 Have two questions for you. Um, is that all right? Number one, you said that because of the Federal Reserve trying to Keep the housing bubble intact. We have these problems today. What exactly is the correlation between the Federal Reserve's actions and the current economic crisis What's the connection? Can you rephrase that? What is the connection between the Federal Reserve trying to keep the housing bubble intact and the current crisis? That we're in? Well, it's sort of a following up What the Federal Reserve has been doing is trying to keep the economy Inflated to you know through the Treasury and through the Federal Reserve actions to what mainstream economists would be say is Maintaining aggregate demand in the economy by spending more money and providing more money For the banking system so that the banks feel like they have plenty of money on their balance sheet You know pretty money and spending money is what basically got the economy into trouble in the first place So the idea that borrowing more money and spending more money can get you out of the crisis Just doesn't make any logical sense What Austrians view is that you have to allow economy to go into a corrective phase Where instead of maintaining prices up you allow prices to fall Now that means wage rates are gonna fall that means housing prices are gonna fall and the prices of most goods and services are gonna fall But what happens in a corrective phase of deflation is that capital prices fall a great deal Stock prices fall land prices fall Real estate prices fall tremendously labor doesn't fall quite as much and Consumer goods don't fall quite as much people are still gonna buy gasoline. They're still gonna buy milk They're still gonna buy food and so forth. So if you look at that situation Capital prices have fallen dramatically labor prices have fallen, but consumer goods are Still up there now. What would you do in that type of economy? anybody Make consumer goods exactly you'd put you buy the capital cheap you buy the labor cheap you'd put them together and make consumer goods so Mises has an example of the business cycle where he talks about a master builder and so this master builder is planning a house and he has a certain amount of materials to build the house and When the Federal Reserve prints a lot of money and lowers the interest rate it essentially makes producers feel like they have a lot more to work with a lot more stuff to produce with and so for the master builder it's sort of like him thinking that He has a lot more Housing materials to build with then he actually does It makes him think he has all the all these bricks that he didn't really have and all all this concrete That he doesn't really have and so what the master builder does is that he starts making plans for a house That he doesn't have the materials to finish So he in you know on his blueprint instead of making a Rectangle of a certain size he makes that size bigger and then he starts committing resources to a house that size Now if if you lay the groundwork for a house that you can't finish and then you start laying bricks for that But you can't even get to the roof of the house because you don't actually have the materials to finish a house like that Eventually you start to realize you you don't have enough materials to build that house So then what you have to do is you have to break down what you already built up You have all these bricks in this huge rectangle, but you can't finish the house at that size So you have to break down what you've already built You've got to break down the partial walls and then start a more modest prod project and so in a boom and a bust of The bust is when you start to realize that you have to break things down you have to liquidate you have to fire people you have to to Start your project on a more realistic level and that that's painful but it's necessary so People often talk about the boom and the bust and they talk about the bust as a bad thing But actually the bust is a good thing because the bust is where things are getting corrected and what to your question what the Federal Reserve is doing is it's Making it so that the market can't correct. It's keeping the house builder the master builder Thinking that he's richer than he is so it's making him continue to build ambitious houses that he doesn't have the materials to build and So right now even though the economy feels it feels to us that the economy is bad We're we still might actually be in a bubble even the conditions as they are now We still might be mal-investing investing in the wrong things Because the Federal Reserve keeps pumping out money that keeps making Producers think that they can create ambitious projects that they can't actually finish question My name is Jason Parker. I'm from Huntsville. My question is for mr. McCaffrey Do property rights copyrights and similar conventions do those count as Socialization in the economy and if so, can they either be privatized or discarded completely? Yeah, the the question is about patents and copyrights and whether or not they sort of qualify as socialization To some extent this is a controversial topic. I am personally of the opinion and I think probably the majority of Austrian economists and deterrents at this point are in agreement that patents and copyrights are really not Justifiable Or at least not in the current form in which they exist. So in a sense you could consider them Not as socialization per se, but it certainly has a part of the the process certainly as a tool of government intervention And particularly as a way of eliminating competition. So in that sense, yes, they are part of the socialist They are part of a socialization process in the sense that they seek to eliminate competition There is some people have suggested various ways in which they might exist on a free market but As I said, there's some controversy here and it's it's not a completely settled issue, but for all intents and purposes Yes, I mean, I think we consider patents and copyrights to be an economic bad as opposed to an economic good This question is sort of for anyone when the housing bubble did burst or even when it was building up He said it hit sort of the entire westernized world That when that happened were there any places that were able to predict or avoid it in a way and what did they do? You know the question is about the worldwide housing bubble because indeed the housing bubble or housing bubbles Have taken place in many many countries around the world and we've seen financial collapses in places is as different as Spain and Iceland and Ireland Greece is not much as much of a housing bubble situation But it's a general financial contagion that continues to this day I've just been researching the economy of Norway, which is going through a massive Housing bubble in terms of their the prices of housing in that country rising and so ours was the first housing bubble and the first to collapse but Housing bubbles have spread throughout the world Based on central bank expansion And they've continued to go beyond our own housing bubble And to affect many places Is diverse as Iceland and China? Given that we exist right now. There's an international division of labor and specialization So we there's a world market So it's very difficult to run and hide from you know the actions of any One central bank or any, you know one economy. We're all integrated now I mean, so probably the only place of the housing bubble really didn't hit was North Korea You know given that it's completely sealed off from the world economy, right? But then North Korea has been giving up the advantages of the international division of labor. So, you know, so Yeah, I mean, it's it's a worldwide more or less worldwide phenomenon questions Can you talk a little bit about? What has been going on in Argentina since the 1980s just I mean, that's I know that's a big story But just in terms of lessons that you guys have been able to take from that that you could share Yeah, the question is about Argentina Fortune our expert on Argentina could not be with He's he's actually given a keynote address at the Austrian Scholars Conference of Canada So I don't know is anybody up on the Expert but there's a What I what you can learn is the you know the problem with high levels of debt And that's the biggest lesson that I think to learn from some of the experiences in Argentina and in fact to prominent economists a Reinhardt and Rokov They've written a book called this time is different and it's basically a historical analysis of all Instances of currency crashes and hyperinflation etc. They find that Every time there is a debt Crisis most governments have historically tended to try to inflate that debt away And that is probably the biggest lesson to learn from some of the experiences in other Latin American countries as well that the perils of building up unsustainable levels of government debt and how that can basically, you know lead to governments choosing to print too much money and then the cycles of hyperinflation and All the social, you know chaos and the breakdown of the division of labor as a result of that One of our online students has a question for everybody here They were asking if they would abolish the Fed if we would abolish the Fed Outright or if we would take a gradual process So yes That was easy Well the Fed is Integrated into the overall financial system a lot of our paper checks for example and electronic checks are cleared through the Federal Reserve system and so it's something that you can't actually Shut down turn off the delights and lock the door because a lot of things have to go through the Fed and And that sort of thing but you can shut down the Federal Reserve's intervention into the financial market simply by Not allowing the Fed to become involved in the federal funds market The buying and selling of government bonds and things of that nature whereby they rig Interest rates in the economy so you can immediately shut down the pernicious effects of the Federal Reserve on day one and then gradually work the mechanical integration of the Fed into the financial markets in the economy and eliminated entirely Another option which has gotten some attention also is the option of allowing competing currencies So for example, there was a congressional hearing on this topic I think a few months ago. So, you know allow Competition and currency with the result that basically the best currency will kind of win And of course that is not going to be one which is constantly being you know inflated Of course, we also like to see a return to the gold standard that Coin-based money Based on commodity money Where would you describe where we are in the existing business cycle with the housing bubble and the and the inflation and also would you Say that there is a safe place to store wealth The question is where are we in the existing? Yeah, well the the thing is so of course we've seen we saw the boom for several years and then we saw the crash as well The difficulty is that because of what the the Fed is doing in terms of trying to Continue to prop prices up and sort of do what it believes is Sort of salvaging the economy, which is actually making it worse But because of what they're doing there hasn't been It's not likely the crash has gone As far as it possibly could have so it's it's not we're not Sort of back to the start where we were before the boom. We're sort of somewhere in between and a part of that because of again because of Current Fed policy in response to the crash is that we may actually be Not just at the end of one bubble, but at the beginning of a new one And so then of course we have the problem of trying to figure out exactly where the bubble is if there's a new one forming exactly what it's in So um, so yeah, I mean my answer would be that we're sort of Sort of at a middle level between the worst possible crash Which as as dandy pointed out would have been the actually the best course of action to take and the Peak of the the boom so we're sort of somewhere in between and we're also sort of somewhere in between the end of one Cycle and probably the beginning of another Probably the best way to think of it is that we've taken a housing bubble and instead of allowing the crash We've as a nation the government has taken on a tremendous amount of debt At all kinds of debt the Fed balance sheet is you know filled with debt And so the one place that we're sure that you probably don't want to store your money is in that kind of bad debt so Couple years back though ballman administration supplies supplements to college students trying to get loans by artificially lowering the interest rates would that mean that there's a college bubble forming Yes, they subsidized the student loans And so students took out more loans and more students went to college By use of loans and so the the ultimate Pile of student loans out there in the economy has grown much larger than it otherwise Would have been I mean you could argue that there's possibilities of the bubble forming there No doubt about that. Yeah Yeah, and I would just say that it's important to Recognize the differences between two different kinds of bad effects that there there are bubble effects where the The government creating money lowers the interest rates and directs investment into channels that are not feasible in the long run and and then there are also effects where the government is is sponsoring a certain kind of Productive activity and so they're funneling resources Towards that and and that direction of resources has nothing to do with consumer demand And you can you can have that even without any kind of a boom bus cycle You can have that even without inflating the money supply just governments directing resources where Where consumers aren't Demanding goods at the end of that production process Would anyone like to comment on the currency crisis? I know we've been kind of stepping around it and saying that there's possibly another bubble forming So in any way if there is a currency crisis, you know How is this going to be in any way different from other crises or bubbles like a bubble in currencies and debt amongst countries How would this be in some ways different from a debt in housing or I mean sorry a bubble in housing or a bubble in Like student loans or something like that. How how is this a different kind of crisis because Instead of being an actual goods. It's now in Government financing means it's a little bit different. I guess per se then The current crisis that we've had recently like the dot-com bubble or stuff like that My exercise in here You could think of the currency crisis if it does happen and hopefully it won't As a result of these other bubbles in the sense that because as dr. Thornton mentioned I mean the fact that in order to stop the housing bubble from playing out You have basically taken on huge amounts of government debt And then what do you do when you have these huge amounts of government debt which are impossible to pay off historically speaking? You know in historical episodes most currency crises have been highly, you know Not only but definitely prominently caused by unsustainable pile ups of government debt and going back to you know question about Argentina and Latin America That's something we can gain from historical experience. So you can think of the currency crisis as in a sense the An unhappy but you know the worst possible culmination of for example the housing bubble So instead of allowing the liquidation to occur instead of allowing, you know The debt to be liquidated most importantly instead of allowing those all those factors of production Which have been kind of sucked into the bubble sector So I mean if you think of the housing sector as a you know a mass pump You know and kind of all the factors of production have been sucked into that you need the labor laborers But also all the other you know goods which are used in producing houses But could be used to produce other things to you know move away from the housing sector and be more rationally Allocated instead of allowing that if you have you know kind of propped up that those affected parts of the economy and done that by Bill you know going into debt Then if you want to pay off the debt by you know basically inflating the currency then the currency crisis in a sense is the culmination of You know you're not allowing the normal course, you know to take place enough to liquidate the bubble I'd like to also go back to one of the older questions talking about patents So there there's an important distinction that Misa straws between Prices and monopoly prices and the difference between the two is that most of the time And people when entrepreneurs make production decisions Let's say that an entrepreneur is Is producing a certain kind of good and then he decides to Pull back on production well most of the time in the market the reason why an entrepreneur would Make production go down of certain along a certain line is because The he thinks that the factors of production that go into that line would be better Served in a different line. So it either he's always following consumer demand. He's always Trying to follow the orders of the consumer Mises characterizes the market economy as Consumer sovereignty that the consumer is king So the entrepreneurs are constantly trying to to follow what the consumers want and so when they restrict production in one Line it's usually because they think the consumers really want those resources to go in a different line But with monopoly prices, which are almost always because of government intervention what happens is that because of Because of a certain shape of the demand curve entrepreneurs Sometimes are able to increase profits by restricting production and they're restricting production Along a certain line not to redirect Think those those factors into another line to better serve consumers but just because they can get higher profits that way and and that is called a monopoly price when when producers are for example able to just Gain profits by just burning some of their crops Because of the effect that that has on their profits that that makes their profits go up And so Mises said that on any price for a patented good Any price for a patent or a copyright is a monopoly price that when you have a patent on something You you have such exclusive government-sponsored control over the thing that you're able to Increase your profits not by redirecting resources towards another line that consumers want more but just by restricting But by restricting your production on the thing you have a patent over just for the sake of profits And and so that that that would be why Pat patents are don't help consumers Yeah, it's sort of a more general lesson that you could draw from Austrian economics and the seminar is that if you look around the economy And you look around at where things are expensive and getting more expensive and Other areas of the economy where things are cheaper and getting even cheaper What you find is that if you look at the high-price stuff that's getting more and more expensive like health care college Education price of oil what you find is pervasive government involvement in those businesses with things like patents and copyrights and Licensing and so on and so forth and then when you go to other areas of the economy like cell phones Computers Things of that nature. Well, those are cheaper. They're good. They're they're cheap and they're getting cheaper and they're getting better My first cell phone I bought in 1989 it cost like $900 And it came in a big bag weighed like 18 pounds and it was 30 cents a minute to make a call and This huge battery like the size of It was about the size of an iPad it would hold a charge for like an hour and a half Things have gotten better The discussion of centralized money in centralized Centralized monetary control can be seen historically as an answer to the problems that were Created by the decentralized system you had before that. How do you? Decentralize again while avoiding those problems. Yeah, so as far as the the origins of centralized control of money and so on I consider it's actually it's really not the case that Before we had institutions like modern central banks that Banking was an entirely free industry and that that a free market in banking created crises and things like that that that's actually a It's an error that a lot of economists make But if we go back and examine the history you find out that prior to the formal institutions like central banks We have today there was very often government manipulation of the supply of money and banking Which actually caused the historical Crises which are sometimes attributed to the free market. There's a options have done a pretty large amount of research on the various different Panics and depressions that occurred historically and have shown pretty convincingly that They were in fact caused by Early forms of government manipulation of the money supply rather than a competitive banking so Did to answer the second part of the question? There the drawbacks of central banking Simply don't exist under competitive banking. So our return to some sort of competitive system would not entail any The invitation of any serious economic problems I mean your question is is very calm. It says has a complicated complex answer But yeah, just to add to what Matt said It for example, just if you take American banking history Before the central banking, you know, you had for just as one example of a certain Restriction on banking banks could not, you know branch, you know have branch banking plus They in some key insight sometimes they had to hold government debt as part of their reserves So, you know, since they were kind of using government debt to kind of you know pyramid off that to kind of print money off that Or could expand their loans based on the amount of government that they held So it's there are there are many, you know details and there's a lot of scholarship out there on these questions Yeah, but I mean it's it's hard to give a short and ready answer to that because it is a very complicated, you know It requires a lot of subtle It's subtle, you know problem Yeah, I'd like to talk about what why competition helps and why competition Makes it harder for banks to inflate and create these problems. We've been talking about this whole time so when With a bank, let's say that there is a guy who Is holding gold for people so people have gold and that's the money and and he's holding it for them and So sometimes when people want to get their gold and they want to spend it on something They'll come to the guy and they'll ask him for their gold and so he gets them the gold But some sometimes they think, you know, that's not really convenient and so Instead the guy the the banker Creates a money ticket For the amount of gold that they gave him And it creates a paper ticket and that ticket is worth a certain amount of gold of the guy's gold And so instead of coming to the guy getting the gold taking it to the store and using the gold to spend it He just takes his ticket that's good for that certain amount of gold and gives the ticket to the store to buy stuff Okay, and so before you know it people aren't even really using their they're using gold directly They're just using tickets to buy things and that's what that's what paper currency Originally was just these tickets But then the banker guy he gets this idea. He thinks wait a minute People are they don't come to collect their their physical gold all the time They're just using these tickets. They don't know how much gold I have in in the vault Why don't I just? Print up a whole bunch of tickets even for more gold than I have and people will accept that as as Real gold and I can make myself richer just by creating all these all these tickets and As long as all the ticket holders don't come asking for gold at the same time I'll be fine. Nobody will find out that I'm kind of defrauding all these people But the thing is is that banking is a competitive industry So now imagine there's another bank in town and and that banker. Yeah mark here. I've been defrauding people and mark Knows that I've been doing that and so then he gets a whole bunch of those tickets and he comes He he wants to put me out of business so that he can get more business for himself So he has an incentive to come to get a whole bunch of tickets and try to Try to get all the gold for me all at once I don't have all the gold and so I say sorry I don't have all the gold and people realize what I've been doing and then they don't have any trust in In me as a banker anymore. And so that's the way banks competing with each other Helped to reduce the amount of extra tickets that are being produced Reduces the amount of extra money that's being created But but what happens with the government is that they they monopolize Banking so that they they eliminate this competition so that the the bankers are free to inflate as much as they want Without competition We're out of time. I'd like to thank you for joining us here today and for joining us online It's been a great pleasure. I'd like you to help me Thank the sponsored donor of this event and the faculty