 It is with great pleasure that I introduce the Henry Haslett Memorial Lecture, which is sponsored by James M. Rodney. Our speaker today will be John Tamney. John is political economy editor at Forbes, a senior economic advisor to Torridor Research and Trading and editor of RealClearMarkets.com. RCM is a spin-off of the policy website RealClearPolitics and seeks to compile top-quality information and opinion about the stock markets and global economy. Mr. Tamney frequently writes about the securities markets along with tax, trade and monetary policy issues that impact those markets for a variety of publications, including Wall Street Journal, Investors' Business Daily, Financial Times, National Review and London's Daily Telegraph. His upcoming book scheduled for release in April is titled Popular Economics, What the Rolling Stones, Downton Abbey, and LeBron James can teach you about economics. He's a weekly guest on Forbes on Fox. Prior to his present work, John worked in private wealth management for Credit Swiss and Goldman Sachs. Mr. Tamney received a BA in government from the University of Texas at Austin and an MBA from Vanderbilt's Owen Graduate School of Management. He presently lives in Washington, D.C. Help me welcome John Tamney. Joe, as you heard, he mentioned this book coming out in April, and I just want to stress, think Amazon, don't think a library if you actually like what I have to say today about it. I've got a wife to feed and everything. But let me begin by saying how thoroughly flattered and excited I am to be here today. To know me is to know that I have books by Von Mises all over my offices, and I quote him all the time in my op-eds. Similarly, to know me is when people ask me what is the essential book to begin on economics. I always say economics in one lesson by Henry Haslett. I would add to that that I think if most people who read it will know more about economics than 99.9 percent of the economists let me stress not in this room who claim to know the subject. So it was really exciting. I'll say to Joseph Solerno that you had me at Mises Institute, but when you offered me also the chance to give the Haslett lecture, I was over the moon thrilled. And so thank you so much for that. It's great to see some of the people I know here, Don Prince, Mark Thornton, people I've emailed with over the years. Lou Rockwell has been kind enough to take my emails over the years too. Pat Barnett has been so helpful in getting me set up here. It's really exciting to be here. The interesting thing about giving this lecture, and this is also probably the problem, is that most of you know this subject better than I do. And so it presents a very real challenge. Most of you could come up here and say the same things as I'm about to say, but I will try to do it expertly. I should begin with a Haslett quote, since I'm lucky enough to give that lecture. He once said, it is often sadly remarked that bad economists present their errors to the public better than good economists present their truths. Now about this, I'm happy to say that I'm not an economist. But I will say that Haslett got something wrong here, and that other than in this room, bad economists is in fact a redundancy. But as a non-economist, I intend to present the truth better than most economists could. The title of my talk is Government Barriers to Economic Growth. And I think it's an apt title given the times in which we live. Americans haven't run out of ideas, they haven't run out of initiative or drive. What they suffer right now in a relative sense are government barriers to their natural desire to produce. So interesting about this is that if Haslett were alive, he'd fully be able to diagnose in a few seconds why we are having these problems. He said so many important things, but he once said, what is harmful or disastrous to an individual must be equally harmful or disastrous to the collection of individuals that make up a nation. If politicians and again the economists not in this room understood that basic thing, we would be far more prosperous of a nation and world right now. The problem is they always folk that presume that an economy is a blob, not a collection of individuals. If they focused on the individual, we'd be in much better shape as we speak. Now what's interesting, and this is certainly easy for all of us in this room to understand, and exciting I think also, is that economic growth is easy. Nothing could be easier than economic growth. And this is particularly true in the United States and it is given the simple truth that we are a nation of immigrants. We either descend from people who took the ultimate risk in crossing an ocean or a border in order to get here, or we are those people. People who are willing to go to another country knowing that their initial award upon arrival is going to be unrelenting poverty tend to be risk takers. And so it's no surprise that the US is the most entrepreneurial nation on earth. We attracted the best and brightest from around the world. After that, there are four basics to economic growth that if governments get right and they generally involve non-intervention, you never have a problem of the kind of malaise we've experienced realistically over the last 12 to 13 years. The first basic is taxes. Taxes are nothing more than a price. They are a penalty placed on work. And so in an ideal world, you would tax work as income as little as possible to encourage as much work as possible. Fairly simple. Considering capital gains taxes, you're going to hear this a lot today, but there are no companies and no jobs without an investment first. So in an ideal world, you would not penalize investment. And then while most economists don't understand this, government spending is very definitely a tax. You'll hear this a lot today, but governments have no resources. They can only spend and so far as they extract the resources that we've produced first in the real economy. And then there's regulation. Let's be very blunt here. Regulations do not work. If anyone doubts this, all they need to do is look at the banking sector. Back in 2008, it was easily the most regulated sector in the United States, yet those charged with overseeing the banks did not have a clue about the problems within them. The obvious problem with regulations is that while they cannot work, they force businesses to expend enormous sums complying with them rather than creating profits. The third basic is the easiest one, and this is trade. Trade is simple, and it's simple through the eyes of Haslet. We are an economy of individuals. And as individuals, we are all free traders. And so in governments, and the reason we get up to go to work in the morning, the reason we go to school is we want to exchange the fruits of our labor for that, which we don't have. And so when governments put taxes on foreign goods trying to reach us, they are taxing the reason we work in the first place. And then the fourth basic, and I would argue the most important one, is money. Money is not wealth. In my view of the world, money is how we measure wealth. It's how we facilitate the exchange of real wealth. The way I think people should look at it is to think about a chef or a construction worker. Imagine what life would be like if the length of the minute and foot changed all the time. There'd be a lot of ineditable food and a lot of asymmetric houses. Floating money is the same way. It creates all sorts of distortions and disfigurement in the economy. What Von Mises referred to as malinvestment when money is floating around in value. Furthermore, its purpose, which is to facilitate the exchange of goods per Adam Smith, it is robbed of that when it's floating in value because it turns trade into something that has winners and losers rather than something that's mutually beneficial. But the exciting thing about all this is that if we get these four basics right, we never have a problem of long-term economic ill health. And that's what's interesting about the times in which we live. Once again, when I speak about economists, I'm speaking about those not in this room at present. If you talk to most of them, they say the answer to our present malaise is very simple. Governments must spend with abandon to get demand up in the economy. That is our fix. The obvious problem with such a belief is twofold. Well, it's many fold. But for one, governments once again have no resources. So for them to spend, they must extract resources available to entrepreneurs and businesses eager to grow. Secondly, the last thing a government whatever want or need to do is stimulate demand. And the reason for that is simple. As individuals, we are wired to demand things. That's why we get up in the morning. We have wants and needs and we go to work to fulfill them. And Haslett, of course, understood this well, as he explained that the real purchasing power for goods is other goods. And so the only way to stimulate demand in an economy is to stimulate the supply side, remove the tax regulatory monetary and trade barriers to our natural desire to produce. And so in my talk today, I want to cover the Great Depression and show how that was evidence of our violation of these four basics to economic growth. I also want to talk about the financial crisis, because I think there's a lot of misinformation about what took place back in 2008. And then I want to talk about the present economy to show some of the similarities to what we experienced back in the 1930s. Now, when you're thinking about the Great Depression, what needs to be stressed is that if you don't know what happened in 1920 and 1921, and I imagine most in this room do, you do not understand the Great Depression. No matter what you've read about the 1930s or how much knowledge you think you have about it, if you don't know what happened in 20 and 21, you can't possibly understand the Great Depression. Well, back then the U.S. economy contracted and it did so substantially, far more than it did in 1929 and 30. But the reason we never hear about that recession is because it was so short, and it was so short precisely because the federal government got out of the way. Contrary to popular opinion today, which says governments must spend wildly during times of hardship, back then federal spending was slashed from $6.4 billion in 1920, all the way to $3.3 billion in 1923. This was textbook perfect economics. Governments have no resources, so in the economy's week, they must pull back and leave those resources in the real economy where they can do some good. Also contrary to popular opinion today, which says governments must devalue the currency during times of economic hardship, back then the dollar's integrity as one twentieth of an ounce of gold was maintained. This was essential too. I've already said that there are no companies, no jobs without investment first. Well, when investors invest, they are tautologically buying future dollar income streams. And so the last thing you want to do is devalue those income streams and devalue the very investors who would author your recovery. And so with the federal government essentially doing less than nothing, back in the early 20s, the U.S. economy took off. Unemployment was at 11.3% in 1920. It fell all the way to 1.7% in 1923 on the way to what we now know as the roaring 20s. And so if there's another thing that I hope that everyone will take from my talk today, is something very basic, but something that once again most economists not in this room do not understand in politicians too. What needs to be stressed is that recessions, despite what we're told, and despite their near-term pain, are in fact beautiful. Nothing could be more beautiful than a recession. A recession is a signal of an economy cleansing itself, of an economy cleansing out all the bad business practices, all the misuses of labor, all the malinvestment, all the bad businesses that were holding it down in the first place. And that's why when recessions are left alone, there's always an economic rebound because the recession is in fact the cure. We allowed the recession to run its course in the early 20s, but in 1929 and 30, the U.S. economy contracted again. The difference this time was that presidents Hoover and Roosevelt decided they were going to conduct a grand experiment on the American people. They were going to shield us from the near-term pain of recession. Well, in doing so, they created the debacle that we now know as the Great Depression. Now, I'm going to begin with Herbert Hoover and begin with two of his big mistakes, and then I'll get to a few more even bigger ones when I describe Roosevelt's presidency. But in response to this downturn, Hoover and Congress doubled government spending. The idea was to get demand up and worried about the deficits that resulted from this spending. They raised the top tax rate from 25% to 62%. Hoover's economic plan failed miserably and he was pushed out of office in favor of FDR. But rather than learn from Hoover's mistakes, FDR essentially doubled down on them and then added a few of his own. Let's return to government spending. FDR promised Congress in 1934 a $7 billion budget deficit. I realized that number is quaint now. Back then, obviously, it was rather large. And the idea was to stimulate the economy, get demand up. It failed impressively. I don't think it's lost on anyone in this room that the idea of stimulus working is the equivalent of assuming that the left side of this room can go to the right side of the room and steal $20 from each of the individuals on the right. Well, obviously, the left would be stimulated. The right would be depressed. And the problem with stimulus is even bigger than that. It presumes at its core that you can grow your economy by rewarding indolence all the while penalized and enterprise. And I think we can even take it to a non-ideological level. We can say this. If you believe that stimulus spending works, you believe that Nancy Pelosi, John Boehner, Harry Reid, and Mitch McConnell are better at allocating the economy's resources than are you, me, Paul Tudor, Jones, Jeff Bezos, Fred Smith of FedEx. Well, logic dictates that that cannot be the case. So when governments spend, they are by definition slowing down economic growth. Considering taxes, FDR raised the top tax rate from 62 all the way to 83%. This cannot be minimized. It's popular in conservative and liberal media to say that the middle class are the backbone of the U.S. economy. I have nothing against the middle class. I am a member of it. One could be further from the truth. In any economy anywhere in the world, we are always powered forward by the vital few, the risk takers. Yes, the much demonized one-percenters that politicians and economists love to heap scorn upon. They are the ones who move the economy forward. Think Bill Gates, think Jeff Bezos, think the late Steve Jobs. Well, in the 1930s, the vital few were very explicitly told that if you take a risk on a new idea, we will expropriate the vast majority of your earnings. Considering regulation, this was Hoover and FDR, they imposed all sorts of rules on businesses making it difficult for them to lower the wages they were offering to the new economic realities of the 1930s. Haslett has always had an answer for this. He said a wage is, in fact, a price. And the way to think about these rules imposed on businesses is to think about a CVS here in town. If it's having trouble selling the toothpaste off of its shelves, it lowers its price to a level that brings in buyers who will clear the inventory. Well, in the 1930s, there was a huge backlog of willing workers' inventory, but due to rules making it difficult to lower what businesses were offering, it was too expensive to lure them back in a productive private sector work. And then we all know from our history books that FDR created all sorts of make-work programs that had no economic value, but basically paid Americans to do things that made no sense. Well, the problem there is that if you're getting money from the government, it's much more expensive for businesses to lure you back into real economic activity. Unemployment was a creation of the government in the 1930s, as it always is, in a free market you could never have abnormally high unemployment. And then there's trade. This was easily Herbert Hoover's biggest mistake in that in 1930 he signed into law the Smoot-Hawley Tariff, which put all sorts of taxes on foreign goods trying to reach the United States. About the Smoot-Hawley Tariff, J.P. Morgan, senior partner Thomas Lamont remarked, I almost went down on my knees to beg Herbert Hoover to veto the Asinine Smoot-Hawley Tariff. GM's European head, Graham Howard, sent a telegram to Washington which said passage of Smoot-Hawley would lead to the most severe depression ever experienced. If you want to crash an economy, one of the quickest and easiest ways to do it is to put up barriers to foreign goods. As always, Haslett had an answer for this one given his brilliance. He pointed out that if you want to export, you must import. Hoover obviously did not understand that, so in taxing foreign goods, he greatly shrunk the markets available for U.S. companies to sell to around the world. After that I think it's important to talk about why free trade is so wondrous. I would argue that many economists and thinkers who would claim to be on this side of the ideological divide don't understand it. They'll often say, well free trade creates a lot of jobs. They viciously undersell the wonders of free trade. The greatest thing about free trade in my mind is that it maximizes the possibility that we get to do the work most suited to our skills. In my case, I'm a writer and an editor. That's what I think I do best. But imagine my life if suddenly I had to manufacture the computer that I type on. So the clothes that I wear, grow the food that I eat, build the apartment that I live in. If so, I would very quickly die in emaciated, unclothed, unsheltered death, and I would have no job. But thanks to free trade, I don't have to do what I'm not good at. I can exchange the fruits of what I think I'm best at with others who are doing what they're best at. That is the beauty of free trade, is that it maximizes the possibility that we get to do the work most suited to our skills, and when we're able to do that, it's most likely that we're going to work productively. After that, let's go back to Hazlet again. What tariffs are about are the process whereby we subsidize the weak industries at the expense of the most productive. Apple in modern times would never want lots of foreign tariffs, simply because Apple wants to sell to the world markets. As Hazlet said, tariffs make the industries in which we are comparatively inefficient larger in the industries in which we are comparatively efficient smaller. And then of course, in order for a company to grow, it needs to attract investment. When investors invest, they are buying future dollar income streams. It's really very simple. But in 1933, rather than protect the dollar, FDR and his treasury devalued it from one-twentieth of an ounce of gold to one-thirty-fifth of an ounce of gold, and this ultimately sent a chilling message to investors that if they took a risk, any returns they were lucky enough to get would come back and devalued dollars. And then maybe most economically crippling of all, FDR passed the undistributed profits tax of 1936. This tax businesses at rates up to seventy-four percent on any earnings they retained. And so if you were GM, GE, RCA or Ford, and you had the temerity to hold on to some of your earnings with a future factory in mind or future hiring or a future rainy day, the government was going to help itself to seventy-four percent of that and reallocated elsewhere. Probably the best way to look at this is to consider Ford Motor Company. It was incorporated in 1903, but it's not as though Ford became a, cars just started rolling off Ford's assembly line right when the company incorporated. In fact, Henry Ford was able to perfect the manufacture of cars through constant reinvention of his limited profits back into the business. But if he had started the company in the 1930s, it may never have become the great global brand that it did simply because he wouldn't have been able to hold on to the profits necessary to grow the business. And so when we think about the Great Depression, there's really no mystery about what took place. Some people like to blame capitalism for it, but in fact, what happened in the 1930s was we ran away from capitalism. We violated the four basics to economic growth. Taxes went through the roof, so did regulations. Trade was made less free and the dollar was devalued. Most crippling of all, we forgot the basic lesson of recessions that they're beautiful. They're the sign of an economy fixing itself. We medicated in doing so. We created a great depression. Now, it's important to bring up a popular view once again and not inside this room among economists that it was in fact World War II that ended the Great Depression. I can't think of a more horrifically obtuse belief than this one, and I think it's easily the biggest indictment of the economics profession today. World War II did not end the Great Depression. What ended the Great Depression is that by 1938, the New Deal for all intents and purposes was over with. All the medication was over with, and it was simply because it had failed, not just in the eyes of Republicans in Washington, but in the eyes of the Roosevelt White House. And so with all this intervention slowing, the individuals who comprised the economy were able to start working productively again. The modern economics profession, which I amount to a bunch of astrologists, like to say that in fact government spending on soldiers and on armaments meant to destroy wealth and people around the world is what got the economy moving again. This gets things 100% backwards. Remember, governments have no resources. They can only spend what they take from us first. The US government was only able to fight World War II insofar as the economy was moving again, such that they had the resources to fight it. After that, to believe that World War II ended the Great Depression is to believe that you can grow your economy by killing your best customers around the world. To believe that World War II ended the Great Depression is to believe that the very individual human beings who power all economic advancement don't in fact matter, that you can send your best and brightest overseas where they can be maimed and murdered, that that will be more stimulative to your economy than keeping it at home where they can produce alongside and for their fellow man. To believe that World War II ended the Great Depression is to turn Adam Smith and his pin factory on its head and say that the division of labor that drives so much productivity does not matter, that countries are in fact better off producing for themselves and mainly producing things meant to destroy wealth and people around the world, that that's more stimulative than free trade and division of labor. To believe that World War II ended the Great Depression is to believe that with the U.S. economy still relatively weak, we should go out and dynamite a few American cities and pay Americans to rebuild all the wealth destroyed and maybe find a few more wars to fight to put our best and brightest in harm's way again where maybe they can be mowed down by the machine guns of others. To believe that World War II ended the Great Depression is to believe that once the war ended and federal spending fell that the U.S. economy fell into a major recession thanks to the reduction in federal spending. But as logic would dictate, the U.S. economy took off once the war ended and for obvious reasons. Instead of having our best and brightest in harm's way, we had them at home where they were once again producing for and alongside their fellow man. I can't think of a more dangerous viewpoint that has infected economics and politics and I think it's incumbent upon all of us to fix what is so wrong. Now I want to move now to the financial crisis just because I think there's a lot of misinformation about what took place back in 2008. I think what most people agree on about the financial crisis is that housing had something to do with it. But from there the misinformation begins. For one, what's got to be stressed is that housing, despite what economists and politicians like to say us, let me stress, I'm talking about those economists, not the ones here. What they tend to say is that housing is a stimulant. Housing is not a stimulant. When you buy a house, your purchase of it is not going to make you more productive. It's not going to open up foreign markets for you. It's not going to lead to cancer cures that elongate lives or software innovations that make us more productive. Housing is consumption. And so when it started to boom in the early 2000s, this was a very negative economic signal of something to miss, that the capital intensive parts of the economy were losing out in favor of subsidized consumption. As Haslott put it, what is saved on consumers goods is spent on capital goods. Well, we suffered a capital deficit as there was this rush into housing. Now the question then becomes what caused this big rush into housing, this slow growth housing boom? Well, it's popular on the left to blame deregulation of banks. The view there is that banks suddenly lacked adult supervision from government and lacking it, they made a lot of bad loans to people who couldn't afford to pay them back. Well, the obvious problem with such a belief is that banks were never deregulated. Let's go down the list. The Comptroller of the Currency, the FDIC, the Fed, the SEC, the Office of Thrift and Supervision, state examiners. Banking is easily the most regulated sector in all of the United States, if not the world. Furthermore is the regulators themselves who are actively encouraging and rewarding banks for making loans that made no sense. The deregulation argument is absurd. It's popular on the right, first of all, to blame the Federal Reserve. Let me be very clear, I would like to abolish the Federal Reserve, but I think in this one instance the criticism is overdone. The general belief is that Allen Greenspan cut the Fed funds rate to 1% in the early 2000s, and this made credit easy on the way to a rush into housing. But the obvious problem there is something that once again Haslett had an answer to. As he put it, artificially low interest rates, and that would describe what the Fed did, increases demand for credit while reducing supply. The way to think about, quote, easy credit from the Fed or artificially low rates is to think about if the mayor of Auburn were to decree today that apartment rents are too expensive, so he or she might decree $100 a month as the maximum that a landlord can charge. Well, obviously, a lot of the students here would say, hell yeah, I want that apartment, there'd be lots of demand for it, but very little supply of that same apartment. Well, credit is no different. It is not money, credit amounts to access to the economy's real resources. And it's the idea that you can make it plentiful by making it artificially cheap doesn't make a lot of sense. Furthermore, it ignores basic US economic history. Too often forgotten is that in the 1970s, housing was easily the top asset class in the US, and it was despite the fact that interest rates were skyrocketing at banks inside the Fed. Let me read you a passage from George Gilder's 1981 book, Wealth and Poverty, in which he described the Jimmy Carter housing boom. What happened was that citizens speculated on their homes. Not only did their houses tend to rise in value about 20% faster than the price index, but with their small equity exposure, they could gain higher percentage returns than all but the most phenomenally lucky of shareholders. Gilder once again wrote this in 1981, about the 1970s when the Fed was eagerly jacking up rates. But if I had said he'd written this in 2006, I don't think anyone in this room would have batted an eye. Furthermore, the low interest rate argument ignores the fact that housing boomed around the world and in countries where interest rates were much higher than in the US. The other popular argument on the right is the one that says Fannie Mae, Freddie Mac, the mortgage interest deduction in the Community Reinvestment Act is what drove the slow growth of Russian housing. Let me be very clear, I want to abolish all of those yesterday. I think it horrifically anti-freedom and anti-growth when government stimulates consumption, particularly consumption of housing. But the problem with believing that these were the cause of the Russian to housing is that it ignores that housing soared in Canada, a country where it's very difficult to attain a home loan. It's soared in England where they got rid of the mortgage interest deduction back in the 1980s, and it soared in countries around the world where there's no such thing as Fannie Mae and Freddie Mac. To me what caused this Russian to housing was something far more basic and in fact Austrian. Where I place the blame is the Bush Treasury. Presidents always get the dollar they want. They transmit it through the US Treasury. The Bush administration wanted a weak dollar and as von Mises always explained, particularly in human action, when currencies are being devalued there's a flight into the real. In our case there's a flight into the hard assets least vulnerable to the dollar's devaluation. Even better, housing is a hedge against currency devaluation that you can live in. And that's why the housing boom was global in nature. Like it or not, we are still on a global dollar standard. Many countries in the world still have their currencies pegged to the dollar. Those that don't to varying degrees have an implicit peg. So with the dollar and freefall from early in the Bush administration, there was a run on currencies of all shapes and sizes around the world and housing was the logical place for it to go. Von Mises understood this well, a flight to the real. And so the question then becomes what happened? Many people would like to say that the financial crisis was the result of the correction of basically a reorientation away from housing. Well logic dictates that's not true. Housing is once again consumption. Investors when they invest are pricing in future markets. It's the idea that markets could be panicked by a move away from something that was so inimical to economic growth that just not a credible assumption. Others like to point to struggles within the banks and investment banks. They say that's what caused the financial crisis. Well that's not serious either. Let's face it, failure is a sign of a healthy system. The more failure, the better. Failure is a sign whereby you're cleansing that industry. And so the idea that a few bad banks or investment banks could have shaken the global financial markets is not a serious one. What caused the financial crisis was the Bush administration and Bernanke Feds tragic decision to bail out Bear Stearns. If they don't bail out Bear, there quite simply is no financial crisis. And the only reason that created a financial crisis is it created the assumption in the marketplace that all financial institutions were going to be saved by the federal government. It's popular to say that Lehman Brothers' failure caused global markets to convulse like this. Well let's be serious. The idea that Lehman or any bank could shake the markets in the way that it did is not a serious view. The only reason Lehman was such a big market event is simply because the Bush administration and Bernanke Fed and their tragic ineptitude created the assumption that Lehman was going to be saved. And when it wasn't, let's face it, all banks shouldn't have been saved. They created a needless market panic. And then having created a market panic, the Bush administration thought, okay, why don't we just pour a little bit more gasoline on the fire we've already started. And they did this by banning short selling on 900 different financial stocks. Okay, so wait a second. You've created a crisis in the financial area and then you're going to then remove pricing honesty and information from those stocks. Kind of a dim idea. That's the beauty of short sellers is they bring the other point of view into stocks and if you remove them, you remove buyers altogether. Who wants to own what is mispriced? What's got to be remembered also is that short sellers themselves are ultimately buyers. When you allow them to work their magic, you're allowing for the creation of massive reserves of buying power that are going to come into the markets and put a floor under them. Be a short sellers for them to take profits, must ultimately re-enter the marketplace and buy back the shares they borrowed in order to short. But when we needed them most, the Bush administration's SEC banned them. And then I would argue the biggest driver of the crisis, but Lee's son was something far more basic. And this has to do with the fact that while we didn't get our nirvana in the 30 years leading up to 2008, free markets won and they won in a big way over central planning leading up to 2008. Even the most congenitally socialist among us had to admit that free markets had kind of kicked ass on centrally planned economies in that time. And so that's why the bailouts were such a scary thing for investors because they predicted a far more bleak future. What needs to be stressed is that bailouts are not free. When you take a bailout, you are no longer in the business of profit. Instead, you are serving political masters who don't care about profits but who have strong views about how your businesses run, how much you pay your workers, whom you're going to hire, what kind of risk you can take, which business lines you're going to get into. The bailouts prefigured much more muscular government involvement in the global economy. And when we looked at what the result of that was in the 20th century, is it any surprise that investors panicked in the way they did? I don't think they saw a replay of the 20th, but they certainly saw a lot more government intervention and that never, ever works and wasn't going to work this time and it scared the daylights out of investors. Now, the popular response to the bailout argument, the one that Ben Bernanke famously used to Nancy Pelosi, was that the bailouts were essential. As he told her, if we don't bail out the banks, we face the mother of all recessions, one that's going to last decades, that's one that's going to make the 1930s look like child play. Now, let's think about what Ben Bernanke said and let's think about something we all know from the history books. Let's think about Japan after World War II. The country was literally destroyed. Two cities taken out by atomic bombs. Several other cities reduced to rubble. Most economically crippling of all, Japan lost at least a generation or two of its best and brightest to what I would argue is a needless war. But within a few years of the war's end, Japan's economy was booming again. It opted for the most part of the four basics for economic growth and within a few years Japan, let's add Germany to this too, were among the richest countries in the world yet again. And so I asked the question, if Japan was able to come back from the total devastation that was World War II within a few years, is it remotely credible, as Ben Bernanke suggested strongly, that the U.S. economy couldn't come back from the banks like Citigroup, a bank that's been bailed out five times in the last 25 years by the Federal Reserve? I think the very nature of my question answers it. Not only was Ben Bernanke incorrect, but I think some in this room would agree that you could argue he was criminally incorrect in what he did back in 2008. And when you're trying to understand the state of the U.S. economy today, you cannot forget what took place back in 2008. The U.S. economy desperately needed failure and when it needed it most, the Bush Administration and Bernanke Fed robbed it of it. Silicon Valley is not the richest part of the United States because all of its businesses succeed. Silicon Valley is the richest precisely because the vast majority of its startups fail. With failure you get perfection. Entrepreneurs will learn what not to do in the future. Bad managers are replaced by better ones. Poor business practices and businesses are starved of capital so that good ones can receive capital in abundance. Finance is important. I happen to love Wall Street. I want those on Wall Street to make even more money. As Shumpeter once said about investment bankers, they are capitalist par excellence. You want Wall Street in the financial sector to be healthy to ensure the most amount of finance and credit getting to the best ideas. But when you bail out your losers, you rob them of the positive evolution that has helped every other business sector in the history of the world economy. And so when you think about what Ben Bernanke did with the Bush Administration, he robbed us of a substantial, staggeringly beautiful economic recovery. Thinking about unemployment today, it's high for the same reason that it was high in the 1930s. We are not allowing the price of labor to adjust to new realities. There's so many ways of looking at this, but whatever you think of Obamacare, what you cannot deny is that it's making it more expensive for businesses to hire workers. Considering 99 weeks of unemployment benefits, the reality is incentives matter. If you are getting a check from the federal government, you're probably less likely to go look for a job on a day you're not feeling well, or on a day that it's raining, or for that matter, a day when it's sunny. Every dollar the federal government is paying people not to work is an extra dollar that businesses have to offer them to lure them back into productive economic endeavor. And then there's the four basics to economic growth. We've violated all four of them predictably. At the end of 2012, President Obama signed into a law an increase in taxes on income and capital gains. In doing so, he has raised the penalty for work and also the investment in the work of the future. Considering regulation, in 2002 President Bush zestily signed into law the Sarbanes-Oxley Act. A law that basically said to CEOs who are supposed to be entrepreneurs, that in fact we're going to treat you like criminals. And if you don't act like accountants and make sure that every balance sheet exactly correct, we'll put you in jail. Combine that with President Obama, who's trying to re-regulate health care, finance the energy sector. None of this regulation is going to work. By definition it cannot work. It will never work. We can all say that with certainty but because of all this regulation, businesses have to spend more and more of their limited resources complying with bureaucrats rather than creating profits and innovating. Considering trade, the Bush and Obama administrations have imposed tariffs on steel, softwood lumber, shrimp Chinese tires. Considering China alone it would be hard to find a happier story in modern times than that of the Chinese embracing the profit motive. Here this one's desperately poor country is joining us in the global economy. Even better for all Americans every day the Chinese get up and go to work is a day that Americans get a raise. Even better than that, the Chinese make for us the shoes, socks and t-shirts that if we took the time to make would impoverish us. Instead they make it for us and that gives us time to create Google, Intel, Microsoft, the list is long. If China didn't exist we'd have to invent it. But rather than embrace it, we have the Obama administration and most shamefully of all the Bush administration they regularly acted as though this was some errant regime, some errant country that we need to penalize for giving Americans what they want at lower prices. Let's go back to Hazlett's point. What is harmful or disastrous to an individual must be equally harmful or disastrous to the collection of individuals who make up a nation. Tell me what is harmful to an individual about lower priced goods. I can't think of it. Yet the Bush administration made criminals out of them. And then there's Ben Bernanke. It would be hard to find a bigger indictment of the economics profession than our mercifully departed former Fed chairman. You know, that's another talk altogether. We can talk about the good or bad of the Fed. I would talk about the bad. I'm sure most of you would. But whatever one thinks of the Fed, the last thing a serious economist would ever do is lower the rate sent by that central bank to 0%. That is the dunderheaded equivalent of the mayor of Auburn saying, oh, I don't like rents here in this city. I'm going to decree monthly rents of $100 a month. In doing so, at best, you're making access to credit expensive and only available to the biggest governments and biggest businesses. That's if you succeed. What about quantitative easing? Let's call it what it is. Let's call it the infantilization of money, the monetary policy of adolescence. Wouldn't life be simple if economic growth were as simple as giving seven or nine wise men the ability to borrow $4 trillion from banks only to reallocate it across the economy? Amazingly for these guys is that given the chance to reallocate it, not that they could ever do a good job, they did it to U.S. Treasuries and then also U.S. mortgages. So basically they wanted to double down on what had failed so miserably in 2008. But arguably the biggest indictment of Bernanke was the arrogance within him that said he needed to use the power of the central bank to shield us from the near-term pain of recession. Think about that. In doing so, he robbed us of a major, major economic recovery. Let's go back to the early 20s. When you allow deep recessions to work their magic, you're allowing the cure that is going to lead to a major rebound. Instead, Bernanke wanting to be a hero robbed us of it. He is said by people who should know better to be the world's foremost expert when it comes to the great depression. But as every action while he's at the Fed signals a man who learned all the wrong lessons from it. What an embarrassment to the profession. I mock the economics profession outside this room for taking him seriously. Now despite all that negativity, I do want to end on a happy note because Bill Boyz knows what an eternal optimist I am and I really do believe her on the verge of something great. And the reason I'm so optimistic is precisely because of the Bush Obama economic disasters that I just described. I think they've woken the electorate up. I'm optimistic for a few basic reasons. For one, Bernanke's gone. He's out of the Fed. Let's be clear. Janet Yellen believes all the same poison that Bernanke does. We all know that. The big difference is she will not have power to do the damage that he did. And she won't because the Fed operates on consensus. Thank goodness there is no longer consensus about the good of quantitative easing. So the Fed is less of a factor than it was. Not perfect, but less of a factor and that's good. Considering President Obama, his presidency essentially ended at the end of 2012. Let me be clear. If you were Republican, I would say the very same thing. But realistically, 2012 was the last substantial legislation. And he is out of the picture for the rest of his time in office. That's important. What about his signature legislation? No surprise to anyone in this room. It failed impressively. And it had to fail of its numerous contradictions. The good thing about that is it seared in the minds of at least a generation or two of the electorate the danger of giving government power. This will pay dividends for a very long time. And then maybe best of all, I think we've seen a change in the electorate. Bill Bowie is talking about this earlier today. The electorate is very smart. If you believe in free markets in the wiseness of markets you must also believe in a wise electorate. They have been woken up by the disasters voiced in us by Republican and the Democrat. And so what they voted for right now is gridlock. Is it ideal? Is it what we want in this room? We'd like something a little bit different, I think. But it's the best we're going to get and Americans thrive when they're given gridlock. And so with that, basically the electorate is wise to what's taking place and they're not going to let these guys make bigger mistakes like they did anytime soon. So it's a shame we had to go through this, but let's be very clear that the relative suffering we've experienced had nothing to do with the defect in the American character and everything to do with the defective government. I think we're reversing it and for that we should be excited. Thank you very much.