 Well, welcome to the UK. Thank you, thanks for having me here. Well, thank you and welcome to the Adam Smith Institute, who's kindly hosting our event tonight. So what do you hope to accomplish on the opposite side of the UK? Well, really what I'm hoping is to increase the exposure of Iron Rand in the UK. Iron Rand has never really sold, her books have never really sold very well here. Her influence has been, I think, fairly marginal in the UK. And yet I think her ideas are so important, so valuable to both the intellectuals here, to the students, you know, I'm going to Oxford tomorrow and the day after. The idea is to try to increase the visibility of Iron Rand and her ideas, both to kind of those activists who are involved in defending capitalism on a regular basis, and to the young student population. And that kind of addresses my second question as well, which is what you see as the most important ways to promote Iron Rand's ideas in the UK when you mention the university's there. Yeah, I mean first and foremost, what we do in the US is we're really focused on young people. We're really focused on high school kids and on the universities. And I think that there needs to be translated here. People go through a period in their lives, probably between 16 and 25, when they're open to new ideas and they're willing to accept new radical ideas. We need to capture, get people to read the books at that point in their life and then more books we can get into the hands of students, the greatest success we will have. And then secondly, as I mentioned, I mean there are some really smart people working in a variety of different think tanks here in Great Britain on issues surrounding capitalism, free markets and so on. What I'd like to help them do is bring Iron Rand's unique defensive capitalism to the forefront because I think that without, as I'll talk about today, without that defensive capitalism from a moral perspective, it's very difficult to argue the case for capitalism in a way. I think that from an economic perspective after all, we've won the debate on capitalism works and we can talk about the financial crisis, but I think the economic problems were solved a long time ago by people like Hayek and Charmises and to some extent Melvin Friedman. The real case that needs to be in for capitalism is a moral one and I'm hoping to bring that kind of to the UK think tank and intellectual environment. Great, well thanks for your effort. So, once the current affairs then, the topic of your talk tonight, so obviously we're right in the middle of this huge financial crisis, it's an absolutely unful swing, we've got serious voices now calling for the nationalization of all banks in America. These are tough times to be a defender of free markets, a defender of capitalism, of private enterprise. So how do you answer those voices all around the culture today who say that the free market has failed? I guess I asked them what they're talking about because I mean the notion that free markets have failed is bizarre. What free markets is what I asked them? Where have you seen free markets? If free markets mean that the government is not interfering in the economy, if free markets mean that people are left to voluntarily deal with one another, trade, exchange based on contracts, based on mutual voluntary agreements, then we have no free market. Something has failed, but it certainly isn't that. If you look at the United States, which I'm much more familiar with than the UK, the two industries that are most affected by this crisis, the housing market and the financial markets, are some of the most regulated, controlled markets. Anyway, the housing markets, I could go through a whole list of various regulations that the US government has housing policy. As does the UK government, but in the US, it takes the form of anywhere from the fact that your mortgage is interest deductible. So if you take out a big mortgage, you can deduct the interest. If you rent, you can't deduct your rent. So in a sense what you've got is a situation in the US where the renters are subsidizing homeowners and people who paid off their mortgages are subsidizing people who have mortgages. So that's not free. That is a governance center to take out a mortgage, not just to own a home, but to take out a mortgage. These mortgages are subsidized, particularly mortgages for low income individuals. Freddie, Mac and Fannie Mae, these two institutions that together, as of 2007, owned about 50% of all the mortgages in the US in some form or another, back those mortgages. They were basically government entities, and they were able to buy these mortgages and provide very low interest rates because of a government subsidy. So some of those guaranteeing their debt. Freddie and Fannie have a huge responsibility for the crisis that we're in today. But housing policy in the US goes beyond that. There's something called the Community Reinvestment Act where Congress over the years has encouraged banks to lend to low income people. What does that mean? Lending to low income people means high risk loans, means subprime loans, subprime loans surprise, surprise at the core of this crisis. So there's the Community Reinvestment Act. There's the Federal Bank home loan. I mean, there's so many government entities. And that's just on the mortgage side. Then if you go to the actual building site, and this is something that is common with the UK, think of all the zoning, the environmental restrictions, the green belts. They restrict the supply of homes. So in the United States, in places like San Francisco, in the Bay Area, in Southern California where I live, there's very limited supply of where you can actually build homes. That's free, that's not a free market. The government telling me whether I can build on my land or not, that's not freedom. The government owning so much of the land. Most people don't know this, but 75% of all the land west of the Mississippi in the United States is owned by either federal, state, or local governments. That's not free, that's not capitalism. And then if you go to the banking sector, banks in the United States are one of the most regulated industries in the world. Every aspect of the banking industry is regulated from deposit insurance, which basically says that you shouldn't care which bank you give your money to as a depositor because it's guaranteed by the government up to $250,000 right now, which provides pretty perverse incentives to bankers to take on risk that otherwise they wouldn't. Two banks are controlled in terms of how much capital they should take. They're controlled in terms of what loans they could make. Interest rates are of course controlled by the federal reserves. Every aspect of the banking industry is controlled by governments. Again, what free market I ask you, what capitalism is failed? And then lastly, but mainly in a sense most importantly, the very existence of a federal reserve or in the UK, the Bank of England is a perversion. Here we have a government entity controlling interest rates, controlling the supply of money. Again, why not let markets determine interest rates? Why not let markets determine the supply of money? And the federal reserve and the Bank of England have such reach into every aspect of the economy that again the question has to be what capitalism, what free markets, what we can say unequivocally is this. The mixed economy, the regulatory, regulated economy, so the mixture of socialism and capitalism and the heavy regulation, that has failed. And now it's important to figure out what actually caused the crisis and get rid of that as I think it turns out what really caused the crisis is government intervention and that's what we need to get rid of. You've made a case there that it's the mixed economy that's failed rather than free markets. But even in the best of times, bankers and businessmen operate under this cloud of moral suspicion. Absolutely. And in this crisis there are all sorts of alleged mis-steeds that people point to, you know, the topical ones at the moment to the claiming of bonuses from nationalised or partially nationalised or at least failing banks. You know, there's this big fuss about John Thane with this massive refurbishment of his office and his bonus and so on. Is there really no case to say that the bankers and the businessmen have done something wrong here, even if the fundamental cause is the government? Well, first of all, I find it really amazing that the bankers have failed again. I think that in the last thousand years, probably every economic crisis that has hit the West was blamed on the bankers. And I think there's a reason for that. I don't think it's accidental that bankers always get the blame. And there are really two issues here. One is there's a long-standing tradition in the West that's anti-usery and most people don't realise but usury really used to mean interest of any form. So there has been a traditional suspicion of any kind of interest taking entity, banks, investment banks, all kind of financial activity has always been viewed with suspicion. And that goes back to the ancient Greeks and certainly Christianity in the Middle Ages picked up on this heavily. I think part of the roots of anti-Semitism have to do with the fact that Jews were the users in the Middle Ages because it was prohibited on Christians to do it because it was a mortal sin. I think Dante puts the users in the seventh rung of hell. So there's a sudden bias against this idea of usury, this idea of making money off of money. And I think one of the origins of that, which is I think the second cause, is the idea that, look, business is inherently self-interested. Businessmen go into the office every day to make money. Make money for themselves, for their shareholders, for their employees. They don't go into the offices every day thinking about how they can maximize the well-being of the public, of society, of the common good. And yet we as a culture believe that morally the standard of virtue is the common good. So if I say in a culture we live in today, this is in the public interest, everybody goes, oh, that's a good thing. But if I go out and say I'm doing this to maximize my profits, immediately I am perceived as something negative, amoral at best, usually amoral. Many businessmen can hide behind a product. So when Bill Gates makes a lot of money, he can say, look, here's a piece of software. You guys have all benefited from this software. I did it for you. I don't think he actually says that, but he could. And people see that, people get it. I got this benefit from this piece of software, or from this furniture, or from making a movie. Why do actors make so much money? Well, I got entertained by the actors, so that's acceptable. Bankers, on the hand of the hand, do something that's very hard for people to comprehend. They make our lives much more meaningful and valuable in numerous, numerous ways. But all these ways are very difficult to explain. It's hard for them to hide. They are greedy on the face of it. They're self-interested on the face of it. And it's very hard for them to hide behind any kind of product that they produce. So when we see bankers, we immediately think greed. We immediately think self-interest. And I would say, yes, that's true. And that's a good thing. This is Iron Man's innovation that self-interest is a good thing. It's not a bad thing. Yes, that's virtuous. Making a profit is a virtuous thing. It's not a bad thing. But in the popular culture, making a profit is a bad thing. Because it's not in the public, so-called public interest. So bankers always get accused of these kind of crises. Businessmen always get accused of these kind of crises because they're self-interested. And in our culture, self-interested view negatively. With regard to the particulars of this crisis, suddenly there were some bankers who did things that were fraud. And they should go to jail if they committed fraud. Anybody who steals or cheats or deceives other people should be punished. But I think the number of truly fraudulent businessmen is relatively small. And the ones that did commit it should be caught and put in jail. Other businessmen did a lot of stupid things. Bankers did some dumb things. But what's interesting is that there are circumstances that are created. And the Austrian economists talk about this quite extensively when they talk about the business cycle. When the Federal Reserve or the Bank of England flood the markets with credit, it is very easy for bankers to then mistake this basically inflationary money out of no way with real wealth. And to make decisions that after the fact look completely irrational and silly, but while you're in the midst of it, look completely reasonable. And I think that's what happened with this crisis. A lot of the decisions these bankers were making were being made seem reasonable when they made it. And not only that, not making the decisions often led your competitor to take a lot of market share from you. And just to stay competitive, you had to issue certain type of mortgages that today we look back and say, that was dumb, why would you ever want to issue these kind of mortgages without checking people's backgrounds or without getting their income state? Well, your competitors were doing that and they were doing it because they could basically raise money for almost nothing from the Federal Reserve because interest rates are so low. So they were willing to take on enormous risks because money was so cheap. So the origins of this problem really have go back to the cheap credit policies of the Federal Reserve. And yes, bankers made dumb decisions after that. With regard to the specifics of bonuses and offices, look, the problem here is not that bonuses were paid. If bonuses, if excess bonuses were being paid, if people are making more money than they deserve, whose problem is that? Well, in enormous circumstances, it's the problem of shareholders. I don't really care. As long as I don't own shares in Merrill Lynch, I don't care how much a CEO makes because the money he makes is coming out of shareholders' pockets. If they don't care, why should I care? The problem has become now that the US government or the British government have put money, taxpayer money, into these banks. Now it's a tricky situation. Who owns the bank? Who are the shareholders? Are taxpayers the shareholders? Now taxpayers care. But the solution to that is not penalized bankers or their owners. The solution is to get the government out of these banks. The government has no business owning any kind of business enterprise. They certainly shouldn't be owning any banks. If they are now going to be in a position to decide people's bonuses, people's salaries, next I want to decide who to give loans to and who not to give loans to. How to run a bank? They can barely do a semi-awful job at running the government, which is I think a relatively simple function. Banking is much more complicated than anything they do at Whitehall or anything they do from the White House. Banking is far more complicated, in my view, than being the president of the United States. I don't want a bunch of bureaucrats now making those kind of decisions. Bankers make mistakes. Who suffers? The shareholders do. The bondholders do. And that's fine. Let them go bust. Let them go bankrupt. Once you get the government involved, bankers make mistakes. We also. That is the problem. The problem is the involvement of the government in the banking sector. There is no right solution, in my view. If the government owns shares in a bank, I don't know what the bonus should be. I don't know what salaries should be. There are no shareholders at that point. The government certainly is not in a position to dictate these things, but they have to because they own the shares. The solution is to get them out of business. The government's function is not to run businesses. It's to protect individual rights that are the only purpose of government, the protection of individual rights. No individual rights are served by the government getting involved in the banking. Thank you. Very clearly, what President Obama is doing now stands in fairly stark contrast to what you're saying. We have this $900 billion stimulus package, which he's proposing, which he says is absolutely vital without which there's going to be a disaster. People talk about deflation and another great depression. What do you think is very clear? What do you think of that response? Why do you think that's wrong? What do you think is the right response to that? First of all, let me defend Obama and say Obama is no worse than Bushwards. This is not a Democrat versus a Republican thing. Even if you look at the Republicans in Congress, the entire objection to the stimulus plan has been we don't want $900 billion, we want $8 billion, $7 billion, or $6 billion. The whole notion of stimulus bill is ridiculous. The idea that you can somehow get the economy going by, in a sense, taking money from some people and giving it to other people is ludicrous. Where does this money come from? Where does an $800 billion that they're going to approve or maybe have approved already come from? Well, they have to borrow. In other words, they're taking money from the private sector from people who have savings and they're going to take that money away and then decide how to distribute it. Government is not very good at making those kind of capital investment decisions. The private markets are much better. So what we're doing is we're sucking $800 billion, this is the number, $800 billion out of the private economy, savings of people, and then we're handing out a bunch of bureaucrats to distribute to their favorite causes, which is basically what's going to happen. To imagine that that has a positive impact on the economy is just absurd. The $800 billion in the private hands is not sitting in somebody's mattress unused. It's sitting in banks that are lending that money. It's sitting in private equity funds that would go into hedge funds. It would go into real investments in the economy. All that money would be invested in some way or another in the economy if the government didn't stimulate. I didn't use this $800 billion supposedly to stimulate. I would actually argue, and by the way, this has never worked, so FDR tried this during the Great Depression, spent at that time in probably equivalent dollars today, he spent about $500 billion, and that didn't help the economy. The US economy was as bad in 1939 when World War II started as it was in 1933 when FDR took office. Unemployment was still double digits in 1939. Nothing had really happened economically from all their money being thrown at it. And Japan, of course, tried this in the 1990s, and they went through what's called the last decade. Nothing happened in their economy in spite of the government spending hundreds of billions of dollars on infrastructure projects on so-called stimulant. I would actually argue the exact opposite. If you want to stimulate the US economy, the best thing to do is cut government spending. Stop government borrowing. If the government borrowers less money, that frees up more money for individuals and savers and institutions that are private to make investments in the real economy. It would reinforce the market mechanisms that are already at work trying to recover from the disaster of the last year or so. Get the government out of banking. Get the government out of housing policy. If you want to do anything, cut corporate income taxes. Cut the capital gains taxes. Cut income taxes. But don't increase your debt load. Debt that you can't pay off. The only way to pay off this debt is by printing money, which causes inflation. So the long-term consequence of this so-called stimulus plan is inflation. Instead of that, what you want is to get the government out of the economy. You want to get governments out of regulating the banks in the way they do, out of regulating home ownership and cut government expenditures informatically. That will really... If Obama was cutting $800 billion from the US budget right now, the economy would boom, which is completely counterintuitive for most people. But the more government takes, the bigger chunk the government takes, the slower economic growth is going. So there's no case in your view for government action to halt the fall in the supply of money and credit. I think there is. You've got a problem. Once the Federal Reserve becomes the land of last resort, once the Federal Reserve is responsible for the monetary system, it has to do something when money and credit collapse. And I think the Federal Reserve, by increasing the money supply and by buying some of the debt and by lowering interest rate, is probably doing what it should do given the fact that that's its responsibility. And I would argue there should be a Federal Reserve to begin with. We should have a private banking gold standard and let private bankers deal with it. And then you don't get these widespread depressions, which you get as maybe localized issues, but you don't get systemic risk the way you do right now. But other than the Fed, the government should have no role in this crisis. It shouldn't be bailing out banks. The Treasury shouldn't be bailing out anybody. They should have let business collapse. They should have let AIG collapse. The Federal, the Fed's job was to continue to provide the liquidity into the market as these things are happening. And it's done that. Whether it's done well or not, I think we will know in a few years when we look back at the data and see how well they performed. It's an impossible job. So the Federal Reserve almost never does a good job. It either undershoots or overshoots and tells them where the right price is. So I don't know exactly what they're doing wrong, but I can almost guarantee what they're doing is wrong. But other than the Federal Reserve, there should be no government intervention in the economy. Just leave it alone. Let the market sort this out. And ideally, extract yourself out of the economy. As I mentioned, the government should be extracting itself out of the economy, extracting itself out of regulations, extracting itself out of spending all this money, private capital into the market. Last question. Slightly more generally than just economics. Obviously, President Obama has just taken office. What do you think more generally of the start system of office and what kind of cultural changes do you think that will bring to the US over the next four years? Well, I mean, I think it's going to be interesting to see. It's not exactly clear, I think, yet what those changes are going to be. He's come in with an unspecified agenda, an agenda of change without specifying any of the content of that change. A lot of his nominations so far have been kind of centrist nominations. But I suspect he is going to govern from the left of his advisers, so he's going to be pushing them leftwards. I think that you're already saying greater suspicion of markets, greater disrespect for capitalism, greater humility when it comes to American humility when it comes to its values and when it comes to foreign policy. And I think you're generally going to see a shift to the left. Now, granted that shift started with Bush. I don't like letting Bush off the hook here because Bush is to a large extent responsible for the shift to the left. The Republicans in Congress spent money like they were socialists, never mind Democrats. Bush increased regulations of American business like almost no other president in decades. Saul Bain's Oxy being the obvious example, but many other forms of regulation. So government involvement in the economy has grown under Republican administration. It's continuing now with Obama. It's going to be interesting to see what kind of impact, I think, the overall that has a negative impact on the economy and its ability to recover. I think the US economy will recover, but I think it'll be very slow and very painful and very volatile. I think we're in for probably a decade of very volatile economic news coming out of the US. We might see a recovery, but then probably another recession following that. I think what we're really setting ourselves up for with Obama is whether it's in four years, probably not, but maybe eight to 12 years, another swim to the right. The American people, I don't think, will tolerate a permanent shift leftwards. The real question that's going to be for America is what kind of shift to the right that it is. Is that going to be a shift to the right towards more of their kind of religious conservatism that has dominated the Republican Party now since the 1980s, or is it going to be towards free market principles? That I think is the battle of the next decade. Because this shift to the right is going to have a permanent impact on American culture. I think ultimately the right is going to have more impact on America than the left does. And if it's religious right, then it's doom and gloom. I'm very pessimistic about the ability of the US to recover from that. And right now, that's the direction the Republican Party is heading. But if you think of the religious conservatives, they do not believe in free markets. And they certainly don't believe in freedom in our personal lives. They want to control economic life and want to control our personal lives. They are more inclined towards fascism than even the left is. And therefore I think they are ultimately long term, a threat to American liberty that exists. What the real challenge is going to be over the next decade is to establish, reinforce and fight for a right that is pro-free markets that leaves individuals alone both in their economic life and in their private life that leaves religion out of politics but really is pro-markets and pro-capitalism. And that's going to be a real struggle with starting off at the deficit. This is not going to be easy. Both the left and the religious right are far more powerful than the pro-free market right is. The job is going to be to try to change that.