 This is Mises Weekends with your host Jeff Deist. Ladies and gentlemen, welcome back once again to Mises Weekends. This week our show features my appearance earlier this week on my friend Jay Taylor's radio show called Turning Hard Times into Good Times, which aims at a financial and mining stock audience. We talk about the big picture aspects of the U.S. economy. What's going on civilizationally with debt and central banking with the seemingly endless wars in the Middle East and with the poisoned political landscape in Washington, D.C., despite the lack of any real policy differences or meaningful policy differences between the two dominant ideologies of our day, namely neoliberalism and neoconservatism. So stay tuned for an interesting radio discussion about the state of things in Washington and beyond. Thanks for joining me again, Jeff. Good afternoon, Jay. Really good to have you with me again. How are things going at the Mises Institute? Well, they're going great, not going as well with the economy at large and with what we're being told about the economy at large by people in the financial press and by people at the Fed and by the administration and even by the politicians themselves. We are here trying to get what we would consider proper economics education out there to the public. Would your economists, the people that work with you, agree that maybe things are a tidbit better than they were during the Obama years but grossly overstated by the administration, by Wall Street? Well, they might be better in terms of the traditional measure of GDP, which of course is somewhat artificial because it includes government spending, among other things, and it also makes a fetish of exports over imports. So we're not big fans of GDP as a measure of the economy. But yes, I think a mainstream person could take a look at unemployment and GDP and say the economy is humming along pretty well. Here's the problem. The problem is that since the crash of 2008 and the Obama years, there are many measures that have gotten worse. Certainly worldwide debt, global debt, both at the governmental level, at the business level, at the household level have all increased since 2008 and nobody has a real good answer or a real good plan of what we're going to do about that. The other canary in the coal mine is that interest rates remain very, very low. There are still negative or almost negative interest rates being sold on European bonds. The federal funds rate here in the U.S. is below 3%. These are very abnormal interest rates historically and they haven't produced the kind of robust economies that everyone thought that they would after this long of a period. And here's the problem, Jay, is that let's say interest rates went to their world permitted to go to their more historical averages somewhere between 5% and 10%. Well, that would be an awfully big burden for Congress to bear in terms of their debt service as a line item in the federal budget. So there is still, I think, by our standards, anemic economic growth. There is still understated inflation. There is still understated unemployment. And most importantly, there is a mountain of debt that hasn't been dealt with. Well, the Keynesians say no problem. We can just create more debt on top of debt. We can create more money. Money, after all, is created out of thin air or on the backs of debt. It's not an asset-based money. It's a debt-based money and no problem, Jeff. We can always print more of it. And indeed, every time we have a breakdown of the system, that's what they do. Can you envision another round where something like 2008, 2009, or God forbid, worse happens that would just end up being that much more government money, federal reserve money that's created out of thin air, that puts people further into debt and allows government to have more control over their lives? Because that's what I think is the ultimate price that we pay is that indebtedness means that you become a slave to somebody if you have debt. Well, there's no question that they are not going to allow another crash like 2008 to happen without being far more aggressive on what last time they called QE, which was buying treasuries and mortgage-backed securities. This time, I think it'll go farther. I think yesterday we had somebody at the Boston Fed suggesting, if we have another recession, that the Fed ought to start buying stocks, which, of course, the Japanese central bank has done openly for years and years. So instead of the Fed being the buyer of last resort for treasuries, imagine it being the buyer of last resort for the Fang stocks or for the S&P 500. It's certainly not too far-fetched. And here's the thing. It may be true that we can go from $20 trillion in debt to $40 trillion in debt. It may be true that we can gin up some measure of positive GDP growth by stimulating the economy using monetary policy. But what we don't know is whether that can last and last and last forever. I think most Keynesians, Paul Krugman among them, would say, well, the dollar is the world's reserve currency, and it's backed by the full faith and credit of the most powerful government and military on Earth. And as long as interest rates are low, it just doesn't much matter. That doesn't jive with history. It doesn't jive with common sense, and it's unprecedented. And I think that the people who are suggesting or cheering these really extraordinary measures, remember that term, extraordinary monetary policy, which we heard so much in those first couple of years after the 2008 crash, I think those people ought to be called out onto the carpet and asked to explain exactly how extraordinary became ordinary and how it's going to work going forward. I don't think they have much of an explanation. I think they want us to believe that they are technocratic experts and that we shouldn't think of these things in terms of common sense or even the big picture civilizational questions. We ought to just sort of shut up and let them steer the ship. But we've seen before in 2001 and 2008, they don't much know what they're doing, and I would argue they haven't much known what they've been doing since. No doubt about that. Well, it seems to me, Jeff, if the Fed can go out, create money out of nothing, and Switzerland, by the way, has done this too. They've been buying American stocks from what I understand, big market cap stocks. If the Fed can create endless amounts of money out of thin air and go out and buy all the American resources and all the resources around the world, it would seem to me that basically what you're doing is putting more and more wealth in the hands of fewer and fewer people, which is, of course, what's been happening in spades since 2008, 2009, but a lot longer back into the past than that, all the way back. I would argue until 1971 when we went off the gold standard that you start to see actually the hollowing out of the middle class and the redistribution of wealth to the rich, to the elite, right? Yeah, it really is one of the biggest untold stories in U.S. history. David Stockman tells a lot of it in his book, The Great Deformation, which was written just a few years after the crash. I'd love to hear more from him now with the advantage of a decade of worth of hindsight, but it really is an almost unbelievable transfer of wealth from the monied classes to the non-money classes. And if you read David Stockman, there's a particular chapter in his book, and if you believe David Stockman and agree with him, that chapter lays out how and why the Wall Street crisis would not have spread to Main Street, that it could have been contained through simply allowing more firms, other than just laymen brothers, to go kaput and allowing the investors in those investment houses to lose money and allowing the shareholders and those commercial banks to lose money and liquidating the bad assets at the time, rather than reinflating a bubble that we're staring at today, which is actually larger, as I mentioned earlier. So what really happened is that an awful lot of Wall Street connected people got bailed out and weren't called out to have skin in the game. They weren't required to take the losses, so they managed to use government and the Fed to socialize their losses when for the last decade or so, 20 years before that, they'd been privatizing the gains. It's a very unholy process and the problem is, Jay, is that it gives our friends on the left a lot of ammo to say, see, look at what free markets do. They just help those greedy rich guys. And we say, no, no, no, that's not free markets. That's government meddling. That's monetary meddling by the Fed. But to an extent, our friends on the left are right. There is a class of undeserving rich who have been enriched far beyond what they've produced in terms of value for society. They move money around rather than actually creating goods or services of value or even acting as a clearinghouse that moves money to its best and highest uses. When the FDIC, when the Fed, when TARP, when Congress, when whoever comes along and bails you out, that creates not only an artificial economy, but an artificial group of rich folks, fat cats. So one of the worst things about all of this is it has blurred the distinction between free market capitalism and cronyism in a way that helps the narrative on the left. Yeah, it does. But then on the other hand, there are, you know, a lot of those rich people are people that are very much, their politics are very much on the left, though. Do you think that's maybe a way for them to... Sure. I mean, if you look at the financialization of the economy, Wall Street overwhelmingly donated money to Hillary Clinton, let's say, over Mitt Romney or over Donald Trump. If you look at the Fang stocks, which I would argue are some or the whole Silicon Valley startup industry, the venture capital industry in Silicon Valley, which I would argue is grossly inflated due to artificially low interest rates. Silicon Valley donates more than 80%, something like 90% to left or Democratic politicians. So there's no question about that. But here's the thing, Jay, that's so interesting. I saw Jim Carrey, the actor, famous actor was on Bill Maher's show the other night, talking about... We have to start thinking about socialism. We have to stop treating that as a dirty word. Now, his net worth is estimated between $100 and $150 million. So here's the thing. Let's say it's $100. If you wiped out 90% of his wealth, he'd still have $10 million. If you wipe out 90% of the wealth of the average show who has maybe $40,000 to his name, well, he's done. So that's the thing about elites is that we never talk about the diminishing marginal utility of money. Going from $0 to $1 million is a lot more important than going from $100 to $101 million. So we never talk about that. We never mention or they never mention the Warren Buffetts of the world, that Jim Carrey's the world, that they will still be elites no matter what. So the amount of skin they have in the game is suspect. Yeah, and if you look at the average people, and I'm thinking, Jeff, if we go again another kind of a financial disaster of one shape or form or another, anything like we had in 2008, 2009, I know that the powers that be have set up everything for what they'll call bail-ins the next time. That is, they will simply decide that if banks go bankrupt, and legally they're on sound ground to do it because most people don't realize that when they put money in the bank, they're actually lending their unsecured lenders to the bank. So if the bank goes bankrupt or has problems financially, it can take those and default on those loans, essentially, on the deposits that people put in the bank. And I guess that probably most people are unaware of that, or they just think that $200,000 or $100,000, whatever it is, FDIC will always cover it, right? What are your thoughts about that? People should be rest assured that they're going to be just fine, that they've got $50,000 in the bank, it's safe and secure. Well, the FDIC is utterly insolvent in terms of its potential payouts. There's no question there's not enough FDIC funds, which is actually funded by banks themselves. There's no question that FDIC does not have the money to bail out every investor, bank investor in the US or depositor, I should say, up to the FDIC limit. So that's absolutely mathematically true. But what a lot of people don't know is it's not just banks. You might want to take a look at the terms of your money market or mutual fund accounts as well. A lot of mutual funds allow them to freeze or suspend withdrawals, and a lot of them allow them to pay you in another asset owned by the fund rather than in cash. They could gin up a supposed fair market value of some other stock from another fund that you didn't hold and pay you in that. So it's not always so obvious that you're going to be able to redeem your money. What you think you own tends to be a lot of electronic blips on a screen and data stored on a server somewhere, and that's not the same thing as money. I think we're all a little bit naive about that, and that's okay. I don't mean to... We haven't had big crises in this country. Real bank runs since the 30s, so a sense of complacency and inertia to be understood. But I'll tell you what, people who live in a lot of places like Venezuela sure wish that they had some stuff rather than some bank notes at this point. Yeah, a lot of places. Argentina, again, going a lot of countries, emerging markets having problems right now. Well, Jeff, your boss used to, Ron Paul, used to talk about one of the reasons there's so much rancor and so much hatred, and this was before it's gotten as bad as it has now, is because the more government does, the more they divide us. You pass a law that helps one group, you hurt another group, and so on and so forth. Would you blame a lot of the... Most everybody wants to blame Donald Trump for all the rancor, all the hostility that's flying around these days, but to what extent would you say economic policy, for example, or taxes or one thing or another is really what your boss was talking about, what Ron Paul was talking about. You're hurting one group to help another. Do you think that the government policy, growing government power, is really more than anything else, what's dividing Americans? Yeah, isn't it interesting? I guess I stopped working for Dr. Paul at the end of 2012, and those seem like quaint nostalgic days compared to now. Trump was not yet on the scene, at least as a presidential candidate. Look, they're dividing us in ways that we just couldn't even imagine. And I heard Bob Murphy, some of your listeners will be familiar with the economist Bob Murphy. I heard him say, look, look at the way the economy is going right now and we're all at our throats. Imagine if we had this degree of identity, politics and hostility. But with the crash of 2008, what would the landscape look like then? There's no question. There's, from a pure policy perspective, I mean actual implemented policies. There's not a whole lot of difference between Trump and what maybe Hillary Clinton or Mitt Romney or somebody else would have done. They all would have sort of continued doing what we're doing in the Middle East. They would have sort of continued doing what we're doing in terms of monetary policy with your own power. They would have sort of continued what we're doing with tax and regulatory policy. And here's the thing. If you could take a person to isolate them, hypothetically, and not expose them to any people or media, social or traditional media, since the election of 2016, and put them in some town in Wyoming or someplace, they probably would not be able to tell any difference in their life as a result of Hillary Clinton winning or Donald Trump winning. But if you go on Twitter all day, you think that this was the biggest seismic event in the history of politics, that the whole world somehow just fell off a cliff and changed forever and ever on that date. So this is hyperbole. And what really bothers me is we're going to hear for the umpteenth time this ridiculous narrative about how this is the midterms coming up or the most important elections of our lifetime. If I hear that one more time, I think I'm going to lose my lunch permanently, Jay, because it is the biggest crock. I mean, even as the divisiveness and ranker is growing to almost epic proportions, identity politics, the actual policy differences are narrowing. They're narrowing each and every day. And we saw this at McCain's funeral. We saw how the media reacted to this guy who represents neoconservatism and Hillary Clinton represents neoliberalism. And you can barely squeeze a dime between those two ideologies in terms of their actual implemented policy. Not what they say, not what they claim to care about, but what they actually do in terms of policy. There's not a dime's worth of difference. And that's what makes this whole thing so absurd. And sometimes it makes me wish, and I hate to say this, but sometimes it makes me wish we didn't have social media because it's bringing out the worst in us. Yeah. Well, it certainly seems to be fanning the flames, that's for sure. And it's just so much rancor and hatred. And I don't think there's any need for it. I really don't. Although it seems as though I did want to ask you some things today. We're just about out of time, so I don't think there's going to be time. But in terms of some of the policies that Donald Trump ran on and some of the things he talked about, to me seems pretty close to a lot of the things that Ron Paul was espousing. That would be less military action overseas, less action and doing more trading with other countries. I don't know if you feel that way or not, but in terms of policy now, not anything to do with their personalities because Dr. Paul is a very educated person, very smooth, very reasonable, very nice human being. I don't know. Don Trump anywhere nearly as well. I did meet your boss a few times. And to me, he was just always a gentleman, a very caring person. But putting aside those things, I think Trump wouldn't have had Ron's understanding of economics. That's for sure, but he had experience in business and probably has a sense of what would be good for the country. But it seems like the idea of anybody wanting to cut back the military spending, a military industrial complex, it just isn't going to happen. Yeah, and it's so tragic. Even if he just left everything else alone, if he left Korea alone, if he left Russia alone, if he left Iran alone, and just take your pick, got us out of one of the following. Got us out of Yemen, Syria, Afghanistan, or Iraq. If he just got us out of one of those four and did nothing else, you'd have to view his presidency as a success relative to the last two presidents since 9-11. And the fact that he can't even do that, despite whatever temperament he might have or might have had going into this thing, shows you the power, the power of the foreign policy lobby on both sides of the aisle and just the power, the inertia behind the status quo. I mean, to think that we couldn't even get out of one of those conflicts, we can't even get out of Afghanistan at the longest war in U.S. history, unbelievable. All right, Jeff, we just got a minute. I want to mention that you said in a speech that I watched at the Mises Institute on your website at Mises.org, you were pretty upbeat about things you said to some students that you were lecturing. You said intellectual landscape today is far more favorable to markets and Austrian economics than 30, 50, or 100 years ago. With 30 seconds, can you comment on that? Yeah, I think it's true. I think especially after the Great Depression and after Keynes released his general theory, there were a lot more people who thought socialism and communism were the economic future for the world and this was inevitable and they would never have predicted what would happen in the second half of the 20th century. So the fact that we're even talking about free markets and libertarianism, I think, is a great, great stride forward and the fact that we can do so openly and robustly and that there's plenty of content anyone can go read, I think is a huge victory and we ought not to sleep on it unless the questions didn't have the lecture.