Economics Series 1: Lawrence White / The Fed, Gold, National Debt

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Welcome to another episode of
Come Together

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and we're LIVE.
Professor Larry Lawrence White,

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thank you so much for coming on.
I really appreciate it.

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How are you today?
I'm fine.

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I'm looking forward to talking
to you.

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Yeah.
Yeah.

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You know, I'm really excited
about this.

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I've been I, I, I, I this
podcast I started, I wanted to,

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I had a vision of just having
healthy, productive and

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educational content available in
a digestible, easy way and kind

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of a form of a conversation.
I think that the dynamic of

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conversation helps people kind
of stay, you know, focused as

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opposed to, you know, just one
of us talking for the entire

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time.
And so I think there's going to

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be an awesome method.
But you're professor of

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economics at George Mason
University, right?

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I just retired on June 1st.
Oh, congratulations.

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Professor of economics.
Beautiful, beautiful.

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Congratulations on retirement.
How does that feel?

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Well, it's been like any other
summer, but now that the fall is

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approaching, it does feel a
little different because I'm not

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preparing courses and my former
colleagues are all doing that.

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I see, I see.
And I saw you've been starting

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to write on sub stack a little
bit.

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Are you going to keep that up?
Oh no, I haven't written on sub

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stack.
No.

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Did I?
Was that someone else then?

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I thought.
I thought that was you must

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have.
But yeah, yeah, must have been

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someone else.
Well, you're going to keep up

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writing or research or what do
you, what do you plan on doing?

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Yes, I'm just retiring from
teaching and grading exams is

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the way I think of it.
So I'm going to spend the fall

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in London at King's College
London, trying to write some

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papers, giving some talks.
And so those activities I will

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keep up.
That sounds very exciting.

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That's kind of great.
Have you, have you spent time

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there?
Oh, just weekends.

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I haven't spent a long time
since I worked on my

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dissertation in 1981.
I spent a lot of time in the

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Goldsmith's Library in London.
That was a long time ago.

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I was about to say, I'm sure a
lot's changed between now and

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then, huh?
Yeah, all all the things I had

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to go there to read in person
are now online.

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Yeah, that's the benefit.
That's the benefit, I guess,

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right.
So I wanted, so I wanted to kind

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of do a combination of a
narrative, but with a lot of

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information, you know, just to,
I guess learning information.

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And one of the things that I've
noticed that I've heard kind of

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popping up based on the podcast
that I've been listening to

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lately is, is a lot of talk
about the Federal Reserve.

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And I, I know that when I was
trying to talk to my family

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about it or friends about it,
very few people seem to have any

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idea as to what its purpose was.
They, you know, they kind of

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have an idea as to when it was
created.

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But you know, and I know it
started, it started, it started

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in 1913 by Woodrow Wilson.
What was the purpose of it?

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What function does it serve and
what does it do for us?

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Yeah, well, Congress passed the
Federal Reserve Act in 1913, so

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it wasn't Wilson alone.
And it got underway in 1914.

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But the the situation was that
the US had just had the panic of

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19 O 7 and they launched into
Congress, launched into studying

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what to do about it.
And a popular idea at the time

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was, well, there were two ideas
contesting 1 was people looked

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at Canada.
Canada had no central bank, had

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a competitive banking system
with fewer restrictions on the

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banks than the US had.
And some bankers and other

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commentators said we should have
a more Canadian style system,

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and they proposed that.
And it didn't go anywhere in

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Congress, partly because the
small banks were against it.

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The Canadian system then, as it
is today, was a system of large

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nationally branched out banks.
And the small banks in the US

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considered that a threat.
The other idea was let's emulate

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what they do in Europe, which is
to have a central bank, a

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government sponsored institution
that can pitch in in a panic,

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try to rescue the banks that are
worth rescuing, provide more

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reserves to the banking system,
provide what they called at the

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time an elastic currency,
Meaning if people wanted to

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switch from deposits to paper
currency, the system would let

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them do that.
Whereas in the US, we were under

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a set of regulations called the
national banking system, and

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that restricted banks from
meeting peak demands for their

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currency notes because, well,
it's a long story, but it was

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originally passed the national
banking Acts as a Civil War

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financial measure.
And the idea was compel the

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banks to buy federal bonds.
But after the Civil War, the

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quantity of federal bonds was
shrinking because they were

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paying off the debt.
And this is a crazy idea they

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had in the 19th century.
If you run up a big debt during

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a war, when the war ends, you
start paying off the debt.

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Ratio of debt to the GDP was
shrinking, but that meant the

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amount of backing that the banks
were required to have, were able

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to have.
They were required to back their

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banknotes, their currency with
these federal bonds.

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And the quantity of federal
bonds was shrinking.

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And so that especially in
seasons of peak demand, that led

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to very tight financial markets.
So they created this federal

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institution, the Federal Reserve
System, to try to provide more

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currency and seasons when people
wanted more currency, more bank

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reserves when there were runs on
banks, Oregon when the reserves

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were for some other reason
flowing out of the banks.

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So the original mission of the
Fed was to just occasionally

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step in when there was a panic
on a day-to-day basis.

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They nationalized the clearing
system, the check clearing

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system, but they didn't do much
by the way of monetary policy

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because the gold standard
handled the quantity of money in

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the system.
So the Fed originally was just a

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supplement to pitch in during
periods of tight money or, in

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the worst case, panics.
So if you were the hypothetical.

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That was their original mission.
OK.

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So I just want to see if I
understand correctly.

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So if you so hypothetically, if
let's say the economy is

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suffering because of war, a lot
of you know, a lot of businesses

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are closed down, a lot of.
A lot of people came along just

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after.
Right, right.

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So they got those are one right
and you got people and you got

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you got people, you know abroad,
you got troops being deployed,

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you got young men and businesses
kind of being closed down and

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the economy needs to be
stimulated a little bit because

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people aren't really spending
very much right.

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So what would happen is the
Federal Reserve would make would

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it make purchases on behalf of
the government to keep the to

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keep the economy moving, to keep
it flowing?

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Well, that's what they began to
do later.

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But in World War One, we're
still on a gold standard, and so

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the Fed isn't really able to
just arbitrarily expand the

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quantity of money in the system.
The gold standard governs that

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and the US actually had an
influx of gold.

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Gold was flowing in from Europe
to find a safer haven.

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So there wasn't any need for the
Fed to stimulate the economy.

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the US economy was doing quite
well.

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And in fact, the Fed was kind of
overwhelmed with the amount of

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gold that flowed in.
They they had a gold reserve

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requirement now.
They got more than enough gold

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reserves.
They started expanding credit,

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partly to lend to the US
government for the war effort.

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Defense is not part of the
government.

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Defense can lend money to the
government.

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Sorry, Yeah.
So they're they're they're

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lending money to the government
and they're still doing that

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today.
And the way they do that is a

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little indirect.
The government goes out and

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sells bonds, sells IOU's in the
market, and Federal Reserve buys

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them out of the market.
OK.

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So it's a 2 step procedure.
But yeah, essentially the Fed is

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lending to the federal
government.

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But I but I was saying in in the
First World War they overdid it.

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the US had 20% inflation.
It's the worst inflation we've

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had due to the over expansion
during the First World War.

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And how, how does that happen?
How does, how does 20% inflation

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happen over the course of that
period of time?

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Like what what, what happens
within the economy that that

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that allows that to occur?
So the 20% inflation is possible

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when there's 20% more spending
and no additional supply of

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goods.
And how can you have 20% more

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spending?
Either money turns over more

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rapidly or what's usually the
case, the Fed is expanding the

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supply of money.
So in the pandemic a few years

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ago, the Fed enormously expanded
the quantity of money.

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And it was OK at first because
people were hoarding money.

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So the money, the new money sort
of satisfied the demand by the

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public to hold more money.
But as things returned to normal

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and people started spending, the
Fed was too slow to pull the

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extra money out and we hit a
peak at 9% inflation in 2022

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before they tightened monetary
policy enough to bring inflation

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back down South.
It's basically more money.

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Chasing the same amount of goods
will give you higher prices.

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That's the main cause of
inflation.

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Is there a relatively simple way
to to combat that?

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But how do you, how do you, what
do you do if you post World War

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One?
You're like Oh my God, you have

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20% inflation.
Do you make?

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The Fed needs to control its own
balance sheet.

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It needs to shrink the amount of
money that it's injecting into

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the economy.
So this doesn't have much to do

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with everyday consumers.
This has more to do with what

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the Fed is, what the Fed is
putting into the, what the Fed

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is contributing.
Well, in the, at the beginning

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of the process, if the Fed is
expanding, they're buying

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Treasury bonds in the market.
That puts the money, new money

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in the hands of bond dealers,
not the public.

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You're right immediately.
But it, it spreads, it diffuses

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through the economy.
More money is lent to

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businesses.
Businesses are spending more on

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raw materials and on labor.
So wage income goes up, salaries

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go up, and the public gets the
extra money with a lag.

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Right, right.
I see.

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Now when people talk about
wanting to abolish the Fed, why

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would they want to do that?
Well, I'd have to know what they

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want to replace it with before
I'm sure exactly what their

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motive is.
But the Fed has been a source of

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inflation and people who want to
stop inflation sometimes say

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they want to end the Fed.
If they want to replace it with

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a gold standard, then that's I
can understand that.

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I mean, that's been Ron Paul's
shtick for 30 years, right?

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He has a book called End the
Fed, and what he wants to

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replace it with is people
putting themselves back on the

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gold standard, or I guess these
days he would say, or Bitcoin if

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they prefer Bitcoin, but let
people choose what money they

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want to use.
The research I've done over my

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career is basically supports the
idea that we don't need a

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central bank when we have a
commodity standard.

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Banking systems where the banks
manage their own reserves and

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international gold flows,
regulated the quantity of money

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in any particular country.
It worked pretty well.

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I mentioned Canada already.
That was an example of where the

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banks were very lightly
regulated and there were no

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banking panics.
The system was quite solid and

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it was quite competitive, so it
was good for the public.

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They got a little more interest
on deposits, they paid a little

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less interest on loans because
what the banks charged in the

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form of the spread between
deposit rates and loan rates

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could be very small.
The the example I studied more

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was the example of banking in
Scotland.

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This kind of system is sometimes
called a free banking system.

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The banks are free to issue
their own currency.

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They don't have reserve
requirements, they don't have

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capital requirements, but
competition compels the banks to

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behave responsibly.
It worked quite well in Scotland

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and there are another I don't
know, 50 or so cases of free

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banking systems with pretty good
track records.

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Right.
And do you think that the size

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of the countries have an impact
on whether and how and how well

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these are implemented or not,
meaning Scotland's obviously a

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much smaller country than the
States is.

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Would that impact, you know, on
I guess a bigger scale if that

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would be the case in the States?
I don't see any reason it can't

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00:14:24,560 --> 00:14:28,160
be done on a bigger scale.
Canada geographically is bigger

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00:14:28,160 --> 00:14:30,520
than the United States.
So it goes population is

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00:14:30,520 --> 00:14:34,800
smaller, right?
But the system of nationwide

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00:14:34,800 --> 00:14:39,920
branch banking worked quite well
in in Canada, but in the US

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00:14:40,920 --> 00:14:46,880
branch banking was stopped by
state governments.

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00:14:47,800 --> 00:14:50,800
And it wasn't until the 1990s
that the federal government

234
00:14:50,800 --> 00:14:53,880
stepped in and said we're going
to have nationwide branch

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00:14:53,880 --> 00:14:58,800
banking and we're finally there.
But you know, when I started my

236
00:14:58,800 --> 00:15:05,280
career in the 1980s, if I went
to California with my checking

237
00:15:05,280 --> 00:15:09,560
account from a bank in New York,
I couldn't cash a check in

238
00:15:09,560 --> 00:15:13,160
California.
If I if I wanted cash, I had to

239
00:15:13,160 --> 00:15:17,040
carry it with me or this really
dates me.

240
00:15:17,040 --> 00:15:20,920
People used to carry travelers
checks from one side of the US

241
00:15:20,920 --> 00:15:23,280
to the other.
That's how ridiculous our

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00:15:23,280 --> 00:15:26,640
banking system was.
And at the time, was it known

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00:15:26,640 --> 00:15:28,440
that it was ridiculous?
Like, how come we can't just do

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00:15:28,440 --> 00:15:30,560
this?
It was just the way that things

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00:15:30,560 --> 00:15:33,320
were.
People knew and people saw that

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00:15:33,320 --> 00:15:36,520
nation, really nationwide branch
banking was going to come.

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00:15:37,200 --> 00:15:40,160
And not only would it be good
for consumers, but it would make

248
00:15:40,160 --> 00:15:44,280
the banks stronger because we
had some states where each bank

249
00:15:44,280 --> 00:15:47,680
was only allowed to have one
office that was called unit

250
00:15:47,680 --> 00:15:50,360
banking.
And a bank with only one office

251
00:15:50,360 --> 00:15:53,800
is going to have a hard try hard
time diversifying who it lends

252
00:15:53,800 --> 00:15:56,320
to.
Maybe there's only one industry

253
00:15:56,320 --> 00:16:00,160
in town.
And so those banks that were not

254
00:16:00,160 --> 00:16:04,440
well diversified, the industry
has a problem year the bank

255
00:16:04,440 --> 00:16:07,480
fails or the banks in that town
fail.

256
00:16:07,480 --> 00:16:10,120
And so it made the that was the
problem in Texas.

257
00:16:10,560 --> 00:16:13,920
When the price of oil went down,
2/3 of the banks in Texas

258
00:16:13,920 --> 00:16:17,040
failed.
So you want to get away from a

259
00:16:17,040 --> 00:16:23,520
system like that?
Right.

260
00:16:23,920 --> 00:16:28,120
And, and the, and the Fed
controlling and now just for the

261
00:16:28,120 --> 00:16:30,360
sake for people to understand
this part, the Fed controlling

262
00:16:30,360 --> 00:16:32,000
interest rates.
And you know, you currently

263
00:16:32,000 --> 00:16:35,160
have, you know, Trump running
around saying how in the last

264
00:16:35,160 --> 00:16:37,400
six months that that the
interest rates should be going

265
00:16:37,400 --> 00:16:40,280
down, should be going down.
And he seems to be in a constant

266
00:16:40,520 --> 00:16:43,400
state of, you know, combat with
the head of the Fed.

267
00:16:44,960 --> 00:16:46,880
What how does that work?
What is that about?

268
00:16:48,120 --> 00:16:53,480
Well, the Fed formulates its
policy in terms of interest

269
00:16:53,480 --> 00:16:57,080
rates, but the interest rates
are not fixed forever.

270
00:16:57,320 --> 00:17:00,560
And it's not that they can keep
interest rates low forever.

271
00:17:01,000 --> 00:17:05,240
They can only keep interest
rates low temporarily if they

272
00:17:05,240 --> 00:17:09,200
flood the market with so much
credit that the price of credit

273
00:17:09,200 --> 00:17:14,640
goes down.
But as the money created spreads

274
00:17:14,640 --> 00:17:17,839
through the economy, that's
going to start to increase

275
00:17:18,319 --> 00:17:21,280
demand by businesses.
They're going to have to borrow

276
00:17:21,280 --> 00:17:24,800
more as prices start to go up,
and that'll drive interest rates

277
00:17:24,800 --> 00:17:27,599
back up.
So what the Fed is really doing

278
00:17:27,599 --> 00:17:32,120
when it says we're lowering
interest rates is it's saying

279
00:17:32,160 --> 00:17:35,640
we're expanding the quantity of
money more rapidly.

280
00:17:36,160 --> 00:17:38,680
And that's what Trump wants him
to do because he thinks it'll

281
00:17:38,680 --> 00:17:42,400
stimulate the economy.
And he doesn't seem to recognize

282
00:17:42,720 --> 00:17:44,560
that it's only a temporary
effect.

283
00:17:44,560 --> 00:17:49,000
And it ends in tears because it
ends with higher inflation.

284
00:17:49,000 --> 00:17:51,600
And it ends with the businesses
that borrowed at low interest

285
00:17:51,600 --> 00:17:54,920
rates finding out they can't
survive when interest rates go

286
00:17:54,920 --> 00:17:57,040
back up and they have to roll
over their debt.

287
00:17:58,200 --> 00:18:00,920
Right, right, right, right.
That's just so that's as you

288
00:18:00,920 --> 00:18:03,800
were saying that that was going
to my head was if, if it becomes

289
00:18:03,800 --> 00:18:06,920
so much easier to borrow money
and is that borrowing money at a

290
00:18:06,920 --> 00:18:08,800
lower cost?
And that would that I, I, I

291
00:18:08,800 --> 00:18:11,320
figured the next logical step
would be that inflation would

292
00:18:11,320 --> 00:18:13,920
occur again.
And I mean, you know, and it

293
00:18:13,920 --> 00:18:16,640
seems like he's trying to both
curb inflation at one time and

294
00:18:16,640 --> 00:18:19,920
other and on the other hand,
trying to make it accessible for

295
00:18:19,920 --> 00:18:21,920
people to, I guess easier people
to listen.

296
00:18:21,920 --> 00:18:25,440
I, I have a, you know, and I
guess it's not crazy relative to

297
00:18:25,520 --> 00:18:27,920
I, I think my parents were
buying their houses in the late

298
00:18:27,920 --> 00:18:31,240
80s, early 90s.
But my mortgage rates like 6.86

299
00:18:31,240 --> 00:18:35,320
point 9%, you know, and, and my
friends just a year earlier that

300
00:18:35,320 --> 00:18:38,240
bought their houses were a year
or two earlier were borrowing at

301
00:18:38,320 --> 00:18:44,720
2 to 3%, you know, and you know,
so I can understand why people

302
00:18:44,720 --> 00:18:47,240
want both, you know, want the
best of both worlds.

303
00:18:47,240 --> 00:18:49,800
But it doesn't really seem to be
able to make sense that you can

304
00:18:49,800 --> 00:18:52,560
have both at the same time, or
at least not for very long,

305
00:18:52,600 --> 00:18:56,280
right?
Yeah, the there were people who

306
00:18:56,280 --> 00:19:00,720
in the great Depressions said we
want cheap money and plenty of

307
00:19:00,720 --> 00:19:04,760
it.
Yeah, yeah, we all feel like.

308
00:19:06,080 --> 00:19:09,120
Now, if you're in a situation
where the economy is depressed

309
00:19:09,120 --> 00:19:11,400
because there isn't enough
money, and that was the

310
00:19:11,400 --> 00:19:16,040
situation in the depths of the
depression because banks were

311
00:19:16,040 --> 00:19:20,400
collapsing and people were
hoarding money and prices were

312
00:19:20,400 --> 00:19:24,800
falling, then there's a good
case for putting more money in

313
00:19:24,800 --> 00:19:27,240
the economy.
And as I said before, in the

314
00:19:28,120 --> 00:19:32,920
first six or nine months of the
pandemic, there was a good case

315
00:19:32,920 --> 00:19:35,880
for injecting a lot of money,
but then you have to take it out

316
00:19:35,880 --> 00:19:38,120
again when things start to
return to normal.

317
00:19:39,040 --> 00:19:41,160
Right.
And how about, I mean, you know,

318
00:19:41,320 --> 00:19:43,840
and I've been thinking, I mean,
I'm a little, I'm more than a

319
00:19:43,840 --> 00:19:45,880
little concerned.
I've been talking to a friend

320
00:19:46,280 --> 00:19:48,560
and he's been mentioning for
years that we're due for some

321
00:19:48,560 --> 00:19:52,400
kind of crash.
And, you know, he's like, we

322
00:19:52,400 --> 00:19:55,200
keep on propping ourselves up on
these bubbles, whether it's

323
00:19:55,200 --> 00:19:58,280
student loan bubbles, medical
bill bubbles, credit card bill

324
00:19:58,280 --> 00:20:02,680
bubbles, and now these buy now,
pay later models that aren't

325
00:20:02,680 --> 00:20:05,880
even built into our credit, you
know, into our credit like that.

326
00:20:05,920 --> 00:20:08,520
You know, when you're under
credit, it doesn't tell you how

327
00:20:08,520 --> 00:20:11,040
many thousands of dollars you
have, you know, racked up on

328
00:20:11,040 --> 00:20:13,800
DoorDash bills, you know, that
you're paying, you know, over

329
00:20:13,800 --> 00:20:15,640
the course of six years or
whatever it is.

330
00:20:15,720 --> 00:20:16,480
Yeah.
Far enough.

331
00:20:17,600 --> 00:20:19,840
So it's, it seems like
something's going to happen

332
00:20:19,840 --> 00:20:22,960
anyway, and it seems like we're
keep on pushing off, you know,

333
00:20:23,200 --> 00:20:25,160
or borrowing, borrowing,
borrowing and then just kicking

334
00:20:25,160 --> 00:20:28,880
the can down the road.
It almost feels like we don't

335
00:20:28,880 --> 00:20:30,200
have enough money nowadays
anyway.

336
00:20:31,880 --> 00:20:36,120
It's sometimes hard to tell that
you're in a bubble when you're

337
00:20:36,120 --> 00:20:40,480
in a bubble because everything
seems to be going along well.

338
00:20:40,480 --> 00:20:44,280
And it's actually kind of
curious that Trump wants to

339
00:20:44,280 --> 00:20:49,080
stimulate the economy with cheap
money because when he's not

340
00:20:49,080 --> 00:20:51,600
talking about the Fed, he's
talking about how great the

341
00:20:51,600 --> 00:20:54,600
economy is.
And in fact, the unemployment

342
00:20:54,600 --> 00:20:58,040
rate is pretty low.
It's around 4%.

343
00:20:58,080 --> 00:21:03,160
What, a 4.3?
The estimates of what sort of

344
00:21:03,160 --> 00:21:08,520
normal unemployment rate should
would be are around 4 1/2%.

345
00:21:08,520 --> 00:21:14,280
So unemployment's not high,
Inflation is slightly above the

346
00:21:14,280 --> 00:21:17,120
Fed's 2% target.
It's been running around two and

347
00:21:17,120 --> 00:21:20,520
a half, 2.7.
So there really isn't a strong

348
00:21:20,520 --> 00:21:28,280
case for cheap money right now.
But the Fed Trump seems to think

349
00:21:28,280 --> 00:21:32,600
that it's never, you know, too
cheap, that the Fed can't be too

350
00:21:32,600 --> 00:21:35,800
expansionary.
Yeah.

351
00:21:36,520 --> 00:21:39,360
I mean, I guess that's kind of,
I imagine that's where the four

352
00:21:39,360 --> 00:21:41,640
years short term thinking kind
of comes in.

353
00:21:41,640 --> 00:21:45,000
You know where you say, well,
I'm in my 80s, Yeah.

354
00:21:45,240 --> 00:21:47,600
Yeah, the stimulus doesn't even
last four years.

355
00:21:47,680 --> 00:21:53,640
I mean, what Richard Nixon did
in 1972 when he was running for

356
00:21:53,640 --> 00:21:57,400
re election was to call Arthur
Burns, the head of the Fed, into

357
00:21:57,400 --> 00:22:01,040
his office and tell him, Arthur,
I've been watching the money

358
00:22:01,040 --> 00:22:04,400
supply and it's not growing fast
enough to reelect me.

359
00:22:04,600 --> 00:22:07,040
I want you to get it going
faster.

360
00:22:07,720 --> 00:22:10,760
And Burns, who had been
appointed by Nixon, even though

361
00:22:10,760 --> 00:22:14,400
he was the head of a supposedly
independent central bank, says,

362
00:22:14,400 --> 00:22:17,640
yes, Sir.
Mr. President, this is this is

363
00:22:17,640 --> 00:22:20,080
not a conspiracy theory.
We have the tapes.

364
00:22:20,680 --> 00:22:23,160
We have the.
Transcripts of this conversation

365
00:22:23,160 --> 00:22:28,760
between Nixon and Burns.
The Fed has been a little more

366
00:22:29,320 --> 00:22:35,200
insistent on its independence
since then, so Trump is not

367
00:22:35,200 --> 00:22:39,000
calling Jerome Powell into the
office.

368
00:22:39,000 --> 00:22:43,120
They're not good buddies the way
Nixon and Burns were, but he's

369
00:22:43,120 --> 00:22:45,080
trying to pressure him through
the media.

370
00:22:47,000 --> 00:22:48,200
Yeah.
I mean, I've been seeing, you've

371
00:22:48,200 --> 00:22:49,160
been seeing a lot of that,
right?

372
00:22:49,160 --> 00:22:51,440
You can, you can hardly miss
that if you watch, if you watch

373
00:22:51,440 --> 00:22:54,320
the news at all.
So, so all this starts in, in,

374
00:22:54,320 --> 00:22:58,520
in around 1913 and we're still
on the gold, we're still on the

375
00:22:58,520 --> 00:23:01,240
gold standard over there, which
means that that our money is

376
00:23:01,240 --> 00:23:05,200
being backed by actual, you
know, some, you know, some there

377
00:23:05,200 --> 00:23:07,280
are collections of gold that we
are that we're keeping.

378
00:23:08,880 --> 00:23:12,800
And then in in 71, you know,
Nixon does away with the gold

379
00:23:12,800 --> 00:23:15,200
standard.
Well, there's, there's a,

380
00:23:15,360 --> 00:23:19,000
there's an important step before
71, which is in the Great

381
00:23:19,000 --> 00:23:26,080
Depression, Roosevelt devalued
the dollar and with the approval

382
00:23:26,080 --> 00:23:30,920
of Congress, made it illegal for
U.S. citizens to own gold coins.

383
00:23:31,560 --> 00:23:35,240
So everybody had to turn in
their gold coins to their banks.

384
00:23:35,760 --> 00:23:37,840
Then their banks had to turn it
into the Fed.

385
00:23:38,440 --> 00:23:41,640
And the idea was to give the Fed
more gold reserves so it could

386
00:23:41,640 --> 00:23:45,640
be more expansionary.
So gold ownership was illegal

387
00:23:46,120 --> 00:23:54,680
from I think 33 up until 74.
I think Congress repealed that

388
00:23:55,400 --> 00:24:00,720
provision and let people own
gold coins again after after the

389
00:24:00,720 --> 00:24:03,520
gold was no longer playing any
monetary role, which as you

390
00:24:03,520 --> 00:24:08,720
said, happened in 71 when Nixon
stopped redeeming dollars for

391
00:24:08,720 --> 00:24:13,520
this on behalf of or for the
benefit of foreign central

392
00:24:13,520 --> 00:24:16,080
banks.
So U.S. citizens couldn't redeem

393
00:24:16,080 --> 00:24:21,240
their dollars, but foreign
central banks still could under

394
00:24:21,240 --> 00:24:24,480
the Bretton Woods system.
And what's that system?

395
00:24:25,400 --> 00:24:30,080
So that was established at the
end of World War 2IN in order to

396
00:24:30,080 --> 00:24:34,000
economize on the amount of gold
that central banks needed, they

397
00:24:34,000 --> 00:24:37,800
said, OK, the US will hold the
gold and the rest of us will

398
00:24:37,800 --> 00:24:41,280
make our currencies, the British
pound, the Deutsche mark, the

399
00:24:41,280 --> 00:24:44,120
lira, redeemable for U.S.
dollars.

400
00:24:45,160 --> 00:24:47,800
So we'll have fixed exchange
rates with the dollar, and the

401
00:24:47,800 --> 00:24:50,480
dollar will be fixed to gold at
$35.00 an ounce.

402
00:24:51,280 --> 00:24:53,120
OK, that's what it was.
Yeah.

403
00:24:53,920 --> 00:24:56,880
OK.
There were lots of devaluations

404
00:24:57,080 --> 00:24:59,720
by countries that were inflating
faster than the dollar.

405
00:25:00,320 --> 00:25:05,360
There were some revaluations
upward by the Swiss franc, the

406
00:25:05,360 --> 00:25:08,720
German mark, who were inflating
less than the dollar.

407
00:25:09,040 --> 00:25:14,480
But finally the dollar broke the
link to gold because we had been

408
00:25:14,480 --> 00:25:18,000
printing more dollars than were
consistent with gaming them at

409
00:25:18,000 --> 00:25:22,360
$35.00 an ounce.
And Nixon in 71, faced with the

410
00:25:22,360 --> 00:25:25,280
choice between tightening
monetary policy to make it

411
00:25:25,400 --> 00:25:30,280
feasible to maintain the peg and
closing the gold window, said

412
00:25:30,320 --> 00:25:33,880
I'm running for re election, I
don't want tight money.

413
00:25:34,280 --> 00:25:38,040
Let's close the gold window.
So let's say he wasn't running

414
00:25:38,040 --> 00:25:40,280
for re election or he didn't
really care about the next, you

415
00:25:40,280 --> 00:25:45,200
know, four years or whatever.
It was someone that was, I

416
00:25:45,200 --> 00:25:47,880
guess, more economically driven
as opposed to potentially

417
00:25:47,880 --> 00:25:49,880
politically driven.
Have made that decision, you

418
00:25:49,880 --> 00:25:52,360
think?
Somebody who believed in the

419
00:25:52,360 --> 00:25:59,400
gold standard would have
appointed a Fed chair who made

420
00:25:59,400 --> 00:26:01,720
it possible to stay on the gold
standard.

421
00:26:02,200 --> 00:26:07,480
But that's not what happened.
Like like Trump today, Nixon

422
00:26:07,480 --> 00:26:10,520
wanted a Fed chair who would
pump up the economy.

423
00:26:12,280 --> 00:26:17,280
Right, right, right, right.
This is also interesting to, to

424
00:26:17,280 --> 00:26:20,400
think about and, and instead, I
guess the way that you pitch it

425
00:26:20,400 --> 00:26:23,160
to the, to, you know, the
American people would be that

426
00:26:23,160 --> 00:26:25,160
you're investing in your
government, you're investing in

427
00:26:25,160 --> 00:26:26,960
yourselves, you're investing in
the nation.

428
00:26:26,960 --> 00:26:29,160
Is that, is that, is that the
pitch to get off the gold

429
00:26:29,160 --> 00:26:31,480
standard that or what?
What's the what's the selling

430
00:26:31,480 --> 00:26:34,400
point?
Well, the selling point in the

431
00:26:34,400 --> 00:26:40,560
30s was we're in a depression.
We need more spending.

432
00:26:41,840 --> 00:26:44,680
We're going to go off the gold
standard so we can generate

433
00:26:45,080 --> 00:26:50,760
print more dollars and have more
spending in 71.

434
00:26:51,760 --> 00:26:58,840
Nixon did not blame the need to
do to close the gold window on

435
00:26:58,840 --> 00:27:02,320
previous monetary policy, which
had inflated the dollar too

436
00:27:02,320 --> 00:27:05,440
much.
He blamed foreign speculators

437
00:27:06,760 --> 00:27:10,880
for attacking the dollar, but of
course they were just reflecting

438
00:27:10,880 --> 00:27:13,640
the reality, which was there
were more dollars out there than

439
00:27:13,920 --> 00:27:17,520
were consistent with maintaining
the peg at $35.00 an ounce.

440
00:27:18,840 --> 00:27:20,280
Which just means you spend too
much money.

441
00:27:20,960 --> 00:27:24,120
So Nixon was saying, you know,
this won't really affect you,

442
00:27:24,120 --> 00:27:26,000
the household.
This is just a technical thing.

443
00:27:26,000 --> 00:27:29,960
Don't worry about it.
Right, OK, I see of.

444
00:27:29,960 --> 00:27:34,320
Course, of course, it opens the
door even wider to rapid money

445
00:27:34,320 --> 00:27:38,320
printing and high inflation,
which we got in the late 70s,

446
00:27:38,320 --> 00:27:40,640
early 80s.
We had double digit inflation in

447
00:27:40,680 --> 00:27:42,840
the US.
And that's why interest rates

448
00:27:42,840 --> 00:27:45,240
were so high when at that point,
when you were.

449
00:27:46,840 --> 00:27:49,720
Yeah.
That's crazy, that's crazy.

450
00:27:49,720 --> 00:27:51,280
I can't even, I can't even think
about that.

451
00:27:51,280 --> 00:27:54,080
You know, I was just just a year
or two ago, I was trying to sell

452
00:27:54,080 --> 00:27:57,720
my house and it's crazy because
I, I live in South Florida.

453
00:27:57,720 --> 00:28:00,920
I was, I lived in, I moved into
a townhouse that, you know, I

454
00:28:00,920 --> 00:28:07,280
bought for $300,000, right?
And a year later it was worth

455
00:28:07,280 --> 00:28:10,920
about 4:20 for about 3 months,
right?

456
00:28:11,000 --> 00:28:13,640
And then the interest rates went
up and I could, and I was going

457
00:28:13,640 --> 00:28:15,680
to, and I put my house on the
market at that point and I could

458
00:28:15,680 --> 00:28:19,120
not get a buyer because in those
two or three months, interest

459
00:28:19,120 --> 00:28:22,880
rates went from 3% all the way
up to seven, you know, 6 or 7.

460
00:28:23,200 --> 00:28:25,960
And all the people that are
looking to buy three $400,000

461
00:28:25,960 --> 00:28:29,480
houses can't afford to, you
know, 8% interest on, on that,

462
00:28:29,480 --> 00:28:31,040
on that home.
You know you're counting on the

463
00:28:31,040 --> 00:28:33,880
fact that your rent is going to
be two grand a month at $1500 a

464
00:28:33,880 --> 00:28:37,680
month, not 44 grand.
So house prices have to fall

465
00:28:37,680 --> 00:28:41,720
when interest rates go up.
If you don't price, you're not

466
00:28:41,720 --> 00:28:45,120
going to sell.
And that makes rental market

467
00:28:45,120 --> 00:28:51,280
stronger, I imagine.
Relative to sales, yeah, I mean

468
00:28:51,280 --> 00:28:55,760
the the selling market will
adjust eventually, but people

469
00:28:55,760 --> 00:28:59,680
are reluctant to cut the asking
price and so they they would

470
00:28:59,680 --> 00:29:02,320
rather watch the house sit on
the market unsolved.

471
00:29:03,120 --> 00:29:05,560
It seems, yeah.
And I guess that goes more

472
00:29:05,560 --> 00:29:08,360
about, that goes more into human
nature and decision making than

473
00:29:08,360 --> 00:29:11,360
it does about the actual, you
know, hard economics of what's

474
00:29:11,360 --> 00:29:12,520
the, what's the right thing to
do or not.

475
00:29:13,000 --> 00:29:15,920
Well, having a central bank that
can manipulate interest rates

476
00:29:15,920 --> 00:29:19,320
makes it these decisions hard
because you have to forecast

477
00:29:19,520 --> 00:29:21,080
where is the interest rate going
to go?

478
00:29:21,240 --> 00:29:22,880
How long is it going to stay
high?

479
00:29:23,520 --> 00:29:27,280
Should I hold out until the
interest rate comes back down or

480
00:29:27,280 --> 00:29:30,800
do I need to adjust the price?
Right, so.

481
00:29:31,040 --> 00:29:32,760
We businesses face these
problems.

482
00:29:34,280 --> 00:29:37,320
Yeah, I mean, I've noticed.
I mean, you know, I've noticed

483
00:29:37,320 --> 00:29:40,080
that a lot of my friends that
are in the mortgage world or

484
00:29:40,080 --> 00:29:42,480
money lending world, you know,
things are moving a lot slower

485
00:29:42,480 --> 00:29:46,080
for them than they were before.
And even, excuse me, even in

486
00:29:46,080 --> 00:29:48,600
terms of, you know, for example,
I sell medical equipment and

487
00:29:48,600 --> 00:29:51,040
that's a really interesting
market because, for example,

488
00:29:51,080 --> 00:29:53,600
it's refurbished equipment.
So new machine can go for

489
00:29:53,600 --> 00:29:57,360
$100,000 if it's taken
out-of-the-box and demoed, you

490
00:29:57,360 --> 00:30:00,680
know, by a doctor, it's worth
50, it's used for six months,

491
00:30:00,680 --> 00:30:05,080
it's worth 25, right.
So, so I, so you know, so I have

492
00:30:05,080 --> 00:30:07,400
customers that will come to me
and say I want a refurbished

493
00:30:07,400 --> 00:30:11,920
machine, you know, and it's 10
grand or 15 grand or 20 grand.

494
00:30:11,920 --> 00:30:16,400
And they'll, and they'll apply
for financing and I'll tell them

495
00:30:16,560 --> 00:30:19,880
you're better off getting a 0%
APR credit card for the first

496
00:30:19,880 --> 00:30:23,520
year and paying, you know, and
putting it on there and paying

497
00:30:23,520 --> 00:30:27,240
it back then paying 10, you
know, 1015% on your, you know,

498
00:30:27,240 --> 00:30:29,600
$10,000 loan.
You get a new card.

499
00:30:30,440 --> 00:30:31,880
They're hoping you can get a new
card, right?

500
00:30:31,880 --> 00:30:34,200
And that and that and, and, and
it seems that the people that

501
00:30:34,200 --> 00:30:37,480
have, that are trying to take
out the loans on 1015 grand have

502
00:30:37,480 --> 00:30:40,680
credit.
You know, usually below 650 is

503
00:30:40,680 --> 00:30:44,400
what, you know, certainly below
700 is, is what I've found

504
00:30:44,400 --> 00:30:46,840
anecdotally within, you know,
among my customers, you know,

505
00:30:46,840 --> 00:30:49,160
the people, you know, the people
that are looking for, I guess

506
00:30:49,320 --> 00:30:52,480
30, forty, $50,000 of credit,
they tend to have better credit

507
00:30:52,480 --> 00:30:54,280
scores, I've noticed.
And I don't know if there's any

508
00:30:54,280 --> 00:30:57,680
kind of, you know, reason behind
that court, you know, behind

509
00:30:57,680 --> 00:31:00,000
that anecdote, but it seems
interesting to me.

510
00:31:01,440 --> 00:31:04,360
Well, if you have a lousy credit
score, you're never going to be

511
00:31:04,360 --> 00:31:07,680
able to borrow large sums.
You're just going to be turned

512
00:31:07,680 --> 00:31:09,720
down.
But even small sums, but it

513
00:31:09,720 --> 00:31:12,280
shows how they kind of get to
that position where, you know,

514
00:31:12,280 --> 00:31:15,480
they'll be where they'll be, you
know, taking out a loan without

515
00:31:15,480 --> 00:31:17,680
even thinking about what the
potential consequences are on a

516
00:31:17,680 --> 00:31:20,080
small on a small number, on a
small machine like that or a

517
00:31:20,080 --> 00:31:23,920
small, relatively small loan.
And without real consideration

518
00:31:23,920 --> 00:31:26,280
for what the consequences could
be, which would impact their

519
00:31:26,280 --> 00:31:28,120
credit score and then make even
harder in the future.

520
00:31:29,000 --> 00:31:30,720
Right, there's a high
probability they're going to

521
00:31:30,720 --> 00:31:33,880
default at some point.
Yeah, yeah.

522
00:31:33,880 --> 00:31:37,080
And that's, that's it makes it a
really interesting market.

523
00:31:37,080 --> 00:31:42,800
But so, So what do you believe?
Do you believe in the value of

524
00:31:42,880 --> 00:31:45,000
buying gold and investing in
gold or keeping gold?

525
00:31:46,320 --> 00:31:49,320
Oh well, I've been talking about
gold as a monetary standard.

526
00:31:49,760 --> 00:31:54,120
Gold today, which is
demonetized, is a different,

527
00:31:54,120 --> 00:31:56,760
completely different story.
But how?

528
00:31:57,080 --> 00:32:04,600
Does that story shift?
Well, so whether or not gold

529
00:32:04,600 --> 00:32:07,160
would be a good monetary
standard and whether you should

530
00:32:07,160 --> 00:32:09,520
invest in gold now are two
different questions.

531
00:32:09,520 --> 00:32:13,440
That's that's what I'm saying.
But to answer your question, I

532
00:32:13,440 --> 00:32:16,520
have a little bit of gold in my
retirement portfolio.

533
00:32:16,840 --> 00:32:18,800
It's good just for
diversification.

534
00:32:19,520 --> 00:32:22,800
We have a little bit of Bitcoin,
same reason I wouldn't.

535
00:32:23,000 --> 00:32:25,840
I'm not a registered investment
advisor, so this is not

536
00:32:26,000 --> 00:32:28,920
investment advice, but I
wouldn't recommend to anybody

537
00:32:28,920 --> 00:32:32,880
that they make that gold or
Bitcoin more than 5% of their

538
00:32:33,240 --> 00:32:36,720
retirement portfolio.
And why is that?

539
00:32:37,960 --> 00:32:42,120
Because it's very volatile, both
because they're very volatile.

540
00:32:43,360 --> 00:32:50,800
Right.
And they're useful as hedges

541
00:32:50,800 --> 00:32:54,920
against unusual events.
But most of the time you're

542
00:32:54,920 --> 00:32:58,000
going to earn a better return
investing in diversified

543
00:32:58,000 --> 00:33:02,240
portfolio of stocks.
And that's because that's going

544
00:33:02,240 --> 00:33:05,360
along with the pulse of the, the
pulse of the nation, I guess.

545
00:33:07,520 --> 00:33:10,800
Yeah.
And the track record indicates

546
00:33:10,800 --> 00:33:20,280
that that's better than You earn
a higher return for a given

547
00:33:20,280 --> 00:33:25,440
level of risk than investing in
debt instruments or commodities.

548
00:33:26,480 --> 00:33:29,240
OK, I see.
And I mean I want to talk, I

549
00:33:29,240 --> 00:33:31,400
want to I want to get to Bitcoin
in a few minutes.

550
00:33:31,400 --> 00:33:35,960
I'm still thinking about gold.
I'm just just to understand, I

551
00:33:35,960 --> 00:33:39,800
guess it's it's place.
So it used so, so when we got

552
00:33:39,800 --> 00:33:44,080
off the gold standard, it was so
essentially because we were over

553
00:33:44,080 --> 00:33:45,560
leveraging the amount of gold
that we had.

554
00:33:45,560 --> 00:33:47,960
I heard a story, I forgot what I
forgot where I heard it from

555
00:33:47,960 --> 00:33:50,480
about the French, that the
French decided we were asking

556
00:33:50,480 --> 00:33:53,080
about their goals.
And he basically said we don't

557
00:33:53,080 --> 00:33:55,160
have it or you know, you know,
we can't give it to you.

558
00:33:55,160 --> 00:33:57,160
And they came and they tried to
take it and they did take it

559
00:33:57,160 --> 00:33:58,440
themselves successfully.
Do you remember?

560
00:33:58,440 --> 00:34:03,040
Do you know the story?
A few years ago, Germany asked

561
00:34:03,040 --> 00:34:06,440
to repatriate their gold that
was being stored in the Federal

562
00:34:06,440 --> 00:34:09,000
Reserve Bank of New York.
So the gold I mentioned before

563
00:34:09,000 --> 00:34:11,000
that came from Europe during the
First World War.

564
00:34:11,000 --> 00:34:14,000
And during the Second World War,
a lot of it ended up in the

565
00:34:14,520 --> 00:34:17,159
Federal Reserve Bank of New
York, including official gold

566
00:34:18,120 --> 00:34:20,840
from the Bundesbank and the Bank
of France.

567
00:34:21,440 --> 00:34:26,159
And a few years ago, the
Bundesbank asked for their gold

568
00:34:26,159 --> 00:34:28,239
back.
They wanted to ship it back to

569
00:34:28,239 --> 00:34:31,080
Europe.
And for some reason, it's a

570
00:34:31,080 --> 00:34:33,040
little puzzling.
I've never seen a good

571
00:34:33,040 --> 00:34:35,400
explanation.
The New York Fed said, well,

572
00:34:35,400 --> 00:34:37,600
that'll take us a while to
organize.

573
00:34:38,560 --> 00:34:41,000
Although if you take a tour of
the gold vault at the New York

574
00:34:41,000 --> 00:34:45,280
Fed, they show you the gold
bullion sitting there in stacks

575
00:34:45,280 --> 00:34:47,600
and they point this is the
German stack and this is the

576
00:34:47,600 --> 00:34:49,000
French stack and so on.
So.

577
00:34:49,360 --> 00:34:51,080
You can go visit.
There was a problem.

578
00:34:51,840 --> 00:34:53,239
You can go visit it.
You can go see.

579
00:34:53,239 --> 00:34:54,320
It.
Yeah, yeah.

580
00:34:55,719 --> 00:34:59,400
You have to, you know, you have
to get invited to a tour.

581
00:35:00,800 --> 00:35:04,120
They, I don't know how often
they give these tours anymore,

582
00:35:04,120 --> 00:35:08,200
but when I taught at New York
University, they invited all the

583
00:35:08,200 --> 00:35:12,120
money and banking teachers in
the metropolitan area to come to

584
00:35:12,120 --> 00:35:15,120
a seminar where they taught you
the New York Fed's view of the

585
00:35:15,120 --> 00:35:18,000
world.
And then, as a kind of

586
00:35:18,000 --> 00:35:19,960
sweetener, they took you on a
tour of the gold ball.

587
00:35:20,840 --> 00:35:21,720
That's cool.
What were they?

588
00:35:21,720 --> 00:35:24,480
What were they trying to?
What were they trying to educate

589
00:35:24,480 --> 00:35:28,920
the educators about?
Oh, they had a particular view

590
00:35:28,920 --> 00:35:35,160
of monetary policy.
I would describe it as

591
00:35:35,160 --> 00:35:37,800
Keynesian.
OK, meaning?

592
00:35:38,800 --> 00:35:44,200
Meaning they believed in the
system of Fiat money and

593
00:35:44,400 --> 00:35:49,960
interest rate policy and, you
know, changing it in order to

594
00:35:49,960 --> 00:35:54,760
try to stabilize the economy.
The objective being to, you

595
00:35:54,760 --> 00:35:59,480
know, flatten business cycles.
That was the theory.

596
00:36:00,000 --> 00:36:01,280
And that's what they thought,
and that's.

597
00:36:01,320 --> 00:36:06,160
And they were trying to convince
the guys that this was going to

598
00:36:06,160 --> 00:36:07,640
be the case.
Yeah, I see.

599
00:36:07,640 --> 00:36:09,600
Oh, and if you have money, they
even.

600
00:36:09,680 --> 00:36:12,080
Published their own textbook.
They did.

601
00:36:12,640 --> 00:36:15,960
Which is a little odd, yeah.
And is it taught?

602
00:36:15,960 --> 00:36:17,480
Is it circulate?
Is it in circulation?

603
00:36:19,680 --> 00:36:21,280
It was.
I don't know whether they're

604
00:36:21,520 --> 00:36:25,280
bringing out new editions, but.
Back in the. 80s they had one.

605
00:36:25,960 --> 00:36:28,320
That's really interesting.
And Fiat money, I had to look up

606
00:36:28,320 --> 00:36:32,840
that term this morning.
Is is is, trust me, by the

607
00:36:32,840 --> 00:36:34,560
government money essentially
right?

608
00:36:34,560 --> 00:36:36,160
That's right.
It's unbacked money.

609
00:36:36,160 --> 00:36:41,880
It's money that's just issued on
the basis of a decree.

610
00:36:41,880 --> 00:36:46,600
So the a Fiat is a fancy word
for a decree by the government.

611
00:36:49,080 --> 00:36:51,800
But when I taught money in
banking, I would show the

612
00:36:51,800 --> 00:36:54,800
students a picture of an old
Federal Reserve note that said

613
00:36:55,400 --> 00:36:59,400
redeemable on demand in gold
coin.

614
00:36:59,960 --> 00:37:02,680
That was a gold standard $100
bill.

615
00:37:03,280 --> 00:37:07,280
And then the Fiat $100 bill
doesn't say we'll pay the bear

616
00:37:07,280 --> 00:37:09,000
on demand.
It just says ribbon, ribbon,

617
00:37:09,000 --> 00:37:13,520
ribbon ribbon $100.
This is $100 because we say so.

618
00:37:14,800 --> 00:37:19,360
And of course there's there is
the legal ease in one corner of

619
00:37:19,360 --> 00:37:23,120
the bill that says this note is
legal tender for all debts,

620
00:37:23,120 --> 00:37:27,360
public and private, which means
that if you have $100 debt and

621
00:37:27,360 --> 00:37:31,680
you pay this $100 bill to the
creditor, the creditor has been

622
00:37:31,680 --> 00:37:33,520
paid.
He can't go to court and say no,

623
00:37:33,520 --> 00:37:35,840
no, I wanted gold.
That's.

624
00:37:36,480 --> 00:37:40,720
Oh, interesting.
And is it was it is it man?

625
00:37:40,720 --> 00:37:44,160
I heard also that it was
considered is it illegal to not

626
00:37:44,160 --> 00:37:47,840
accept cash or is that something
that used to be the case?

627
00:37:48,480 --> 00:37:53,200
It's legal tender for debts, but
in a spot transaction you can

628
00:37:53,200 --> 00:37:58,360
refuse Cash Cash.
So it's perfectly legal for a a

629
00:37:58,360 --> 00:38:02,120
gas station to say we don't take
$100 bills or for a cabbie to

630
00:38:02,120 --> 00:38:04,720
say I don't take cash.
You guys have a car?

631
00:38:05,880 --> 00:38:07,520
Fascinating.
That's really, really

632
00:38:07,520 --> 00:38:08,640
interesting.
I see.

633
00:38:08,720 --> 00:38:11,880
And what other countries use
Fiat methods?

634
00:38:12,120 --> 00:38:14,160
Is it, is it, Is it popular
around the world or just US?

635
00:38:14,440 --> 00:38:17,720
Yeah, yeah, yeah.
There are no no countries where

636
00:38:17,720 --> 00:38:20,280
the money is redeemable for gold
or silver anymore.

637
00:38:21,360 --> 00:38:24,920
Wow, so everyone so everyone
runs.

638
00:38:24,920 --> 00:38:27,520
On that, in some countries the
money is redeemable for U.S.

639
00:38:27,520 --> 00:38:29,920
dollars.
Right, right, right, right.

640
00:38:30,240 --> 00:38:33,600
And what what's and what do you,
what do you know about Argentina

641
00:38:33,680 --> 00:38:36,920
and this gentleman, President
Malay?

642
00:38:36,960 --> 00:38:39,280
Yeah.
Yeah, what?

643
00:38:39,320 --> 00:38:40,800
What's he?
Doing how does that, how does

644
00:38:40,800 --> 00:38:42,560
that happen?
Because I, I apparently, he's,

645
00:38:42,880 --> 00:38:45,200
apparently he's doing a great
job allegedly, but I really

646
00:38:45,200 --> 00:38:47,680
don't know what that means or
you know, any of the details.

647
00:38:49,560 --> 00:38:55,960
So he ran on a platform of I'm
not one of these insiders.

648
00:38:56,000 --> 00:39:00,400
I'm not trying like they have
been to manipulate and regulate

649
00:39:00,400 --> 00:39:03,280
and tax and spend.
I'm going to free up the

650
00:39:03,280 --> 00:39:05,960
economy.
And he's been doing it.

651
00:39:06,880 --> 00:39:09,960
There was one promise he made
that I'm disappointed he hasn't

652
00:39:10,080 --> 00:39:13,360
followed through on, which is
when he was running, he said,

653
00:39:13,360 --> 00:39:17,240
I'm going to shut down the
Argentine central bank and

654
00:39:17,280 --> 00:39:20,320
replace it with what?
Replace it with U.S. dollars.

655
00:39:20,320 --> 00:39:22,440
We're going to officially
dollarize the country.

656
00:39:22,920 --> 00:39:25,040
Cool.
And that would have been a good

657
00:39:25,040 --> 00:39:27,680
idea.
He has brought inflation down

658
00:39:28,120 --> 00:39:32,480
without doing that, but I'm not
sure why he hasn't followed

659
00:39:32,480 --> 00:39:35,520
through on that.
But other than that, he's been

660
00:39:36,480 --> 00:39:40,120
reducing government spending
quite dramatically and reducing

661
00:39:40,120 --> 00:39:43,200
regulation quite dramatically.
And the economy's been

662
00:39:43,200 --> 00:39:46,440
responding positively.
Growth is up, inflation is down.

663
00:39:46,440 --> 00:39:48,280
It's.
Fascinating.

664
00:39:49,240 --> 00:39:51,200
Poverty rate has gone down quite
a bit.

665
00:39:51,920 --> 00:39:53,440
Really.
Yeah.

666
00:39:56,520 --> 00:39:58,520
Is that an indication of what
could happen?

667
00:39:58,520 --> 00:40:01,000
Is that like a microcosm of you
think with the potential of what

668
00:40:01,000 --> 00:40:04,400
can occur if more countries
decided to be a little bit less

669
00:40:04,440 --> 00:40:07,280
regulated, including our own?
I think so, yeah.

670
00:40:09,600 --> 00:40:13,640
So then why do?
OK, so maybe and maybe you could

671
00:40:13,640 --> 00:40:17,560
clarify if I'm misunderstanding
this, why, you know, when Elon

672
00:40:17,840 --> 00:40:21,320
is, I guess, told to come in and
help make everything more

673
00:40:21,320 --> 00:40:24,040
efficient and cut, you know,
excessive spending and stuff

674
00:40:24,080 --> 00:40:26,240
like that.
Was that is that not an attempt

675
00:40:26,240 --> 00:40:30,120
to kind of do that on AI Guess a
relatively slower scale than,

676
00:40:30,160 --> 00:40:34,920
you know, Malay did it.
And I don't know because I know

677
00:40:34,920 --> 00:40:37,920
that this stuff kind of gets
distorted into political

678
00:40:38,080 --> 00:40:40,360
understandings or
misunderstandings of like what

679
00:40:40,360 --> 00:40:42,360
everyone's intention.
Is there anything but just like,

680
00:40:42,400 --> 00:40:44,800
you know, bare bones, the go the
purpose of it?

681
00:40:45,920 --> 00:40:50,320
I think Musk's heart was in the
right place, but his team

682
00:40:50,440 --> 00:40:52,120
approached things from the wrong
end.

683
00:40:52,600 --> 00:40:56,960
So they came in and tried to cut
the number of employees without

684
00:40:56,960 --> 00:41:00,000
cutting the mission of any of
the agencies.

685
00:41:03,120 --> 00:41:05,600
And that's not going to work.
You're just going to have, you

686
00:41:05,600 --> 00:41:08,520
know, these agencies, the few
people who are left working

687
00:41:08,520 --> 00:41:11,840
there swamped with complaints
and phone calls, and they're not

688
00:41:11,840 --> 00:41:15,520
going to be able to answer
people's phone calls.

689
00:41:17,440 --> 00:41:22,840
You need to go back to Congress
and say, we want to reduce the

690
00:41:22,840 --> 00:41:28,760
scope of things that this agency
is regulating so that we can lay

691
00:41:28,760 --> 00:41:31,560
people off and still have enough
people to do what we're still

692
00:41:31,560 --> 00:41:34,560
doing.
That's the way Malay's been

693
00:41:34,560 --> 00:41:39,520
doing it, and that's not the way
Musk tried to do it.

694
00:41:40,840 --> 00:41:42,680
So would So would a hypothetical
do?

695
00:41:42,720 --> 00:41:47,000
You think that half the
employees in Washington just sit

696
00:41:47,000 --> 00:41:49,840
around playing games on their
computers all day?

697
00:41:51,160 --> 00:41:54,520
Yeah, actually most of them are
busy regulating.

698
00:41:55,760 --> 00:42:01,080
Are busy regulating yeah so with
it so so to so to more

699
00:42:01,080 --> 00:42:04,800
effectively make that shift,
you'd have to change the mission

700
00:42:04,800 --> 00:42:07,760
statements and the purpose of a
lot of these government

701
00:42:07,760 --> 00:42:10,680
organizations and say, listen,
we really appreciate that what

702
00:42:10,680 --> 00:42:13,040
you're trying to do.
The private sector is going to

703
00:42:13,040 --> 00:42:16,200
step up for this particular case
right now and you know, and we

704
00:42:16,200 --> 00:42:18,720
recommend that you take the
skills that you've developed and

705
00:42:18,720 --> 00:42:22,680
apply it in a private sense
rather than a government funded

706
00:42:23,720 --> 00:42:26,160
organization.
Right.

707
00:42:26,760 --> 00:42:29,040
So let me give you an example
from banking.

708
00:42:30,160 --> 00:42:33,480
It used to be that bank capital
was regulated by the clearing

709
00:42:33,480 --> 00:42:38,240
houses, which were member
institutions and run by the

710
00:42:38,240 --> 00:42:40,560
banks themselves.
And so the clearinghouse

711
00:42:40,560 --> 00:42:47,960
employees that audited the
bank's balance sheets were

712
00:42:47,960 --> 00:42:53,120
employees of the clearinghouse.
Now it's all done by the federal

713
00:42:53,120 --> 00:42:59,040
government, and it's quite
possible that, you know, there

714
00:42:59,040 --> 00:43:01,040
are more employees that are
necessary.

715
00:43:02,280 --> 00:43:06,720
I don't know, but that's an
example of regulation that moved

716
00:43:06,720 --> 00:43:08,840
from the private sector into the
public sector.

717
00:43:09,040 --> 00:43:11,080
It would be possible to move it
back.

718
00:43:12,080 --> 00:43:13,600
Yeah, I think there's a lot of
them.

719
00:43:13,840 --> 00:43:16,760
I imagine.
I think that it's just a matter

720
00:43:16,760 --> 00:43:21,800
of cutting the cord and, and
there's going to be a painful, I

721
00:43:22,080 --> 00:43:24,880
guess it would be a painful
transition from being government

722
00:43:24,880 --> 00:43:28,600
back to having to navigate the,
you know, I guess you could call

723
00:43:28,600 --> 00:43:31,680
it the, the, you know, what's
happening with the world.

724
00:43:33,680 --> 00:43:38,640
The public is going to have to
do more diligence and news media

725
00:43:38,640 --> 00:43:43,280
are going to have to do more,
you know, to expose frauds and

726
00:43:43,280 --> 00:43:47,160
that sort of thing.
Yeah, Yeah, that'd be nice,

727
00:43:47,200 --> 00:43:49,880
right?
That wouldn't that be nice?

728
00:43:51,200 --> 00:43:57,520
So, so now, so now we and you
mentioned briefly earlier that

729
00:43:58,920 --> 00:44:01,000
you know, we got off the
standard and part of the way

730
00:44:01,000 --> 00:44:06,040
that the Paul's the Paul family
have you know, recommended this

731
00:44:06,040 --> 00:44:08,040
is either getting back on the
gold standard or you mentioned

732
00:44:08,040 --> 00:44:11,560
potentially using Bitcoin or
some kind of cryptocurrency as

733
00:44:12,040 --> 00:44:14,520
as another standard, a
commodity.

734
00:44:14,520 --> 00:44:18,360
A commodity standard just means
that the that the country owns X

735
00:44:18,360 --> 00:44:23,000
amount of commodity that equals
the amount of money that is

736
00:44:23,000 --> 00:44:27,320
capable of spending, right?
I wouldn't quite put it that

737
00:44:27,320 --> 00:44:30,400
way.
I mean, it means that the money

738
00:44:30,400 --> 00:44:33,480
that people use every day is
they're not going to carry

739
00:44:33,480 --> 00:44:35,720
around a lot of gold coins on a
gold standard.

740
00:44:36,120 --> 00:44:39,640
They didn't anyway.
What they carry around are

741
00:44:39,640 --> 00:44:44,320
claims on banks, checking
account balances and banknotes.

742
00:44:44,760 --> 00:44:47,840
Paper currency.
It's kind of like the paper

743
00:44:47,840 --> 00:44:50,440
currency we use today, except
that you could go to the bank

744
00:44:50,440 --> 00:44:53,400
and redeem it for a gold coin or
a silver coin if you wanted to.

745
00:44:54,040 --> 00:44:57,840
Mostly people didn't want to,
but that option meant that the

746
00:44:57,840 --> 00:45:00,920
bank couldn't over issue its
liabilities.

747
00:45:00,920 --> 00:45:05,320
Couldn't just, you know,
unlimitedly lend people money

748
00:45:05,920 --> 00:45:07,600
without being prepared to back
it up.

749
00:45:07,880 --> 00:45:10,240
So that constrained the quantity
of money.

750
00:45:11,480 --> 00:45:17,440
And so to get, let's say to get
the, the, the US government to

751
00:45:17,440 --> 00:45:21,880
use Bitcoin as, as its backing,
as, as the commodity that backs

752
00:45:21,880 --> 00:45:24,320
the government, What would that,
what would that mean?

753
00:45:24,320 --> 00:45:26,120
How would that happen?
And what would that mean in I

754
00:45:26,120 --> 00:45:30,160
guess relevant applicable, you
know like day-to-day

755
00:45:30,160 --> 00:45:35,640
application?
Well, I wouldn't recommend

756
00:45:35,640 --> 00:45:38,560
Bitcoin as backing because it's
very volatile.

757
00:45:38,920 --> 00:45:43,440
It's not so volatile, right?
Yeah, it goes up and down, you

758
00:45:43,440 --> 00:45:50,240
know, 7% a day.
It it, if you look at its price

759
00:45:50,240 --> 00:45:52,960
in dollars, it's much more
volatile than the, it's about

760
00:45:52,960 --> 00:45:57,200
twice as volatile as the price
of gold and like 4 times more

761
00:45:57,200 --> 00:45:59,920
volatile than the exchange rate
with the euro.

762
00:46:01,040 --> 00:46:04,080
It's more volatile than even the
S&P 500.

763
00:46:04,560 --> 00:46:08,560
And.
That's due to the way it's

764
00:46:08,560 --> 00:46:10,520
designed.
We can get into that if you want

765
00:46:10,520 --> 00:46:12,160
to.
But how would you go?

766
00:46:12,520 --> 00:46:14,600
How would you go on a Bitcoin
standard?

767
00:46:14,600 --> 00:46:17,640
Well, you could either do it
from the bottom up, just let

768
00:46:17,640 --> 00:46:19,840
people who want to use Bitcoin
use Bitcoin.

769
00:46:20,960 --> 00:46:25,800
But if you wanted to convert the
dollar to a Bitcoin standard, I

770
00:46:25,800 --> 00:46:30,400
guess the Fed would have to sell
its treasury bills and buy

771
00:46:30,400 --> 00:46:36,240
Bitcoin and then they would have
a Bitcoin reserve or Bitcoin

772
00:46:36,240 --> 00:46:41,680
denominated assets at the Fed.
Hard to imagine.

773
00:46:42,600 --> 00:46:44,680
It sounds hard to imagine, but
then what?

774
00:46:44,680 --> 00:46:47,960
So then what would, what would
banking day-to-day be like?

775
00:46:47,960 --> 00:46:50,040
It's going to be based on the
commodities, based on this

776
00:46:50,240 --> 00:46:54,760
volatile electric, you know,
electronic, you know, currency.

777
00:46:58,560 --> 00:47:03,160
Well, the hope would be that
once it's used as money and once

778
00:47:03,160 --> 00:47:07,160
prices are denominated in
Bitcoin instead of in dollars,

779
00:47:08,560 --> 00:47:13,080
it wouldn't be so volatile
day-to-day life would be would

780
00:47:13,080 --> 00:47:20,480
continue the way it is now.
The thing about Bitcoin though,

781
00:47:20,480 --> 00:47:22,640
is that you can't manipulate the
quantity.

782
00:47:22,640 --> 00:47:27,720
It's all predetermined by the
program that validates

783
00:47:27,720 --> 00:47:32,880
transactions and rewards the
validators with new Bitcoin.

784
00:47:33,520 --> 00:47:36,640
The expansion and the quantity
of Bitcoin is all in the

785
00:47:36,640 --> 00:47:38,680
program.
It's predetermined.

786
00:47:40,320 --> 00:47:43,120
So there wouldn't be any
possibility of running a

787
00:47:43,120 --> 00:47:47,240
monetary policy.
And in a growing economy, if you

788
00:47:47,240 --> 00:47:51,280
have a fixed money supply, you
would expect falling prices.

789
00:47:52,640 --> 00:47:56,600
And the closest approximation
would be in the late 19th

790
00:47:56,600 --> 00:47:59,760
century when the US was on a
gold standard and output was

791
00:47:59,760 --> 00:48:03,240
growing more rapidly than the
world's stock of gold.

792
00:48:04,080 --> 00:48:11,040
We had gently falling prices.
There was, you know, like 3%

793
00:48:11,040 --> 00:48:16,960
real growth in output and 2%
growth in the quantity of gold.

794
00:48:17,160 --> 00:48:23,920
Then you'd have prices falling
at 1% with with the quantity of

795
00:48:23,920 --> 00:48:27,240
Bitcoin being growing slower
than that.

796
00:48:27,240 --> 00:48:32,120
You would have more deflation.
You'd have prices falling a

797
00:48:32,120 --> 00:48:35,080
little more rapidly than that.
So that would be good,

798
00:48:35,080 --> 00:48:38,960
hypothetically.
If it doesn't go too far to the

799
00:48:38,960 --> 00:48:45,120
point where interest rates are
at zero and unable to, therefore

800
00:48:45,120 --> 00:48:48,040
unable to adjust downward when
necessary.

801
00:48:52,240 --> 00:48:55,840
OK, falling prices, falling
prices when it's due to growing

802
00:48:55,840 --> 00:49:00,440
output, that's great.
Is that hard to maintain for an

803
00:49:00,440 --> 00:49:01,600
extended period of time?
How?

804
00:49:01,800 --> 00:49:05,640
I mean, if all this sounds
relatively simple, I mean that

805
00:49:05,640 --> 00:49:09,040
you and I are talking about
this, then you know, what's,

806
00:49:09,040 --> 00:49:13,360
what's the, what's the challenge
in making this a concept action?

807
00:49:16,640 --> 00:49:23,000
Well, the challenge is the
status quo is, is pretty, you

808
00:49:23,000 --> 00:49:27,240
know, locked in what what did
Milton Friedman called it?

809
00:49:27,240 --> 00:49:34,360
The tyranny of the status quo.
People at the Federal Reserve

810
00:49:34,400 --> 00:49:38,920
are going to, you know, resist,
are going to argue against this.

811
00:49:40,440 --> 00:49:44,800
People who want the Federal
Reserve to be more ambitious and

812
00:49:44,800 --> 00:49:49,200
who think it can successfully
run a counter cyclical policy,

813
00:49:50,160 --> 00:49:54,000
they're going to be against it.
And whenever returning to the

814
00:49:54,000 --> 00:49:58,880
gold standard has come up and
and taken seriously, critics

815
00:49:58,880 --> 00:50:02,920
have kind of come out of the
woodwork and said, including

816
00:50:02,920 --> 00:50:07,840
many mainstream economists who I
think under appreciate the track

817
00:50:07,840 --> 00:50:11,200
record of the gold standard have
come out and say, no, no, you

818
00:50:11,200 --> 00:50:14,800
can't do that.
That's nutty really, because

819
00:50:14,800 --> 00:50:17,640
it's not, it's not what we're
used to.

820
00:50:17,640 --> 00:50:19,200
It's not what we're trained to
think about.

821
00:50:20,720 --> 00:50:22,200
That's a shame.
That's the reason.

822
00:50:23,640 --> 00:50:26,040
I mean, I guess it's the reason
why IA lot of you know,

823
00:50:26,040 --> 00:50:27,840
regulations still exist the way
they do.

824
00:50:27,840 --> 00:50:30,320
A lot of you know, a lot of
people think the way they do,

825
00:50:30,640 --> 00:50:34,640
you know, it's just by default.
I see so.

826
00:50:35,280 --> 00:50:38,920
A case has to be made and people
have to be persuaded before it

827
00:50:38,920 --> 00:50:43,040
becomes politically possible.
So who's who's who's who are

828
00:50:43,040 --> 00:50:45,560
some of those voices other than
the Paul family is, you know,

829
00:50:45,560 --> 00:50:48,600
like a guy like Thomas Massie,
one of those voices, what's his,

830
00:50:48,720 --> 00:50:51,240
you know, you know, thinking.
Probably the only one in

831
00:50:51,240 --> 00:50:56,720
Congress right now, yes, who has
supported a return to the gold

832
00:50:56,720 --> 00:50:58,600
standard.
So there's two people in

833
00:50:58,600 --> 00:51:03,840
Congress that support it.
Yeah, basically.

834
00:51:04,120 --> 00:51:09,920
So I mean, a glimpse into the
opposition you saw a couple of

835
00:51:09,920 --> 00:51:13,480
years ago when in in his first
term, Trump nominated a woman

836
00:51:13,480 --> 00:51:16,800
named Judy Shelton to the
Federal Reserve Board.

837
00:51:17,280 --> 00:51:20,040
And Shelton was known as a
defender of the gold standard.

838
00:51:20,760 --> 00:51:24,760
And even some Republicans said,
no, no, that's that's too far

839
00:51:24,760 --> 00:51:27,640
out for us.
And her nomination never got to

840
00:51:27,640 --> 00:51:30,720
the floor of the Senate because
the Republicans who controlled

841
00:51:30,720 --> 00:51:33,680
the committee said, we don't
want to vote on this.

842
00:51:34,280 --> 00:51:36,600
They can't even get someone even
on the committee.

843
00:51:38,760 --> 00:51:41,400
Right.
Yikes.

844
00:51:42,240 --> 00:51:44,720
Yeah, that kind of puts you in a
tough spot I guess, huh?

845
00:51:47,280 --> 00:51:52,520
Yeah, so I I don't expect these
reforms in my lifetime, but it's

846
00:51:52,520 --> 00:51:56,400
important to keep the ideas
alive and get people to discuss

847
00:51:56,400 --> 00:52:00,800
them so they understand exactly
what choices they're making and

848
00:52:00,800 --> 00:52:03,760
don't just default to the status
quo all the time.

849
00:52:04,960 --> 00:52:05,920
Yeah.
So what?

850
00:52:05,920 --> 00:52:08,480
So when you're when you're
teaching, what do you find to be

851
00:52:08,480 --> 00:52:12,360
some of the most misunderstood
economic concepts that that you

852
00:52:12,360 --> 00:52:16,040
know, the students coming
through the classes, you know,

853
00:52:16,040 --> 00:52:19,480
perceive but don't understand
entirely stuff you know, what

854
00:52:19,480 --> 00:52:20,720
are some examples of stuff like
that?

855
00:52:23,760 --> 00:52:31,160
Oh well, if they've taken AUS
history course they've probably

856
00:52:31,160 --> 00:52:35,480
been taught that the Great
Depression was due to some

857
00:52:35,600 --> 00:52:40,000
internal collapse of capitalism,
or it was due to the

858
00:52:40,000 --> 00:52:42,280
distribution of wealth being out
of whack.

859
00:52:43,000 --> 00:52:45,680
Neither of which are good
theories.

860
00:52:46,720 --> 00:52:50,640
It's not accurate.
No, not accurate.

861
00:52:50,640 --> 00:52:51,440
What was the?
Cause.

862
00:52:53,280 --> 00:52:58,560
Well, there was a boom in the
1920s due to cheap money, and

863
00:52:58,720 --> 00:53:01,880
that would have been followed by
a kind of ordinary recession,

864
00:53:02,280 --> 00:53:05,200
except that the US banking
system collapsed.

865
00:53:05,760 --> 00:53:10,560
And so the the correction became
much deeper than necessary

866
00:53:12,240 --> 00:53:17,200
because the money supply shrank
dramatically from 1930 to 1933.

867
00:53:17,920 --> 00:53:21,160
And so everybody's trying to
build up their money balances.

868
00:53:21,160 --> 00:53:23,880
That means everybody's trying to
sell and nobody's trying to buy

869
00:53:23,880 --> 00:53:27,240
goods.
And so the economy was deeply

870
00:53:27,240 --> 00:53:29,440
depressed.
That's the reason.

871
00:53:29,720 --> 00:53:32,480
Not a failure of capitalism, Not
a you know.

872
00:53:32,760 --> 00:53:36,480
Failure of monetary policy.
Failure of monetary policy.

873
00:53:37,160 --> 00:53:40,880
If you want to read more about
that, read Milton Friedman and

874
00:53:40,880 --> 00:53:43,800
Anna Schwartz.
OK, Monetary History in the

875
00:53:43,800 --> 00:53:46,320
United States.
I've heard about that book more

876
00:53:46,320 --> 00:53:49,880
than once.
Actually, I've heard about that

877
00:53:49,880 --> 00:53:53,040
book a bunch of times.
I have to I guess.

878
00:53:53,040 --> 00:53:56,960
Now I really have to get it.
On on the boom of the 20s and

879
00:53:56,960 --> 00:54:00,520
why it collapsed, I would
recommend Lionel Robbins The

880
00:54:00,520 --> 00:54:03,560
Great Depression.
Lionel Robbins.

881
00:54:04,600 --> 00:54:07,160
Yeah, he was a British
economist.

882
00:54:08,080 --> 00:54:12,440
I see cool.
And, and So what I know that

883
00:54:12,440 --> 00:54:15,960
the, that, the, that and, and
people talk about this too.

884
00:54:15,960 --> 00:54:18,120
And I don't really think that
people know what that means, but

885
00:54:18,360 --> 00:54:21,280
that the libertarians of the
world refer to the Austrian

886
00:54:21,280 --> 00:54:23,320
School of Economics.
What's what's, what in

887
00:54:23,320 --> 00:54:26,080
particular is special about the
Austrian school as opposed to

888
00:54:26,080 --> 00:54:28,160
anyone else?
Or what do they, what do they

889
00:54:28,160 --> 00:54:31,720
point at that makes it so so so
so much better?

890
00:54:33,600 --> 00:54:37,280
Let me recommend one more myth
busting book which just came

891
00:54:37,280 --> 00:54:41,080
out, which is George Selgin's
book False Dawn.

892
00:54:42,360 --> 00:54:46,600
It's about the New Deal and how
it didn't really help the

893
00:54:46,600 --> 00:54:50,880
economy to recover, right.
It's, it's a common view that it

894
00:54:50,880 --> 00:54:54,480
was due to Roosevelt's and the
New Deal that the economy

895
00:54:54,480 --> 00:54:55,880
recovered from the Great
Depression.

896
00:54:55,880 --> 00:55:01,800
But in fact, the economy didn't
recover and back to normal until

897
00:55:01,800 --> 00:55:05,480
the middle of the 1940s.
And by which point the New Deal

898
00:55:05,480 --> 00:55:08,000
had been at least the original
New Deal had been abandoned

899
00:55:08,240 --> 00:55:11,280
because it wasn't helping.
But you asked about Austrian

900
00:55:11,280 --> 00:55:15,760
economics.
So it's a school of thought in

901
00:55:15,800 --> 00:55:21,200
economics who whose founder was
literally an Austrian economist.

902
00:55:21,200 --> 00:55:26,680
He he taught at the University
of Vienna named Karl Menger.

903
00:55:29,240 --> 00:55:33,360
And it's hard to, you know, put
into a nutshell, but it's

904
00:55:33,360 --> 00:55:39,920
associated with the idea that
values the the prices are

905
00:55:39,920 --> 00:55:43,640
determined by the interaction of
demanders.

906
00:55:43,880 --> 00:55:50,920
And So what gives rise to market
value is people's views and

907
00:55:50,920 --> 00:55:54,920
subjective valuations and
opinions about goods and

908
00:55:54,920 --> 00:55:56,200
services.
Sure.

909
00:55:58,320 --> 00:56:04,760
It's associated with a a certain
view of the productive structure

910
00:56:04,760 --> 00:56:09,320
of the economy that we need to
think about how production takes

911
00:56:09,320 --> 00:56:14,080
time and therefore investments
have to be made with an eye to

912
00:56:14,080 --> 00:56:17,800
the future and with an eye to
the cost of financing.

913
00:56:20,440 --> 00:56:26,280
Whereas some textbooks give you
a kind of very static, just at

914
00:56:26,280 --> 00:56:28,880
the current moment picture of
production.

915
00:56:29,240 --> 00:56:33,760
Production is goods, inputs
currently going into factories

916
00:56:33,760 --> 00:56:38,960
and out and goods coming out.
And the limit on the amount of

917
00:56:38,960 --> 00:56:42,440
output in, in the Keynesian
view, which I referred to

918
00:56:42,440 --> 00:56:47,600
earlier, is only how much demand
is being made by the public,

919
00:56:48,480 --> 00:56:54,520
rather than concentrating on how
much was put in the pipeline to

920
00:56:54,520 --> 00:56:59,240
begin with, how much is
produced, how much the economy

921
00:56:59,280 --> 00:57:04,760
has in productive capacity, and
not just physical capacity, but

922
00:57:04,760 --> 00:57:07,560
labor skills.
That's going to determine how

923
00:57:07,560 --> 00:57:13,560
much the economy can produce.
And by producing, people are

924
00:57:13,560 --> 00:57:16,040
enabled to purchase what's been
produced.

925
00:57:16,600 --> 00:57:25,640
So when people suppose somebody
is producing hats, the reason

926
00:57:25,640 --> 00:57:29,400
he's producing hats is in order
to demand other goods, he

927
00:57:29,400 --> 00:57:33,720
expects to sell the hats and use
the proceeds to buy food and

928
00:57:33,720 --> 00:57:38,320
rent and so on.
So we don't have to worry about

929
00:57:38,320 --> 00:57:43,560
goods in general being
overproduced, but we do have to

930
00:57:43,560 --> 00:57:47,800
worry about the structure of
production being distorted by

931
00:57:48,320 --> 00:57:52,480
interest rate policy that drives
the market rate away from the

932
00:57:52,480 --> 00:57:56,480
rate that will coordinate
investment plans with savings

933
00:57:56,480 --> 00:57:59,480
plans.
So in that kind of sense, there

934
00:57:59,480 --> 00:58:03,080
could be direct conflict
between, you know, I guess this

935
00:58:03,400 --> 00:58:05,840
quote UN quote natural
progression of like what you

936
00:58:05,840 --> 00:58:09,640
could, what you could, you know,
foresee production being that

937
00:58:09,640 --> 00:58:12,040
could get you get a monkey
wrench thrown into that if

938
00:58:12,160 --> 00:58:15,280
interest rates are played with,
you know, in an unexpected kind

939
00:58:15,280 --> 00:58:17,240
of way.
That's right.

940
00:58:17,240 --> 00:58:21,040
So interest rates that are
artificially low can mislead

941
00:58:21,040 --> 00:58:25,680
investors into over investing,
and investing in projects that

942
00:58:25,680 --> 00:58:30,120
are more roundabout take longer
to come to fruition than is

943
00:58:30,120 --> 00:58:34,560
really warranted by the
willingness of consumers to

944
00:58:34,560 --> 00:58:38,040
wait.
And if I guess interest rates

945
00:58:38,040 --> 00:58:43,200
are too high, then does it
become unprofitable?

946
00:58:44,000 --> 00:58:47,480
Yeah, right, right, right.
So that's, I mean that sounds,

947
00:58:48,200 --> 00:58:53,920
this sounds right, doesn't it?
I mean, what would be what's to

948
00:58:53,920 --> 00:58:56,640
argue with that?
I guess what's the opposing,

949
00:58:56,640 --> 00:58:58,680
what's the steel man on the
other side or what do people

950
00:58:58,680 --> 00:59:05,080
oppose about that perspective?
Well, the, the Keynesians and

951
00:59:05,080 --> 00:59:12,080
the the modern Keynesians worry
about prices being sticky and so

952
00:59:12,080 --> 00:59:15,040
not adjusting rapidly enough to
clear the market.

953
00:59:16,160 --> 00:59:21,000
And there is some truth to that.
So you want a monetary policy

954
00:59:21,000 --> 00:59:26,200
that doesn't put more burden on
prices to adjust than necessary.

955
00:59:28,400 --> 00:59:32,560
But it I think what that really
calls for the problem of sticky

956
00:59:32,560 --> 00:59:35,520
prices is a predictable monetary
policy.

957
00:59:35,600 --> 00:59:40,000
What they think it calls for is
an activist monetary policy, a

958
00:59:40,000 --> 00:59:43,440
Fed that's always leaning
against the wind.

959
00:59:44,560 --> 00:59:46,720
And is what?
What do they say?

960
00:59:46,720 --> 00:59:50,280
At the Fed, we're data-driven.
We decide next month's policy

961
00:59:50,280 --> 00:59:52,200
based on the data we saw last
month.

962
00:59:52,680 --> 00:59:54,800
Well, it ought to be more
predictable than that.

963
00:59:56,120 --> 01:00:00,680
Having an inflation target,
which the Fed nominally has at

964
01:00:00,680 --> 01:00:04,000
2% is a step in the right
direction.

965
01:00:04,520 --> 01:00:07,680
But it they haven't lived up to
the 2% target.

966
01:00:08,400 --> 01:00:11,280
That's one problem.
The other problem is it would be

967
01:00:11,280 --> 01:00:15,280
a better to have a target for
total spending in the economy.

968
01:00:15,720 --> 01:00:19,520
You want to allow prices to
adjust if there's abundant

969
01:00:19,520 --> 01:00:23,280
output.
You can have less than 2%

970
01:00:23,280 --> 01:00:26,880
inflation, it's fine.
And if there's a supply shock or

971
01:00:26,880 --> 01:00:35,400
a pandemic, it's OK to have a
temporary rise in prices in

972
01:00:35,400 --> 01:00:42,840
order to incentivize people to
produce more for the future.

973
01:00:44,040 --> 01:00:51,880
So AGDP target or a nominal GDP
target would be less damaging

974
01:00:51,880 --> 01:00:57,400
than an inflation target, and
then you'd have the problem of

975
01:00:57,400 --> 01:00:59,520
getting the central bank to
stick to its targets.

976
01:01:00,840 --> 01:01:05,840
That's the other problem.
When there's when there's

977
01:01:05,840 --> 01:01:07,760
political pressure on them to do
other things.

978
01:01:08,240 --> 01:01:12,880
I see and the and and by so, so
the issue hypothetically it's an

979
01:01:12,880 --> 01:01:15,840
issue the way that you're, I
think you're presenting it is

980
01:01:16,320 --> 01:01:21,920
that by focusing on inflation,
it causes a lot of hand holding

981
01:01:21,920 --> 01:01:27,080
and artificial influence, I
guess in the market from the

982
01:01:27,080 --> 01:01:29,240
Fed.
And if they were just focused on

983
01:01:29,240 --> 01:01:34,800
GDP and what we're spending as
society, then it might, there

984
01:01:34,800 --> 01:01:40,520
might be some more dramatic
short term, I guess, volatility

985
01:01:40,800 --> 01:01:44,800
because prices could go a little
higher, a little lower, more

986
01:01:44,800 --> 01:01:48,040
dramatically, But they tend to
even out after a short period of

987
01:01:48,040 --> 01:01:51,600
time.
And I guess where the political

988
01:01:51,600 --> 01:01:54,000
pressure would come in would be
like, hey, we can't have people

989
01:01:54,000 --> 01:01:57,360
complaining about $8 eggs or $10
eggs for more than a couple of

990
01:01:57,360 --> 01:01:58,800
months.
You can't afford to ride that

991
01:01:58,800 --> 01:02:01,400
out, right?
I guess that would be the

992
01:02:01,400 --> 01:02:06,240
response.
Yeah, Yeah.

993
01:02:06,280 --> 01:02:10,640
I would say either kind of
target, either a price level

994
01:02:10,640 --> 01:02:17,200
target or a GDP target helps to
insulate the Fed from political

995
01:02:17,200 --> 01:02:19,800
pressure.
They can say, as Jerome Powell

996
01:02:19,800 --> 01:02:24,640
likes to say, look, we can't
just lower interest rates

997
01:02:24,640 --> 01:02:29,000
arbitrarily because that would
be inconsistent with keeping

998
01:02:29,000 --> 01:02:31,920
inflation down and we're
committed to keeping inflation

999
01:02:31,920 --> 01:02:35,120
down.
And he would having a GDP target

1000
01:02:35,120 --> 01:02:40,960
would do the same thing.
The the reason I prefer the GDP

1001
01:02:40,960 --> 01:02:44,280
target to the inflation target
is that there are circumstances

1002
01:02:44,280 --> 01:02:47,400
where the two of them point in
different directions, namely

1003
01:02:47,400 --> 01:02:50,160
when you have a supply shock,
either positive or negative.

1004
01:02:52,440 --> 01:02:56,240
So suppose the economy is hit
with high tariffs.

1005
01:02:57,400 --> 01:03:02,440
Just suppose they arise out of
the blue and that reduces the

1006
01:03:02,440 --> 01:03:06,320
potential output of the economy.
That's going to raise prices.

1007
01:03:07,240 --> 01:03:11,720
If the Fed is trying to
stabilize the price level or

1008
01:03:11,720 --> 01:03:16,240
keep it, keep inflation to 2%,
they're going to want to tighten

1009
01:03:16,480 --> 01:03:19,920
monetary policy in order to
offset the effect of the

1010
01:03:19,920 --> 01:03:22,440
tariffs.
And that's giving the economy a

1011
01:03:22,440 --> 01:03:24,960
double whammy.
We got this real shock and now

1012
01:03:24,960 --> 01:03:26,720
you're tightening money on top
of that.

1013
01:03:27,920 --> 01:03:31,320
It would be better to just say,
look, because of the tariffs

1014
01:03:31,320 --> 01:03:34,160
we're going to have higher
prices, but we don't want to

1015
01:03:34,160 --> 01:03:37,280
make it harder for people to
repay their debts by reducing

1016
01:03:37,280 --> 01:03:41,440
their incomes.
So better to have high prices

1017
01:03:41,440 --> 01:03:44,280
when you have reduced output of
goods and service.

1018
01:03:46,320 --> 01:03:48,280
Right.
That makes sense to me.

1019
01:03:49,440 --> 01:03:50,880
That makes a lot of sense to me
actually.

1020
01:03:53,960 --> 01:03:55,280
OK.
I'm trying to figure out from

1021
01:03:55,280 --> 01:03:59,000
here whether we should go to how
Bitcoin works, which I'm really

1022
01:03:59,000 --> 01:04:02,120
interested about.
And the impact, let me say let.

1023
01:04:02,160 --> 01:04:04,280
Me say one more thing about
Austrian economics.

1024
01:04:04,560 --> 01:04:09,960
Please please.
So by comparison with the sort

1025
01:04:09,960 --> 01:04:13,680
of mainstream textbook
economics, the Austrian

1026
01:04:13,680 --> 01:04:16,800
economist, and I have in mind,
particularly an economist named

1027
01:04:16,880 --> 01:04:21,680
Israel Kerzner, put a lot of
emphasis on entrepreneurship and

1028
01:04:21,680 --> 01:04:24,240
the dynamics of the market
process.

1029
01:04:25,000 --> 01:04:29,840
So competition becomes a process
of entrepreneurs trying to outdo

1030
01:04:29,840 --> 01:04:33,520
each other, whereas in the
textbooks, perfect competition

1031
01:04:33,800 --> 01:04:37,760
is where nobody's doing anything
to outdo anyone else because

1032
01:04:37,760 --> 01:04:39,040
they're all doing the same
thing.

1033
01:04:39,720 --> 01:04:42,440
The products are perfectly
uniform, everybody charges the

1034
01:04:42,440 --> 01:04:46,080
same price, and so on.
So I think that kind of

1035
01:04:46,080 --> 01:04:51,200
misconceives what it is that
makes a market economy really

1036
01:04:51,200 --> 01:04:54,400
run.
The entrepreneur is the sort of

1037
01:04:54,400 --> 01:04:58,800
motivating force and so they're,
the Austrians put a lot of

1038
01:04:58,800 --> 01:05:01,000
emphasis on that, the role of
the entrepreneur and the

1039
01:05:01,440 --> 01:05:06,000
importance of understanding
market adjustments and then in a

1040
01:05:06,000 --> 01:05:10,040
longer frame, understanding the
evolution of economic

1041
01:05:10,040 --> 01:05:13,920
institutions, not just taking
them for granted.

1042
01:05:13,920 --> 01:05:16,600
So one of the things Carl
Menger, the founder of the

1043
01:05:16,600 --> 01:05:20,560
school, is famous for is his
theory of the origin of money.

1044
01:05:21,200 --> 01:05:27,800
Why people in a pre monetary
economy, a barter economy, would

1045
01:05:28,720 --> 01:05:32,960
want to, instead of trying to
trade directly for the things

1046
01:05:32,960 --> 01:05:36,440
they want to consume, what they
produce for what they consume

1047
01:05:37,040 --> 01:05:40,800
would find it advantageous to
trade for something that is more

1048
01:05:40,800 --> 01:05:46,720
widely saleable and and so
likely to be accepted in payment

1049
01:05:46,880 --> 01:05:49,000
by the person selling the good
they want to sell.

1050
01:05:49,760 --> 01:05:54,280
So people switched indirect
exchange, and then there's an

1051
01:05:54,280 --> 01:05:57,360
incentive to take into account
what other people are accepting

1052
01:05:57,360 --> 01:06:00,240
as payment, and then you accept
that too.

1053
01:06:00,720 --> 01:06:04,440
Through that process, it becomes
commonly accepted, and that

1054
01:06:04,440 --> 01:06:08,120
gives you a money without
anybody imposing it from on top,

1055
01:06:08,640 --> 01:06:13,200
but through people in the
marketplace coordinating their

1056
01:06:13,200 --> 01:06:15,480
behavior with one another
spontaneously.

1057
01:06:16,080 --> 01:06:21,240
So other theories of economic
institutions along those lines,

1058
01:06:21,960 --> 01:06:25,880
understanding them as the
outcome of, you know, betterment

1059
01:06:26,000 --> 01:06:32,080
projects by decentralized
individuals, you can have

1060
01:06:32,080 --> 01:06:35,280
orderly arrangements that are
not imposed from the top down.

1061
01:06:36,800 --> 01:06:40,680
So that probably the most famous
Austrian economist is Friedrich

1062
01:06:40,680 --> 01:06:45,240
Hayek, who got the Nobel Prize
in Economics in 1974.

1063
01:06:47,280 --> 01:06:51,360
And his most famous article in
economics is called The Use of

1064
01:06:51,360 --> 01:06:55,720
Knowledge in Society and
discusses how dynamically

1065
01:06:55,720 --> 01:06:59,720
markets make use of the
information given by prices.

1066
01:07:00,360 --> 01:07:04,600
So each of us can Orient
ourselves by paying attention to

1067
01:07:04,600 --> 01:07:07,080
price, prices at which we can
buy and sell.

1068
01:07:08,120 --> 01:07:14,080
There doesn't have to be any
czar who brings about order in

1069
01:07:14,080 --> 01:07:18,280
the marketplace.
Adjustment of buyers and sellers

1070
01:07:18,280 --> 01:07:22,000
will do that.
What what, what immediately pops

1071
01:07:22,000 --> 01:07:25,040
into my head is I was just
reading my, my grandfather wrote

1072
01:07:25,040 --> 01:07:28,520
a little, you know, self
published biography from his.

1073
01:07:28,840 --> 01:07:32,120
He was in the Soviet labor camps
in World War 2.

1074
01:07:32,480 --> 01:07:34,920
His, him and his family.
And one of the things, yeah.

1075
01:07:34,920 --> 01:07:38,440
And one of the things that he
talks a lot about was the

1076
01:07:38,440 --> 01:07:42,320
families desperate need.
And it's fascinating to read

1077
01:07:42,320 --> 01:07:45,000
from that lens in terms of money
and in terms of like being able

1078
01:07:45,000 --> 01:07:48,320
to survive in a livelihood.
They would carry on them what

1079
01:07:48,320 --> 01:07:52,880
would be considered monetarily
or, you know, I guess as widely,

1080
01:07:53,080 --> 01:07:55,600
you know, necessary products as
they needed.

1081
01:07:55,600 --> 01:07:58,560
So sugar was very valuable,
tobacco was very valuable.

1082
01:07:58,560 --> 01:08:01,600
Clothes were very valuable.
Obviously jewelry at that point

1083
01:08:01,600 --> 01:08:04,920
was already kind of, you know,
at that point was already not,

1084
01:08:05,360 --> 01:08:08,960
you know, out of the picture.
Everything was, yeah, I've been

1085
01:08:08,960 --> 01:08:11,880
confiscated or already bartered
away almost immediately.

1086
01:08:11,880 --> 01:08:14,520
You know, I mean, jewelry was
for like, big deal, like trying

1087
01:08:14,520 --> 01:08:16,479
to get, you know, out of the
country or something like that.

1088
01:08:16,479 --> 01:08:19,240
But day-to-day, you know, and
it's funny because my

1089
01:08:19,240 --> 01:08:24,479
grandfather had, you know, from
a Jewish perspective was, was

1090
01:08:24,479 --> 01:08:28,040
saved essentially by a Zionist
camp, but his parents were

1091
01:08:28,040 --> 01:08:30,520
Orthodox.
And, and he saw throughout the

1092
01:08:30,520 --> 01:08:34,560
entire war that they were, you
know, using sugar to pay for him

1093
01:08:34,560 --> 01:08:37,120
to have a teacher come to the
house and teach him biblical,

1094
01:08:37,120 --> 01:08:40,000
you know, studies.
And he felt this, you know,

1095
01:08:40,000 --> 01:08:43,800
massive tension in his life that
like they, you know, they put so

1096
01:08:43,800 --> 01:08:46,840
much value on it that potential
food or clothes for, you know,

1097
01:08:46,840 --> 01:08:49,920
him and his siblings were going
to this guy to, you know, that

1098
01:08:49,960 --> 01:08:53,439
it was going the sugar was going
to this teacher instead of, you

1099
01:08:53,439 --> 01:08:56,120
know, the the worker that lets
him stay home from school for a

1100
01:08:56,120 --> 01:08:57,479
day or something.
Calories.

1101
01:08:58,000 --> 01:09:02,479
Or that, yeah, you know, and,
and so, so I, you know,

1102
01:09:02,479 --> 01:09:05,080
especially I guess he could kind
of see when everything is

1103
01:09:05,080 --> 01:09:07,720
stripped away and there's no
regulations and what people kind

1104
01:09:07,720 --> 01:09:11,200
of refer to, to survive and
defer to to survive.

1105
01:09:12,200 --> 01:09:14,399
That system work seems to work
perfectly, as you know.

1106
01:09:14,399 --> 01:09:17,200
I think that's the most primal
human system that works the most

1107
01:09:17,399 --> 01:09:22,279
rationally.
Yeah, there's a famous article

1108
01:09:22,279 --> 01:09:25,600
about how in prisoner of war
camps during the Second World

1109
01:09:25,600 --> 01:09:29,840
War, cigarettes enraged as the
common medium of exchange

1110
01:09:30,200 --> 01:09:33,840
because of these prisoners were
getting the packs from the Red

1111
01:09:33,840 --> 01:09:35,600
Cross that can contend
cigarettes.

1112
01:09:36,080 --> 01:09:38,960
So even the people who didn't
smoke would accept payment in

1113
01:09:38,960 --> 01:09:42,160
cigarettes because they knew
they could trade somebody else

1114
01:09:42,160 --> 01:09:46,439
and.
That's where money essentially

1115
01:09:46,439 --> 01:09:47,680
comes from.
That's a physical

1116
01:09:48,040 --> 01:09:51,920
representation.
So historically you, you got,

1117
01:09:52,160 --> 01:09:56,920
you got shells being used as
money in some places, but gold

1118
01:09:56,920 --> 01:09:59,840
and silver in in the most
advanced economies that had the

1119
01:09:59,840 --> 01:10:03,800
high value transactions and when
they came in contact with other

1120
01:10:03,800 --> 01:10:07,280
economies.
So I used to tell my students

1121
01:10:07,280 --> 01:10:11,280
about in Sweden, they had a
copper standard and you can go

1122
01:10:11,280 --> 01:10:14,320
to museums in Sweden and see
these huge slabs of copper that

1123
01:10:14,320 --> 01:10:18,160
they used to pay each other, but
you'd rather have a silver coin

1124
01:10:18,160 --> 01:10:22,040
than a huge slab of copper.
So silver and gold had the

1125
01:10:22,040 --> 01:10:25,600
properties that people want in a
hand to hand medium of exchange.

1126
01:10:26,160 --> 01:10:31,400
And so they kind of survived
the, the competition among

1127
01:10:31,600 --> 01:10:36,840
commodity monies, right?
So it's a it's what Hyatt calls

1128
01:10:36,840 --> 01:10:40,120
a spontaneous order.
Yeah, yeah.

1129
01:10:40,120 --> 01:10:42,960
And I guess I could see how how
he got to that term too.

1130
01:10:42,960 --> 01:10:47,640
How do I get to that phrase?
I want to wrap up with the

1131
01:10:47,640 --> 01:10:53,880
conversation a little bit about
the national debt and I because

1132
01:10:53,920 --> 01:10:56,960
I think that's also another
enormous issue that I don't

1133
01:10:57,280 --> 01:11:02,800
think, again, people quite know
what the impact could be in what

1134
01:11:02,800 --> 01:11:05,160
it means.
So I think we just approached

1135
01:11:05,360 --> 01:11:07,880
$37 trillion in national debt
recently.

1136
01:11:08,840 --> 01:11:11,720
I did see that Thomas Nancy has
like his famous little invention

1137
01:11:11,720 --> 01:11:15,120
that tracks real time the, you
know, the, the national debt.

1138
01:11:15,120 --> 01:11:19,120
Every day he wears around, he
wears on his belt, which is cute

1139
01:11:19,240 --> 01:11:22,320
and funny, but also important, I
guess so.

1140
01:11:22,360 --> 01:11:24,440
So what is that?
What, what's the national debt?

1141
01:11:24,440 --> 01:11:27,240
What does it mean to everyday
people?

1142
01:11:27,480 --> 01:11:29,720
And what does it mean when we're
spending?

1143
01:11:29,720 --> 01:11:32,920
So when you know when our output
or I guess when we're spending

1144
01:11:32,920 --> 01:11:34,680
as much as we are, what does
that mean for us?

1145
01:11:36,880 --> 01:11:39,600
Yeah.
The important thing is the ratio

1146
01:11:39,600 --> 01:11:45,600
of the debt to future tax
revenue, which is for which the

1147
01:11:45,600 --> 01:11:50,600
best proxy we have is GDP.
So it's the debt to GDP ratio

1148
01:11:50,600 --> 01:11:56,200
that economists worry about, and
that's gone above 100%, which

1149
01:11:56,200 --> 01:12:00,520
means that it's more than a
year's income now.

1150
01:12:00,520 --> 01:12:03,840
The last time it was that high
was coming out of World War 2,

1151
01:12:04,800 --> 01:12:09,960
and the US eventually paid it
down through a combination of

1152
01:12:10,480 --> 01:12:19,440
growing output and small to
negative budget deficits and got

1153
01:12:19,440 --> 01:12:23,000
it down to about 40% before it
started growing again.

1154
01:12:23,560 --> 01:12:29,400
Is that through policy?
But yes, partly through monetary

1155
01:12:29,400 --> 01:12:34,000
policy and partly through fiscal
policy, OK, If if you run a

1156
01:12:34,000 --> 01:12:40,920
deficit that's 1% of GDP and the
GDP itself grows by two

1157
01:12:40,920 --> 01:12:44,880
percentage points, then you've
reduced the ratio of debt to GDP

1158
01:12:44,960 --> 01:12:47,080
because GDP is growing faster,
right?

1159
01:12:47,840 --> 01:12:52,600
So you don't have to run
surpluses to get the ratio to

1160
01:12:52,600 --> 01:12:55,320
shrink.
But you can't do what we've been

1161
01:12:55,320 --> 01:12:59,840
doing lately, which is running
budget deficits of seven, 810%

1162
01:13:00,200 --> 01:13:03,360
of GDP, because GDP is not
growing that fast.

1163
01:13:04,760 --> 01:13:09,200
You need to get it down to 2%,
which is about what our average

1164
01:13:09,760 --> 01:13:12,160
growth rate of GDP in real terms
has been.

1165
01:13:14,600 --> 01:13:17,440
So what it means when the debt
is piling up is that the debt

1166
01:13:17,440 --> 01:13:21,040
service is rising and the debt
service, that is the amount of

1167
01:13:21,040 --> 01:13:23,440
interest the Treasury has to pay
out every year.

1168
01:13:23,680 --> 01:13:25,840
Which is what percent?
Or does that change?

1169
01:13:26,200 --> 01:13:30,000
That means people either have to
pay more in taxes or they have

1170
01:13:30,000 --> 01:13:33,040
to receive less in services it
it comes out of the government

1171
01:13:33,040 --> 01:13:34,200
budget.
Right.

1172
01:13:36,440 --> 01:13:42,040
The We can look at what happened
in Europe after the Greek fiscal

1173
01:13:42,040 --> 01:13:47,240
crisis, interest rates on debt.
In other European countries that

1174
01:13:47,240 --> 01:13:52,640
were in similar situations, like
Spain and Italy and Ireland,

1175
01:13:52,880 --> 01:13:57,360
those interest rates went up.
And in Spain, for example, just

1176
01:13:57,360 --> 01:14:00,600
paying interest on the debt
became 1/3 of the national

1177
01:14:00,600 --> 01:14:04,080
budget, which crowds out
everything else.

1178
01:14:04,720 --> 01:14:08,480
And you either have to cut
spending or raise taxes or some

1179
01:14:08,480 --> 01:14:11,680
combination of the two.
So that's the worry.

1180
01:14:12,960 --> 01:14:16,360
So we're burdening future our
our children and our

1181
01:14:16,360 --> 01:14:19,360
grandchildren with higher taxes
and.

1182
01:14:20,240 --> 01:14:22,120
Right.
So how, how quickly, how quickly

1183
01:14:22,120 --> 01:14:26,040
does do the higher taxes have to
have to how quickly do the

1184
01:14:26,040 --> 01:14:29,720
higher taxes kick in or these or
the holding holding back to

1185
01:14:29,720 --> 01:14:35,280
services?
Well, right now we've got more

1186
01:14:35,280 --> 01:14:38,120
debt service, but we're
basically just rolling it all

1187
01:14:38,120 --> 01:14:43,920
over.
So tax revenues haven't been

1188
01:14:44,080 --> 01:14:48,800
increased.
I know there's some talk about

1189
01:14:48,880 --> 01:14:52,960
revenue from tariffs, but that's
really a tiny drop in the

1190
01:14:52,960 --> 01:14:55,880
bucket.
And plus, Trump is promising to

1191
01:14:56,520 --> 01:15:00,640
rebate it all to US consumers.
So, which wouldn't really help

1192
01:15:00,720 --> 01:15:02,720
have.
No impact on the debt.

1193
01:15:03,760 --> 01:15:05,920
It wouldn't help the debt at all
that at that point if it was

1194
01:15:05,960 --> 01:15:08,840
rebated, right?
That's right.

1195
01:15:09,880 --> 01:15:12,600
This is looks good because we've
been getting taxes.

1196
01:15:12,600 --> 01:15:16,280
I mean, if, if, if, if what that
means if what you're saying, if

1197
01:15:16,280 --> 01:15:21,240
that means if, if the policy has
been that we're spending all

1198
01:15:21,240 --> 01:15:24,440
this money that that we and our
kids and our grandkids are going

1199
01:15:24,440 --> 01:15:28,400
to be paying back later.
Giving everyone a $300, a $500

1200
01:15:28,400 --> 01:15:32,320
rebate is not going to make the,
you know, my kid feel any better

1201
01:15:32,320 --> 01:15:35,680
in 20 years from now when he's
paying 10% higher taxes or he's

1202
01:15:35,680 --> 01:15:38,560
getting 10% less services from
the government or whatever it

1203
01:15:38,560 --> 01:15:40,920
is, right?
That's right.

1204
01:15:42,400 --> 01:15:46,000
There was a famous economist
named David Ricardo, and he

1205
01:15:46,000 --> 01:15:50,000
said, you know, at a 5% interest
rate, it doesn't really matter

1206
01:15:50,560 --> 01:15:56,040
whether I give you $1000 today
or if I give you $50 a year

1207
01:15:56,040 --> 01:15:59,440
forever.
Those are equivalent in market

1208
01:15:59,440 --> 01:16:03,880
value.
But if people are just myopic,

1209
01:16:05,360 --> 01:16:09,600
they're going to grab onto the
$1000 and you could similarly

1210
01:16:09,600 --> 01:16:16,000
say if I give you $1000 and then
charge you $50 a year to pay for

1211
01:16:16,000 --> 01:16:19,160
it, and if you think that's a
good deal, then you're being

1212
01:16:19,160 --> 01:16:23,800
myopic.
So there is a a built in

1213
01:16:23,800 --> 01:16:27,760
tendency, though, of course, for
congressman to want to take

1214
01:16:27,760 --> 01:16:32,360
credit for low taxes and high
spending today and just kick the

1215
01:16:32,360 --> 01:16:35,040
can down the road.
It's somebody else's problem

1216
01:16:35,920 --> 01:16:40,200
sometime in the future.
But a lot of people are sounding

1217
01:16:40,200 --> 01:16:43,120
the alarm.
The taxpayers have to hold them

1218
01:16:43,120 --> 01:16:45,200
to the fire.
Right.

1219
01:16:45,200 --> 01:16:47,160
And that's what we got to do.
We have to hold people

1220
01:16:47,160 --> 01:16:49,320
accountable for financial
decisions.

1221
01:16:49,840 --> 01:16:53,960
And I don't think it's any
coincidence that that all this

1222
01:16:53,960 --> 01:16:58,760
stuff happens post wars because
because government funding ramps

1223
01:16:58,760 --> 01:17:01,200
up big time during war, right?
And if we just came out of a

1224
01:17:01,200 --> 01:17:06,160
2025 year, you know, period of
constant war, then that means

1225
01:17:06,160 --> 01:17:10,000
that we've been spending for the
last 20 years and telling

1226
01:17:10,000 --> 01:17:12,160
everyone, well, you'll pay some
time down the line.

1227
01:17:14,360 --> 01:17:18,960
If if you look at the size of
the federal budget over time, as

1228
01:17:19,120 --> 01:17:22,480
as you described, it goes up in
wartime and then it comes back

1229
01:17:22,480 --> 01:17:25,080
down when the war ends, like the
First World War or the Second

1230
01:17:25,080 --> 01:17:28,720
World War, but not to the old
level to somewhere in between.

1231
01:17:29,440 --> 01:17:32,840
So there's what an economist
named Robert Higgs called a

1232
01:17:32,840 --> 01:17:35,560
ratchet effect.
It keeps ratcheting up.

1233
01:17:35,560 --> 01:17:40,520
It doesn't go all the way back.
So before the First World War,

1234
01:17:40,520 --> 01:17:45,600
the federal government was 5% of
GDP, and today it's spending

1235
01:17:45,800 --> 01:17:48,120
close to 25% of GDP.
Whoa.

1236
01:17:49,200 --> 01:17:52,560
On top of that, you on top of
that you add state and local.

1237
01:17:55,000 --> 01:17:59,440
Wow.
Do you does?

1238
01:17:59,440 --> 01:18:02,440
Is that a what, what do we, what
do you do about that?

1239
01:18:02,440 --> 01:18:04,680
What do we do about that?
What do we, you know, what do we

1240
01:18:04,680 --> 01:18:07,160
as individuals do?
Can we do we save?

1241
01:18:07,160 --> 01:18:10,320
Do we prepare?
Do we do we try to push

1242
01:18:10,320 --> 01:18:11,680
politics?
What, what do you, what do you,

1243
01:18:11,680 --> 01:18:14,520
what do people like myself do
you know, 30 year olds with

1244
01:18:14,800 --> 01:18:17,320
couple of kids and trying to pay
my bills?

1245
01:18:17,520 --> 01:18:20,840
What do we do about that?
Well, if you want, if you want

1246
01:18:20,840 --> 01:18:23,600
your kids to be able to pay
their tax bills, you have to

1247
01:18:23,600 --> 01:18:31,320
save and pass that on to them.
But politically, there needs to

1248
01:18:31,320 --> 01:18:35,720
be a stronger coalition of
people who understand the

1249
01:18:35,720 --> 01:18:39,920
problem and are willing to, you
know, make the difficult

1250
01:18:39,920 --> 01:18:44,040
decisions about taxes and
spending.

1251
01:18:44,720 --> 01:18:49,080
And the what seems to be the
hardest thing is to cut spending

1252
01:18:49,720 --> 01:18:53,240
because every spending program
has recipients and they're going

1253
01:18:53,240 --> 01:18:59,080
to fight to maintain their
benefits even if they're a small

1254
01:18:59,080 --> 01:19:02,760
fraction of the public.
The rest of the public, you

1255
01:19:02,760 --> 01:19:08,480
know, just overlooks what's the
programs that have concentrated

1256
01:19:08,480 --> 01:19:11,640
benefits and the costs are
diffused over everyone else.

1257
01:19:12,440 --> 01:19:17,800
So it it takes educational
campaign to get people concerned

1258
01:19:17,800 --> 01:19:21,440
and it will take some kind of
coalition of people who are all

1259
01:19:21,440 --> 01:19:26,640
willing to give up their small
benefits in exchange for making

1260
01:19:26,640 --> 01:19:29,280
it possible to reduce the debt
generally.

1261
01:19:30,280 --> 01:19:35,680
Do do movements like the health
movement, the modern day, like I

1262
01:19:35,680 --> 01:19:38,280
said, health movement that, you
know, I think that a lot of

1263
01:19:38,280 --> 01:19:40,920
people pretty much across the
aisle have been getting on, you

1264
01:19:40,920 --> 01:19:45,040
know, in terms of like noticing
the obesity or, you know, high

1265
01:19:45,040 --> 01:19:46,400
rates of diabetes and
everything.

1266
01:19:46,400 --> 01:19:50,320
And and there's been a push to
kind of clean out the food a

1267
01:19:50,320 --> 01:19:52,600
little bit.
And that would kind of that was

1268
01:19:52,600 --> 01:19:55,080
on full national political
display.

1269
01:19:55,080 --> 01:19:58,560
Like that was that was that was
like a movement, right?

1270
01:19:58,560 --> 01:20:03,200
That RFK started that that
melded from, but was it was it

1271
01:20:03,200 --> 01:20:06,080
was a legit issue.
Does that kind of give you hope

1272
01:20:06,080 --> 01:20:09,440
that someone else could take a
topic like this and kind of turn

1273
01:20:09,440 --> 01:20:12,200
a not spoken, not typically
spoken about topic into

1274
01:20:12,200 --> 01:20:16,880
something more more mainstream
and more, you know, a little bit

1275
01:20:16,880 --> 01:20:22,680
more part of the zeitgeist?
Well, I, I guess what gives me

1276
01:20:22,720 --> 01:20:25,920
most optimism is other countries
have done this.

1277
01:20:25,920 --> 01:20:30,680
They've, they've woken up to the
problem that high debt is, you

1278
01:20:30,680 --> 01:20:34,560
know, parasitizing the, the
budget.

1279
01:20:36,200 --> 01:20:43,280
So Canada back in the 1980s made
a big cut in spending programs

1280
01:20:43,760 --> 01:20:49,320
and we're able to bring down
their budget deficit, turn it

1281
01:20:49,320 --> 01:20:53,120
into a surplus and bring down
the the public debt as a share

1282
01:20:53,120 --> 01:20:59,160
of GDP pretty dramatically.
Some other countries have been

1283
01:20:59,160 --> 01:21:02,920
able to do that to through a
combination of spending cuts and

1284
01:21:02,920 --> 01:21:10,120
and tax increases.
I we haven't seen that coalition

1285
01:21:10,120 --> 01:21:13,560
in the US, though.
When Democrats are in office,

1286
01:21:13,560 --> 01:21:16,320
they want to increase spending,
and when Republicans are in

1287
01:21:16,320 --> 01:21:19,440
office they also want to
increase and cut taxes.

1288
01:21:22,880 --> 01:21:25,880
And so everything is paid for
with debt.

1289
01:21:27,000 --> 01:21:29,120
Yeah, we're going to have to
figure something out, I guess,

1290
01:21:29,120 --> 01:21:32,240
huh?
Yeah.

1291
01:21:32,240 --> 01:21:35,920
I mean, there's, there's not
going to be money to pay all the

1292
01:21:36,720 --> 01:21:39,920
Social Security and Medicare
benefits that have been promised

1293
01:21:42,400 --> 01:21:46,120
if something isn't done on the
side of other spending.

1294
01:21:47,760 --> 01:21:49,080
That's which is what I would
prefer.

1295
01:21:49,080 --> 01:21:52,440
Or on the side of taxes.
I see.

1296
01:21:53,200 --> 01:21:55,640
OK.
I think we'll I think we'll call

1297
01:21:55,640 --> 01:21:58,200
it there.
Professor, thank you so much,

1298
01:21:58,280 --> 01:22:00,400
really for the time, for getting
back to me so quickly.

1299
01:22:00,400 --> 01:22:02,640
This is really, this is
educational.

1300
01:22:02,640 --> 01:22:05,720
This is fun and you're giving me
a lot to think about.

1301
01:22:05,720 --> 01:22:07,800
You're giving me even better a
couple of books to read, which

1302
01:22:07,800 --> 01:22:11,120
I'm really excited about.
So really.

1303
01:22:11,240 --> 01:22:13,200
Thank you so much, let me plug
my own book.

1304
01:22:13,680 --> 01:22:14,920
Please.
Oh yes, please.

1305
01:22:14,920 --> 01:22:15,400
I'm so sorry.
Let.

1306
01:22:15,400 --> 01:22:17,200
Me plug my own book before we
leave.

1307
01:22:17,560 --> 01:22:21,320
Yes, I I published a book two
years ago called Better Money

1308
01:22:21,320 --> 01:22:25,681
Gold, Fiat or Bitcoin, where I
do a head to head comparison

1309
01:22:25,681 --> 01:22:29,961
between our current Fiat money
standard, the gold standard as

1310
01:22:29,961 --> 01:22:33,760
it worked historically, and the
possibility of a Bitcoin

1311
01:22:33,760 --> 01:22:36,720
standard.
So which one would provide a

1312
01:22:36,720 --> 01:22:41,640
more stable, a more reliable
monetary system?

1313
01:22:42,880 --> 01:22:45,240
What do you what's what's what
do you conclude?

1314
01:22:47,440 --> 01:22:49,840
Is there a spoiler?
At this well, I'm I'm pretty,

1315
01:22:52,360 --> 01:22:54,360
I'm pretty favourable toward the
gold standard.

1316
01:22:55,080 --> 01:22:57,640
I see.
OK, well I'm going to put the

1317
01:22:57,640 --> 01:22:59,040
link.
I'll put the link to the book in

1318
01:22:59,040 --> 01:23:00,160
the.
I'll put the link to the book

1319
01:23:00,160 --> 01:23:01,400
in.
The front burner.

1320
01:23:02,320 --> 01:23:05,400
Yes, definitely.
I'll put a link to the book in

1321
01:23:05,400 --> 01:23:10,240
the description.
And I, I wish, I really wish you

1322
01:23:10,240 --> 01:23:12,160
best of luck out there in
England.

1323
01:23:12,640 --> 01:23:16,000
I hope you have a lot of fun
this semester and I really

1324
01:23:16,000 --> 01:23:17,560
appreciate the time.
Hopefully we'll be able to do

1325
01:23:17,560 --> 01:23:21,720
this again sometime, OK.
Thanks, it was great.

1326
01:23:22,280 --> 01:23:23,240
All right.
Take care, professor.

1327
01:23:23,240 --> 01:23:23,800
Thank you.
Bye.

1328
01:23:23,840 --> 01:23:27,240
Bye.
OK.

1329
01:23:27,240 --> 01:23:27,600
Thank you.