 So this is the first time in this building this week that I'm addressing all of you But for those who went to the karaoke bar, this is not the first time where I've been on a stage with a microphone looking at you guys This what I'm talking about that my time on the battlefield I think they they picked this for me because I've been out recently and engage in several debates With with various people of different schools of thought and so I think that the idea is that you know You're all here this week sort of learning the theory But then you're gonna have to go out in the world and and apply it So I don't know if you guys I've been reading a lot of Harry Potter with my young son And so if you're familiar with that series, I guess this is more like the defense against the dark arts class where I'm gonna be I Didn't know if that joke was gonna work or not. All right Because now Seinfeld references are too old apparently I've learned that with the younger crowd. Who's that? okay, so Like I say, I'll so I'm gonna walk through and I'm gonna try to give you a little flavor of both on the one hand Just telling you how these things happened and what and what transpired but also and then talking about a little bit of the flavor of the The content involved just you know sort of some of this stuff is that you're not gonna get during this week in any other lecture So I'll just bring up some of these things But then also if there's any Chance for me to explain, you know why it went well or why in retrospect I should have done things differently. So I'm gonna give you that sort of feedback also So the first one I'm gonna talk about is I had a debate with this guy Carl Smith. Who's a new Keynesian economist? Super nice guy and everything and this was hosted a few years ago on the Mises Academy site and so we actually it was like it was a pay-per-view event we charged admission and everything and And he you know talked to his fans and I talked to my fans and we got everyone to come and and so we he was a good sport about it and it was My opinion this was of all the things I'm gonna talk about this was the best Debate in terms of just each side presenting its position and not mischaracterized in the other one I also like this one because everyone agreed I won this particular debate So it is a special place in my heart, but even Carl said that to on his blog later He he wasn't conceding that he was wrong in the issues, but he was saying that yeah, I didn't win that debate Bob did so the title of that is Government spending can play an important role in boosting economic growth if you're curious and you want to watch it on YouTube That's the you know the YouTube title And when I was going into this Gary North actually emailed me shortly before the debate occurred And he gave me two bits of advice. He said first of all Decide beforehand who your audience is are you trying to convince academics or are you trying to convince the layperson? You just he said you can't just flounder You have to decide going into it who your audience is going to be and then make sure that you cater to that style Don't just flip back and forth because then you might end up, you know not persuading anybody So I think that was a good piece of advice. His other bit of advice was don't lose and that's also important and and he was even elaborating and saying that you know because You know I'm more known than this guy wasn't these certain circles and so like it would look bad You know if I beat him no big deal if he beat me would be catastrophic And so he was saying don't lose and it's sort of yes, sir Okay, you know made me study more before going into that thing and that's that's true in general I just you might you don't think about word is Austrian fans of the Austrian school and libertarians obviously anytime we do something Then that's gonna reflect on us because we're in a minority viewpoint and our opponents are certainly not afraid to Take something that strictly speaking has nothing to do with the content of our ideas and then use that to discredit the school So just keep that in mind also. I mean even when you're here in Auburn, you know You're here with the Institute and you kind of rep you know Represent us when you're out in the community You know make sure you don't get in bar flights stuff like that And if you should get arrested this week and the cops says do you're clearly not from around here? What brings you to Auburn you say I'm here for an economics conference taught by Paul Krugman You write that down Okay, so what were some of the issues that came up in this particular debate with Carl Smith So he brought up the so he was trying to justify when it could be Advantages for the federal government to engage in deficit spending So let me just very quickly give you that position to make sure you're aware of it because I'm that's another thing too If you're gonna go out and debate with Keynesians and think you should at least be aware of what their standard Position is so you don't come off as if you're just reflecting what they used to say in the 1950s for example So the modern new Keynesian Sophisticated argument for deficit spending goes like this. They say in general So first of all, what what's a recession in the modern sense of the word for them? It's when there's a shortfall aggregate demand and so there's not enough spending either investment or consumption In order to for businesses to be willing to hire enough workers to achieve full employment So the issue is how do we stimulate more spending? And they in the the new Keynesian will say Normally you don't need fiscal policy Fiscal being when the government spending and taxation decisions that it can all be done through monetary policy in the US That's the Federal Reserve just cuts interest rates and then it lower interest rates That makes businesses want to borrow and invest more and makes consumers more willing to spend more They don't want to save as much the lower the interest rate gets pushed other things equal and so that normally you just the Fed just keeps lowering interest rates until you have Restored aggregate demand to where it needs to be to ensure full employment, but they say In certain situations sometimes like in the present situation The nominal interest rate meaning the actual market rate, you know not adjusted for price inflation If that gets down close to zero then the Fed can't push it any lower than that Because nobody what would it mean to have a negative nominal rate? That would mean you'd lend out a hundred dollars today and then get paid back like ninety five dollars a year from now So nobody would ever agree to that because you'd be better just sitting on your cash And then having it earning a zero percent nominal rate of return So the when you hit what the Keynesians called the zero lower bound or something just abbreviated ZLB They're saying then it's not advantage or the Fed kind of runs out of traction It can't push nominal rates lower so it can't stimulate spending in the present any more by working through interest rates And so they say that opens the door for the efficacy of fiscal policy So now in order to stimulate aggregate demand the federal government should run a budget deficit So that's the this is the standard new Keynesian way of justifying Deficit spending and so they'll I'm just bringing that up partly because they'll say don't accuse us of always favoring deficit spending No, we don't it's only under these certain circumstances namely when Interest rates are basically zero. So that was one thing he brought up another Issue he brought up was he was saying look at there's this thing called the output gap And that's if you look at the CBO and these other government places will estimate the trend in GDP so You know if you're pitching a chart from your point of view like here's GDP is going like this And they call a potential GDP and they go upward trend and then actual GDP falls off a cliff right around 2008 and so they're looking at that gap between the two lines and he's saying there's nothing, you know It's not like all of our physicists died. It's not like all of our engineers suddenly hit a heart attack in 2008 It's not like there was an explosion in the factories It's not like a comet hit and so there's nothing that happened to our Infrastructure there are physical ability to create goods and services Nothing seemed to change From you know 2007 into 2008 and yet the actual output fell and you see workers sitting at home watching You know more a povich or whatever the shows are now and Instead of going in the factory and you see it's not just that the workers are unemployed But the factories are running at 70% also. So there's all these what's called idle resources. He's saying so you know Clearly there's a role for if the government comes in and starts deficit spending and puts these people back to work There's no opportunity costs or there's very little opportunity costs because we're basically just sucking all of these people and Inanimate resources that right now are doing nothing back into producing things So how could that be bad so that you could see where he's coming from from that perspective? Okay, so I made a few points, but let me just summarize two of them for you So one is I said let's first of all just to try to understand the debates between the people Arguing for government intervention specifically deficit spending during times of recession versus the people that say no, that's going to be a bad idea Let's first I can switch analogies and or switch context and use an analogy from the medical field and suppose there's some You know patients that have a certain kind of illness and there's one group of doctors and they say we recommend this medicine X this new new form of medicine and every time they give it to these patients the patients always get sicker right and Now so that would seem to be in these other group of doctors are saying no that it's actually poison It's not medicine and see they're always getting sicker It's not a coincidence that whenever you have a patient who received the biggest dose of that thing You're calling medicine that that substance acts that patient is the sickest. We've ever seen All right now the so that right there does not prove it one way or the other So really what would happen is the first because there's what's called, you know issues of correlation versus causation And it's possible that they say well, yeah But we only ever recommend these this particular medicine to somebody who's already sick who has this condition It's not we just grab people off the street and randomly give them this thing. And so, you know, just like you wouldn't say necessarily oh Hospitals are really bad for you because look at how many people die in hospitals See what I'm saying like hospitals are far more dangerous than amusement parks because looking at over time Clearly more people die in hospitals than amusement parks, right? So that you could see how the danger and reasoning that way. So that's what the defenders of this medicine would do But okay take it one more step. You just come back and say all right fine. You're right. It doesn't prove it It's just prima facia evidence that maybe this this substance is harming people So how would you want to do it? You would want to go in and do a bunch of controlled studies ideally you'd want to take thousands of people who have this condition Or this sickness whatever it is and then give some of them The standard treatment and then give other ones this new substance acts and then look between those two groups and try to control as much As possible to keep it apples to apples and then see what happens so yeah you don't want to compare it to people from the general population, but you'd want to look at it that way and If it still turned out even within those sub samples that will know the people who got the Substance acts ended up doing worse than the people who didn't then surely you would start to come around to our perspective That that stuff is poison And at the very least what you couldn't do what would be crazy is if you pointed at a patient Who started out kind of sick you gave him the medicine or substance acts? They got even sicker in fact got worse than you thought upon your initial diagnosis And then you come back and say it's a good thing We gave him substance acts because this person was sicker than we realized you see I'm saying that that would be a completely legitimate it might be correct, but surely the burden of proof would be on you and you need to use other Evidence to establish the potency of this thing is medicine So I walked through that and then I applied it to the debates over what's called stimulus spending Versus what's been called austerity and it dovetails pretty nicely that there are countless countries And you know different not just the US but all over you know Europe and so forth throughout the decades of the 20th century a lot of data points of Countries that were in the midst of a battery session and they were their governments were running big budget deficits partly because Tax revenues fall and then what did they do they cut spending and that's the way they tried to get out of it And they recovered you know a few years later, and it was fine, and then we don't even worry about that anymore There's plenty of cases like that what what's been called expansionary austerity in the mainstream literature And I said on the contrary I don't know of a single success story that the Keynesians point to if you ask them and say When did your idea work? When was there a bad economy and then the government came in and spent enough in Order to jump started out of it to my knowledge they still can't point to a single one that you know They could what they'll do is they'll use a counterfactual. They'll say that oh You know in 2009 without the Obama stimulus package things would have been even worse and so there That's an example of success But you see that no you don't you can't use that it actually things got worse and they try to justify it by saying well The economy was worse than we realized and so it's a good thing. We had that stimulus Can you imagine unemployment would have been 20% if we hadn't run up a big budget deficit? So that's the point I was making there as far as the output gaps that concept Here I got a little fanciful and I said okay Let's imagine a silly little thought experiment, but just to make my point here Suppose everyone goes to bed one night and enters these magic gnomes and during the middle of the night They take all of the capital equipment in the country and rearrange it Right so they take all the cows that were on you know farms and they put them on Wall Street And they take all the computers and stuff from Wall Street, and they move it to Iowa All right and all the hammers now are all over distributed uniformly around the country and the nails are all up in Alaska Things like that right so everyone wakes up at eight o'clock the next morning, and they go to start to go to work I'm saying in terms of the type of aggregate statistics that Carl Smith was pointing to Would you did the capital stock go down? Well, no not really not not in terms of aggregate You know how much what's what's capital K in the US economy now? It's the same thing It's just they change the locations around in in a Keynesian model the location of a particular capital good I mean that's far too fine of a Distinction to even get into the model because they're those models are so crude and they're aggregated So I was saying in that world what would happen obviously actual output of real goods and services would collapse like a lot of people Probably starved to death pretty soon right the Machines would start would stop running and so forth The you know the farmers would go out to milk the cows and there would be a bunch of supercomputers sitting there Right and the people would go into Wall Street to do their derivatives trading There'd be a bunch of cows going to the bathroom on the floor right so what would they do so you can see Actual output would collapse and in that context You know there'd be a big output gap because the CBO would still be drawn You know the the upward trend of Output and you can just you can see how there would I mean they would they can theoretically handle that and they would say Oh, well, it was a supply shock and therefore, you know the trend line of potential GDP should shift downward But my point was the Austrian diagnosis of what actually happened during the housing bubble and collapse was to say There was mal-investment and so the capital structure the structure of production got Disarranged and so it no longer meshed, you know, the whole the pieces were no longer sustainable and Coordinated in terms of the stages of production the way that Roger Garrison would go through in his power point in terms of a hacky and triangle Once you understand The rudiments of that approach you can see how things can get out of whack And so if the Austrians were right and that is what happened well, then it was impossible They could not the economy was not physically capable of Cranking out goods and services at the same rate as it had been doing Few years prior to that because it was it was using up intermediate goods and not replacing them in the right combinations And so the capital structure became more and more unsustainable So there had to be a drop in output while things were reconfigured So that's that's the analogy I used to show and so obviously in that silly little gnome thought experiment it would be Ridiculous if somebody said well, we just need the government to run big deficits in order to jump start production because you know For some reason people are afraid to spend you can see other thing. You know, that would clearly be the wrong diagnosis Okay, let's move on another thing. I took part in it was not a a face-to-face Debate, but it has been called the great that debate of 2012. Let's call that by me. So It's true to see it has been called And in this one, so if you're interested, I'll give you a little flavor of what the main issue was But then if you want to read more I Wrote a very long one-act play entitled the Economist zone on my blog So if you Google the Economist zone Murphy, you'll probably Get it. It'll be one of the top hits And it was I was it was riffing on the Twilight Zone So the point was there was a guy in the story who goes through and encounters all the arguments from the various economists and by the end He's driven crazy. And so it was like a Twilight Zone episode So that was the premise of that and there's links in the thing that I wrote, you know To the various people so you can if you really want to go and backtrack and see the various sides of the bait Alex Tabarak from GMU when I sent this piece to a few economists to say hey I know Sometimes this stuff gets in the weeds and you know people are arguing about something but this is actually pretty important So here's the summary of what happened I encourage you to look at this and he wrote back and said Bob that was truly brilliant And I've always liked Alex from that point, but um He's a good guy. Okay, so What was the what was the the debate under issue here? So the problem what and this is something that I actually changed my mind on it so the Paul Krugman and Well, it was actually Dean Baker originally Who he's got this website with a cute name called beat the press and you know instead of meet the press It's called beat the press and so this guy Dean Baker who's a big Keynesian economist Will just find news articles where he thinks people in the mainstream media are saying silly things Not fully appreciating the the insights of Keynesian economics, so that but that's why just as an aside You know how people who are like fans of Ron Paul get so frustrated the mainstream media Everyone hates the mainstream media even the the Keynesians hate them too. So it's it just goes around So anyway, so that that's the premise of his website beat the press and he was going through and so there was one guy I think it was David Brooks, but I'm not certain about that that had written some op-ed just matter of factly claiming that You know one of the drawbacks of these large government deficits, so this was a few years ago when the deficit was bigger one of the drawbacks of these things is that we are Leaving a bigger burden to our grandchildren instead of dealing with our political problems or economic problems like adults Ourselves and we're shifting it off onto our grandkids and having them deal with it He said something like that and that's very typical Language for people when they're talking about government deficits So the idea is if you run up a government government deficit today It's like the present generation is enriching itself benefiting from that spending assume for the minute that you thought it was good for the government to spend money And then it's passing the bill on you know not to today's taxpayers, but to taxpayers who haven't been born yet So that's the premise of this colloquial Commentary so Dean Baker went nuts and was saying this is just fundamentally stupid This is totally wrong and then Paul Krugman picked it up and amplified it So let me just summarize what they're saying the problem with that is they're saying Look real there's not time machines. It's if we're if the government right now runs a big deficit in order to give Healthcare treatment to senior citizens in a camp. It doesn't want to raise taxes And so it just borrows the money and that's how it pays for it. Look, it's not like we're literally using a time machine to grab MRI machines and things from the future and bring him to the present Clearly output decisions today are just rearranging how resources today are being used And so in a certain sense the the present generation is always paying for present output Whether it's taxpayers or people that are lending the government the money, you know The lenders are restricting consumption in order to be able to buy government bonds and to finance the deficit And then another way of seeing it is to say it's crazy to just look at The the government debt that's getting passed down to our grandkids because you know, they're thinking oh my grandkids get born and start Growing up and become taxpayers now a Lot of their effort is going to be taxed just to service the in make the interest payments on this humongous government debt That's that much bigger because we ran big deficits today And so Krugman and Baker were pointing out but wait a minute There's other and we might not be the same people But there's other grandkids they're gonna be alive and they would have inherited the government bonds They're gonna be the people receiving those interest payments At that time, so it's they're saying yes There could be distributional impacts from running a bigger deficit versus a smaller one today But in terms of just looking at our grandkids who are gonna be alive in a hundred years It's just a shell game It's just you know the government might tax some of them to make interest payments to other ones But the future generation as a whole is not gonna be impoverished by that except if you get into issues about You know if you raise taxes then people don't work as much and that kind of thing But in terms of just the the payment itself the payment of interest payments on the debt that per se is just a distributional issue So that was their position and I actually thought that that was right and that and that yeah The real issue of government deficits is that it crowds out private investment and so on that in other words the problem is I thought when a private investor lends a thousand dollars to the government so they can Run a deficit payment Then that private investor can and lend it to private business and so what ends up it So yeah, we make the future poor because we bequeath to them a smaller capital stock So that that's what I was thinking so that's still true What I just said that mechanism is still there and that is a problem with government deficit spending because it crowds out private investment and then if you if you don't think that the government spends money as Wisely as people in the private sector do you can see why that would make our descendants poor? but in the course of this debate it was Dom Boudreau at GMU brought it up and he was citing James Buchanan's work To say what no you guys are just wrong There is a very legitimate sense in which government deficits today make our descendants poorer through a direct mechanism and then this guy Nick Rowan Canada also kept harping on that and so I Realized they were right and so then I jumped in and was really trying to clarify and it's Anyway, so a lot of us became I'll tell you in a second the in the intuition of it But it was like the three of us versus the world for a while And then I think we ended up convincing a lot of people or at least to see the oh wait a minute This is a lot more nuanced and so if you wanted to still agree with Krugman and Baker It was for a more subtle reason than you originally would have thought put it that way And so it got to be a got some publicity The Economist magazine even linked to you know this particular thing that I pointed out the Economist zone because it was Just a good summary of the back-and-forth. So the intuition I Hope I did a good job of at least making the Krugman Baker position plausible So you could see where they were coming from but that's wrong Because they're implicitly when they're thinking like that. They're assuming Everybody every generation just is alive and then dies and there's a new generation So if you're just thinking about okay, we're all alive right now. We're the current generation We run up big deficits of some of us lend money and some of us Consume and then we all die and then give the bonds the Treasury bonds to the next generation And now the government taxes half of them to give money the other half Well, then it looks like a big wash and then it just seems like you know every generation just it's per capita output and consumption is Whatever the physical resources are and clearly pieces of government paper Don't affect physical resources, but the problem is Generate it's not like that that if you instead of you picture it that right now There's old people who are alive and young people and the old people are gonna benefit from deficit spending and the young people finance it by You know buying government bonds The young people's right now their consumption goes down and then if time passes Now when the government taxes the new young people to pay off the bondholders It's not really just a wash in that sense because the the young people or sorry The old people now who are being paid off. They're just being made whole From the the loans they made before And so really what can happen if you just think about that I'll say it again. It's like today if the government taxes The current workers or sorry borrows a trillion dollars from the current workers To give a handout to the old people we can met medical care or whatever And then they the old people die off and now 50 years from now the government comes in taxes the new young people The grandkids to pay off the bondholders There's a very legitimate sense in which today's old people benefited at the expense of those future Grandkids who had no say in the matter. They weren't even alive when these decisions were made even if you believe in democracy They had no vote in the matter They get born and grow up in a world in which they have you know a trillion dollars plus interest of their labor income taken away To be given to the people who are now the elderly at that point So it's there is a very legitimate sense in which the standard man in the street saying oh government deficits make our grandkids poorer Because we're too chicken to raise taxes today and pay for the government spending we want There is a sense in which that's true because if it weren't you just think about it Why is it that the government runs such a big deficit if it were if it really were just a matter of redistribution? Regardless of the funding mechanism. Well, then how come the government chooses to finance It shortfalls and Social Security Medicare with deficit spending Why don't they just raise taxes on today's workers to fully cover that and the answer is because that that would receive house of protest That the people who lend money to the government today Think they're gonna get paid enough in the future to make it worth their while So that's actually not involuntary in that sense where the involuntary coercion comes in is When the bondholders get paid off because then the taxpayers who have to be taxed to pay them off That's not a voluntary decision, but the person who lends money to the government today Thinking he's gonna get paid with interest in 50 years That that's a voluntary decision. So that's another way of seeing it that something's fishy here How can it be? I mean the old people today like getting the deficit spending and the young people today Voluntarily lend money to the government. So it's like there's no losers today And then clearly down the road the young people who are being taxed are are not benefiting from that So there is a definite sense in which we collectively today Can enrich ourselves at the expense of future generations? So it's a very subtle technical point but it was just another it was interesting because It's happened so often the standard Keynesian analysis Went through because they were thinking of things in a very crude unrealistic aggregate framework They were just thinking of people alive today at t1 People alive at t2 and counting those as the generations and not being more realistic and saying wait a minute There's you know, some people die off and then the other people are alive Well new people are born and come on the scene and once you make it a little bit more realistic You can see that the man on the streets objection is actually perfectly valid Okay, let me move on Another debate that I participated in this was in June And it was if you go to youtube there's actually this particular debate now has over 5000 views on it It's the title of it on youtube is mmt versus the austrian school debate So mmt stands for modern monetary theory So they this is the guy his name is warren mosler And we had this debate at columbia university and was hosted but or moderated by john carney of cnbc if you know who that is so here the Now this was one where I was kind of frustrated with what happened So i'll tell you some of the debate, you know like the the content and then i'll just explain What happened in terms of the debate itself? So one thing just to warn you according to all of warren mosler's fans. He pwned me, you know the The pwned i'm not sure exactly how that verb functions, but apparently i was the recipient of massive ponage um So On the other hand, let me just tell you that this young woman in nashville Talked to me later after she watched it and her analysis of went like this. She said yeah Like throughout the debate mosler just kept making all of these points that I thought were I knew they were wrong But they sounded like good objections to the austrian position and you just kept ignoring it and letting them go and focus on other stuff And then finally in the closing remarks I realized all along you had just been giving him the rope that he would hang himself with And so then she said did you do that on purpose? And so of course I said yes, right But but in actuality it was it was on purpose that it was if you watch the debate You'll see like during it. He he was saying some things that I knew and I was just jotting notes saying okay, that's the real zinger I've got him on that point, but I just saved it for the for the closing remarks to get him there. So let me um Let me first explain that the like I say the the basic content and then I'll talk about the the flow of what actually happened in the debate so These guys modern monetary theorists They're they have a lot of points and if you want to read more on it Moser's got this book that I think it's called the seven innocent deadly Economic frauds something like that Um, and so you can go and skim that if you want to get a flavor where these guys are coming from So their point is they're kind of I would say slippery that on the one hand They try to make it sound like all they're doing is accounting tautologies and that no one could possibly disagree with what they're saying And yet then they supplement them with all sorts of very radical policy proposals that would have huge economic impacts And so it you know, it can't be it can't be both It can't just be you know from mere accounting tautologies these specific policy proposals don't just automatically pop out So that's but that's the rhetorical strength And you'll see like a lot of the comments the way a lot of the mmt fans dealt with me Is they would say things like mosler was saying describing how the world is murphy was describing how he wants it to be and and so you know that that sounds very Powerful, but as I point out my closing remarks Well, no mosler throughout this debate has offered all sorts of specific policy proposals Things like he wanted the federal government to give a ten dollar an hour transition job to anybody who wants it So people who are unemployed right now The government just guarantees we will give you transition work to try to get you to go back into the private sector employment at ten dollars an hour To anyone who wants it. Um, he wanted to make zero percent interest rates permanent because he thought Um positive interest rates were like a subsidy to the big bankers. He um wanted Unsecured that he wanted the fed to provide unsecured bank liquidity so that you know a given bank if it if it's In liquidity trouble Right now the fed couldn't before making a loan to it could say well, let me see the collateral basis loan and mosler's position is no fdic already You know states that these banks are fine if they're still being allowed to operate Then they've gotten approval from the green light from fdic And so we don't need the fed then on top of that To run these banks assets and balance sheets through another micro or a magnifying lens And so because of that he's saying to be consistent the federal reserve should just make Unlimited amounts of liquidity loans to banks that request them and so forth. All right, so my point is he makes some very strong policy recommendations so that clear this is not just him Explaining accounting to us. All right, so where he's coming from the the big issue is The mmt people say since governments left the gold standard There really is no budget constraint anymore in governments That's not an issue that you got to stop thinking of governments Like private households or businesses where they have an income and then they can't spend more than that or if they do In any given period then they need to borrow the difference and they have to worry about oh my gosh I got to service these debt payments Um, they're saying that's that's completely wrong that that that was true under the gold standard because then there was an external constraint on the government's financing that it needed to worry about if it's spent too much and couldn't raise the Unnecessary amount in taxation or borrowing then it could it could run out of gold reserves by saying now with fiat money That's not an issue And so for example when people worry about unfunded liabilities and social security and medicare that sort of thing saying this is It's silly to worry about where we're going to get this money from that that's the wrong way to look at it because The government can just print money And you know that that's that's no constraint and then they say now Admittedly that that's not a solution to everything that that's not that we can just do whatever we want Because there is the issue of price inflation And so yes and certain so so what they say is actually the function of taxation Is not to raise revenue for the government. They say the function of taxation is to Cool down aggregate demand when inflation gets too high All right, so it's a complete reversal of the way most people think about it So that's that's their position So I was trying to illustrate what I thought was wrong with that and I said, okay There's a sense in which what they're saying is technically true And and by saying that I just you know all the mmt people are up see murphy said he's right And I said but but hang on I said it's true the same way that the following is true So imagine there's a couple and they're they're meeting, you know at the dinner table And they're looking over their finances And it's just times are really tough and the and the wife is looking and saying, you know We've we've cut back on our expenses and which is this ends our meeting here I'm going to just take up a second job because that's the only thing I can see here And we'll have to put our kid in daycare that that's the only way this is going to make sense Because just with your income right now we can't afford to pay all these bills And you know this this budget is just just too tight And so then the husband says no no no you're thinking about this all wrong All I have to do is put on a ski mask and go down to liquor stores and start robbing them All right So this issue about we need more income is because you're you're misdiagnosing it now admittedly if I do that too much I might get arrested and go to prison So I'm not saying you know, it's a it's a solve all problems Approach here, but all I'm but I'm saying is you're misdiagnosing the problem Let's stop thinking of it in terms of we need more income instead Let's think of it as what's the optimal amount of my liquor store robberies right so Now now again, if you say Is what that guy said wrong? And technically no what he said is true But that's not useful at all in the discussion And if there's a growing movement of people who keep harping on that point whenever, you know Households are worried about their finances and keep saying all I'm saying is just rob the liquor store, you know That's all you got to do and you know, why aren't we talking about this? You know They're not helping at all and they you know the problem is they even though technically You know and so that someone could come back and say well, we could do that But what about these problems? I say yeah, we're not denying the the downsides of that We're just saying that this is actually the true situation that you have to stop thinking of it in terms of You need an employer to voluntarily give you a paycheck to cover your bills Don't think of it like that anymore because that's wrong. That's that's old school thinking. This is reality So you can see how that would be completely unhelpful So that's what I was saying was analogous to what mosler was doing when he was trying to justify All of these huge new government programs and to get people to stop thinking that oh, we had this crisis in social security And we need to You know get people to realize their benefits are going to get cut and blah blah blah and he's saying no No, you got to stop thinking like that It's just you know, the government has no budget constraint and then as an aphrodite Oh, yeah, sure. I mean there could be the issue of price inflation That i'm saying well, no all you've done is transfer the problem To a different area and made it that much worse because it's harder for the government Or sorry for harder for the public to see what's going on When prices are rising because the government's printing money Whereas if the government explicitly taxes you to pay for something You get a better sense of what's going on and the public's more uh suspicious of that So that that was the point I was making there um And so, you know, I thought it was a cute point and and we weren't even chuckled we were sitting right next to each other By the way, he's an extremely charming guy beforehand. We both got there early And he's just like Holding court because he had fans show up like people had mmt Hats and so forth and I was wishing I had brought my bombaver t-shirts to be handing out to people but And so he and he's a charming guy and I'm just sitting there listening to him And he's like sucking me and I was like wait a minute. I got to just get away and like I don't want I don't want this to like this guy too much. Um And so he's a perfectly pleasant guy and and so then he To illustrate his viewpoint used his own analogy that was even Crazier he was saying he pulled out a business card and he said I had these business cards warren molzer now If I just like tried to get everyone in this room to use it as a medium of exchange They wouldn't do it right nobody cares about these business cards But what if I told you that there's a guy outside in the hall with a gun And he's not going to let you leave this room unless you could give him one of these cards Now I can get you to like clean my house and do all sorts of things for these cards And that was he was explaining the beauty of his perspective with it with that And so I was just uh, yeah, that's what I'm saying you see I'm so And because just in case you're not getting lost So he's saying that because that was that's what fiat money is that the reason We all need to get fiat money is to pay our taxes because the government insists on payment In the form of us dollars and so he's saying that's why ultimately everybody has to scramble for us dollars That's why they have value in exchange and then it just spills over and now We just use it as a medium of exchange in general because we all have to you know get it Because there's always that tax bill that's going to be due that's quoted in us dollars So that's where he was that's where he was coming from with that And and like I said, so you could see so his followers were latching on to that and saying yes See that's a brilliant analogy mozer. So anyway, one part that was funny in this debate is You know after he won up the analogy and like he said he had said something, you know that was sounded worse Than um, you know because he was implicitly threatening everyone in the room Whereas I was just you know threatening these unseen liquor store owners with my analogy and so So after that so the end of the thing that's in the q&a And I'm just bringing this up because a lot of people thought it was funny So the first guy who gets it is this this real confidence swaggering guy is like Hey, uh, dr. Murph, professor murph. I was really unhappy with your analogy. It was very rude You're because talking about liquor store robberies and what I think you could get more respect to mr mozer here and and so you know that was the kind of thing and I was stunned because I said mozer's own Analogy was more inflammatory than mine was and and he chuckled and the crowd had been chuckling and everything So but the thing was I knew this guy. I was like that guy sounds he seems very familiar Who is it and it turned out it's mike norman if you guys know who that is if you go to the peter schiff was right on youtube He's the guy like in the second Batch of clips who like in 2006 peter schiff is with a bunch of people on cnbc and they're talking about The oh prospects for the housing market in 07 and the one guy says oh, I think prices are going to go up 10% peter schiff is up and he gives his real bearish thing And then this guy mike norman comes up and he goes. I don't have any idea what peter schiff is talking about What are you talking about? Oh, you know low standards for lending. What are you crazy? So it was it was that That guy whose confidence has not been diminished in any way since that episode So anyway So I guess But like I say it kind of threw me so I guess one thing is from from that episode is you got to just Go into it knowing that Like I said, also with with mosler's approach what you'll see if you watch it I was all prepared and I had I had read his book and everything and I was so I had all sorts of analogies tied to You know and I and we had questions that we did and that's probably what this young lady meant when she said at first She couldn't see what I was doing And then realized later it was a like a rope-a-dope strategy where I was I was getting mosler to admit things in the q&a And then I wasn't You know pursuing it I was just saying okay And I was just jotting down what his answer was and then it wasn't until the the conclusion that I then explained He said this this and this so therefore and you know, that was my my strategy But the the difficulty was I had to he never really explained where he was coming from. He just started out the opening Listing I think nine or ten of his proposals without giving any context and so Now maybe that's just because you know, his fans already know where he's coming from But whereas I was trying to explain the Austrian position And then I had sort of had to you know bring up what what the mmt's position was so anyway, I guess what I'm saying is The difference between this debate versus the carl smith one is carl smith did exactly what I was expecting him to do Where he came in explain his background His theoretical view of the economy and then explain why his policy proposals followed from that and then we You know exchanged a cordial debate on those terms whereas mosler just showed up and fired off a bunch of Policy proposals and didn't give it his background. So normally that that should hurt him But I'm just saying I wasn't expecting him to do that. So just Keep that in mind if you ever are debating someone like like don't Don't get phased if they don't do exactly what you want You got to be able to just adapt and then especially if you think you've got a real zinger of an analogy and then they Use an analogy that hurts their position even more than yours. Just take it in stride. Don't be don't be surprised. I say, yeah, exactly Okay, um, let's see A few more minutes David Friedman. So I debated David Friedman at porkfest Which is the short for the porcupine freedom festival. So this was In june also this was yeah mid june and here the The topic was we discussed over email You know because the the moderate not the moderate but the the guy running porkfest. He and his wife Obviously that would look good for porkfest to try to get attendees to come to say hey An austrian versus a chicago school economists are debating And also that we're both anarcho capitalists and a lot of the people who go to this this festival Our anarcho capitalists and so we thought oh, this would be good People would be interested in seeing this and so the what we were supposed to talk about and this was over email And it was in the program was Methodology so in terms of austrian economics versus chicago the chicago school approach So we're the main methodological differences, but then also our different justifications For our beliefs in anarcho capitalism and so Friedman comes at it from a sort of utilitarian consequentialist perspective Whereas i'm coming at it from a natural rights roth bardian perspective So those were the two things we were going to talk about so part of what happens if you go I don't think it's available yet, but it was recorded and they tell me they're going to put it up eventually It's just they they have to do editing and so forth So One thing that happened early on and again I'm just bringing this up just so you're prepared as you go out into the Onto the battlefield yourself. You don't get thrown is Right away, you know, he gave his opening statement I think he went first then I went and then his initial response to me Was to say I don't know why dr. Murphy is is conflating you know economic methodology With uh anarcho capitalist policy prescriptions or view or perspective because that you know that involves value judgment so he's he's mixing up the positive and the normative and You know, I just I just responded. I said, well, I'm just doing what the brochure said we're gonna we're gonna debate You know, I'm and I even think I got sarcastic so that I can chew gum too while I'm doing these two separate things Because you know that others he was implying that we can only do one versus the other So anyway that I'm just saying that that when you watch it That's partly what what happened is he thought we were talking about one thing and I thought we were talking about two things So then the debate from that point centered on Austrian methodology And let me um, so let me give the point that I made So I said As you guys probably know the the chicago school thinks that Empiricism is necessary that in order to be truly scientific, you know, we can't just make up these conjectures And just think that they're right. We need we need to have some sort of external test As a check upon our reasoning and you know to weed out the bad theories from the good ones and that's how economics should proceed In in that sense, it's qualitatively the same as the other natural sciences And so I said that actually, um, I subscribed to the messessean view That economic law or economic principles should be a priori And I said that that strikes a lot of people as quaint and medieval But I made an analogy to geometry and I said look when it comes to geometry How how does that work and even just basic stuff like what you would teach? Uh an intro class, you know teaching the Pythagorean theorem or something I mean geometry works you start with basic axioms and definitions and then you deduce things step by step and then you get the conclusion as long as your deductions were valid your steps were valid then the answer Is necessarily true Assuming that you agree that the axioms are true and that's the way it works And I said in particular if the teacher gave homework assignment To explain, you know the Pythagorean theater to prove the Pythagorean theorem And then a student turned in and said oh, you know what? I took a ruler and a compass and I went out and I measured a thousand triangles And in 998 of them the Pythagorean theorem seemed correct And the other two where it seemed like it was wrong I went and took a second look and actually one of them wasn't really a right triangle You know, I looked at it better. Okay, and then the other one wasn't really triangle at all because they you know I looked real close in or magnifying glass in the you know It was like this instead of coming to a point And so it turns out that i'm saying yep the the Pythagorean theorem to the best of my knowledge is is true That I haven't been able to falsify it So if somebody did that right that would be totally wrong And it would be the teacher's job to explain to the poor kid No, no, no you have totally misunderstood how we prove things in mathematics And they would just you know walk through that that's you're you're totally missing the boat And and yet even though that is what we do in in geometry and mathematics in general Nobody would say well, we're just playing word games or we're just walking around in circles with our own definitions We're not gaining any real information about the real world You know that it's what you someone might say what's the point that I've proven Theorums in geometry right if all we do is end up with just as much information as we had at the beginning If we're just taking our own assumptions and rearranging them to spit out a conclusion What's the point this is a huge waste of time? Let me go out and start observing reality and learning something new about the universe Right if somebody said that as to why it would be a waste of time to study geometry That would be silly or even mathematics in general and yet That's exactly what people say about the messesian notion of praxeology That they're they're saying well that can't if you don't have empiricism that gets in somewhere then it's completely useless So that was the point I made and then and freedman I didn't think it was a very Good response. He just said something like I'm really surprised that dr. Murphy doesn't know that for decades now physicists have known that the the universe actually isn't euclidean And so i'm surprised he would make such a silly mistake in his statement. All right, so What what he means to make sure you understand what he's saying is that Uh physicists think that the way space time is right now that it's actually not the axioms of euclidean geometry are not true And so that the but they're approximately true And so if you're you know, not near something that's really massive or if you're not going near the speed of light Then everything that's that's true in you know geometry that you might conclude Based on the stuff you learned as a kid That's roughly true. And so that's a good approximation, but we actually know in reality. It's not quite like that So that's a subtle little point and that's fine But again, that doesn't invalidate what I just said They still teach euclidean geometry in schools and i'm pretty sure that david freeman doesn't think they should stop teaching that All right, so it's I mean if you really wanted to take that analogy further what it would be is to say You know, we're not sure that people act and maybe under certain circumstances. They don't act and so forth But even so that wouldn't change praxeology that would just possibly change the applicability of it It wouldn't change how we do praxeology in the same way Even given You know the the uncertainty about okay are these axioms of euclidean geometry true That doesn't change how we do geometry. It just changes, you know, okay Maybe we would want to look for a different type of geometry in certain settings so that was What happened there with the debate with david freeman. Let me talk now about Last week I was I testified before the senate On a certain issue. So here in terms of going into the battlefield this certainly happened So it was it was the environmental and public works committee that was chaired by senator barbara boxer who to my knowledge is not an austrian economist and Certainly not a libertarian with a capital l probably not even a small l and so the the issue was and i'll just go over this very briefly, but It's what the government's doing is they're having these They pushed for a cap and trade bill that didn't work they're trying to push through a carbon tax That doesn't look like it has public support either. So now what the government's doing is they're trying to regulate these outcomes and so The obama administration had a working group So they they picked, you know, various experts from various fields From the different departments of that were had relevant jurisdiction EPA and things like that And they came up with this working group that has been studying the issue of what's called the social cost of carbon So what that is it's in a a pagopian framework if you're familiar with that with negative externalities The idea is if you emit a ton of co2 that causes global warming that Causes a bunch of damages to people around the world that aren't party to that original transaction So it's a market failure And so the social cost of carbon is quantifying those damages And then they're saying these federal regulations the working group released an estimate of the number So it would be it was like 38 a ton for 2015 So the idea is when federal agencies pass regulations And they have to they're supposed to do a cost benefit analysis because they're going to be able to show look at We're good bureaucrats. We're only passing Regulations that provide more benefits than costs. That's the idea So in order to do that, there's sort of a certain regulation like fuel economy standards, right? If they say automobiles have to get better mileage They want to be able to quantify the benefits and costs of that So if they if they predict oh that will lead to lower emissions They need to put a number on that so the social cost of carbon is saying Oh, this is the number you multiply by the reduction in emissions for that year. All right, so that's What the context was that's why I was there on this panel to testify because I've studied that stuff and so I I just pointed out that All I did was read the working group report And that's the thing when I got into this because I work for the institute for energy research That's the capacity in which I do all this kind of work I was thinking in order to challenge the government's case for more taxes or more regulations based on climate change I thought I was going to have to go out to like some you know independent fringe Estimates and say oh wait a minute, but according to these scientists This is the thing and that's actually not what happened in practice All I have to do is read the government's own reports past the executive summary And all you need all you know all of my smoking gun Revelations all come right from the government's own reports because the stuff they're doing is so crazy That even on their own terms they have to do all these little tricks Just to even try to justify what they're doing if that makes sense So let me practice this when I make this point Some of you are probably going to think okay, Bob, but you're you why are you putting so much emphasis on The rules that are promulgated by the federal government about how cost benefit should be done That's kind of silly Well, what I'm going to do in a second here It's kind of analogous to tom woods when he you know Would get up in front of a Rothbardian crowd and talk about his book who killed the constitution And he would be a little bit sheepish about it because he said I know a lot of you read a little sander spooner And you agree with that that you know We shouldn't care about the constitution that it doesn't have any moral right over me But he's saying it's just funny when the government officials all promise they're going to obey it and then they routinely violate it It's not even close Just to hear them. How do they justify that? It's just it's funny And so it's the same thing here where the the official guidelines that are in place for how Agencies are supposed to do these cost benefit things. They don't even come close to obeying them So there's let me just give you One quick example so in these models The um, believe it or not That they the the working group chose three three of the models from the literature and one of them shows benefits from minus global warming up through about 2.7 degrees celsius And so that works out to about through about the year 20 55 20 60 something like that All right, so let me say that again You've probably been taught that oh all the consensus and the experts tell you we're having right now Experiencing these catastrophes and it's only going to get worse and that's why we need to take immediate action I'm saying the one of the models that the government's own agency picked to study that Shows that well. No, there's actually net benefits from global warming for the next several decades And it's only at that point on that it gets really bad now in these computer simulations To come up with this number that they just announced in may that's going to guide agencies They run the simulations through the year 2300 And a lot of the alleged damages from climate change their guiding current policy are happening Well into the future right so they have things like 25 percent of global output is forfeited with 10 degrees of warming But that's not going to happen until past the year 2200 All right, so just on the surface of it you can see how extraordinary that is they would be like if you know people in the 1700s Were making decisions based on what they thought our technological abilities today would be you know And that would that would just be crazy just to give you an example in the early 1900s. There were serious Worries written by public officials about what are we going to do? We need to stem population growth in our major cities because if trends continue, they're going to be buried under horse manure Right because that's how they move stuff around back then before the automobile came on the scene And so they were just projecting and saying well, you know, we can't deal with it So that's I think analogous to what's going to happen that you know in the year 2250 If they really needed to I'm sure humans at that point could figure out a way to suck co2 out of the atmosphere If that was something that was really an important issue at that time Okay, so I'm just going through things like that now because That's the nature of the situation that there's upfront benefits Followed by hundreds of years of costs In their standard framework in terms of externalities To come up with a number today you have to cut you choose a discount rate Right to figure out how we're going to value that stream of benefits and then costs and so you can think about it the The discount rate you choose can have a huge impact and so I'm just explaining this to the you only got five minutes I'm explaining this to the senate committee And and I said so using their own numbers If it's at a five percent discount rate, then they're saying the social cost of carbon is 11 dollars a ton If we drop it down to a 2.5 discount percent discount rate The social cost of carbon more than quadruples to 52 dollars a ton And saying so I'm not you know looking at different climate models All right, this is all the same model all the same output the only thing I'm changing there is the discount rate We decided to apply to that flow of projected damages and benefits And so like I said just tweaking it from five percent down to 2.5 percent can more than quadruple the number and again That the reason that number is important is that's what federal agencies are using to regulate businesses and households So I was pointing it out and I said so in this context it's very significant That the office of management and budget said they're supposed to use a seven percent discount rate when they report these things That you you can use other ones, but you're all supposed to use a seven and a working group Ignored that they didn't do it They they even quoted the regulation then explained why they weren't going to do it And I and then I speculated and I said I think the reason they did that Is that if they used a seven percent discount rate the social cost of carbon would be around zero or possibly even negative We don't know you know because we're emailing them trying to get the numbers and they said they didn't they didn't keep them So that's Because you know the government doesn't have that much money right now So they put you know wouldn't have to keep as much records would be expensive So so the point was again, you know all the rhetoric and everything It's amazing that even using their own models stipulating all the climate models And we all know the potential problems with that stuff I think if I just used the discount rate that the omb said should be used in these types of analyses or at least reported All of a sudden the federal government should be subsidizing coal-fired power plants because they benefit humanity Right because that's what a negative social cost of carbon would mean and so of course they they didn't like that and um So anyway, it was what was great though. I just you know, so they get up and they start Not saying a word about my arguments Just questioning you know the group that had me there and where their funding sources and that sort of thing And I kind of just assumed they were after they slandered me in front of You know the four people who were watching this thing online that they were going to then you know, give me a chance to respond No, they didn't they just they just moved on so Just just be careful when you go and testify before Barbara boxer. She doesn't play fair So also too that this episode was that was the biggest hit piece that has ever been written on on me Some of our senior faculty here are quite familiar with hit pieces, but this was the first time it happened to me so they kind of Knew you know as it was in the huffington post and it was you know, someone just going through and Just reading that you would think I was the worst person imaginable and It's you know by the by the end of it. I was like everybody second not to a bad guy, you know Let me tell you something. I know there's climate models more than you let me tell you something. All right, so um I started out doing scarface and I don't know what I turned into there by the end of that um So let me just say there is a lesson from that though And I mean this sincerely is until you've seen a hit piece like that that's written either on you or somebody you know personally They don't even need to lie. They can make technically true statements about the person and like quote things They've said but just paint a completely misleading image. So just keep that in mind the next time like you form your opinion on someone based on some you know some Reporters assessment that you can you can paint a totally misleading picture about somebody without technically lying All right, we got just a couple more minutes left. So I think People are expecting me to talk about A debate that has yet to occur. So this is the um That's a caricature by the way Um crewman crewman's beard actually isn't that fluffy Um So this is uh what the economists did there was a piece on alternative schools of thought and uh And so they were you know, they weren't just talking about the austrians But they they did branch in the austrian. So this was this so I wasn't named in the piece But the the art they kind of like gave me a little bit of a nod with with this Also, just so you know at first I thought like I was swinging and about to like sort of hit him from behind And that would have been not not very gentlemanly But someone pointed out they said no They said about what you're doing is you're tapping them on the shoulder and you if you look at it You can see that it actually is what the artist was was trying to capture there So, you know saying like hey, why don't you turn around? Let's fight so um Anyway, the the the crewman debate as I'm sure many of you know People always ask me about that it had gotten up to about a hundred and nine thousand dollars was the last I had seen And uh the official position crewman did officially He was on a radio show and somebody kind of ambushed him And called in and said hey doctor crewman. How come you don't debate this guy robert murphy the austrians? I think made a lot of good, you know, they called this recession and da da da da And crewman just you know said hey, this is a serious policy issue I'm not going to give a platform to these people who want to turn into a circus and you know, that was that was his thing But ironically, I mean he had just you know like a week later He went off and went on the talk shows to promote his book and was debating guys on cnbc and and so forth So, um, I think that he he actually was not being entirely honest with that answer Okay, so I guess the um the lessons from my experiences are make sure as gary north said that you choose your audience Don't lose and um also if you have to get famous then go ahead and go topless. All right. Thanks everybody