Alright, y'all, welcome back to the show.
It's Anti-War Radio.
I'm Scott Horton, and lucky me on the line, I got Robert P. Murphy.
I call him Bob.
He's the author of Chaos Theory, The Politically Incorrect Guide to Capitalism, The Politically Incorrect Guide to the Great Depression and the New Deal, Lessons for the Young Economist, and How Privatized Banking Really Works, Integrating Austrian Economics with the Infinite Banking Concept.
You can find what he writes at his blog, Free Advice, which is consultingbyrpm.com, Robert P. Murphy, consultingbyrpm.com, and then, of course, you can find tons and tons of great articles and speeches and all kinds of great product at Mises.org.
Welcome back to the show.
Bob, how are you doing?
I'm doing pretty good, Scott.
Thanks.
Well, I'm really happy to have you here.
Let's talk a little bit about the cost of the empire first, because, after all, foreign policy and America's relationship with the world is pretty much the number one most important thing, whether we're discussing the Bill of Rights or whether we're discussing the economy or whether we're discussing the amount of blood spilled on the planet or whatever it is.
It's America's role overseas that seems to be the determining factor in so many things.
I was wondering if we could address the cost of war here.
I just interviewed the state representative from Maine, and he mentioned the broken window fallacy and the fact that the people of Maine, their money is being spent on these wars that could be better spent somewhere else.
I brought up how, yeah, but that's not what we're taught.
What we're taught is that war ultimately is the engine of the economy.
It's good for the economy.
It keeps everything moving.
Rosie can get a job as a riveter, and everything is good when we have a war like the Bush years.
We're all getting rich and what have you like that.
It seems like that, to me, as I know you've written, is such an important myth underpinning the American people's belief in our current system.
I was wondering if you could address that a little bit.
Well, yeah, I think you're right, and it's probably the reason the two do seem to go hand-in-hand in terms of where does this myth come from.
I think it's that typically what happens, as you well know, that the inflation really kicks in during when a major war breaks out, that they run the printing presses.
I think that's why the general public has this illusion for a while that there's this apparent prosperity that seems to always go hand-in-hand when a war breaks out, but of course that's just an illusion and really the economy ...
You don't get richer by taking scarce resources and labor power and channeling them into making things that then get blown up, and you certainly don't make your country richer by taking your able-bodied men and having them go get shot.
This is common sense, and so these standard views are clearly wrong, and it's just our job as economists is to figure out, well, where are these myths coming from and what's supporting them?
Well, but you do have creative destruction, right?
Michael Ledeen, when he talks about the empire going around and doing creative destruction in the Middle East, was kind of ripping off a free market economist theory there or whatever, but isn't there something to be said for the old way is inefficient.
We need to kind of tear things down and, I don't know, for example, during World War II, build a whole bunch more factories to crank out a bunch of planes and then invent new technologies so the planes go faster and can drop bombs from higher and whatever.
Then when the war is over, we all benefit from all that, basically if the US is a big corporation, the bosses up at the very top are investing in all this new capital or new production of higher order goods, like new factories and so forth.
Well, I actually hadn't heard someone use that phrase in reference to foreign policy, but if so, that's obviously misappropriated, so yeah, so Joseph Schumpeter, who was ethnically an Austrian, he was sort of a fellow traveler of the Austrian School of Economics, yeah, he had this phrase, creative destruction, but what he meant, though, was like entrepreneurships in a modern market economy, someone comes along and has this new idea, this new product designer, this new marketing plan that completely upends the industry and makes everyone else scramble and try to catch up to him, and so that's what he meant, that the bold innovator comes in and then offers some new thing that totally revolutionizes the industry, so it's destructive in the sense that everyone else's business plan now looks wanting and so they have to scramble to try to catch up, but that's a far cry from saying the way you get rich is to have someone go around literally destroying things.
You know, they're the reason, if they say it's destructive, that people realize that this new idea is so much better than what we're doing that we might as well scrap the old way of doing things.
This idea that, I mean, you're right, you hit a bunch of points there, there's one claim that School of Thought that says the reason Japan and Germany did so well after World War II was because they had all their factories bombed by the Allies and then they had to start from scratch, and so then after they rebuilt everything, they had state-of-the-art processing equipment, you know, and their techniques were state-of-the-art, whereas the U.S. was still relying on older technology, but again, there's a fallacy involved there that, and Henry Hazlitt pointed this out, he said, look, the only reason that makes sense, I mean, yeah, new techniques are developed, at some point, if you're using the old technique, you just scrap that equipment and buy the new thing, but you don't do that every time a new technique is developed, because there's cost involved.
You know, you might want to run the old stuff the old way, you know, and then at some point you switch over.
And so he said, the only reason it makes, that we were doing them a favor is that they were about to dynamite their own factories just at the precise moment that we dropped bombs on them and then we saved them the cost of using their own dynamite, when of course that's crazy.
If it hadn't been for our bombers, they would not have chosen, you know, the owners of those factories would not have blown up their factories in order to make more money.
Okay, I mean, so that just, I mean, these things are common sense and you feel funny even having to point them out, but like you say, serious people actually say this with a straight face that, oh man, yeah, we, the Japanese had an advantage over us because we completely bombed out their cities.
I mean, that doesn't make any sense.
Right.
Although, okay, but if you leave aside the victims, the foreign victims for a moment, I can sort of see the argument, I'm not saying I totally buy it or whatever, but I can see the argument that, look, FDR and Truman, they're basically the CEOs of the big American corporation and they might decide to go into debt and spend some money on building some new factories, building new freeways across the country, subsidizing microchip research, subsidizing jet engine research and things in a way that, well, now that the war is over, the rest of us still benefit from all these projects that, you know, like you say, if we were just waiting around for it to happen naturally, it might take much longer because of the costs involved in making the change.
But then look how much richer we all are for having this freeway system that trucks can drive on really fast, for example, or having jet engines in our airplanes.
Okay, yeah.
So there, the way I would answer that is to say it's the old fallacy of looking at the seen as compared to the unseen.
So it's, I mean, yeah, it's true if the government raises tax revenue or borrows it or just prints the money and then spends it on something, yeah, it could be a highway system or it could even be something like building a new hospital or building a cancer research center or building a sports stadium, we can all look at that tangible result and say, oh, wow, that thing would not have existed had the government not taken this money from us and bought that stuff.
But the correct comparison is not to say, so therefore let's count all those benefits and look at that thing and assume that that's just manna from heaven.
No, you have to compare it to what would have happened with those resources had the government not commandeered them.
And so, you know, it's, there's all the things, look, I mean, during the war years and even in the United States, even though we weren't getting our cities bombed, uh, you know, people would, there were shortages of nylon stockings and people, you know, they weren't able to get radios and things, you know, there was lots of food shortages and rationing.
So I mean the average American consumer lived in privation during the war years.
Now they psychologically, maybe they, you know, they weren't experiencing it because there was a war effort and they were concentrated on the troops overseas and so forth.
So maybe in retrospect people don't, don't realize that happened.
But in terms of the economy physically producing stuff for consumption, the war years were very poor ones.
They even used the official numbers.
And so it's, um, you know, you can't just point at the stuff, at the benefits of the wartime spending in terms of highways or what have you and ignore the fact that when you suck all those resources out of the private sector, you know, less stuff gets built.
Now, Bob, if it's all right, I'd like to kind of try to update the conversation to, uh, where we are right now or maybe even change the subject to what's going on with the politicians in DC right now.
I'm a bit confused, not so much about, you know, how it works as much as, um, the, the political theory undergoing, uh, underlaying, you know, what's going on up there.
Barack Obama came into power, uh, supporting the bailouts, voting for the bailouts in the Senate, uh, all the Bush bailouts, the tarp and all that kind of thing.
Um, he came in, uh, bailing out general motors and all of that, uh, pushing bailouts of the state governments as much as he could.
And I think the first year he passed what, like a five or $6 trillion budget that was this stimulus to, to make up for the fall in aggregate demand and save the economy from the recession that had happened and all that kind of thing.
And yet now it seems like not that they're really doing anything about it, but at least the message is, oh yeah, government spending is bad and these deficits are way too high.
And now, you know, we have to cut everything and everything.
And I was just wondering, uh, whether, is there even an argument on the Keynesian side for them to be consistent with over there or is it all just basically BS from day to day for the news cycle or how does this work?
Well, if I'm understanding what you're asking, I mean, Obama is saying, yeah, let's cut, we're going to cut the deficit by a lot soon.
And he's the same guy who said we must run this huge deficit in order to save the economy.
And it's working.
Look.
Yeah.
Right.
Yeah.
The, uh, you're right that the, the hardcore Keynesian economists, you know, the people who aren't directly in the government, people like Paul Krugman and others, they do think Obama's crazy.
They think, they think he's, he's being inconsistent and that he's just trying to foolishly placate Republicans and appear to be a centrist, you know, to help his political chances of getting elected.
Um, so, so you're right in terms of standard Keynesian theory, if you were for the big bailout and stimulus, when Obama first came into office, then to be consistent right now, you should still say, well, the economy is still clearly a, you know, in the toilet and we still need to have big deficits now to help pump a bagger at demand.
And yeah, down the road we have to solve the entitlement problem and so forth, but you don't want to do it right now.
So that's what all the, you know, the, the academic Keynesians are saying.
All right.
Well, okay.
Okay.
So the budget is like what?
Three and three quarters trillion, rounded up to $4 trillion this year.
How much money do they take in in taxes?
Do you know?
Uh, well, they, well, the deficit is going to be like one and a half trillion.
So you know, a little over two, I guess, in taxes, click two and a half trillion.
So, you know, I'm, I'm really, uh, I guess more confused about how this stuff works than I ever was, you know, like astronomy or something, right?
Once you start learning a little bit, then you really, you learn about how little, you know, and how much more you have to learn that kind of thing.
And I think I interviewed you about this.
There was a thing at the Huffington post, uh, written by these Keynesian liberals saying basically that guys like you from the Austrian school are all wet when it comes to inflation and, and all of these things.
And the way that they told the story, at least part of it seemed like there was some truth to it.
Not that I really understand the import of it maybe, but they were saying that whatever the government collects in taxes, basically that money's just destroyed.
They just, uh, you know, cross that off the book or whatever like that.
And so it's when they, um, are taxing the regular people, bailing out the richest people and taxing the, the working and middle classes, then it's, our money is just being destroyed while they're creating new money in order to bail out the rich people and, and such like that.
And I just wondered like it, the way they explained it was so complicated, made it sound like it just must be a complete fraud from top to bottom, you know?
Well, yeah, I have seen some of that stuff.
Um, I don't, I don't think that's correct.
I mean, you're not misrepresenting those views.
There is a school of thought out there that says that, yeah, like the, the government is not revenue constrained and they can, you know, when they tax money, the money is literally like taken out of existence.
And then when the government spends money, that money comes back into existence.
I don't think that's right.
I mean, what the federal reserve does now that that's true and that when Ben Bernanke buys assets, he really does create that money out of thin air.
He just writes checks on the fed and then that creates more reserves in the financial sector that didn't exist two seconds earlier.
But when the treasury spends money, I mean that money has to come from somewhere.
I mean, the treasury is just like a giant corporation.
So you know, if, if GM floats bonds and then spends money on building new factory, GM doesn't create money out of thin air.
And the same thing with the U S government.
So, I mean, of course the U S government is in cahoots with the federal reserve, so you can say they all know what they're doing and they all kind of, you know, work hand in glove.
But my point is when the government taxes money for me, that money still exists.
It just, it takes it for me and now the government has it.
Just like if a, you know, if a mugger mugs me, that money doesn't disappear.
It just comes out of my wallet and goes into his.
So when, you know, when uncle Sam takes your money through taxes, the money still exists.
It just gets transferred to the government.
Right.
Now, um, as far as all the new money that's been created since the collapse of the housing bubble and all that in 2008, um, you know, I've, I have trouble keeping my, uh, you know, getting my head around all these numbers, but I've read where like, you know, there's $40 trillion worth of bad debts basically that have to be liquidated.
Um, and, uh, I wonder whether if, if, if it's that deep of a black hole, can they not just keep, uh, printing money without creating the kind of a crack up boom, complete destruction of the dollar that everybody seems to have been predicting?
Well, as far as, you know what I mean?
Like there's so much money being so much bank credit basically being destroyed and written off that why not create a few more trillion dollars?
What difference does it make making up that aggregate demand that fell off or whatever?
Yeah.
I mean, it's this stuff, it does get tricky as to how you look at it.
It's a very subtle thing in different people, even other Austrian economists who, you know, agree with me on 99% of the issues might disagree with me on this stuff.
But yeah, my, I think it's not exactly correct when people are just lumping together money and credit like that.
I mean, if, if a bank, you know, had, let's say a bank had given me $200,000 and I went and spent it.
And so the, on the bank, on their books, they have this, you know, I owe you from Bob Murphy.
And then I say, Oh, you know what?
I don't have it.
Sorry.
I thought I was going to have a really good year this year and I didn't, I can't pay you.
And then the bank writes that off.
It's not like $200,000 just disappeared from the economy.
I mean, I got that money and I spent it.
It's just in a, you know, in a sense it's like I took the bank's money and spent it on myself instead of their shareholders having it.
So, I mean, it's, it certainly hurts the economy in the sense that now that bank is in trouble and they're not going to lend money to people, you know, if they, if their capital is hurt, but it's not like the money itself disappeared and the prices per se are going to go down because of that.
I mean, I did spend that money in the example I just gave.
So I think sometimes when people start mixing the apples and oranges, when they, they talk like that, but it's, I mean, even now we have, we're seeing signs of price inflation creeping up all over the place in the European central banks raising their interest rates.
China has been fighting inflation for a long time.
Other countries around the world are asking the IMF if they can have capital controls because there's, you know, dollars are flowing into their economies and then they're getting asset bubbles.
So, I mean, I, I think that the one place where you're not seeing prices zooming up are in the United States for consumer prices that aren't tied to food and energy, which, you know, isn't surprising given how high unemployment is here.
So I think it's, we're fooling ourselves when we keep saying that we're about to fall this deflationary cliff.
I think it's the other way around that we're seeing more and more signs that all this money Bernanke has been injecting really are pushing up prices in various sectors.
And including, and maybe especially overseas, we're exporting this inflation.
Right, because, I mean, it's kind of a tricky thing, but part of what's going on is a lot of central banks around the world, they had tied their, like, especially in smaller countries, they had pegged their currency to the dollar.
Like, it's, you know, it's almost like a gold standard except they were using the U.S. dollar instead of actual gold.
And so when the Fed starts pumping money like crazy, normally what would happen is then all those other countries' currencies would strengthen against the dollar.
But they didn't want to let that happen because that hurts their exporters and whatever.
So they, you know, just offset our dollar printing, started creating a bunch of their, you know, printing more of their money, too, to try to keep the two on an even keel.
And so I think that's part of what's going on and why you see, you know, all these bubbles filling up all over the place, you know, because you would think normally, would you just, the Fed's printing a bunch of money, why wouldn't that just affect the dollar?
But I think it's because we're all, it's all intertwined.
Well, and now, and I guess, you know, we've seen, I don't know the extent of this, but, you know, at least reports of Russia and China, maybe you know exactly whether they really did stop using the dollar for their international exchanges, that kind of thing.
And it seems like, I think the way I heard it from Ron Paul back years ago was, once the world really figures out a way to abandon the dollar, to quit getting ripped off in this manner, that's when we are going to suffer big time because then all those dollars come flowing back here.
So not only all the inflation, the price inflation we're already suffering, but all the price inflation we've exported to the world comes back to us and our dollars become worth dimes.
Is that something you're really worried about?
Yeah, it is.
And just for your listeners to understand, you know, what's been happening is since 1971, you know, the dollar has not been tied to gold, as I'm sure most of your listeners know.
And so loosely speaking, one way to think about what happens is that since the U.S. dollar was the world's reserve currency, and it technically still is, when the Fed prints up money and then buys stuff from around the world, when Americans use those dollars to buy goodies from around the world, to the extent that those foreigners just hold on to the dollars because the dollar is an asset for them as well, then we get to import all those things at low prices and we don't see a backlash from having printed that money.
So in a sense, for decades now, we've been running trade deficits with the world, printing up money, and then they're just hanging on to the dollars and sending us, you know, TVs and cars in exchange.
And so what that means is, you know, our prices domestically haven't been rising as much as they would have been had all those dollars that were printed stayed in the United States all these decades, because instead they've been getting held by foreigners.
And so now, like, you're right, if the world decides, you know what, we don't trust Bernanke anymore, we've got to do something, and they dump the dollar, well then we're, loosely speaking, all those dollars are going to flow back to the United States and push up prices here so it's not just going to be what we've printed in the last two years, it's going to be what we've printed in the last three decades that are going to come flooding back.
All right.
Well, good.
I mean, my point, what I want on this show is for everyone who listens to have nightmares.
So mission accomplished.
I'm so sorry we're out of time.
I've got to get Pepe Escobar on the line, but thank you so much for your time, Bob.
We should do this more often.
Thanks for having me.
All right, everybody.
That is the great Robert P. Murphy from Mises.org and Consulting by RPM.com.
Please read the Politically Incorrect Guides to the Great Depression, the New Deal, and to capitalism as well, and we'll be right back after this.
