
Right.
Yeah.
Well, you got to be careful, you know, don't I don't want you to become too much like a politician and cover all your bases if you don't have to.
And obviously you don't have to on this show.
You're right for antiwar.com.
We know where you come from here.
You know, when you talk about we could afford it, but it would be expensive and we wouldn't want to.
It wouldn't work, by the way.
I'm sorry.
There wouldn't be anything we'd get out of it that we would like.
There definitely wouldn't be anything that we'd get out of it that the rest of the world would get out of it that they would like, except maybe a few favored politicians and so on in those countries.
But there'd be very little we'd get out of it that we would like.
We would have more casualties of Americans coming home.
We would spend more money.
We wouldn't see all these great effects everywhere in the world.
We would just see a lot of a lot of Iraq and Afghanistan.
I mean, that's what the rest that's what the world would look like if the United States stepped up its efforts.
Well, what would what would the world look like if George Bush didn't have the ability to borrow money from, say, China, Korea, Japan to pay for his war in the Middle East, didn't have the ability to inflate the currency in order to pay for the war?
Because it seems like what he did was he cut taxes for eight years in a row or kept taxes low and all that kind of, well, relatively speaking to previous eras, and yet did all this spending at the very same time.
It's now what they call the hidden taxation of inflation, where you buy now, pay later.
That's how they get away with it.
Well, no, inflation is not that was not that big a deal.
Inflation was very low.
But the borrowing part is the part to look at the part that you mentioned, in other words.
So if we had a balanced budget, I mean, a real balanced budget with some kind of enforcement of that, and I'll talk in a minute, if you want me to, about how I think we'll actually will get there.
But if we had that, then I think it would be hard to do this stuff.
Then you'd have to make real tradeoffs.
Then you'd have to say, OK, we want an extra 50 billion for spending on this war.
Are we willing to cut Social Security by 50 billion?
Are we willing to cut Social Security by 20 and Medicare by 20 and other things by 10?
You know, that would be those would be the kinds of tradeoffs government would have to make.
And I do think that would be preferable.
The government gets very little revenue from inflation.
It has to do with something called something called senior reach, to use the economic term.
And because our banking system is so effective at having lots of money out there based on a small amount of reserves, and the government is making money only on the reserves, the government could probably get less than 2% of its spending from having a very high inflation rate.
Hmm.
Well, you know, there's this article today in Bloomberg.
Let's see.
I have it here.
Yeah.
They're talking on Lew Rockwell's blog about 7.4 teradollars is what they're calling them.
This is this Bloomberg article.
Oh, wow.
Updated.
Apparently, U.S. pledges top 7.7 trillion.
They've updated this since earlier this morning, U.S. pledges top 7.7 trillion to freeze frozen credit.
I mean, that's inflationary, isn't it?
No, I don't.
I mean, not particularly.
Again, they're probably going to borrow.
And I mean, I you know, you're hitting me with a story I don't know about.
I don't know what they're doing with it.
I don't know how they're raising it.
But let me put it this way.
I am not worried.
I think the inflation rate could well go up.
It's been a go.
It's been about two to 3% a year for the last number of years.
I can imagine going to five.
I could imagine it going to six.
I would be willing to bet you at very big odds that it wouldn't go to 10%.
But in other words, we wouldn't have a period like what is now called the Great Inflation of the 70s, where we had 7, 8, 9, 10% inflation a lot of those years.
We won't have that again.
Why is that?
For the reason I mentioned, the government is too smart about it.
They're smart enough that they realize they can't get much revenue out of inflation.
Because the way they get revenue from inflation is what's called seniorage.
It's from the actual money they print or create.
And the actual money they print or create is a very small part of the money supply now.
Oh, because most of it is just created by the banks themselves.
That's right.
That's right.
You know, I heard a thing on NPR News where they were talking about the housing bubble and whatever for an hour.
And it was a really interesting thing.
And one of the things they said there was that they doubled the amount of currency in the world through bank credit expansion and so forth from, I guess, right around the turn of the century or the beginning of Bush's term or something, from roughly $35 trillion in liquid money floating around to $70 trillion.
I mean...
I'd want to see the definition of the money supply.
None of the definitions of the money supply I've seen have anywhere near that amount of money in them.
But what I will say is the amount of currency was the thing that went up substantially during Greenspan's era of 19 years.
And most of it went to other countries and is circulating or held in those other countries as a kind of a reserve.
So the domestic currency in our country rose by less than 1% a year for those 19 years of Greenspan's time.
And I guess, so the people who are worried about hyperinflation are basically worried that everybody's going to want to abandon those dollars in their vaults and send them all back here.
Yeah, I guess that would be one of the worries.
But even that wouldn't get you hyper, right?
Hyperinflation is defined as 50% inflation a month.
And we're not close to that.
And we're not close to 50% a year.
And as I said, I don't think we're close to 10% a year.
I was giving a talk up in Portland this weekend.
And someone said, well, things are going to get bad and you got to figure out where you're going to get your food.
And I said, I know where I'm going to get my food.
I'm going to go to the supermarket.
So you're really not worried about a real complete collapse and a breakdown in the division of labor at all?
No, I'm really not.
And the thing is, here's the problem, Scott, is that to the extent people talk about that and then it doesn't happen, they lose credibility, they also let the government get away with all the things we should worry about.
I mean, government has been in this massive power grab.
I mean, the Bush administration, my talk was titled, The Pulse and Bailout, Bush's Road to Serfdom.
So we've got all these major steps to reduce our freedom and we should be talking about those and not always going to these extreme cases that are so incredibly unlikely and then not paying attention to what they're doing.
I mean, if we could persuade Obama to get out of Iraq, to cut Guantanamo Bay, maybe have his tax cut, his tax increase, we'd be doing a lot.
Right.
Well, and even, you know, regardless of the long-term effect on the economy, if they can, you know, if the amount is actually negligible or whatever in terms of overall effect, it's still wrong to steal trillions of dollars from hardworking Americans to give it to people who are already billionaires, isn't it?
Like morally wrong to do that?
Yes.
But where'd you get the trillions?
I just missed the link here.
Well, I just, I keep reading, last week there was a CNBC article said that they were talking, their math says our government is giving away in various forms of bailout $4.3 trillion.
Now Bloomberg today is talking in the $7 trillion.
Again, as I say, I haven't read it, I'm skeptical of those numbers, but that's all I can say.
I mean, I just am not willing to comment on it without having read it carefully.
Yeah.
And as far as you know, it's still what, less than $1 trillion?
What's less than $1 trillion?
What the central bank and the treasury department have doled out and or promised to dole out to their monies?
No, it could be over a trillion.
I doubt that it's two and a lot of it is lending.
We'll see whether they get it back, you know?
So it's very hard.
I mean, that's the problem with central planning.
The central planners do all these things and it's very hard to know what they're doing.
It's very hard to know what it'll be at the end of the day.
And Paulson has shown himself to be just this incredibly foolish, powerful man.
Yeah.
Well, it seems it's interesting like that.
They say power corrupts, but it also seems like power makes you stupid too.
I think there's something to that.
I think that is a big part of the corruption.
I mean, I think that, you know, we think of corruption as being, you get paid off.
But I think the bigger part is that you get to have what Friedrich Hayek, a Nobel prize winning economist, called the fatal conceit.
You think you're smart when you're stupid.
I mean, I know I'm stupid.
You know, I know that if I, if they made me the head of this bailout, I'd mess it up.
And it's not because I'm stupider than others people.
It's because everyone's stupid at that.
And that's the great thing about the free market.
People risk their own money.
They will make mistakes, but then they pay for them.
Right.
I mean, really, that's the whole kind of understanding of libertarianism, right?
Is that people, people are smart enough and free enough.
I mean, not that any of us are any better to take their place, but people can be trusted to run their own lives, but they can't be trusted to run everybody else's life.
And so you have to have that natural check and balance where people who go too far end up having to pay the costs and not have to and not be able to make everybody else pay their costs.
Right.
There was an economist who used to teach at Golden Gate University in San Francisco named Joe Furyk, who died suddenly a few years ago.
And I was looking at my notes some time ago about, from a talk he gave, and he had this great, he teaches a couple little principles his first day of every class.
And one of them is markets make you smart, government makes you stupid.
And what he means by that is when you're actually putting your own money on the line, you get much more informed than when government does when it's putting your money on the line.
Sure.
And that ought to be obvious to anybody, right?
Yeah.
And as I said, it is obvious.
It's just people aren't willing to admit it and work through all the implications.
So again, back to the Obama-Sidwell school thing, they know that they're going to get a crappy education for their daughters at the D.C. government schools.
And so they send their daughter to the private school.
They know that.
Okay.
And if they want to, well, that's a whole other story.
But the point is, they know that and they aren't following that kind of consistently in all their policies.
Well, so, you know, I guess if I can try to argue and be devil's advocate, I would say, come on, David Henderson.
You might think that you're not quite smart enough to run this bailout in exactly the right way.
But you have to admit that Citigroup is just too big to fail.
It's the biggest private bank in the whole world.
We can't let them fail.
They made bad loans.
We got to save them.
Yeah.
And I, yeah, I don't think we, I think we could make, we could let them fail.
And we should.
You know, and I'm not positive they'd fail, but if they would, we should let them.
And again, it has to do with having people bear responsibility for their decisions.
Now, the big word that people use to say why we shouldn't do that is the word systemic.
There are these systemic risks that's going to have all these ripple effects and so on.
But I don't believe in having the Federal Reserve.
I think it should be eliminated.
But given that we have it, we know how, what's the worry from a bank collapse?
The worry is that people convert their deposits into currency because we have a fraction reserve banking system that reduces the money supply.
And we get something like what happened in the late 20s, early 30s when the banks collapsed.
We know how to prevent that.
It's called the Federal Reserve for being the lender of last resort.
That's what the Federal Reserve was set up to do.
And it screwed it up big time in the late 20s and early 30s.
They can do that now.
And again, I emphasize, Scott, I'm not saying we should have a Federal Reserve.
We had a private system of doing that before it came along called private clearinghouses.
But they got rid of those.
We've got the Federal Reserve.
That's what we're stuck with.
It's like if they have a monopoly ambulance and I'm dying of a heart attack, I'm not going to use that second to say, hey, the ambulance shouldn't pick me up.
I want them to pick me up.
They got rid of the competition.
Call a cab.
No, I'm sorry.
Go ahead.
And so, you know, the Fed has the ability to make sure that the money supply doesn't collapse and that we don't get another Great Depression.
They can do that without this bailout.
They can do that without saving Citibank.
They can do that.
Mm hmm.
Well, I mean, but that's what they're saying, right?
They're the lender of last resort to Citibank, whatever it's called.
Well, I think it's more than that.
I mean, I think that that my understanding is they're buying up lots of Citibank's assets.
Mm hmm.
Oh, OK.
But that's basically saving it by another means.
So there's a pretty big difference between, you know, buying up stuff at a high price that really is worth less and just lending money.
Yeah.
Well, now, isn't the and I understand you said, you know, you're against the Fed in principle and all that.
But isn't it the case or would you argue that it's the case that because there's the Federal Reserve and this permanent government lender of last resort, that that's why all these banks can go crazy?
I mean, the New York Times today says Citigroup didn't see any red flags and continue to make bolder and bolder bets.
Yeah, it's two things.
It's the Federal Reserve, as you say, but also maybe even more important is the FDIC, the Federal Deposit Insurance Corporation.
But see, what happens is they insure deposits up to a certain amount.
And so the depositors no longer have any incentive to monitor the banks they put it in.
I mean, do you know how good the assets were that your bank invested in?
No.
Yeah.
Neither do I.
Well, I got lucky.
It turns out what mine was Wells Fargo.
And until Paulson muscled them on Columbus Day, they were doing pretty well.
And so, you know, and we don't need to know.
But back before the deposit insurance existed, there was a lot of monitoring of banks by their depositors because you had to worry about your bank doing badly, investing badly and going insolvent.
So basically what happens is with the Federal Reserve, with the fractional banking and the reserve ratio system and all that, in a sense, it's a Ponzi scheme and the Federal Reserve institutionalizes the Ponzi scheme instead of limiting it.
Well, way too overstated, I think it's more it's what economists call moral hazard.
It's that the government is basically limiting your downside and you get all the upside.
And so you, the bank, take more risk than you should.
I don't think it's a Ponzi scheme.
And also, by the way, I don't think there's anything in principle wrong with fractional reserve banking.
I believe that if we got rid of the Federal Reserve, we would have fractional reserve banking just as we have fractional reserve airlines and fractional reserve parking spaces.
When you get, when you buy a ticket for an airline, they don't put that aside and that's yours for sure.
They're making this bet that usually works out and sometimes doesn't that X percent of people won't show up.
If they tried to, if they had to put that thing aside because you bought the ticket, the airlines would have to probably charge two to three times as much as they do.
And so we have fractional reserve things all over the place.
There's nothing implicitly or explicitly fraudulent about that.
It's just that when the government is there as the backstop, as they call it, the ultimate backstop, then people, I mean, I'm thinking of it like this, if you and I own a construction firm or something, we're going to try to stay as close, at least to the black as we can every night or, and, you know, try to keep our company in the black and making money all the time.
Whereas if you're a banker, you're basically encouraged by that moral hazard to run right as close to the red as you can every time rather than saving for a rainy day and that kind of thing.
Well, you're encouraged to take bigger risks than you would.
Yeah.
All right.
Well, uh, okay.
So let's talk about war some more.
Okay.
So you talked about the information problem and how the government can get away with doing worse by the people of Afghanistan because the American people are too far removed from any kind of real information about that.
And of course, in your article, you talk about how that plays into, um, that the information problem also plays into bad decisions made, uh, in, in terms of foreign policy and the consequences.
And you talk about our government's old friendship with the Mujahideen warriors, the same guys that we're dealing with now back in the 1980s.
Right.
Right.
And, um, so I don't know, I just think that's interesting that, um, well really if you go around the Middle East and, and as you do in your article, you talk about Iraq as well, that all of our old policies, which seem like the best thing to do based on the information at the time and for the best interest of the people making the decisions and whatever are the same things that end up creating all the excuses for further intervention later because everything works out so terribly.
That's right.
And the reason is, and actually I would, if I'd had the article to write again, I would have pointed this out explicitly, it's kind of implicit in the article.
The reason has to do with time horizons.
The time horizon of me when I'm investing in a company is very long.
I mean, I put my IRA money aside and I want to have it, you know, 20 years from now.
The time horizon of a politician, if he's in the house of representatives is two years.
If he's in the Senate is six years.
And if he's the president is four years or at most eight.
And so they, the politicians think, Hey, if I can solve this problem or it looks as if I've solved this problem for the next few years, big deal if something else comes down the line.
I mean, my biggest example there is Spigna Brzezinski, who is the national security advisor to president Carter, who bragged in an interview a few years ago with a French newspaper who bragged that he had set it up so that the Soviets would invade Afghanistan.
He basically taunted them by giving the Mujahideen weapons and so on.
It got the Soviets to invade and he said, Hey, it created their Vietnam.
Doesn't matter that, you know, a hundred thousand or so Afghanis were killed in a bunch of innocent Russian conscripts and so on.
But you know, he had gave them their Vietnam and then that was a big thing.
And the Soviet empire had to contend with.
And so who cares that a number of years later, those same people were now upset at the United States and did, or at least some of them anyway, did 9-11.
Right.
Well, and he said that in 1998, which was before September 11th, but still, I mean, you're right.
And he kind of chided the interviewer and said, Oh, come on, what's more important, liberating Eastern Europe as though, you know, he gets all the credit for the destruction of the Soviet Union for founding the Mujahideen, which is a separate argument that he just sort of says goes without saying, but we know better.
All right.
Well, oh my goodness.
We're out of time.
Thank you very much for yours today on the show, David.
Okay.
Thanks, Scott.
All right, everybody.
Stay tuned for DJ no home and the light lunch.
I only got seven seconds to say this has been anti-war radio.
That's David Henderson, antiwar.com slash Henderson.
See y'all tomorrow.
