All right y'all, welcome back.
It's Anti-War Radio and our next guest on the show is Robert P. Murphy.
He's a senior fellow something or other like that at the Ludwig von Mises Institute.
He's the author of the books The Politically Incorrect Guide to Capitalism and The Politically Incorrect Guide to the Great Depression and the New Deal.
You can find links to them both at his personal website consultingbyrpm.com.
Welcome back, Bob, how are you doing?
I'm doing good, thanks.
Very happy to have you here.
And now looking at your two books reminded me of the way I wanted to try to frame this discussion today.
We basically got two 10-minute segments with a break in the middle here, so we can't talk about everything.
So you're the author and this is particularly, I guess, I'm addressing liberal-leaning or even I guess whatever conservative-leaning non-libertarians in the audience.
This guy wrote The Politically Incorrect Guide to Capitalism and to the Great Depression and the New Deal.
And so if you were to read them, you might think that he's the, well you probably, if you finished him, you wouldn't think he's the greedy capitalist on the front of The Politically Incorrect Guide to Capitalism.
But you would see that this guy's a purest libertarian on every economic issue from here to there, and you might not be.
But for the sake of this discussion, I don't think that that is important really.
Because whether you believe in Social Security and Medicare and Medicaid and executive regulation of, you know, the SEC and the Sarbanes-Oxley and every kind of thing in the world like that, if you disagree with purest free market libertarian Austrian economics on every issue under the sun, that's okay.
For the sake of this discussion, this discussion is just about what causes the boom and the bust.
So you could still be for every kind of unemployment insurance and every kind of minimum wage and every kind of policy that Bob Murphy explains why he doesn't agree with in The Politically Incorrect Guide to Capitalism, and all that's to the side.
This is just about what causes the boom and the bust.
Robert P. Murphy, what causes the boom and the bust?
Well, I subscribe to what's called the Austrian theory of the business cycle that people have probably heard Ron Paul, Peter Schiff, people like that talk about.
So just in a nutshell, the idea is, it is central banks.
I mean, back before central banks, even private commercial banks had the power to do this, but in our day, primarily the villain is central banks, that they flood the credit markets with money they print up out of thin air, basically, and that pushes down interest rates.
And we know, I mean, that's the avowed purpose of their policies, where they say, oh, gee, the economy's in trouble, so let's lower interest rates and provide stimulus.
That's what central banks think they're doing properly.
And the Austrians say that, no, those low interest rates provide a false signal to businesses, and yes, it can give a period of apparent prosperity, because it's cheaper to borrow money, so businesses want to borrow and invest more, consumers are willing to run up their debts more.
So it gives you this feeling of euphoria, but of course, just printing up money or electronically creating more deposits, which is how the central banks achieve their goal of lower interest rates, that doesn't actually make us wealthier.
It's like there's more tractors to go around, or people have better skills, just because they printed more money.
So that prosperity can't really just come out of thin air.
And the Austrians explained that really what's happening is we're unwittingly consuming our capital or eating the seed corn, if you will, and that just sets us up for a bust later on.
Okay, and now, I guess, you know, you guys in Alabama, the Mises Institute, you guys think this, and you know, maybe some people at George Mason University agree with you, something like that.
But other than that, everybody knows that that's wrong, that the central bank, as I learned in school, is here to smooth out the boom and bust, which, as you noted, existed before the central bank there.
And their job is taking the punch bowl away from the people at the party when they're getting too drunk to drive home, and containing the excesses of laissez-faire free market capitalism.
I learned it in eighth grade, I know that that's true.
Well, you know, there's two ways to deal with that.
So one is just, you know, let's drop all the theory and everything and just be real naive and just look at the broad sweep of history and say, okay, if the goal of establishing the Federal Reserve was to smooth out the business cycle, then surely there would be worse business cycles before the Fed than after.
But of course, the two worst in U.S. history were the Great Depression and then what we've just gone through, or are still going through.
So just prima facie, the two worst happened on the Fed's watch.
And so, you know, that right there is kind of a strike against the theory that you could say, all right, if the purpose is, you know, maybe in principle, a perfectly run Federal Reserve could be better than laissez-faire, but with actual human beings running it, lookit, they botched up twice now and gave us the two worst economies in U.S. history.
So just on their own grounds, it doesn't work.
But then, you know, more theoretically, it's not just the Austrians anymore.
I mean, more and more people are subscribing to this view and realizing that, you know, when Alan Greenspan brought interest rates way down after the dot-com crash, you know, in the early 2000s there, he caused a housing bubble.
And the thing that's funny is, you know, Paul Krugman at the time, in 2002, wanted Greenspan to cause a housing bubble.
You know, not that he thought a bubble was a good thing, but he thought that it's going to be better than us sitting in a recession right now.
So I mean, the idea that artificially low interest rates can cause asset bubbles and maybe if the Fed overdoes it, in retrospect, it could be viewed as a mistake, I mean, that's not something that just the Austrians are saying.
What the Austrians are fairly unique is that we say it's always a mistake.
There's not like this Goldilocks, you know, just perfect right amount of inflationary, you know, money printed out of thin air that can help.
But if you overdo it, then you might cause a bubble.
Well, you know, I saw a thing by Paul Krugman where it seemed like he was making an important point that he was criticizing some of, I guess, the Ron Paulians and Austrians at the Occupy Wall Street protests who were denouncing fractional reserve banking.
And he was saying, listen, if we don't have inflationary money, then economic growth will be severely restricted and would be much slower.
And that seemed like it made sense, right?
If you inject a bunch of money into high technology or into the medical industries or whatever, then they will advance beyond what they would have, typically.
I don't think that that's that's right.
It's because with all this stuff, I think that people aren't stupid and they can learn to adjust to new prices or new trends and prices.
So back, you know, we were still on the gold standard, for example, from year to year, prices were fairly stable.
And so if you had a hundred dollars worth of gold, then, you know, 50 years later, that hundred dollars would still buy you roughly the same amount of consumer goods and things like that.
So, I mean, money really held purchasing power and that didn't cripple businesses back then.
They just adjusted.
And so they knew not to expect prices to rise 5% every year or 4% or whatever it is.
So it's, you know, in our time, since all of us have grown up in an environment where we just take it for granted that year after year prices go up, it's true.
When there's a temporary interruption in that, like in late 2008, when actual prices were actually going down for a month or two there, I mean, that to us was inconceivable.
So that would certainly screw businesses up if they weren't expecting it.
But I mean, in general, you know, if you're a biotech company or whatever, it's not that you need to get newly created money.
You can still go into a bank and get loans and so forth.
And it's not that they have to create more total money.
It's just whatever amount of money there is would just get distributed to the sectors that were expanding and maybe prices gently fall over time.
And that happened in large stretches in the 1800s that were quite prosperous, where you just, you know, prices, you know, businesses got more productive, produced more, and that lowered prices at the retail level.
And so, I mean, that's perfectly consistent with a healthy economy as long as everyone knows to expect it and adjust their plans accordingly.
So the typical textbook then would just say that the bubbles are caused by excess production and savings and bad investment decisions in the marketplace full stop, like a beanie baby fad among housewives.
Well, it depends what you mean.
If you're talking like a history textbook or an economics textbook.
An economics one.
Okay.
Yeah.
Community College 101.
You know, here's how it works, guys.
Typical Keynesian.
Yeah.
I mean, they say that for whatever reason, sometimes, you know, there's animal spirits and aggregate demand rises too quickly and that causes things to overheat.
And that, yeah, it's the role of the Fed and other regulators.
Well, Greenspan said it was because the Chinese had invested too much of their savings in our economy as well.
Oh, right.
Yeah.
That was a big boogeyman too.
Yeah.
The Chinese were saving too much.
All right.
Hold it right there.
I got a lot more and Bob's got a lot more.
Robert P. Murphy, Mises.org, consulting by rpm.com.
All right, y'all.
Welcome back to the show.
It's anti-war radio.
Wrapping up for the week here with Robert P. Murphy, author of The Politically Incorrect Guide to Capitalism.
Now, so I dig it.
Look, I don't know how it was exactly.
Must have been the birchers or somebody turned me on to the Austrian theory of the business cycle back when I was still in high school.
And I sat there and boy, I could have participated in that dotcom bubble and made a killing.
I knew it was a bubble and I was I didn't even get a computer.
I was so cynical about the whole thing because I knew what a big fake money bubble it was.
And then I knew about the housing bubble all along, too, because not even that I'm really a Mises.org guy, I'm more of a LewRockwell.com hanger outer.
But there's plenty leaking over about the bubble this whole time.
And Ron Paul, of course, was talking about it.
And I watch him on C-SPAN every chance I get, Bob.
He was talking about the housing bubble that replaced the dotcom bubble on the floor of the Congress and in his newsletters and everything else from the year 2000 on 2001.
For sure.
I remember advising a friend of mine back before September 11.
Don't buy.
Don't buy a house now.
Wait till the bubble gets as high as it's going to get and then pops and then buy a house when the price is low, but before the interest rates go up.
Now, it's back 10 years ago.
So it ain't that I'm a genius.
It's that you guys are and I was paying attention to you and everyone else with money and power in America apparently was wrong and got caught up in this insanity.
This Alan Greenspan is the maestro ruler of the world.
This this bubble is real prosperity and it's we've reached a permanently high plateau and the rest of this nonsense.
Yeah, I mean, I agree with what you're saying, and I appreciate the compliment that it really is amazing to see, you know, there's compilations of, you know, Ron Paul was right, that kind of stuff, and the real irony is if people go to YouTube, if they haven't seen this and do Ben Bernanke was wrong because it's not just that, oh, he didn't realize it was, you know, the problems in the subprime, blah, blah, blah.
I mean, he was consistently wrong at every stage of the of the problem from like 2005 onward.
You know, every six months, there's clips in that compilation showing how, you know, he denied there was a housing bubble.
Then once he realizes, well, it's going to be contained, then he said, well, okay, if we're going to have a few quarters of down growth, but that we think in 2009, things will be strong.
You know, I mean, so it was just every step of the way, which was just totally wrong.
So it's ironic that, you know, what more would he have to do to not get reappointed?
And yet, of course, he was and everyone was saying that Ben Bernanke saved us, you know, from the 30s.
So it's yeah, the really, but fortunately, it's not to be cynical or anything that there really has been an objectively improved perception among the general public of the Austrian theory of the business cycle.
I mean, that's one thing in this that's sort of been heartening for me, is I'm getting, you know, before it just used to be, I would talk with a bunch of other sort of, you know, purists who just liked it, you know, sort of like that, you know, we were in this little club, and we knew about these Austrian economists, but nobody else did.
But now I mean, it really is mainstream, and people are talking about it on CNBC.
I mean, they do it derisively, but they at least talk about it.
Right?
Yeah, it seems like headway.
All right.
Now, here's some mild criticism for you.
I know that you're good on this issue.
I know that the entire Mises community, whatever is good on this issue.
But I don't think you're loud and mean enough on this issue.
And that is the criminality and the fraud perpetrated by the evil criminal fraudulent bankers and insurance companies on Wall Street.
You've almost Bob, if this is probably overstating it, but you've almost ceded the issue to liberals to point out that the guys on Wall Street are just as criminal as Alan Greenspan or Ben Bernanke and or worse, because a lot of times they know good and well that they're selling people on stuff that they're betting against on the other side and whatever these people ought to be in irons.
And it's great to focus on the root cause follow the money all the way back.
That's what I always say the central bank is the name of the game.
But it almost sounds like never mind Jamie Blank Fine or Jamie Dimon and whatever blank fine down there, the rest of these criminals down on Wall Street who knew good and well and were, you know, partners, equal partners with the national government on on both of these last bubbles.
Yeah, yeah, it's a good I mean, I know you're trying to be provocative there.
But you know, honestly, I think you're right.
You're hitting on something important that, you know, that let me so in one in one respect, at least in my own work, I actually don't talk about the Fed as my other I try to talk about it, especially like if you're trying to understand what's going on in Greece and Greece news Europe more generally.
I mean, there it is even more naked that it's, it's purely, you know, the government are being told what to do by the international bankers and the policy there is explicitly designed just to make sure those, you know, those big companies don't lose money.
And screw the taxpayer.
You know what I mean?
It's just like, it's so naked, like they're even even admit that that's what they're doing.
Well, we can't let the financial sectors fall, you know, they give some fig leaf to because if the economy goes down, then you know, that'll hurt the little guy.
But I mean, they're just literally just taxing poor people to bail out rich bankers.
It's ridiculous.
So I think you're right.
And then to hear it, like, you know, I'm, I think part of it is, it takes a while if you're an academic economist, you know, like to, you know, you don't want to say, Oh, I'm dabbling in conspiracy theories and all that.
I think that's probably partly why, you know, it's safer to just focus on policy debate, but you're right.
I mean, ultimately, why is Bernanke doing all this stuff?
I don't think it's because he's actually consulting Keynesian textbooks and then out pops the policy that he implements.
I think he's told, this is what you're going to do.
And then he had his job, you know, having a PhD and all his credentials, if he has to come up with some gobbledygook to make it sound like there's some theory behind what he was told the policy is going to be.
So, you know, I'd not, not everyone would agree with me on that, but I mean, that's my personal view.
So I think you're right.
That it's to really understand in practice, how does this stuff happen?
It's, it's a bit naive just to make it sound like it's just an honest academic debate.
And you're right too, in terms of rhetoric to the other occupy wall street people, whatever, that they have, like the moral authority behind them.
And if, if Austrians and others don't, you know, don't talk about that stuff, then we are giving them the issue when they don't really know the economics well enough.
Right.
You know, I saw this movie, the inside job narrated by Matt Damon.
It's basically the Democrat view of what happened during the, the bubble and the meltdown or whatever.
And of course their major flaw is they don't trace it back to the fed.
The root cause of this whole problem is that the banks were willing to lend unlimited amounts of money to themselves and each other and to people who couldn't really afford houses and to, you know, people buying stocks and everything else that, that and, and all of these crazy collateralized debt obligations and selling all these mortgages off to you know, the teacher's retirement fund in Alabama and every other thing.
And of course they miss, they miss the root cause, the fed.
But I just worry that we look like we're leaving out that whole side of the story.
What a bunch of crooks, all of the board and all of the executive vice presidents and whatever are at Citigroup, at JP Morgan, at Goldman Sachs, at Lehman Brothers and Bear Stearns and Merrill Lynch and Bank of America and the rest of them.
These people should be doing life in prison.
They helped Alan Greenspan create and then destroy these trillions of dollars worth of people's real blood, sweat, and tears.
How many people have killed their family and then themselves in desperation in this financial crisis that these men cause?
And they get away scot-free.
And we look like we're just saying, well, it was all the government's fault, not theirs, rather than, you know, all these guys ought to be put on the same ice floe out to sea together.
Yeah, I mean, you raise a good point.
And that, that movie, The Inside Job, it's a good one because I watched that and I was stunned by some of the stuff of, you know, I'm no longer in academia, but I mean, that's where I, you know, that's what I thought I was going to do for a while until I changed career paths.
And so for me, yeah, the stuff that there was most revealing was, was the, you know, sort of gotcha interviews he was doing with like Frederick Mishkin and, uh, I forget his, whatever his boss's name was.
I can't, his name's escaping me at the moment, but these, you know, academic economists that were doing consulting and giving a clean bill of health to Iceland and getting paid, you know, some huge amount of money to do the study.
And then, you know, changing the title and putting a knot in the title in terms of stability or changing it from Iceland stability to Iceland instability.
A few years later on the guy's CV and stuff like, I mean, just really funny, like almost laugh out loud funny if it weren't such a serious topic and just the corruption of, you know, academia and the revolving door of these guys, you know, working in the government and then coming back out and teaching and getting plush consulting contracts.
So yeah, that kind of stuff really bothered me, but a lot of my colleagues, they'd be, eh, you know, no big, no big deal.
Cause it's sort of like, you know, when a police officer does something and the other cops kind of rally around him, I noticed that too.
And it was just disconcerting to me that, well, no, if a bunch of economists are doing stuff like that, that's wrong, you know, we should really speak out and say that's not ethical.
So yeah, you're right that there is this tendency that for sort of free market, right-wing libertarians, if you will, their position is, well, no, if we didn't have all this government intervention, then evil businessmen really wouldn't be able to do too much.
Whereas sort of, you know, leftist, you know, Noam Chomsky types kind of go the other way and say, well, if it weren't for all these evil corporations that were bribing the politicians, the government would do good things.
And so I think both views are kind of myopic and, you know, it's both people that are just taking this apparatus of the state and using it for private purposes.
And so libertarian, you know, right-wing type libertarians is really, you're right, should be more aware of that.
Well, you know, I saw Judge Napolitano score major points with Ralph Nader by saying, I'm against tort reform, so-called limits on civil lawsuits.
And I want people guilty of fraud locked in prison for it, hardcore.
So I want accountability, just not with executive regulation.
And Nader went, I get it.
So if we're good and we're consistent on that, we can win.
And now we're out of time.
Thanks, Bob.
Thanks for having me, Scott.
That's Robert P. Murphy, everybody.
Mises.org, consultingbyrpm.com.
Thanks for listening.
