 Coming back to economics if I may show the leftist charge that the one of their charges is that the stimulus It's not working because all of these billions trillions of dollars that have been pumped into the economy are Being sat upon basically by the banks and the corporations. There's all this money on the sidelines and the conservative response is that that's true, but it's because In order to invest rationally for the future you need to have some rational prediction about the outcome of your investment and with The Dodd-Frank regulations still being written and the health care thing coming down the pike that they that they simply Are reticent about investing in this uncertain regulatory environment. What do you think of the liberal charge and the conservative response? So they're both partially right So yes, there's a lot of money in a sense sitting in the sidelines not being invested in and there's really You know one number that matters here and that is the fact that the banks in the United States are sitting at I think on one and a half trillion dollars of reserves at the Federal Reserve So this is money that they're not lending out. That's just sitting there and that Represents all that money the corporations have put in the bank and the bank instead of lending it out Which is usually what they do with deposits. They're just sitting it parking it at the Federal Reserve So yes, you know that is in a health economy. That doesn't happen in a health economy Banks are lending money money is circulating people are doing stuff with it. They're producing their investing and so on So there is there is that You know that charge has some some legitimacy the conservatives explain it as uncertainty and There's a certain truth to that right so businesses don't know what's coming down the pipe They don't know how bad or good things are going to be and in the face of uncertainty people just don't do anything They just shut down But that's not really true The problem is not that businesses don't know what's coming the problem is that they do Right the problem is that they know that the regulations are going to be tough that they know The taxes have to be higher that they know that you know that that that economic activity is shrinking not expanding they know How bad things are going to be So it's it's a myth that it's uncertainty. No, it's the certainty that things are getting worse That things are bad now. This is not an original point of mind actually, I mean I Agreed with it completely when I read it, but but this was in a op-ed in the Wall Street Journal that Cliff Asnes wrote I don't know if you know who Cliff Asnes. He's a he's a hedge fund manager In New York a very large hedge fund and a really smart guy But he wrote a red toy in the Wall Street Journal. He said no the problem with us is not uncertainty. The problem is that we know so There's this notion that economists think of this way and and other people think that uncertainty is the problem. No governments the problem and We know that government intervention in the economy is going to increase and therefore we're going to shrink our activity So that's the one cut. That's the one element that I think the conservatives get wrong. So they think That if we just knew exactly what Dodd-Frank was if they if they figured out because they're still writing the regulations, right? If we just find find finished writing all the regulations then business would sigh sigh of relief and invest No, or if if Obamacare was just over with if we just had it already, right? That's so we get to get it. We just had it already then and suddenly would disappear Yeah, and certainly would disappear But the money would still be parked because things would be bad So what so this is the question why do businessmen invest? There's a there's a title of a book. I don't know if the book's any good I haven't had to chance to read it yet, but I find the title intriguing. It's called rational optimism the rational optimist I think Businessmen are rationally optimistic You invest a lot of money today Expecting to get more money in the future Right, that's what investment is all about So you believe based on facts, but it's the future so there's huge uncertainty That things will work your way and that you will get more than you put in that's called profit But that's why they invest that they're making certain assumptions that are positive about the future But if you but if you look at the future and you can't make positive assumptions about it, it all looks negative Things are bad Things are going to get worse in the future. The debt is only going to increase taxes have to go up Regulations look like it's increasing then you're not going to make investments because there's no way for you to profit from it So You know, so that's kind of the full Ask a question about education. Sure Because I have some younger cousins that you know are intelligent. They're going to really great schools Like Northwestern for example for economics Coming back and they sound they're buying into everything that they're being told and why shouldn't they they're paying $40,000 a year for the premium and You know, these are people these are you know people that have grown up in entrepreneurial households because you know a lot of family businesses and so forth So how do you stress these points that what they're being told by authority figures who are very you know Who have PhDs etc. Is not truth is not actually accurate and also You know the hard part as well as education is incredibly important, but the quality of the education They're actually getting is is just not there So the biggest scam in the world that's ever been run is run by The top American universities. I mean they're selling you junk for 40,000 is cheap Like 60 70 80 thousand dollars a year at some of these Ivy League schools, and what are you getting in return a pathetic Education education that 150 years ago would be laughed out. Nobody would pay a dime for So it's the biggest scam in history You're sending your kids to and you're paying a huge amount of money to university to teach them the reality doesn't exist or That Keynesian economics works or that the 19th century was a horrific century from America And they're good for FDR. He saved us so they're learning Lies and they're learning how not to think they're learning the exact opposite of what you would need to learn to think I mean, it's the biggest scam ever American universities are the pets and the better the university the worst education So if you have kids the worst thing you could do for them is send them to the Ivy League school You know unless they're studying engineering of science, but in the humanities. It's a disaster. It's an absolute disaster Now what do you do with kids like that? I mean It's really tough because the professors are very articulate their authority figures They're being paid a lot of money the student feels like they pay a lot of money So they're there for a reason and let's absorb this wisdom even though it's crap and What you have to do is give them contrary facts Give them books give them, you know show them that there were authority figures, right? Who say the opposite? and And today in with you know kind of the internet generation There's so many good videos right on YouTube of good economists explaining how the economy really works You got to find them and you know, maybe they'll listen to that because they certainly don't read, right? And and you know on these guys also have PhDs after their names usually but you know you got to find good content to balance it out and then I was telling somebody I think yesterday that you know when you're raising kids You've got this these two elements that are contradictory that incredibly frustrating frustrating because they contradict you know on the one hand you're trying to raise a child Will will be their own person will have will exercise their own free will and You know make their own choices in life and and be a volitional rational being on the other hand You just want them to do what you tell them And you don't want them to have any free will right so it's the same thing I mean you want them to get it, but at the end of the day They have to get it that is they have to do the work they have to figure it out and they have to be honest with themselves, but You know we have to understand that it is a great what is going on in universities is a great tragedy and The guilty party are the professors as a class They are the guiltiest party in the world. They are they are you know Leonard Peacock always says that as you go through the educational system the more degrees you gain the stupider you become Given that both he and I have PhDs We can I think I can I can join him and say I think that's absolutely right Because you're in this system that is teaching you all these really really wrong things for much much longer so it it really Comes down on you, but the only way to get around that is to have other Stuff that you can get to other books other videos other content other friends Yeah, is there still a value in higher education it depends so if you listen to Peter teal Right Peter teal. I don't know if you know, but Peter teal is offering a hundred thousand dollars to any high school kid Who has a good business idea and who won't go to college? Who commits not to go into college? So Peter teal is very much against college particularly for technology He doesn't believe young kids. They need it That you know, there's a lot of them know more than what they need You know to get a job in Silicon Valley why spent four years and two hundred thousand dollars or more In debt in order to get a job that you could have gotten when you were 18 before you wanted to college I Think in the humanities, it's an absolute waste of time Unless you go to the right college and they may be a handful of right colleges You know in sciences I think you probably have to go in certain engineering degrees you have to go but generally college is way way way overrated Way overrated and and this is for a father who had his son drop out after one year But he got a job you got a job in the industry. He was studying to get into Right, so why did he have to go through four years to get the same job? But he could have got the job when he got the job after one year. I mean I was happy and he was wasting his time They were teaching him crap They were I mean some of the stuff the technical stuff was good, but the rest was nonsense He can learn the technical stuff by himself if you want to become a programmer. You don't have to go to college to become a programmer So I think college is way overrated It's also true that what we lack in this country one of the skills that doesn't that people don't have is we don't have a lot of Blue collar high skilled people, you know people who can really do amazing things with machines and with tools We don't have that anymore because all those people who used to not go to college and go and become craftsmen Go become really, you know or go to trade schools, right? Don't do that anymore because we we've made college the new You know cathedral you have to go. It's it's it's a part of life And and I used to when I taught I used to teach my I used to teach undergraduates and graduates and the undergraduate students I used to tell them that they didn't belong there I mean they didn't care they sat in class and They if they showed up to class they were bored many of them went to sleep They studied for exam just to pass and these were bright kids This was a private university these were bright kids, but they weren't motivated What difference did it make this was boring stuff? It didn't interest them They said go ahead and find a passion go travel around the world for a year Go learn something about life and about yourself before you come into a classroom and expect to absorb all this knowledge So on every level college is over Dr. Brooke, I enjoy it when you speak about the Silicon Valley Venture capitalists you referenced them last night in your talk and I think last year When asked the question you mentioned that one of the venture capitalists had set up ten companies had taken them IPOs last year and five the only problem five were in India and five were in China Okay, is there any update on on what those that are on the forefront of venture capitalism and the Silicon Valley are doing in this market? Well, I mean I think that I mean it's interesting because a Silicon Valley right now is kind of experiencing a boom You're seeing there's actually a lot of activity. There's a huge shortage of workers if anybody here it can program mobile devices Move to Silicon Valley that they're dying for engineers that you could they could they could probably hire a hundred thousand Mobile program is tomorrow If you know if you just were willing to move there to one of their other centers where these people are located The problem is there's a mismatch between what the skills Americans have plus this is off your topic Americans don't move anymore, right? So There's no jobs in my town So I'm just gonna hang around here because there's unemployment insurance and what the hell? I I'm I've got a God-given right to stay in my town Right, but that that was never the mentality of Americans, right? Look at all the ghost towns that exist in the West jobs dried up for whatever reasons you moved you went away The jobs were that's why we had these huge migrations across the country people didn't weren't just stuck in one place So there's jobs in Silicon Valley people won't go So you know what you know what they're doing so this doesn't come from the venture community, but a good friend of mine was the was one of the project managers who put together the fire for Amazon, you know the the tablet and Amazon would like to hire thousands of programmers and they can't in the United States They just don't exist like if you get a you know This is another site but related 70% of all master's degrees and PhDs in the sciences earned in the United States are earned here by foreigners 70% of all masters and PhDs in Engineering and science are earned in the United States by foreigners Only 30% of Americans and what do we do once they get the master's degree of PhD? We kick him out We kick him up There's no way for them to stay here and get a job And we become very strict about that since 9-11 because we know that scientists at master's degrees and PhDs are known terrorists Particularly from non Islamic countries are very dangerous. I Mean our immigration policy is nuts. I mean we want these people to stay They could be creating these they were filling these jobs creating new jobs creating economic activity We send them overseas and then the Republicans fight on stage about illegal immigration and wish as if anybody should care What impact does that have on your life none zero? But the fact that legal immigrants so we don't bring enough legal immigrants into this country has a profound impact on your life It actually reduces the amount of production and amount of income you can have Anyway, so the story is that Amazon would like to hire all these engineers. They can't so what are they doing? They're going to China So he's thinking of taking a two-year assignment in China to run, you know a whole team of Chinese Programmers in China and they're not as good as American programmers and there's a variety of reasons why we'd be better if they were here But you can't do it here. So you're seeing more and more of that people complain about jobs moving to China Yeah, we're throwing them away. We're kicking them to China Because because companies in the United States cannot Find engineers because of our immigration policies because of our labor costs because of our regulatory costs They cannot do business here. So they move away So you're seeing that but there is a boom in Silicon Valley because of mobile devices Because of the in because of Facebook and all all the stuff around Facebook If you go to South of market in San Francisco, the place is booming rents away up Home prices are actually increasing in parts of Silicon Valley But it's most of that is the social networking And depends on how you think how much that really adds to productivity ultimately Or maybe reduces productivity, you know when people use Facebook? So, you know what the peak hours for Facebook are? like around nine and nine to ten in the morning East Coast or West Coast time when people arrive at work And then three to five in the afternoon before people leave work, right? Facebook usage over the weekend drops dramatically Facebook usage at night drops dramatically people use Facebook at work So whether that enhances productivity or not, you know is an interesting question So there's a lot going on in Silicon Valley, but there's a lot of that spirit that's gone The venture capitalist that I that you mentioned that I talked to this year was complaining about the young generation of venture capitalists who are Process-oriented who are he called he says they're all MBAs which is not meant as a compliment It has something to do with the more degrees you get the stupid you get That the process driven they were about he says venture capital is all about asking the right questions and They the entrepreneurs are the ones that have the answers. You don't have the answers That's why they're the entrepreneurs and you're the investor He says that's not how you know they approach it anymore So you're seeing the effects of the educational system from his perspective on the next generation of Venture capitalist and it isn't pretty or the humanities More to blame for the current economic policy than the study of economics itself yes by far by far because First of all, they're a lot of good economists They're more good economists today than ever before But more fundamentally, it's all those other Philosophical principles if you get all those other philosophical principles wrong, then of course you're gonna get economics wrong if you get You know if you don't get reason if you get if you if you if you get You know egalitarianism if you get any of the bad philosophical ideas Embedded in your thinking then by definition your economics is gonna be wrong because if reason is not the standard How are you gonna value it economics? Well on a board with math and equations called modern macroeconomics, right? It's all derivatives. I went to a macroeconomic class in when I got my PhD and we never actually studied economics The first day of class an equation was put up on the board and they said this represents the economy and the whole class was taking derivative derivatives from that equation and Therefore consequences. This is what the government should do. This is what business should do out of an equation. I Mean it's it's absurd I managed to get out of my second economics class. So I've only taken one economics class in my life Because once I saw that that was oh, I was never gonna take another one, but it's it's so Economics the extent economics is corrupt. It's because philosophy is corrupt and then the Corruption of philosophy is not just a corruption that influences economics, but it influences everything said influences history For example, why don't we know history? Because opistologies corrupt because we don't believe this truth because the postmoderns teach in the universities that there is No such thing as history not in the objective sense so the humanities are far more The impact is far more widespread than the impact of bad economists So if we really want to change the world we need good economists, but we need good historians and we need good Philosophers and we need good Psychologists and we need good all the humanities we need good people and all the humanities to be teaching those subjects Fond the perspective of reason reason reason wondering about the 1920s and 1930s I've heard really good things about Kelvin Coolidge and he was very pro-capitalism and And then also I'm wondering about FDR, and I've heard that he was Largely responsible for the Great Depression and then I'm wondering how Herbert Hoover kind of fits into that. So you want a quick Economic history of the United States in the 20s to 30s Cali Coolidge was was pretty good so in the in the in the other in the Recession I think of his 1920 His response was nothing No stimulus no government intervention nothing It was a deep recession and we got out of it almost immediately BAM the economy grew right out of it and continue growing into the 20s It's You could argue that Fed policy under Coolidge was off particularly towards the end of his administration They probably printed too much money even though they went to Gold Reserve they cheated and there was too much money being printed Which ultimately helped lead to? misallocation of resources throughout the economy ultimately leading to the kind of the stock market bubble and and its collapse so Federal Reserve policy under Coolidge was probably as bad as it's been since it probably wasn't very good So Coolidge then you get Hoover Hoover is probably you know one of one of the worst presidents in American history and suddenly the person responsible for the Great Depression the myth about Hoover is that he was a laissez-faire president that He just let the 1929 crash stock market crash happen, and then he did nothing and Then FDR came and saved the day by being activist Nothing could be furthered from the truth. I mean Hoover was an activist president from day one So smooth Holly was passed and signed by Hoover smooth Holly restricted trade raised Chaffs in the United States which created a trade war throughout the world and basically destroyed half the world's economies as a response to the recession which in 1929 crash Started Hoover doubled the income tax rate Which was Horrific for an economy in a recession Most of the regulations that later FDR kind of expanded and built upon was started under Hoover Hoover was a indeed FDR's administration viewed itself as Just continuing the policies of Hoover So Hoover was a very very interventionist president. So now what happened was that later in life? He became a pro-capitalist so later in life he identified that as a mistake and Converted to kind of being a free marketer, and that's why the Hoover Institute at Stanford University Which had Milton Friedman it's as its head for a long time is Relatively free market and that comes from the kind of the later Day conversion of Hoover into a free market guy, but he was a progressive Republican He was very progressive. He was very interventionist very much a status as president So Coolidge was good for the most part Government didn't grow that much, but there was massive still misallocation in the economy because of the Federal Reserve Which caused the collapse in 29 which would have just been a recession if the government stayed out of it But the government didn't stay out of it under Hoover it intervened dramatically and therefore caused a you know Real banking crisis in 31 or 32 and by a time FDR was elected. We were in a depression So you can't blame FDR for the depression. We were in a depression by 30. He was elected 32 He took office. I think in March of 33 Now it gets complicated because even during the the the election FDR indicated that he would probably take the US off the gold standard So people were worried about him taking that scope the gold sense What do you do if you worry that he's going to take you off the gold standard? You go to the bank and you withdraw your gold because in those days the banks held gold Versus your your money so everybody went to the bank and drew their gold which caused the banks to collapse So the banking crisis of 32 to a large extent is probably the result of the expectation that FDR would take us off the gold standard, which he did in 1933 when he became president so the expectation was actually true Once he got into office, I think everything he did basically was wrong or almost everything he did was wrong He raised taxes he increased government spending he Created laws that gave huge amount of power to unions But but the original law for example around unions around giving legal protection to unions was passed on the Hoover What FDR dude was Expanded So basically what you got from 33 to 36 the economy got a little bit better But not dramatically so and they were pouring money into these stimuluses and he was packing the Supreme Court he was doing all kinds of all kinds of bad stuff, right and in 33 it got better and then in 33 37 it collapsed again and By the beginning of World War two and 39 Basically the economy being flat for ten years. Nothing had happened. And so you certainly can't say that FDR did anything Good, you know in terms of the US economy and then people say well then it ended because you know the war started and So if we're talking about economic mythology, then this is the biggest myth of all the great depression the idea is the great depression ended because of World War two Right because unemployment went down during World War two unemployment was very low people were working and GDP Gross national product went up quite a bit So is this a good thing? So this is basically the most prevalent myth in economics It's called the and you can see it everywhere with the stimulus package is just a Stimulus packages is just a form of this myth. This is the myth of the broken window the fallacy of the broken window The idea is this And this is goes back to Basti art and there's a wonderful chapter in If you want after we'd want you should read one book in economics, right? And if you have to if you're gonna read one book in economics The book you should read is economics in one lesson by Henry Haslett and his first chapters in the broken window fallacy And then he shows out everything in economics is really the boat all the fallacies a broken window fallacies really they all So the wrong window fallacy is this you give a kid a rock and you tell him to throw the rock through the baker's window So he throws the rock through the baker's window and the window shatters Now what happens? Economic activity this is cool, right the baker takes out his money and he goes and he buys a window the window maker Goes out and hires a workman to Make a window he then has to hire another workman to actually put the window into the baker's win into you know The glass into the baker's window. Wow GDP would just went up Because we met GDP is measured by this activity What's the fallacy that at the end of the day all we have is a window which we had before So how could they be economic activity? There's nothing new here Indeed there's less what has gone away the baker's money The baker's money that would have gone to do what? Build another furnace maybe invest in the bank which would have learned the money to some entrepreneur would have invented some new thing so War is the same thing This notion that we create economic activity by building tanks and blowing up buildings is Gotta be the most bizarre notion in human history yet Crogman holds this Consistently so when when this big hurricane swept through the east coast a few months ago Crogman was cheering Because it was gonna destroy stuff and When stuff gets destroyed you have to rebuild it and that creates economic activity and isn't that cool? and And he's right in this sense the GDP goes up Because the when the window is there and the money is in the bank being invested GDP is somewhat GDP measures consumption But the bake has not taken his money out of investment and he's consuming it by buying a window So nominally and the numbers it goes up, but that's why GDP is a lousy measure of economic activity It's not a good measure So yes during World War two GDP went up, but that standard of living go up Did quality of life go up? No, it went down people died and Unemployment went down. Well, that's easy You send half the male population overseas to fight a war unemployment's gonna go down, but The standard should be standard of living Quality of life and that clearly went down in World War two partially because your husbands and your kids were dying and partially because you know you were working to build tanks instead of building You know making bread and making technology and building stuff that we actually benefit our lives You're building stuff to blow stuff up. It doesn't create anything. So no World War two was a disaster What say the US economy is that after World War two? They'd realized that the disaster that the last 20 years had been and they unwound a lot of the regulation they freed up the economy and And and and we went back on a pseudo gold standard So Bretton Woods plus the fact that they deregulated a lot. They loosened up a lot of the controls that were imposed under FDR Made it possible for the economy to grow starting in 1945-46 Real growth. Yeah, it's it started under Truman and then Eisenhower. I mean they did a great job of Liberalizing the economy, but relative to where we were before They liberalized it so they didn't go all the way as they should have but they liberalized it a little bit enough to get The entrepreneurial juices of Americans going Okay, thank you all