03/06/09 – Robert Murphy – The Scott Horton Show

For Antiwar.com, I'm Scott Horton.
This is Antiwar Radio.
Bob Murphy is going to be here, ladies and gentlemen.
Here in just a minute, he will.
Robert Murphy is the author, first of all, of The Politically Incorrect Guide to Capitalism and is a scholar at the Ludwig von Mises Institute.
He has a blog of his own, a website called Free Advice.
Consultingbyrpm.com is the website.
And, of course, you probably heard me interview him the other day on the show.
And I certainly wasn't done interviewing Bob at the time that we left off.
So I'm glad to welcome him back to the show today to talk about the economy, what's wrong with it, how bad it's actually really going to be, what the heck's going on.
And also I'd like to give you guys a chance, unlike usual, to chime in and ask your own questions of the guest.
Is that you, Bob?
Yep, it's me.
Okay, it's Bob.
So welcome back to the show.
I've got to tell you, Bob, I'm very confused.
I'm looking at TV and they're talking about the stock market might eventually go down to $4,000 or lower, this, that, the other thing.
And now I understand the central bank, the government central bank made easy credit, artificially low reserve ratios, allowed banks all across this land to create untold bazillions of dollars out of thin air that created a massive bubble and led to this recession.
I'm buying it.
But how could it possibly be that the value of the companies that produce things in this country is down to the levels of the mid-1990s?
They're saying that nothing real has been produced in this economy?
It's all been malinvestment since the mid-90s?
An illusion?
Those two things don't necessarily, one doesn't necessarily imply the other.
All right, send me straight here.
Okay, so the stock market, theoretically at least, is forward-looking.
So no matter how many good products a particular company may have produced in the last few years, right now when you're buying the stock, they're giving you a claim on its future earnings, in effect.
And so I think a lot of what is happening is investors are very scared about the proposals coming out of the Obama administration.
I mean, just to exaggerate, suppose Obama came out and he said, we're going to raise taxes to 100% and anybody who makes a profit next year is going to have his head chopped off.
That would obviously destroy the stock market and that wouldn't mean, therefore, nothing of value was produced during the housing boom.
You see what I'm saying?
The people who are paying for stocks right now, they're saying, what is the future performance going to be like?
And that's what's determining how much you pay for it right now.
I see.
It's not that all growth since then has been a big bubble.
It's just that they're predicting that the way things are looking now, the amount of wealth is going to go back down to that previous level.
Yeah, I mean, that's a good way of looking at it.
The other thing, too, is the stock market is not an exact measurement of the overall level of wealth in the economy.
I mean, it is just talking about those particular companies.
Now, the two are related.
I don't want to say that they're completely divorced from each other.
I mean, what's happened is because of all the malinvestments created during the housing boom, there's going to be this painful adjustment process.
And so it's true that company profitability and so forth is going to be much lower.
Consumer demand for particular items is going to be a lot lower now because of all the mistakes that were allowed to fester during the housing boom.
So it's true that all those mistakes in that bubble does impact future performance.
And so that's part of the reason that stock prices are coming down.
But I'm saying on top of all that is the fact that I think investors really are spooked by the things coming out of the Obama administration, particularly just that it's becoming more and more apparent that they really don't know what they're doing.
It's almost like you'd rather have someone have a coherent but flawed plan rather than just be fumbling around in the dark.
And that's clearly what's going on now.
Certainly with respect to what they're trying to do with the banking sector.
I mean, Treasurer Secretary Geithner just came out when the market really took a nosedive a few weeks ago and basically said, yeah, we're going to fix things and we'll let you know how details will be forthcoming.
I mean, I'm obviously exaggerating, but I mean, that's what he said.
And so, of course, that really made people get worried about the future because they realized that these people don't even have a coherent plan.
They got in there and they realized, OK, now I see why Paulson was fumbling around because there's no way to fix this.
So let's at least try to just keep the music playing and keep people distracted as long as we can.
Well, see, that's a puzzling thing because I thought these guys were the masters of the universe.
I remember right after the election, during the transition period there, Obama gave this press conference where he brought in everybody from that one little bitty dude from the Clinton administration all the way to Paul Volcker at six and a half feet at the other end.
And there were 25 of them and they're all geniuses and they're going to solve this problem.
Well, I think a lot of that is, you know how like if you're trying to get a job and during the interview you talk yourself up and then maybe you get hired and then you get into the job and you realize, you know, this is actually a lot more complicated than I realized and maybe I can't do this.
So, I mean, there's a lot of that going on.
And the other thing too, I mean, these people, they may have honestly believed that they knew how to fix things.
I mean, certainly there's plenty of economists that I know that their view of their own abilities is, I think, very much inflated.
And, I mean, yeah, but then when they get in there and they try stuff, I mean, I probably, I'll put it this way, I think a lot of them are surprised by how much the stock market is tanking after their proposals.
And, you know, maybe they think it's all because of talk radios turning the people against us or something, or it's just always these bitter rich people that don't want to spread the wealth around.
I don't know what their own view is, but I think they would not have made these announcements if they realized what the reaction was going to be.
I think they would have at least tried to sell it differently than the way they're doing it.
I saw a chart on Fox News where they say, well, this is how much the stock market has fallen since Election Day, trying to hedge our long-term memories there, fudge them a little bit, so that we'll think that his election is what caused the fall in the market anyway.
I guess, are you saying that you think that we probably already would have hit bottom if it wasn't for all the things he did, or it just so happens that the market is still falling no matter what he does?
It's really hard to speculate on that, because it's, I mean, I have my own views as to what good policy would be and what bad policies are, but when you talk about the reaction of the stock market then you have to not only diagnose the policies yourself, but you have to get inside the head of people on Wall Street and say, well, why are they reacting this way?
So it gets a little bit tricky to talk like that.
Certainly, I am not saying that, oh, the reason things are bad right now is because of Obama.
I mean, things would have been awful even if Ron Paul got elected, who of all the people running that was the guy I wanted to win.
They would have been painful for a while because of all the malinvestment during the housing boom.
There was a necessary period where people had to get re-diverted.
They had to go out of the sectors that were too big and go into the sectors that were too little, and so forth.
And so the way you do that in a market economy is unemployment goes up, right?
Because workers have, in other words, in the United States there is not a centrally planned economy, at least not yet.
And so the way you move workers from over-expanded industries into places where they ought to be is they have to lose their jobs.
That is the way in a decentralized system that you move workers when they have been misallocated.
So there was going to be a recession no matter who won the election, but it is true, I think, that Obama and his advisors are recommending just the most awful policies in response.
I mean, if what happened during the housing boom was that Americans over-consumed, they lived beyond their means, well, the way you fix that is they have to live below their means.
And yet the government is trying to do everything in its power to make people's debt increase.
I mean, the government is borrowing and spending on our behalf, allegedly, and they are doing everything they can to bolster consumer credit cards and so forth.
I mean, they are trying to re-inflate the bubble, even though they admit that what happened was we had this bubble.
And that is the reason we have all our problems.
All right, well, I want to challenge you a bit about that spending stimulus here in a moment.
Let's go ahead and take a call.
Anybody else wants to get involved on the show, ask questions of Robert P. Murphy.
He is the author of The Politically Incorrect Guide to Capitalism, particularly lefties and liberals out there who would like to challenge Robert Murphy.
He is a very, very libertarian fellow and a very nice guy who would be willing to chat with you and dispel your myths.
So call on in.
It is 512-646-6446.
Whoever you are, you are on the air with Bob Murphy now.
Hi, Scott.
It is Corky.
How are you doing, man?
Thanks for calling in, Corky.
Hey, my question is, Bob, are you familiar with Bill Bonner and the Daily Reckoning newsletter?
I don't read it regularly, but yes, I am familiar with it.
I think they wrote a couple of books on bankruptcy and the future and such, and they are very conservative.
They feel, in their opinion, that we already have passed into a depression.
Now, define for me the difference between a recession, a depression, and do you agree with them?
Well, I don't think there is any hard and fast rule that economists use.
I have seen people say, well, if real gross domestic product falls more than 10% from the previous peak, that is when you are really in a depression.
I mean, that is as good as any other definition.
Yes, I mean, I do think things are bad.
What I say right now, things have been – this is called the depression.
I don't know.
Probably not.
If things all of a sudden turned normal tomorrow, I don't think that what we just went through would be considered a depression.
But the point is, I think things are going to continue to deteriorate.
For me, the biggest thing is what the government has done.
I mean, it has literally nationalized a lot of the banking sector.
And if what does the banking sector do in a market economy, it is the thing that allocates capital to different industries.
And so that is a very long-term sort of thing.
If you mess with that, it is going to take a while for the disastrous results to show up.
And so I think that is what is happening, is that we are going to have this awful economic performance for years to come because of the stuff that they started under Bush and now they are continuing under Obama.
Right, and then they will say, think how bad it will be if we hadn't done all this wonderful stuff to ameliorate the terrible consequences.
Right.
Well, Scott, I will say to you, it is analogous to – one of my favorites is Curly putting all those pipes together, trying to fix that leak.
I mean, that is our government right there.
Curly is a plumber from the three stooges.
Thanks, Corky.
Appreciate it.
No problem.
Take care.
Yeah, and what is really funny, just to continue that point, Scott, is that everyone keeps saying, oh, we don't want to repeat the mistakes that Japan made during their lost decade.
Well, I mean, what Japan did is they brought interest rates down to practically zero and they recapitalized their banking sector I think like three or four times.
And they literally lost a decade where just nothing seemed to work.
The economy just kept stagnating for the whole time.
And what people are proposing we do now is basically what Japan did.
Japan certainly did not take a laissez-faire approach and then things just lingered for ten years.
No, they kept trying to fix the banking sector and deficit spend and build airports that no one was even going to use and build all kinds of public works projects on the Keynesian theory that, oh, you've got to get money in circulation.
And it didn't work for ten years straight.
And yet that's exactly what – so what the Keynesians now say is that, oh, they didn't do enough, even though for Japan I believe that was the biggest so-called stimulus in their history and it didn't work.
But I think that's what's going to happen.
I think we're going to be mired in this sluggish economy with high unemployment for years to come.
Oh, man.
Well, I think it is probably a lot like Corky says there, the three stooges trying to fix the plumbing.
All right.
And thank you, Corky, for that soundbite as well.
So here's the thing, though.
Libertarians, I think, often are perceived as just being heartless.
When people hear you say, well, you know, in a free society that's how people got to get transferred from a bubble sector of the economy to a place where they're actually needed is they got to get fired.
And those are the breaks.
But people don't like those are the breaks.
And people think that, Bob Murphy, you just don't care about the unemployed, man.
What are people supposed to do in the meantime?
We're talking about their ability to put food on their family here.
Yeah, and that is a fair point.
And I do concede that there are a lot of people that maybe just to try to be funny or something, when they write up these things, they do come across as being very uncaring about the plight of the people that they're resigning to be unemployed.
But the point is that if you really want to help the poor people, or if you want to help people whose jobs are threatened, you're ultimately not going to do it by putting in place horrible economic policies.
In U.S. history, before the Great Depression, there were financial panics periodically, boom-bust cycles.
But typically, most recessions were over within a year or two.
And it was only when Herbert Hoover and the Great Depression decided, that's unacceptable, we can't have people suffer like that, and he did all of his myriad things to try to rescue the economy and save the workers from suffering, that we got the worst depression in U.S. history.
And same thing now, if what I think is going to happen comes true, and we're just going to be mired with high unemployment for years to come, that's going to be proof that Obama's policies aren't compassionate.
But I think we're going to have much higher unemployment under his policies than we would have if, say, Ron Paul won and did his allegedly cruel and heartless policies of liquidation.
You would have a very sharp, short period of pain, but then people would get back to work.
Whereas right now, the government is really, it's almost as if the people in the government are consciously trying to destroy the American financial sector with all the different things they keep announcing.
If you were a foreign investor, why in the world would you ever lend money to an American bank right now with all the stuff the government's doing, changing the rules every other day, government taking over bigger and bigger shares of companies, now saying, oh, we're going to change the principle on your mortgage if you don't have a job or if your income's...
I mean, why would you lend money to someone who wanted to buy a house right now if you know the government might just come in and change the contract in two years?
So, I mean, what they're doing is really going to ultimately fall most heavily on the poor people, and especially, of course, if there's massive inflation.
I mean, that's going to really hurt people who have a lot of credit card debt and don't make that much money.
I mean, they're the ones that are just going to get absolutely wiped out if the Bernanke doesn't pull back some of this money that he's pumped into the system.
You know, I guess a real problem here is people conflating together, people without a specialized understanding at all.
They kind of look at the Chicago School supply-sider Reaganomics sort of model, and they kind of, I think, probably would mistake what you're arguing with that and say, yeah, but that's what we tried was all this capitalistic deregulation and so forth, and that's what got us in this mess.
Right, and it's unfortunate.
I mean, I'm almost glad that Obama won and not McCain in terms...
I mean, put aside foreign policy, but just even in terms of domestic policy, it's true that the stuff McCain, his rhetoric was mildly better from my point of view than Obama's was, but I'm actually glad that Obama won because I didn't want McCain to get in there and say, oh, I'm doing free-market limited government stuff, and then actually just do, you know, Obama-like, which is what he would have done.
So it's very true, and the same thing with Ronald Reagan.
I mean, he made some great speeches, and he did significantly cut marginal income tax rates when he first got into office, but of course he let spending go through the roof, and so a lot of liberal critics can understandably think, oh, we tried tax cuts and it just ran up the government debt, when really it was the spending that Reagan allowed to happen that ran up the debt, that income tax revenues, you know, by the time he left office were much higher than when he took over office.
So it's true that a lot of people who used free-market, a lot of Republicans who used free-market rhetoric, but they don't really believe it.
It's just that's the way they get elected, that's how they appeal to their constituents.
It clouds the issues, but be that as it may, I think it's pretty clear that Obama's policies are going to be disastrous for the economy, and it's going to hurt primarily the poor people, the ones that they bear the brunt of any economic downturn.
All right, now, we started this interview with me giving my very amateurish summation of the Austrian business cycle theory, and that the boom-bust cycle isn't caused by capitalism, it's caused by the government central bank and their ability and their activity in institutionalizing fraud and allowing the banks and the government to create virtually unlimited amounts of money, which creates bubbles, and then, as the Austrian theorists say, the recession is the natural result of that, the correction.
But Mike L. in the chat room wonders, hey, Bob, if that's true, what economic result on earth could falsify the Austrian theory of the business cycle?
What would show that, in fact, no, you're just wrong, like stagflation in the 70s proved that Keynes didn't know what he was talking about, what result would show that Rothbard and Mises were off?
Huh, I guess, that's a good question.
I suppose if, well, for one thing, if this works, if the unemployment drops and we have smooth uninterrupted economic, strong economic growth for the next 10 years, that would be a pretty strong blow to my world view.
But in terms of specifically testing the Austrian business cycle theory, yeah, I mean, in general, not just with the Austrian theory, but for any economic theory, especially in terms of macroeconomics, it is very difficult if you can't have a controlled experiment, but there's all kinds of different things happening, and so it is tricky.to come up with a clear-cut test.
I suppose if the central bank lowered interest rates really low and held them there for a few years, and then brought them back up to a more normal long-term average level, and there was no major recession, that would be, that would kind of falsify the Austrian theory.
So, for example, back in 2007, when I really started looking at this stuff and said, oh my gosh, I wasn't really paying attention to what Greenspan had done with the interest rates during the housing boom, how low he brought them.
And the economy was starting to hurt, but a lot of supply-siders were saying at that time, oh, this is just a little blip, it's the subprime market, that's fine, we'll get over this, because Bush cut taxes, things are great.
And I was thinking, you know, if things can't be great, if we get through this and there's not a seriously bad recession, then I don't believe in Austrian business cycle theory, because what Greenspan did ought to have created was a really bad malinvestment, and if we could get through this with just a little bit of, you know, a little hitch in the road, a bump in the road, then Austrian theory is wrong.
So, if we hadn't had this current downturn, that would have made me really question the Austrian theory of applicability, but I guess fortunately for the theory, we certainly are having a pretty bad downturn.
Well, and then, see, I guess here's the problem too, is that, well, I don't know if it's the problem, but it seems like it could be something.
The problem is that the Austrian theory basically is all just based on deductive logic from the premise that people are people and they'll do what they want, that kind of thing.
So then, if that's the case, and it sort of just discounts all the numbers and says that the numbers don't really count, because if they don't fit with the logic of the theory, then they don't really make sense anyway.
So the government could, say, create a bunch of money out of nothing, and if it didn't lead to a bunch of price inflation, then that wouldn't be because of a flaw in the theory.
It would be because, well, there was just downward pressure on prices for other reasons, or that kind of thing.
I guess it seems that way.
I could see why people would think that it's basically that the results of the real world, when compared to the theory, that there's always an excuse or something, kind of thing.
Right, that's a good point.
So, yeah, if you really want to get metaphysical about it or something, strictly speaking, the Austrian economists, they don't think that you need to go out and test economic theories.
They think it's sort of like Euclidean geometry, that it doesn't make sense to go out and ask, do triangles have 180 degrees inside of them, or is the Pythagorean theorem really correct, and you go out and measure different triangles and test it?
That's silly, but at the same time, it's not just a bunch of truisms that are useless.
I mean, Euclidean geometry is very useful for people who are going to build a bridge or something.
You know what I mean?
So that's what the Austrian economists think about economic laws, is that you think through them deductively, like you said, and you just analyze them in terms of the pure logic of the proposition to see if there's a mistake in your reasoning, but at the same time, that's not just a semantic game where you're running around in circles and just transforming your original definition, but you really learn something about the real world if you study economics.
Now, having said all that, though, it's still, you have to wonder, well, how do I know if it really does help me learn about the real world?
And your point about prices is a good one, that generally speaking, if Bernanke had done what he just did with the money supply in terms of monetary base, you would think that there should have been massive inflation already, price inflation, and yet there obviously hasn't been, and so how do I explain that?
I say, well, gee, that is kind of surprising to me.
I would have thought prices would be rising more quickly than they have the last few months, but I just say, well, it must just be because people are so panicked that they're hoarding money like crazy and they're offsetting all the money that Bernanke's pumping into the system, but I've said to people on my blog and elsewhere that if we don't start having a serious uptick in price inflation in 2009, then I will publicly admit that I am misdiagnosing what's going on here, and I don't understand how the Fed works because I am surprised that he's pumping this much money and it hasn't shown up more in the official price figures.
Yeah, well, then again, I mean, there are other factors at play, such as every other currency in the world is also a piece of paper backed by a government gun and a promise to pay interest to bondholders and so forth, and their currencies are oftentimes, I guess probably in most cases, even shakier than ours, and probably they're investing in their own crappy bubbles and ours too, and so perhaps relatively speaking, the dollar will remain strong because people around the world will be fleeing to it.
It seems like if there's a government that's going to last, it's the U.S. government from probably most people's point of view right now.
Yeah, that's certainly true.
In general, and you say, why are people going to U.S. Treasuries as a safe asset even though clearly the U.S. government now is a much shakier foundation than it was two years ago, but like you say, relatively speaking, U.S. Treasuries now have a bigger advantage over other investments, at least as far as the average investor is concerned.
But like I say, having said all that, it is true that if you're going to arm yourself with a toolkit of deductive propositions that you don't ever test because by their very nature you can't test them, you have to occasionally ask yourself, well gee, maybe these tautologies aren't really helping me get by in the real world and you should occasionally or like I say, for myself, I have said, okay, if inflation doesn't really kick in during 2009 then I really need to go back to the drawing board and reevaluate how I look at these things.
Well, you know, I'm no economist, I'm strictly an amateur about this, but I read Jekyll Island as a kid and I guess I got the basics of Austrian economic theory in there without really even understanding that that's what it was called or knowing who Mises was or anything, but I knew that the dot-com bubble when I was a kid.
It's pretty obvious.
Right, and it's a good point you raise too, that a lot of this stuff, you can get into real technical details about esoteric arguments about things, interest rate movements and M3 versus M2 and stuff, but in terms of, wait a minute, Greenspan brought the interest rates down to 1% and now housing is exploding and people are getting mortgages and they don't even have to prove that they have income, I mean, something, drug addict, bum, nobody, musicians all of a sudden are millionaires because they have a website or whatever, you know, back in 1999.
It's pretty clear that this is phony money.
All right, hey, let's take a call.
We've got Steve calling in from New Jersey here.
What's up, Steve?
Yeah, I know the Austrians tend to look at inflation just simply in terms of money supply versus productivity, and I think that in some way is preferable to a basket because you can use a basket of prices and you can pick and choose sort of commodities or food and this and that, so there are advantages to it, but I really have questions about just using money supply because the fact that the money has been created doesn't mean it's spent.
I mean, theoretically, the government, and they may have well done this, could crank out a bunch of money, give it to the banks, and if there's not been a lot of transparency with the money going to the banks, they could take all this money and send it out of the country to the Cayman Islands and bonuses and so forth, but it's really not hitting people's pockets directly because the money, you could have a credit crunch, a credit crunch if people aren't lending, concurrently going on, where in theory, under Austrian theory, you have a vast amount of money being created, but it's not really, it's just a fascist model.
It's not a socialist model.
Under a capitalist model, you have privatized risk and privatized profit.
Under a socialist model, you have socialized risk studies and benefits are socialized, but this is really a fascist model.
It's not socialist.
It's not capitalist.
It's fascist.
You've socialized all of the costs and you've privatized all of the benefits.
So this idea that money, under Austrian theory, is simply based upon money being produced by the government, fiat currency, doesn't really hold that much water to me because you don't know if that money is getting into people's hands.
If it is, it doesn't mean it's going to be lent out to the common man.
All right, what do you say, Bob?
Yeah, I think he's basically right in what he's saying, and that is what happens that Bernanke has vastly increased bank reserves, and if you look at these charts the Fed puts out, it's inconceivable how much he's increased them, but as the caller suggested, that hasn't resulted in them loaning it out, regardless of who is benefiting from these infusions of money.
Let's say it's just the insiders and people running Goldman Sachs and whatever, and I'm not disparaging that.
I think that's probably true.
The point is, even these rich fat cats, in order for them to benefit from getting billions of dollars from the Fed, ultimately they're going to buy something with it.
Maybe that just means that in order for them to benefit you can't eat pieces of paper or reserve, and so ultimately the way their standard of living goes up from getting this money from the government is they go out and buy stuff with it, whatever they happen to spend their money on.
Yeah, it's demand side economics, but not for the working man.
It's for the owners.
They get to demand more Porsches and diamonds.
Right, so it does surprise me that they're sheltering in other places like the caller suggested, but I'm surprised that hasn't started trickling out even if just because of the fat cat spending it on Porsches or whatever.
Well, here's the thing though.
All the money is sitting in the vaults.
No businessmen are taking out loans.
They're not trying to take out loans because everybody is sitting waiting to see what's going to happen.
It is like we were talking about the other day, pushing on a string, right?
And thanks for the call, Steve.
I know a lot of free market economists hesitate to use, they don't like that phrase and they want to fight that because they don't want to be giving ammunition to the Keynesians because that's a Keynesian idea that all your monetary policy is impotent when there's what they call a liquidity trap.
When interest rates get pushed down to zero at that point it doesn't matter how much more money the government prints up because money and bonds are going to hate that expression of pushing on a string.
But I think it's true and you just have to say just because the Keynesians might accurately have diagnosed a particular feature of what's going on it doesn't follow their own recommendation.
Oh, so monetary policy doesn't work so that's why we need to borrow and spend a trillion dollars.
That doesn't follow.
So I think the Keynesians are right that in the present environment pumping in more money the Keynesians are also right.
And I don't know whether it's proper to call Ben Bernanke a Keynesian.
I don't know which teacher he studied under or whatever.
But I did see him saying that oh yeah, we are risking massive price inflation.
It's just that we're going to make sure that that doesn't happen because once that money all starts going out into the economy then at that point we'll start raising the rates but yeah, again, it seems like if the numbers just came out and said 650,000 people lost their jobs last month then who wants to take out a loan anyway?
Right, and even on top of all that just that the government keeps changing the rules.
Let's say you were going to buy a house because I've been wondering that myself because there's plenty of people who are on the sidelines and they have cash they could go out and buy a house with cash if they wanted to but why aren't they coming in?
But if they think prices are going to keep falling they might as well wait a few more months instead of making it a great deal make it a super duper great deal.
And the same thing like you're saying with investors and so on.
If the Obama administration keeps and they're just following in the footsteps of what the Bush administration was doing but if they keep changing the rules and trying to get different incentives and so on I think a lot of people are just waiting and seeing at this point because they don't want to commit regime uncertainty.
Something that's adding to that too is I think there's a lot of amateur misunderstanding.
I got an email warning me that Obama was contrary to Steve Sey not a fascist but a communist and that he's just outlawed anyone making more than $250,000 a year that they'll confiscate every penny above $250,000.
Obama's raising taxes on some people but that ain't it.
Talk about regime uncertainty.
Get on that email list and see what you find.
All right I think we got Perger calling in from Atlanta here but I'm clicking the wrong button.
Let's see here.
Is that you Perger?
Yes sir.
Welcome to the show.
You got a question for Bob Murphy?
Yes sir.
Actually I have something I wanted to hear you guys elaborate on.
I've been pretty busy so normally I'm better at connecting and I hear the word socialism being tossed around so much and them saying that this is a whole socialist policy now and I mean I didn't think that was what socialism was but I'd just like to hear what you all have to say on that as far as what exactly all this money being pumped into the system and the government buying up some of these companies and AID and stuff.
What kind of effect do you all think that that might have?
Socialism by definition how well does that define the situation as being caused by our Congress and our President right now?
Thanks for the call Perger.
Yeah that's a tricky one and for sure a lot of Republicans are using that or a lot of AM radio hosts are using that just to rally the troops kind of thing without being really fastidious about is this technically what it is.
But I mean in fairness socialism refers to the government owning the means of production instead of having capital goods like tractors and companies and things like that in the hands of the private sector the government runs that stuff and it decides what is ultimately going to be produced and however else you want to describe it when the government starts literally taking over large and large chunks of ownership of the banks and AIG and other things Fannie and Freddie that's socialism.
Now in terms of the overall economic philosophy I think probably it's more accurate to call it fascism where most of the economy still nominally remains in the hands of private owners but the government tells them what to do with their own nominal property.
Plus no law binds the power of the executive and we're at permanent war with the rest of the world.
That's the economic philosophy.
And I think Obama knows that and that's why he keeps telling people oh no we're not going to take over all the banks and we want to keep these things in private hands.
I don't think it's merely him trying to dupe the voters and he's going to go ahead and do it.
I think he recognizes that he can get what he wants just by leaning on these owners and having them be beholden to him making the Fed give them loans and from Washington's point of view that's a better arrangement because they can still say hey we didn't nationalize but they still get to tell people what to do.
Well you know it is like you were saying the other day about being desensitized to the numbers but I wonder whether really if you get past all the digits what all this spending amounts to is a real revolution within the form of our government.
You know what I mean?
There's a quote about the New Deal in I guess the early 40s or something when all the or I don't know at some point maybe it was in the 50s when everybody was red scaring and he said look not for the revolution coming it already passed to the night singing songs of freedom you know this all happened 10 years ago that was the revolution you missed it because you were part of it cheering for it and not realizing what it was and I wonder if that's kind of what this is looking back is this one of these major turning points in American history like when McKinley got shot or FDR turned a blind eye to the Pearl Harbor attack?
Yeah I mean I think it is but I have to say that if you had to pick a president where the radical change happened I think you would have to put it under the Bush administration I mean not just in terms of economic stuff but I mean the incredible powers he was saying he had without even charging them I mean it's really I think all these things that happen like you want to talk about taking over the banking sector well that happened under George Bush in terms of just unprecedented gargantuan transfers of money into particular troubled institutions well that happened with the TARP plan with the $700 billion injection that Henry Paulson came up with that wasn't some far left ideologue that was Henry Paulson that came up with that idea and I listen to talk radio stuff all the time and they try to blame it on the Democrats but I mean a lot of this happened under George Bush that Obama really is just taking what Bush started and multiplying it by a lot and then he's targeting it towards interest groups that the Democrats tend to be allied with rather than the groups that the Republicans tend to favor Well you know here's my thing though I mean it's so funny but at this point well the Democrats are taking the opportunity to rob everybody for as much money as they can and give it to all their friends and basically what that would mean is that we're not going to have some massive new permanent definition of federal government power in this country you know what I mean that the revolution has gotten as far as it's gotten under George Bush but it's not going to get much further than that in terms of really changing the definition of power and you know how our lives are going to be in the future can you try to shore up my optimism here at all?
No I don't think I can because a major thing that qualitatively is going to happen under Obama or at least that's what's in the cards right now that wouldn't have happened under Bush is this cap and trade stuff and so I mean that is just a huge where the government is going to come in and regulate the emission of carbon dioxide and companies are going to have to you know Obama's budget that came out last week I think it was I mean he's got something like 640 billion dollars over the next 10 years coming in from the auction revenues right there and so it's not really just a matter of oh it's a hidden tax hike but I mean that's a qualitative new power that the government is going to assume and it's not just some you know they just randomly grab something no I mean if they control the production of energy I mean they've got you they can do whatever they want to you the president when campaigning gave that speech and said if the American people think they can just sit around in an air-conditioned house and eat as much food as they want until they're full and think that the rest of the world is going to say that that's okay well they've got another thing coming and we're going to do something about that and the crowd cheered by the way yeah it's you know I'm trying to think of other examples I wish you were right but I don't think that's correct I think this is a qualitative shift and it's going to keep growing I mean just what's going on with the it's interesting with the stimulus package and the extra power that that gives to the federal government over the individual states I mean I'm sure you're familiar with how some of the republican governors were trying to be you know martyrs about it no no we don't want to take that money but I mean it's funny because where's the federal government getting that money from and then laying the debts on their backs and so really the government is going to the people who live in these individual states taking a trillion dollars from them and then saying we'll give you the sum of this money back if you agree to you know spend it in these certain ways and do all the other things we tell you to do and jump through these hoops yeah it really is amazing to say here we're taking trillions of dollars from you it's for you it's for something we got time for a couple more calls here beep you're on the air hey Scott it's actually quirky but I'll say it's still so it sounds like a different caller yeah there you go a different caller Phil welcome to the show how you doing man I'm doing great thanks for calling in my question is about gold the other day one of the talking heads said that in his opinion that the only thing that really you could conserve value in the market right now is gold natural gas or oil because he says that they're just they have to go up at some point and they'll probably go up in the near future a couple of others said that they wouldn't invest in any stocks at this point can you comment on that Bob yeah I mean what I'm telling people to do is to get into commodities and specifically the precious metals just because like I say I think even though it hasn't yet really reared its ugly head that Bernanke pumped so much money into that it's going to lead to huge economic increases and then in terms of wouldn't that also help the stock market and other things when this inflation kicks in normally it would if it were just money printing yeah you would expect stock prices to go up but when you've got laid on top of all this money inflation you've got all these horrible economic policies that I think they're putting into place then yeah the stocks aren't a good idea so yes I agree with the analysis you read and I personally am just you know rushing to gold and silver even just to ride this thing out until we see what's Bernanke going to do with all that money he pumped into the system yeah I really think what really stinks is the fact that I'm sitting here watching this happen and I'm actually rooting for the price of oil to decline because I don't feel like spending five dollars a gallon for gasoline but then there's a downside to that you know I just don't understand how things got so out of control in this country where we've got such a speculative economy and we're tied in with a bunch of robber barons now we depend upon them it's like they they got us sucked into this system and now we're stuck with it yeah it's certainly it's a difficult environment to be in and I really feel bad for people who are running you know mid to large sized companies and they have a bunch of employees that are depending on them making the right decisions I mean I'm just a consultant myself and so all I have to do is make sure you know I navigate and I always have a stream of income just to feed my own family but yeah it would be really difficult to maintain a large company when you've got all these different supplies and you've got you know vendors and things and they might be going belly up and you've got all these different changes going on well and look this is the key to the evil of the system and thanks for coming back in Phil this is the key to the thing it's not just irresponsible people who can't afford it who buy a $400,000 house and it's not just some banker who you know deserves to hurl himself out a skyscraper window or something what's happened here is that we have what you guys you Austrian school economists call the cluster of errors where businessmen all across the country whether they even buy into the scam or not basically have to take out giant loans and buy themselves into the bubble economy or else they're just going they're not even going to be able to last for the short term so to even try to make it to the long term they have to play the game and so we have good businesses ones that aren't overextended at all but are tied into ones that are people who've made sound investments right next to investors right next to investments that weren't so sound all across the economy that are being destroyed it's not just the malinvestment that's being destroyed it's all kinds of people all kinds of businesses and all kinds of jobs and they keep changing the rules which of course benefits the insiders and the uppity people the people that are up there knowing who own all the politicians in the meantime you have the people that really run the economy who are afraid to make any decisions because they think that the questions are going to get changed again every time you think it's a good time to invest you're going to pull back because well I don't believe it because somebody's going to pass a law and change the system that's what really scares me about the way the government is now because they're creating an environment where people don't want to invest anymore right yep alright thanks a lot Phil you're welcome alright now Bob let's wrap up the interview here if you could please recommend some books for people to read to understand Austrian economics websites for them to read obviously I'd like to recommend your website consulting by rpm.com and that's free advice the free advice blog if you just google that Robert Murphy free advice you'll find it and of course your great book the politically incorrect guide to capitalism which is you know find a lefty that you care about and give them that book it's so good alright now you tell me some more ok well a good one is the Mises Institute website so that's mises.org and that's m-i-s-e-s dot org they have a daily article that generally are about the current crisis and they have all kinds of free you know books that are scanned in that you can get for free that are great in terms of if you had to read one book to explain how did we get here and what's the Austrian view of how we get out of it I think Tom Woods' book new book Meltdown which is on the New York Times best seller list I think two weeks in a row you know Tom's a great writer and he really crystallizes it and explains you know exactly what happened with the housing bubble why did it get so bad and why is the government making it worse yeah absolutely it really is good he brought up every little thing that I would have hoped to remember to have him bring up in there something it's all in there right and I could also if I could plug Tom a little bit more he's really good about making sure he has the argument he calls me a lot and says this is a standard response but is that really honest so I mean he's good about making sure he actually believes the stuff he's saying so that's always nice he is an honest guy yeah absolutely I mean the Austrian school the Austrian school despite your love of capitalism you guys are not shills for the robber barons you're their greatest enemies with your insistence on an absolutely free economy yeah and it is true that in general you know a lot of people say oh you know a lot of people were complaining during the housing boom but actually a lot of Austrians were complaining during the housing boom you know and pointing out this isn't going to last and so on so it's I do think the Austrians as a movement in the United States have been the most consistent on some of these things as opposed to other alleged free market economists who you know go nuts when the Obama administration engages in socialism but they were pretty silent the Obama administration must not be allowed to stick against the Mises crew because it's just not the case yeah and I'm trying to think of other I mean I've been going I mean luraco.com there's a lot of good stuff there the case against the Fed you can read the whole PDF online yep yep that's great so in terms of Rossberg's book the case against the Fed and again you can get that at what has government done to our money that's a really good one a short little pamphlet if you want to get up to speed about you know how could you if people who can't understand what would it mean if the government weren't involved in the banking and money sector how would the free market handle it because a lot of people that sounds horrible imagine private business running money and banking that sounds awful but Rossberg points out that no actually oh America's Great Depression I just finished rereading that not long ago and of course Robert Higgs has Depression War and Cold War and I was also going to ask you isn't it true that you're right now writing the Politically Incorrect Guide to It's All FDR's Fault yeah it's the exact title yeah the Politically Incorrect Guide to the Great Depression and the New Deal you know it's all for the kids of course how are we going to have a free society when we have a ten trillion dollar a year world empire that ain't going to last yeah so it is true yeah in that book I do lay out in my opinion the relevant things I went out to read Rossberg's Great Depression these other sources and try to boil it down and I sat back and let the economy crumble no it's the exact opposite Hoover went in and tried to prevent the workers from getting fired and so on and that's what actually led to yeah and FDR ran against him sounding like you right FDR complained that Hoover had the with a profligate spender and he said you know never before could distinguish himself from the Spendthrift Hoover just the exact opposite of what people tell you now and then here's here's fun little bit of homework for everybody later on google up and read the inaugural address of 1933 where he asked for war powers against the economic emergency it's really something to behold yeah it is I knew that going into it the research for the book I did but when you actually the more I read this the more I was stunned okay well so when can I look forward to reading it like I think it's supposed to come out you can get it on Amazon right now I mean for pre-order it doesn't physically exist yet but it will I think it should be in bookstores the end of April oh great well good for you I can't wait to read it we'll talk again then alright well thanks for having me Scott he runs the website consulting by rpm.com that's free advice Robert Murphy free advice anti-war radio we'll be right back