All right y'all, welcome back to the show, it's Antiwar Radio on Chaos 95.9 FM in Austin, Texas.
I'm happy to welcome my friend Bob Murphy back to the show, he's a senior fellow at the Ludwig von Mises Institute, he's the author of the Politically Incorrect Guide to Capitalism and the Politically Incorrect Guide to the Great Depression and the New Deal, both of those go at the top of your list, and Bob's own website is freeadvice, consultingbyrpm.com.
Welcome back to the show.
How are you doing?
I'm doing well, Scott, thanks.
I'm happy to have you here.
Okay, listen, I want to ask you all about Haiti and your recent trip there.
But first, I've got to, man, I'm puzzled and I need you to help me here.
I interviewed Max Keiser, the former broker and anti-Goldman Sachs activist, host of On the Edge last week, and he said that the global GDP is something like, what, $12 or $15 trillion a year, and he said that there are $700 trillion worth of securities and derivatives and whatever bogus financial instruments out there in the world.
$700 trillion.
What does that mean?
Is that even right?
And what the hell are these things anyway?
Well, I mean, I don't know the specific numbers off the top of my head, but $700 trillion or whatever number he said, I mean, I have no reason to doubt that.
What?
I mean, well, hang on, I got to do my trillion thing real quick.
And I could be, you know, somewhat wrong about this, but it's pretty close.
A million seconds is a week and a half.
A billion seconds is about 32 years, something like that.
And a trillion seconds is 30,000 years, right?
So a dollar, I'd pay you a dollar a second for 30,000 years.
That's one trillion.
So that only proves that I don't even really understand how much a trillion is.
Now we're talking about 700 of those and you're saying, eh, that sounds plausible enough to me.
Yeah, I mean, not to dismiss the impact of it, but I'm just saying that, yeah, I've seen figures in that ballpark.
It's probably not as bad as you may be thinking in the sense that a lot of those things, you'll have a contract and they'll be referring to the notional amount of it.
So I'm trying to think of a way to boil it down.
But if you have a credit default swap on something, so you're insured against a particular event taking place, like that might get thrown into that total figure for the total value of how much the other party's on the hook for in the event that that catastrophe happens.
Or I know, let me give you a better example, like a fire insurance company, technically if you looked at all their contracts, they're on the hook for maybe many billions of dollars, but that would only happen if every single house of their customers all burned out at the same time.
And so somebody who looked at their books might be horrified and say, oh my gosh, they're on the hook for billions, but in terms of annual premium payments, they only get $32 million a year.
Those guys, they're going to blow up, and not if they did their business correctly.
But of course, we have no reason to believe that the central banks and these huge investment firms have been doing their business properly.
So I mean, they might all blow up, but I'm just saying that just looking at that one figure of the total amount relative to world GDP, that by itself doesn't really mean that much.
Well, you know, something else that he said was that so much of this is bogus fraud, basically.
It's all just a bunch of counterfeiting and bad debts, and that therefore the deflation that is still in progress is of such a gigantic scale that basically Ben Bernanke can keep printing money all he wants, and we're not going to see major price inflation because, I mean, we're seeing monetary inflation, but we won't see the rising prices because there's such a giant black hole of deflation still to go that the hyperinflation that you Austrians have been warning about is not a concern in the near term, if I understood him right.
Yeah, I mean, I don't know what his official position is, but you're right.
I mean, certainly plenty of smart commentators have been saying that.
It's certainly true that there's two forces at work, and so on the one hand, it's definitely correct that there's a very true sense in which our whole financial system is based on debt, and that the way new money gets created, the way the money supply expands, is that banks just create money out of thin air by advancing loans to people, and so if you want to take out a mortgage and you go to the bank and they give you a $250,000 mortgage, as we all know, it's not like the bank had $250,000 in currency sitting in the vault that they hand to you.
They just credit your checking account, as it were, and then boom, there you go, and you can go spend the money, and it's not like that money got taken from anybody else in the economy.
So there's a real sense in which the banks, by increasing indebtedness of the rest of the society, create new money out of thin air.
So then going the other way, if we're in a situation right now where banks are very reluctant to make new loans, and so they're calling in the old loans or just writing off people who are defaulting, so the total amount of outstanding loans is shrinking, which it is, then in a sense that's destroying money, that's sucking money out of the system, it's disappearing.
So that's certainly a deflationary force, but then on the other hand, you've got Bernanke and the other central bankers creating new money to bail out their buddies.
So it's definitely true, looking at the prices, that those two forces have been roughly balanced out over the last year, and I and some other Austrians have been jumping the gun warning about price inflation.
You know, I thought price inflation would be more severe than we've seen so far.
But I don't think it's right to say that Bernanke is powerless, I mean, he can create a quadrillion dollars tomorrow if he wanted to.
So I mean, it's just a matter of, for whatever reason, they are content to let the markets languish and to hold back on the inflationary floodgates.
Well, you know, I asked Ron Paul last week or the week before that or something, whether perhaps there's kind of a little Ron Paul standing on Ben Bernanke's shoulders screaming in his ear constantly about inflation, and whether that's behind the policy of the Fed, which I guess is a new policy, right, that the Fed will pay the banks to keep their money at the Fed.
So they create a bunch of money to make all the evil bankers whole on all their bad debts, but then they pay them to not circulate the money.
And Ron's answer to that actually was, no, that's not it, it's that the bankers are looking out into the economy and they don't see anything worth investing in.
They see so much deflation still, I guess, that they're scared to loan any money out for now.
Yeah, well, those things are both true, and I don't know exactly what proportion to give to one factor or the other.
So what Ron Paul said is right, that banks, regardless of what the Fed was doing with their interest with the excess reserves, banks would have a difficult time right now justifying making new loans, especially like in commercial real estate.
I know anecdotally a few businessmen who have totally solid business models, their business is fine, and they see some hot new location downtown that has a fire sale price because the owner has to get rid of it, and these guys can't get financing from the bank just because the bank's like, no, we're not touching commercial real estate, that's crazy.
So there's certainly that aspect to it.
But on the other hand, I think your view was also correct.
Whatever his motivation is, it's undeniable that Bernanke is doing something that is per se deflationary in that he's literally paying banks' interest to keep the reserves parked at the Fed instead of lending them out, or instead of going and buying other types of assets with those reserves.
Well, how unfair as that is, it really is better than not doing it if the other result would be massive price inflation.
But I guess, see, here's where I'm hung up, because everybody always gets confused on the definitions.
By the Austrian school definition, inflation is the creation of new money at all.
The price inflation is the effect, and of course, the bankers always like to confuse that issue.
I remember Alan Greenspan testifying under oath that inflation is caused by wages going up.
And when the last people on the chain finally get the slightest cost of living increase for all the price inflation that Greenspan himself had been causing, oh, they're the cause of prices rising.
So that's part of this, right, is that people kind of disagree about what exactly inflation is and the terms get jumbled.
But then I also want to ask you about stagflation, because this is something else I got hung up talking with Max Keiser about.
My understanding was the stagflation was basically in the 1970s, the Congress and the Fed had stimulated and stimulated and pushed on the rope and done fiscal and monetary policy as best they could in order to bring us out of the recession of, what, 69 or something like that.
And it never did work.
And all that ended up happening was there was high unemployment and high price inflation.
And so finally, as a result, to end this, they brought in Paul Volcker to raise the interest rates up through the roof and finally lick that inflation.
And only after that did the unemployment rate start really going down.
But then Max Keiser was saying that the stagflation was because of Volcker.
And when Volcker raised the interest rates, it made the unemployment worse.
But the inflation was still there.
But that the stagflation kicked in once Volcker took the job, not was the reason that they fired the previous guy and brought Volcker in.
So can you straight me out on some of this?
I'm sorry, because as an economist, I'm a great antiwar guy.
I'm not really good at all this stuff.
Well, I mean, that's an interesting view.
So you're right.
The conventional sort of free market story has always been that the 1970s utterly blew up the standard Keynesian paradigm, because the standard Keynesian approach says, you know, if you have high unemployment, the government should just print up some money and get that in circulation.
And then that'll solve your unemployment problem.
If the government overdoes it, you know, overshoots, then you might see prices go up.
And then or the other way around, if the government wants to deal with high price inflation, it can go ahead and tighten up the money supply.
And that will cure your price inflation, all right, but then it might throw a bunch of people out of work.
And so in the standard Keynesian view, you got to pick one evil or the other.
And that's why seeing high unemployment and high price inflation at the same time, which was called stagflation, was supposed to be so devastating to that Keynesian approach.
I guess what Max Keiser was telling you is that you really didn't see the two go hand in hand, you know, having really high unemployment, high inflation until Volcker was already at the helm.
And I guess I guess he's right.
That is true.
Now, I'm just trying to think of the, you know, the numbers and the timing of it, that the worst, you know, the worst unemployment rate did happen on Volcker's watch, you know, so unemployment like in 1980 was higher than it was in 1979.
So that's true.
And you could say, you know, why did so many people get thrown out?
And I guess you could, you could say, well, yeah, it's because Volcker jacked up interest rates so much.
And that just, you know, all the businesses had to had to lay people off and whatever because of the shock therapy.
But having said all that, I mean, it's not like the 1970s were a really boom time for the economy and things were great.
I mean, the economy was in bad shape even before Volcker got into office.
So it's true that you didn't see, you know, unemployment wasn't at its highest in like 78, 79.
But I still think off the top of my head, it was it was still pretty bad.
Yeah.
And it was it was the era leading up to Volcker's taking over the Fed that it was already becoming the consensus that Keynes had been disproven and that here we have high unemployment and high inflation and no end in sight.
Right.
And I mean.
So it makes perfect sense that the unemployment rate went up when Volcker said, look, I'm going to force the recession that we've been trying all along to put off and refuse to have.
I'm going to put the entire economy in a headlock.
And you're damn right.
You're going to see unemployment go up.
But we have to beat inflation first.
That was the whole policy.
Yeah.
Yeah.
I mean, that's certainly consistent with what you just said is consistent with what happened.
I've seen people questioning, you know, the purity of Volcker's motives and so on.
But but yeah.
Well, he helped Nixon take us off the gold standard in the first place.
And my problem is, too, is my best understanding of this period of history comes from that Commie Greerter in Secrets of the Temple.
So who knows exactly what's right?
Yeah.
But but yeah, you're the basic facts that you just laid out are basically what I think, too.
And also, I mean, we can look at Zimbabwe.
I mean, they had ridiculous stuff like seventy nine billion percent on our inflation in November of 2008 and their economy was a basket case.
They had high unemployment, too.
So, I mean, it's not some Austrian talking point that you can have stagflation.
I mean, we see it all the time that just printing money doesn't cure structural problems in an economy.
It just makes prices rise on top of the unemployment.
Yeah.
All right.
I got too many things to ask you and not enough time, Bob.
So I'm going to have to choose.
Why don't you tell me all about your trip to Haiti?
OK, sure.
Yeah.
It's I have an article today at Mises dot org, which is M I S E S dot org laying out sort of the economic lessons.
I went down there for a week with a I guess you'd call it an NGO that they're called Hands on Disaster Response.
I did some after the earthquake, I felt I had to go down there and I did some Googling in this group.
They seem pretty, you know, like the real deal, like they're actually they're moving rubble and stuff like that, not just pushing paper around.
So, yeah, I went down there, you know, got my vaccinations, whatever, went down there for a week.
And I these guys were pretty hardcore.
It was real young people, typically they were a lot of Americans, but a lot of Canadians and Australians were like the predominant groups that were sending people to this particular place I was at.
And we just you would go out and in 100 degree weather and cart rubble away.
They don't have a sledgehammer and break rubble because the Haitians, you know, it still looked when I got there, which was months after the earthquake, it still looked like the earthquake had just happened.
I mean, they just didn't have a lot of heavy equipment.
A lot of people were just living in tents next to the big pile of rubber where their house used to be.
So we would go in there and just cart the stuff away because we, you know, we just had wheelbarrows and pickaxes and stuff, which is kind of primitive, but it was better than your bare hands.
So that was the main thing that I did down there.
And in the article, I talk about some lessons, like, for example, whatever services that were in operation, there were basically hang on one second, because I want to hear all about the lessons.
First, let me ask you, do you know what the final estimation of the number of deaths from that earthquake was?
It was over 200,000.
I don't know what the exact number is.
200,000, huh?
Yeah.
Because, I mean, it hit.
I mean, that's like a couple of years worth of the Iraq War, Bob.
Yeah.
Yeah.
Because the epicenter was about 18 miles west of Port-au-Prince, which is their, you know, their major city.
And it's kind of amazing how quickly people put that out of their mind, huh?
I mean, it was a big deal for a while, but it doesn't seem to be a big deal in the media anymore.
Sort of like when they had that flood in Tennessee, and it made CNN for about 10 minutes, and then that was it.
A bunch of people died.
The whole town washed away.
Yeah.
It was a shrug.
It's funny.
I mean, I'm actually, I live in Nashville, so that's where the part of the flood hit.
And it was funny that, you know, my neighbors were complaining about how the oil spill knocked us off the news pretty soon.
And, you know, and a lot of people cared more about, you know, the sea animals getting oiled than they did about, you know, our homes being flooded.
But I guess, I guess it's more, it's more interesting to watch about an oil spill.
Yeah.
Well, yeah.
Who cares about the people in Nashville anyway, right?
That's why Washington, D.C. has put y'all in the nuclear crosshairs all these years.
Nobody cares.
All right.
Now, so Haiti matters even less than Nashville.
How do you imagine that?
200,000 people killed.
This tiny little island turned upside down.
Now, tell us about some of the things, you know, what's most important, you think?
Well, again, I was only there a week, so I'm not claiming like I'm some sort of expert.
But what I did notice is that as poor as they were, you know, you could see the signs of, you know, markets recuperating and just things like, because there was all the rubble in the streets, normal, you know, normal vehicles had trouble getting through.
You could only do it like in terms of like really rugged trucks.
And then also people who had motorcycles and bicycles, because they could weave around the rubble.
And so right after the earthquake, like everybody who had a bicycle or a motorcycle also became a taxi driver, you know, and they would just give people rides for a small amount of payment because otherwise people couldn't get anywhere.
So you saw stuff like that.
And there were really interesting merchants who would like one guy, they called him the gutter man because he would and they call his place the gutter bar because he literally was like in a gutter and just would bring a cooler stock with beer and so on.
And so the people after work would just go by his place and he'd sell beer to the Americans and so on.
So, you know, neat things like that, whereas the government services were just completely out of service, that there was no electricity or garbage removal or things that normally the government was supposed to be in charge of.
And it was just sort of common knowledge that the government was corrupt and unreliable and that the Haitians knew not to even think of, oh, gee, is the government going to come in and help us here?
And that anything that was getting done was because people in the private sector took care of it.
You know, it's always kind of been, I'm sure people have written, you know, lots of books about this kind of thing or whatever, but I've always noticed that in hurricanes.
Well, man, I don't know if you remember, this is geez, maybe 10 or even 12, 15 years ago now.
I forget.
But Gerald, Texas, near Killeen, basically between Austin and Waco, got hit by a tornado where it just tore a trench like half a mile wide through this town.
It just destroyed this place.
And I learned the lesson real quick that the people who survived it and people from all around, the very best parts of their humanity all rose to the surface.
They all helped each other as though they were closest family.
And you know, I guess a lot of times it takes natural disasters and horrifying events to bring people together like that.
But it really does kind of show, Hurricane Katrina had a lot of examples of people, you know, coming together to, you know, bending over backwards, putting their own lives at risk to help strangers and these kinds of things.
And you know, I guess if there is a time where I can have faith in humanity, it's not necessarily during the crisis when everybody's just standing there flipping out and not doing anything, but it's it's after when they're picking up the pieces.
I think people really proved that the whole principle of self-government is right.
You know, that people just can run their own lives and and that the natural order will allow for people to solve their own problems.
Yeah.
And I think it's important, too, because I know, you know, I'm coming from the libertarian community and there there is a lot of cynicism.
And I think some people.
They get the false idea that charity, per se, is bad.
Like, you know, in other words, they go from thinking the government shouldn't take my money to give to somebody else to, you know, hey, if you can't if you can't get by on your own bootstraps, then you deserve to die or something like that.
And that's and that's crazy that no, I mean, obviously, people like even Nashville, when I got back in the town, the flood hit the next day and, you know, we had to go.
Our house was spared and I went and help people, my church, you know, their homes were flooded and we went and had to rip out the insulation and all that and let stuff dry out.
So I mean, certainly people even in a free market world such as libertarians want to achieve.
Obviously, there's a role for charity and when somebody else is down on their luck that you got to help them out, especially when a natural disaster strikes that everybody else who is in effect that has to rush to aid the people who just got hit.
Yeah.
Yeah.
All that social Darwinism kind of right leaning pseudo libertarianism always pisses me off as though human beings are simply animals.
You know, the only instinct that humans even still have that I can even think of is if something's falling, you protect with your hands where your neck meets your the back of your skull.
Other than that, everything about us is is learned basically.
And we have, you know, love and compassion and hatred and prejudices and ideas and ideologies and all these things that make Darwinism completely moot.
What human could see a weak person who needs help and and who would want to not help him?
Or would the rest of us even want to see survive?
You know what I mean?
I don't know.
I just all that.
Just it does.
It makes liberals and leftists look at libertarians and say, you guys are worse than Dick Cheney.
At least Dick Cheney believes in food stamps, you know?
Yeah.
Yeah.
And I'm unfortunately, I was getting before I went, you know, blogging about it.
I was going to go to Haiti and I was getting some comments from some people that I don't even think it was necessarily tongue in cheek, you know, saying, you know, gee, I thought you were a libertarian.
What are you going down there for?
That kind of stuff.
And it was, you know, that sort of depressing that that's the perception, if not, you know, the actual reality.
But geez, I thought the whole point of individualism was we all got the same divine right as King George the third.
The lowest dionyst Haitian does, too.
Right.
Isn't that the whole point, Bob?
Or I quit.
Fuck this.
Yeah.
Yeah.
As far as I'm concerned.
So, yeah, the problem with, you know, government taking my money and giving it to somebody is that that's not their property, that, you know, that's that's mine.
And if I want to, you know, I should be able to help who I want to help.
But certainly I think people have a moral duty to help those who are less fortunate.
Oh, yeah.
All right.
I'm sorry.
I got to go.
I really appreciate you and all your great work.
All right.
Well, that's got everybody.
That's the great Bob Murphy, senior fellow at the Ludwig von Mises Institute.
Check out his own website while he's got his article.
My week in Haiti is at Mises dot org right now, M-I-S-E-S.
And check out his own website, Free Advice.
That's consulting by RPM dot com as as well as please check out these books.
Give them to your friends.
They're awesome.
The Politically Incorrect Guide to Capitalism and the Politically Incorrect Guide to the Great Depression and a New Deal.
I'm sorry that I'm late.
I'll be right back here with Deborah Sweet from World Can't Wait.
