 I want to start out just by looking at a few charts, just to get you into the topic, and we'll see what's going on with debt and deficits these days. The first chart is a government debt, okay? I mean, that's the big issue now anyhow. I mean, we hear it endlessly on the national news every evening. The numbers look awfully big on that vertical axis. And I think what we'll do is put the debt limit up here first, goes like that, it's something pretty high. And if we look at the way that the debt has played itself out, it goes something like this. Okay, let me try that just again to get it to work right. Sorry about that. Okay, so you can see we've finally, it looks like we have finally, at long last, reached the debt ceiling that's set at about $14.3 trillion. Now that chart in this respect is just a little bit disingenuous, because it looks like that debt ceiling has been set there from way back when, which isn't actually the case. More revealing is another graph, if we can get it to work. First time I've had a hardware problem in here. There's the other graph. I don't know if you can see both lines or not, but the dark red line is the debt ceiling. And the light green line is the debt. And what we see is miraculously the debt ceiling keeps just ahead of the debt, but just barely. It works that way. If you tally it up, you see we first had our debt ceiling in 1917. That's when the ceiling was first imposed. And it was opposed at the pretty low level. There it is. 1917 debt limit was $11.5 billion, which hardly registers on the axis. These aren't inflation adjusted, but that is so small compared to what it is now that even if you do adjust it, it still doesn't show up, $200 billion, which, well, it would show up. It's just a fifth of the way up between zero and one. That's doing it in real terms in making an equivalent to where we are today. Now what strikes me as odd here about the debt ceiling, one thing that makes it odd is that this is the only country that has one. If you look at other countries around the world, they don't have any debt ceiling. They've got a Congress or something like it that's supposed to behave in a physically responsible way. And here we've got a Congress who has the power overspending. The power of the purse resides with Congress. And they also have the power to set the debt limit. So it's the self-same organization that's putting a limit on itself and authorizing the spending. Now in practice what happens is that they authorize payment on some formula basis and turn it over to the Treasury. And the Treasury can issue bonds to conform to legislation that's already been passed and just to make sure they don't get too far out of hand and put a debt ceiling. And as you can see, change it occasionally. So anyhow, despite that we can say that the debt ceiling is something akin to a New Year's Resolution. But there is a difference. I have to admit there is a difference. And that is that over these 94 years that we've had the debt ceiling has been violated more than a hundred times, okay, more than a hundred times. Whereas with New Year's Resolutions they're only violated once a year, okay? So we're better off with New Year's Resolutions. I might explain a little bit about what's going on right now in Washington. This lecture wasn't particularly meant to be topical, but boy is it. I mean, given the turn of events, you might remember the date May 16 of this year, which was supposed to be initially the day that we would hit the debt ceiling of $14.3 trillion. Remember that? And then when that date came and passed, then all of a sudden, well, it's really August 2nd. And it's instructive to see how the government is getting itself from May 16th to August 2nd. Where is it getting the money? I thought we were supposed to hit the ceiling at May 16. According to Tim Geigener, the Treasury Secretary, he has had to resort to extraordinary measures. Let me put it simply at first and then I'll explain the nuts and bolts of it. And that is that up to May 16th, the federal government was borrowing money and spending it, okay? They were spending borrowed money. Between May 16th and August 2nd, they're spending money to be borrowed later. Think about that. Could you spend any money to be borrowed later? I don't think so. And it works like this, that there are a number of investment funds that are held by the government itself. Let's say investment fund is part of the retirement package for government workers. When you're working in the government, you have a retirement package and funds are available when you retire. In the meantime, they're held in an investment fund. And most of that fund is in the form of, can you guess, government securities of Treasury bills? Okay, so Treasury bills are in the fund. Now, how does this help? Well, ordinarily, retirement checks go out based on funds in that, Treasury bills in that fund. And more Treasury bills than that roll over each time. And those are just, well, they're rolled over. You just trade one Treasury bill for another and keep the money invested in Treasury's. But now the extraordinary measures allow the government to do something different. They cash out, they cash out the Treasury's that aren't needed this time around to make payments to their retired workers. They cash them out, and they can spend them. When they cash them out, then that means that the government debt has gone down by that amount. Well, how do they make good on that? Well, they put an IOU in the hopper, it could be a little post-it note or something like that. We owe this fund so many Treasury bills. And we'll buy them. We'll buy them. But we have to wait until the debt limit is raised, okay? So this is funds to be borrowed later. And if you do the arithmetic, you see the government lately has been borrowing at the rate of about $4 billion a day. And if they go 78 days between May 16th and August 2nd, they'll run up about $312 billion in funds to be borrowed later, okay? The one thing to watch for is that when they do raise that debt limit, we would expect to see or certainly should watch for a spate of borrowing, all right, far in excess of what the government normally borrows each day, because they've got to borrow the $4 billion just to keep the government running, plus they've got to work on borrowing enough to make good on all of the Treasury bills that they've cashed out from those programs. So that's how it's working today. It's not particularly encouraging. If we do hit the debt ceiling, which I don't think we will, I think the ceiling will be raised when Bush comes to show that's the way Washington works. But I would like to mention that how government responds in almost an opposite way of the way markets respond, that when markets have to cut costs, what do they cut? They cut the most marginal expenditures, the most marginally useful expenditures that they've been making, okay, trim down their costs in that way. But when we're playing political football with the debt and deficits, then the threat is to cut not the least important, but the most important, okay? If we run out of money, we'll cut. We won't send out social security debt. We won't pay the military. We won't pay this, and we won't pay that, okay? You love to hear them say, look, if we hit this debt ceiling and don't get it raised, we're going to have to quit subsidizing ethanol. Hey, hey, that's win-win, okay? We're going to have to quit subsidizing all those windmills up and down Indiana. Have you seen them that are trying to figure out how to generate power with the wind blowing across Indiana? Well, good. We needed to cut that anyhow. We'll have to quit subsidizing battery-operated automobiles like the Chevrolet Volt, which turns out to have been a disaster technically in marketing in every other way. Well, good, okay? We need to cut those things anyway, but what you see is they threaten to cut at the other end of that spectrum. Okay. Well, I'm sure I've got a few more charts here to show you. Surplus and deficit. Sometimes this number is hard to find on the web, so we're just going to look at the deficit I've labeled it loud and clear there. Oop, there it goes. There it goes. The reason it's hard to find, I remember I spent a better part of an afternoon a few years ago. They cleaned it up a little now. Looking on the Federal Reserve Bank of St. Louis, looking for the data, looking for a deficit. I couldn't find the deficit. I couldn't find the deficit. I was poking on everything. It turns out that it was billed as government saving. Government saving. And of course, when you pull it up, it's all negative, which meant that it was really a deficit. They were going in the hole. So that's the way it looks. That little blip that you see there before it gets to the serious part, that's borrowing during World War II. Now, it's true that this is an nominal term, so if you adjust it to real terms, the World War II borrowing looks pretty serious. But after all, all of the inflation created between then and now is due in some part and a fairly substantial part to deficit borrowing itself. So I don't hesitate to show that way in nominal terms. So that's what the deficit looks like. Let's see what else we got here. International trade deficit. And it looks a little funny too. There's Reagan years there and then more recently, we've had some pretty serious international trade deficits. Which of course reflects all that deficit borrowing. Most of the borrowing in many of those years was from foreign sources, China, Japan, mainly China though. And what I want to call your attention to is how the rhetoric of deficit finance has changed, how the apologists for government deficits has changed. Back in the 1960s, it's just barely on the map there, you can see deficits didn't amount to much. It's just sort of moving along almost zero. And at that time, a bit of flip-flops in 1960 says, don't worry about the deficit. We owe it to ourselves. In other words, the government was borrowing your savings. So we the people are lending money to we the people to take care of our governmental affairs. We're just borrowing it from ourselves. Well, I guess I should point out, I got this from Murray Rothbard. It proves too much to say that it proves too much, doesn't it? Because if we shouldn't worry about borrowing, because we owe it to ourselves, then we shouldn't worry about stealing either, because shouldn't we? We're just stealing from ourselves. We shouldn't worry about any of those kinds of crimes. But what I want to point out today is the rhetoric has changed completely. In the 21st century, we don't say we owe it to ourselves. In fact, mostly we don't. We owe it to the Chinese. So don't worry about the deficit. We have access to world capital markets. In other words, we're borrowing it from somebody else. So the summary line is, don't worry about the deficits, because we're either borrowing it from ourselves or from somebody else. Maybe we should worry. Well, okay. Government spending. It all starts down by the horizontal axis and goes skyward. Probably the thing to note there, I mean you know what it looked like in general. But it began to get out of hand around 1970-71. What happened in 1971? Anybody know? Yeah, abandonment of the gold standard, slamming the gold window. That was Richard Nixon August 15, 1971, a day that will live in impamy, okay? That marks the point where the government's hands just were untied at that point. It could spin to its heart's delight and borrow accordingly. That's government spending. What do we got next? We've got tax revenues to see what they look like. And sure enough, taxes haven't increased as much as government spending has. And that first dip, you can see, is that tax receipts went down as a result of the dot com bust. And they also went down because of George Bush's tax cuts, which was his stimulus program. And then it goes down again, of course, in the most recent contraction. And so it's falling far short of government spending. Now, one thing I want to point out here that's worth noting is that the political alignments of political parties with economic schools of thought has changed in a way that gives you plenty to worry about. There used to be a time, I can barely remember, when Republicans were against Keynesian policies and thinking of very goldwater in particular, and where Democrats were in favor of Keynesian policies. And of course, Keynesian policies are cut taxes or stimulate or increase government spending or possibly both to get the government or get the market going again. So one party of the Democrats favored that and another party of the Republicans opposed that. Well, I wish it were the same today, but it's not. Now what we have is both parties are hardcore Keynesians. And the only difference is how they want to stimulate. So you see the Republicans as favoring a Keynesian tax cut stimulant and the Democrats favoring Keynesian spending stimulant, leaving nobody with power there to argue the case for not pursuing Keynesian policies. We've got some pretty dramatic and persuasive voices in that direction, but certainly not the votes to do anything like that. I'll mention a recent quasi exception. And that's John McCain. You'll see why I say quasi. And that is because when John McCain ran for president, he took undue criticism for his opposition to the tax cuts. And yet the opposition was a very principled opposition that understood that, yes, we need to cut taxes, but we need to cut government spending too. What we need to cut is government, no tax so much and don't spend so much and you get yourself in trouble if you just opt for cutting taxes without cutting government spending. Well, that's the kind of argument that even Mary Goldwater would have made for that matter. Now I said I use the term quasi because if you'll remember, John McCain actually suspended his campaign in order to go to Washington and vote for George Bush's stimulus package. So when Bush came to show, he was a Keynesian for sure. McCain, I start to say in his defense, it's not much of a defense, would admit to himself that economics was his weak suit. That's not why he's specialized in it and of course it showed. So what I've observed as someone who teaches economics in various places and various groups, what I've observed is that the two most difficult people to teach economics, two most difficult audiences, are the military and the clergy because they both have a top-down view of how the world works. It's all top-down and they don't necessarily see that spontaneous order can work. Okay, we've got tax revenues now and here's just a little interlude to set the record straight about what my own preferences are and my own focus is. If we're going to talk about deficits, then willy-nilly we talk about government spending in taxes because if they're the same we don't have deficit if they're part we do. But I'll start out by acknowledging a book that I love it in spirit and even in substance by Franz Oppenheimer Eimer, it's called The State. That's actually a recent printing of the book. An older printing had the same type on it but instead of just being all red in the background, it just showed a large area with dead bodies lying all over it. So there's a certain conception of the state. But here's what Oppenheimer Eimer said, he says, there's two methods of acquiring wealth and one is production and exchange and the other is confiscation and threat of violence. Those are the two ways. And he identified these further is that the first is the economic means and the second is the political means. And of course he was in favor of the one and not the two and he went on to identify the government as the organization of the political means. So we could take a hard core view, almost a Walter Block view I guess I would say, okay enough already, we don't want any more taxes, we don't want any more government spending. And if I take that position, hey, my lecture ends right there, you know, not much else for me to say. And so I think it's worthwhile to go on and realize that some fiscal policies are worse than others, okay, even if you don't like any of them. So I'm going to have several questions I may not get to all of them we'll see. One is, does the tax take measure the burden of government? And two, are all taxes dollar for dollar equally burdensome? Three, are taxes better or worse than budget deficits? That's the one I want to spend some time on because I think we can get some ideas straight there. What's the case for the flat tax or the so-called fair tax, we may get to that. May not, and is a consumption tax preferable to an income tax? Here's where we have to tip our hat to Milton Friedman, who argued 25 or 30 years ago that the focus on taxation as the cost of government is the wrong focus, okay? He says government spending rather than the tax take is a closer to the mark of gauging the burden of government. He's just thinking in real terms, realizing that government spending is equal to taxes plus the difference between government spending and taxes, in other words that's the deficit, part of which would be borrowed domestically, part abroad, part borrowed from the Federal Reserve, who created it for the purpose and so. Ultimately, it's government spending that best measures the burden of taxation. Think of it in real terms, when the government spends, it's taking command of a certain amount of resources in the economy. That measures how much of the economy's resources the government takes to allocate according to its own preferences, leaving the economy with the rest of the resources. And so government spending shows you the burden of taxes plus the burden of government deficit spending in that sense. Dick Wagner, he's a public choice economist at George Mason, formerly at BPI, formerly at Auburn actually, taught here for a couple of years. He would add the burden of regulation and making the point, this would be a friendly amendment to Friedman's claim that it's government and not taxes that measure the burden of the government, it's government spending that measures the burden of government. And Wagner simply points out that many objectives that the government can achieve by spending, it can achieve instead by regulation. So in other words, it could spend money, it could spend funds, it could command resources to try to clean up the pollution that it perceives in industry. And that would be government spending that would count as one of the burdens of government, but it could alternatively just impose regulations on the economy. Just impose regulations on industry and make industry do what the government would have done by spending money and commanding resources. So there's a burden of regulation there as well. Later on I'll make the case that it's one thing to argue that budget deficits per say aren't bad except for allowing still more spending and more influence of the government, but I will argue that if the budget deficits are chronically large, and I had this, I wrote papers on this 20 years ago, and of course now they're getting more and more chronically large, then that gives us an additional burden that we wouldn't have if budget deficits were in a much lower range. We'll see how that works. Are all taxes dollar for dollar equally burdensome? Well, no. It turns out that some taxes strike at the heart of the market system. Those are the worst, okay. Those are the worst. And the best instance I could think of for this is Roosevelt FDR's undistributed profits tax. I know you've heard a lecture from Bob Higgs. He probably mentioned the undistributed profits tax, but whether he did or didn't, I'll remind you of it. During the Great Depression, of course, all sorts of regulations were imposed on the economy, and one was a very high tax up to 70% on undistributed profits. Now, you know what we mean when we say undistributed profits are the monies that are paid out as dividends to the stockholders, or that are even kept by the owners for their own consumption. That's distributed profits. The undistributed profits are profits that are plowed back into the enterprise so that it will grow. Now, imagine running a business, a small business, you've only run it for a few years. That's why it's still small. And when you make a profit, you can either pay it out in dividends and all those dividends go to holders of the shares, or you can retain it, but if you retain it, you immediately lose 70% of it. So this is a formula for stifling the growth of business firms. That's their major source, especially with small business. That's their major source of capital with which to become a larger, even viable system. So now, I have to admit, though, that Roosevelt's undistributed profits tax was about half, I say half successful, because there were really two purposes, one not so successful and the other successful. And the first purpose was to raise revenue. Well, you really don't raise much revenue if you tax profits that dearly. It just means that firms aren't so interested in trying to make profits if they can't keep about 30%. So that purpose wasn't successful. The other one much more so. The second purpose was to strike at the heart of the market system. Now it worked out. Roosevelt, I'm not sure more or less than Obama, I suspect maybe even a little more. Roosevelt had a seething hatred for the market. He was sure it was the market itself that caused the economy to be in the awful shape it was in. And some of the blame was coming back to him. And so he really despised business people and had this seething hatred. So he didn't have any qualms about imposing taxes burdensome as that. Now it turns out the narrower the tax base, the greater or I say at least more concentrated the distortion of economic activity and inequity of the tax burden. The narrower the base. And a good example of this is George, the first George Bush 41, his yacht tax. And I love this example. It makes a great classroom exercise. It made it onto my exam the very year the yacht tax was implemented. It was implemented in 1990 and finally eliminated three years later in 1993. Let me explain to you what the yacht tax was about. It had some resemblance to what's going on now. And that is tax the rich. But see, here we got a republic and we got Bush. Yeah, tax the rich. It had great public appeal. Because you're not rich, so tax the rich. And then we won't have any taxes ourselves. So tax the rich. Who are the rich? Well, there are people buying yachts. There are people who are buying luxury cars. If you remember the particular tax, it applied to automobiles, luxury automobiles in excess of $30,000. It was a little low for a luxury automobile, but for 1990 it was. You paid $30,000 for a car in 1990, you're doing pretty good. And of course, yachts. I mean, who knows how much those things cost. But we'll tax them. Now, it's a lesson here from, I like to say the Austrians, and certainly they are in it here, but Alfred Marshall gets the kudos for talking about the elasticity of demand. He's a British neoclassical economist, Mr. Neoclassical. And it turns out that the demand for yachts is elastic. In other words, the demand curve doesn't slope too steeply is the way it's depicted here. It's elastic. And Marshall identified three characteristics of goods whose demand were elastic. And one is that if there are plenty of substitutes, then the demand for the product will be relatively elastic. You'll just buy the substitute. So if you put a big tax on okra, all right, just buy Brussels sprouts. Those taste about the same to me. So you just quit buying oak by Brussels sprouts. Other things, if you tax cigarettes, what do you do then? Okay, I'll just buy okra. So if people smokers themselves, they can't think of a good substitute for cigarettes. Well, they buy the cigarette even though they have to pay more for it. And it's an inelastic demand. And you might not really say, gee, what are the substitutes for a yacht? And it turns out you have to think more broadly. You think how do the wealthy spend their entertainment dollar? It turns out there's lots of ways of spending your entertainment dollar. So I'm told. But lots of ways of spending. You can vacation on the Mediterranean or buy a couple extra homes here and there or whatever you want to do. And so there are substitute ways of spending your dollar. So the big yacht tax, so much for the yacht. Now a second criteria, which again may not seem like it's applicable, but it is, that a curve will tend to be elastic to the extent it takes a big chunk of your income. The price of that thing goes up and you have to back off. Now a lot of people's view, especially people in favor of the tax, assume that for wealthy people, nothing to buy a yacht. You know, you buy one this morning and maybe another one this afternoon. What the heck? But that's not right. If you look at the market for yachts, most of the people who buy yachts are paying a pretty good hunk of their income for the yacht. Now okay, there are some people there on up the scale that can buy yachts all day, but we won't worry about them. The market itself for yachts passes that Marshallian test. Then the third criteria is over time the demand curve will get more and more elastic. In other words, as time goes by, as say from 1990 to 1993, people find different ways of spending their money to buy yachts. So it's elastic. So look at what that means. If you throw a yacht tax on there, which is just to say, think of the saving of the supply curve as a cost curve, that's how much you have to pay for the yacht, the vertical distance. If you have a pay a tax too, well you just, the cost plus tax included is the S plus T part. Now if people bought the same number of yachts as they did before, then, wow, you know, the price is just way out of line. You have a huge surplus of yachts. You have people willing to supply that many yachts, but given the demand curve, not very many yachts would be bought. And of course that bids down the price of yachts, like so, and means you can stare at that diagram and see it that the extra tax that the yacht buyer pays is pretty small compared to the taxes levied on that yacht. And yet out of that tax included price, the yacht seller has to send to the government the whole yacht tax. And so the rest of the tax, it turns out, is not paid by the seller. It's paid by the people who are selling yachts, the people who are paying workers to make yachts and then selling them, all right? So it became apparent after just a few months really, and certainly more and more apparent as time went on, that the burden of the yacht tax was suffered by the yacht yard workers, all right? I don't know how much you know about yacht yard workers, but they're not in the upper echelons in the income bracket. They're way down low. And so they were suffering mildly. So the luxury tax hit the lower income people much, much harder than the upper income people for that reason. And I'm happy to say that this diagram went on to one of my principal's level exams pretty early in 1990 to get students to analyze the yacht tax. Through just watching the market, the people in Washington figured it out after about three years. And they realized they had to repeal that particular tax. Our taxes better or worse than budget deficits. And this first question I had on an old, old lecture I gave some time ago that bears little resemblance to the current lecture. But I saved that one slide just because that question just struck me as funny. Our current and projected deficits large. Well, we can take a vote and see. They're pretty huge. And what we have seen in the past not so much recently just because deficits are so, so large. But what we've seen in the past is that politicians try to explain away or try to excuse themselves for running fairly large deficits. And so they play up compared to what game. For instance, are they large compared to GDP? That's gross domestic products, total output of the economy. They can't even say that any more, at least not with respect to the total debt, which is about to hit GDP. The deficits, of course, are still fairly small compared to GDP. The annual increase in the debt is small compared to GDP. But as Edward Dirksen, an old-time congressman from Illinois, Senator from Illinois, said, he said, the major purpose of the GDP figure is to make anything else seem small by comparison. That almost anything is small compared to everything. And so that comparison is not necessarily a relevant one compared to private borrowing. It's not borrowing so much money compared to how much the private sector is borrowing. And of course, those two kinds of borrowing are very different economically. But equally important is that you can hardly excuse a whole bunch of borrowing by pointing out a whole bunch more borrowing. These are people competing for the same money to borrow. So I'd worry more rather than less if other people were borrowing a whole lot too. The same kind of a comparison. U.S. isn't so bad compared to the borrowing done by other Western countries. OK, Italy's ahead of us and so on. We're not the first of the line in borrowing, Greece and so on. But again, this doesn't make us feel better. This is even worse. We're doing all the borrowing. The U.S. government's doing all this borrowing. And a whole bunch of other countries are borrowing a bunch too, some more than us. All the more reason to worry. In fact, the comparison you want to make is compared to saving. In other words, how much is there out there to borrow? And of course, at the same time, borrowing has gone up. In this country, saving has gone down, which is of course why we had to have access to credit markets to get any borrowing done. And that's the ultimate comeback here. Well, we, compared to the world credit markets, we have access to world credit markets, and there's plenty to borrow there. And I'll say two things about that. This used to be a supply side, favorite supply side argument, that the borrowing done by the U.S. is just a drop in the bucket compared to world saving. So don't worry about it. The deficit doesn't matter, doesn't do any harm, because it's just a drop in the bucket. Well, wait a minute. We're borrowing about 40% of what we spend, which means 60% is taxes. And that certainly has some detrimental effects. So if we didn't collect any taxes, we could borrow everything in world credit markets. That's just two drops and a half in the bucket. Who would worry about that? There's something funny about that argument. And it turns out, I think, that if in fact we borrowed some years and ran surpluses others and borrowed other years and ran surpluses, then as far as this magnitude of comparison how much we're borrowing and how much is there to borrow, yeah, it wouldn't make that much difference. But you've seen these graphs are all one way and it's all up. So when you're borrowing year after year after year after year, then the cumulative effect of that can be catastrophic and cause a crisis, currency crisis, a breakdown of U.S. dollar and so on. And it'd be calamitous. So again, not a good comparison. I just put up a sample here because I want to show you now and show you how chronically large budget deficits can have a big negative impact on the economy. These numbers aren't too far from the correct ones. That is, government spending about 3.8 trillion, tax collection about 2.5, leaving 1.4 trillion to borrow annually, probably more next year, but that's a yearly borrow. And there's a bigger difference than you can see just by looking at the numbers. And it goes like this. Taxing is done in accordance with pre-known, maybe not too far in advance, tax code. And let's recognize up front that tax codes are very difficult to understand or way too complicated. They've got some perversities in them and in fact they're mostly perversities. But at least we know or can know or can hire an accountant to know what the rules of the game are. How are taxes going to be collected? So there is a tax code. Businesses certainly are attentive to that and they plan their affairs in order to minimize the negative impact on their firm of the taxes that they're going to have to pay. So in other words, they know up front much coming down the pike. Subject qualifications about the ambiguities in the code and the undue complications and all that. It is a tax code and it's better than not having a tax code. But look at deficits. I'll put this term on the board and ask how many have seen it. Has anyone seen the most recent deficit code? There isn't a deficit code. In other words, the government doesn't specify just where, just when and just how it's going to get the funds to spend over and above what it collects in taxes. And that creates an amount of uncertainty in the marketplace. Uncertainty that's not particularly bothersome if the deficit is pretty low. If we were borrowing 1.4 billion instead of 1.4 trillion then not having a deficit code wouldn't be a big deal. But if we're borrowing 1.4 trillion, it is. In business firms don't know just how that borrowing is going to take place, what aspects of the market is going to affect and how it will affect their business. It's called regime uncertainty and they just soon stand back and wait until they see something more specific before they put their money at risk. Now I can show you several possibilities. I'll show you how this works. You've got some choices to make. You can borrow domestically. You can't do that too much anymore because there's not that much saving and so just very recently. Borrow from the Fed or borrow abroad. All right? And these have different consequences. And business people don't know in advance which way the government's going to go. And it tends not to even at the margin where it does all three and adjusts at the margin. It tends to binge in one area until that causes trouble and then binge in another area until that causes trouble and then binge in a third area. So we can look at the consequences. If they borrow domestically, then that causes crowding out. There's going to be high interest rates as the government borrows money from you. Interest rates are high and business is crowded out. It can't pay that high an interest for funds to invest. It doesn't think it can make profits given those interest rates. Or it can borrow from the Fed. That's going on now to some large extent. But, of course, that's going to cause inflation. And then people have to figure out, well, when's this inflation actually coming? How bad is it? How do I hedge against it? Or it can borrow abroad. And that causes weak export markets. So if you're in a business that produces for export, boy, you better watch that borrowing abroad. What it means, you see, if the government wasn't running these trade deficits, that means that freighters would come from other countries with cargo in their cargo bays, unload, and buy goods in the U.S. to take them back to their home country. And so if you're one of the producers of those kind of goods that they tend to buy, you're in good shape. But if the government is selling its debt abroad, that means that when the freighters get here and unload, they don't put anything in their cargo bay. They just put Treasury bills in their glove compartment and go back home. And so if you happen to be in a business where you were producing for export, you're in bad shape. And if you're worried about that, given how high the deficit is, then maybe you just don't invest. And we can even put names on this, that at least in the early years, it's kind of between then and now, between Reagan and now, they've tried to use anything and everything in places to borrow. But Nixon gave us crowding out with high interest rates. Carter gave us inflation by borrowing from the Fed. Reagan gave us weak export markets by borrowing abroad. And the president since then have done a little of beach, mostly borrowing from the Fed and borrowing abroad, because you people aren't saving much from which to borrow. Now, there's been some serious study about this. And there was just a spate of journal articles that dealt with the issue of due deficits actually cause high interest rates. And let's see. Another spate of articles, due deficits cause inflation. And a third spate of articles, due deficits cause trade imbalances. Now, these are high power, top-notch economists slash econometrations that want good answers to these questions. Now, an Austrian answer might be something like this, due deficits cause high interest rates, well, they sure did during the Nixon administration. That's what he was doing, borrowing domestically. Due deficits cause inflation, well, he sure did during the Carter administration. He borrowed from the Fed. How about the weak equity? Well, he did in the Reagan administration, he borrowed from abroad. Okay? But that's two episodes for econometrations. So they use, the data they use is all the data from 1947 to present. What's special about 47? That's when it became available. That's when the data was available. So we'll use all available data in 1947 to present. And using all that data, that whole time series, can we say with some statistical accuracy that deficits cause high interest rates? What is the evidence? And let me report, I'll give you one answer, and then I'll pump you for the other two answers. Their answer is, weak and mixed, weak and mixed. We can't say for that whole period that deficits caused high interest rates. Okay? Well, okay, there's a whole notice that due to deficits caused inflation. They used all the data from 47 to present. What do you think their findings were? We could, this group catches on fag. We can make. Due to deficits caused trade imbalances. 1947 to present. We can mix. And so finally, finally someone did a survey article let's take all these articles and see what the collective conclusion is. Okay? Do deficits cause any problems at all? Don't worry, be happy. And of course, the problems that get caused are precisely come from the circumstances that you don't know what the particular problem is. It's sort of a two-tier problem. You're going to have a problem to deal with in planning your business affairs, A and B, you don't even know what that problem is. So that means that you're likely to sit on the sidelines and wait for better times before you invest your money. Okay, well, let me close there. Thank you.