 Okay, welcome everybody to Mises Circle being held in Seattle this year. My name is Noah Bond. I am a local Seattleite and recent alumnus of Mises University 2015. Yeah, thanks. So for anybody not familiar, Mises University is an event that's put on by the Mises Institute every summer in Auburn, Alabama. And it was an awesome experience for me for a couple reasons. The first one is that it was a chance to meet and interact with people who have been personally influential to my own worldview and the way I see things. In spring of 2015, I was writing a research paper on business cycles and citing articles written by Dr. Block and Dr. Garrison. And then in summer 2015, I was eating lunch with Dr. Garrison and talking to Dr. Block about the current epidemic of cultural appropriation. So it was pretty cool to be able to make that connection. The second reason that it was a cool experience for me was because it was the first time I got to spend a week with that larger group of like-minded peers. When I arrived at the dorms in Auburn, there was about 10 of us standing around. And even at that point, it was the largest gathering of libertarian students I'd ever been a part of. So to spend a whole week with 150 of them, just kind of the chemistry that comes out of that was a really neat experience. So I won't belabor this next point because I think everyone here is familiar with how great a resource the Internet is and how it connects us all and enables us to spread ideas. And I think a lot of people are probably here because the Mises Institute has been so effective at spreading their ideas online and in the digital world. But there really is no substitute for that personal connection. So that's what was so cool about the Mises Institute and I think that's what's so cool about having the Mises Institute here in Seattle. So I think we're really lucky to have all these people come from so far away to spend today with us. So without further ado, why don't we get to some introductions. Our first speaker today is probably known to a lot of people for his organizational work, first as Ron Paul's Chief of Staff and then currently as the President of the Mises Institute. But he's also a very astute observer of society, a libertarian thinker and strategist. And I always look forward to hearing what he has to say. So why don't you join me in welcoming Jeff Deist. Thank you. Thank you very much, Noah, for that. And welcome, everyone. We have about 340 people here today. I'm told from about 16 or 17 states, including some lucky soul from Estonia is here as well. And I'm being friendly, folks. We have a smattering of Canadians invited as well. So, you know, it's interesting. We were walking around last night in downtown here by the waterfront and saw a lot of Bernie shirts. And we were talking about that at dinner last night. And it really is a tragedy, isn't it, that the word liberalism has been so corrupted because I really think that the real liberals and the real progressives in Seattle are right in this room today. So thank you so much for coming. So we're here to talk today about economic myths and it's a goldmine of a subject. If there's one overriding economic myth that seems to plague us every election cycle, every election year it is, it's the notion that society can do collectively what we can't do individually, namely get rich by living today at the expense of tomorrow. This is really the doctrine of the political class, of central bankers, of professional economists. And I would like to term it monetary and fiscal hedonism. And it's really hedonism masquerading as economics and technical analysis. And it's arguably, I think, one of the biggest untold stories of our time. And we certainly won't hear much from Bernie or Hillary or Trump about this, I'm afraid. Now, in defense of Mr. Trump, I have to say the other day he did something, an alarm he stuck his head up and mentioned the U.S. federal debt. And then he brought up the word haircut, which is a great word. It's been used in Iceland, a great effect. But he got shot down pretty heavily on that. And what he said was technically correct. We'll never be insolvent in the sense that the U.S. federal government can print money, in a literal sense, in an electronic sense, and pay people, pay debt, at least nominally, repay debt. But it's almost become a subject that's so amorphous to us, the U.S. federal debt, that we don't understand it, we don't know what it is. It's almost creaky or crankish or trite to talk about it. He conjures up Ross Perot in 1992, and he had the charts. And it turns out they were all correct, by the way. And about a week or so ago, Jim Grant, James Grant of Grant's Interest Trade Observer, I'm sure many of you are familiar with his work, wrote the cover article for Time Magazine talking about our debt. He was absolutely savaged for this article by the Krugmans and the Stiglitzes on the left. Absolutely savaged for bringing this up. So it's an interesting subject, but not one that's going to be discussed much, I'm afraid, in 2016. So I thought that we might represent graphically what the myth of fiscal hedonism has actually led us to. And this is just a very simple chart, a very simple historical chart of the U.S. government, not the U.S. people, but the U.S. federal government's debt historically over about the last century plus. And if anybody's in the back and they can't quite read some of the captions, I will try to help. But you don't hear this discussed too often, at least in a historical context. And so what I tried to do as we led the line showing the debt growing, I tried to put down some historical markers. So the first one you see that the Woodrow Wilson administration really ushers in the modern progressive age, the terrible age of the income tax, central banks coinciding with World War I. That's really when the progressive era started in the West. And then you fast forward to the New Deal and FDR. So you start to have some new programs like Social Security, which are going to show up later in this trend line. And then of course World War II comes along in the 40s and causes a spike in federal spending. Fast forward a couple more decades in union to LBJ's great society era, Medicare and Medicaid coming to being in the 1960s. And what's so interesting about this trend line is it shows something that Murray Rothbard talked about. When Murray was arguing against using utilitarian ethics as the basis for the free market, so he pointed out that when the cumulative effects of certain bad government spending policies are far off in the future, it makes sense that voters are going to vote for them because it's just a matter of time preference if you're familiar with that term. Voters are going to support things when they don't necessarily feel the pain themselves. So you see that trend line start to accelerate long after some of the programs that caused it were enacted in the 30s and the 1960s. Now the Reagan Revolution comes along in the 80s and that's from about 1981 to the end of 1988. That number, the amount of federal debt goes from about one trillion at the beginning of his term. The number he said was incomprehensible to him and it triples in those years to about three trillion. So that is perhaps the starkest visual display of the Reagan Revolution and what it was and what it wasn't. Now the three lines that you see in the early 2000s, I've just called them the end. An unholy trinity of events occurred sort of in the context of the early 2000 stock market crash, the tech stock crash, and a recession in 2000-2001 which Alan Greenspan responded to. So three things happened. First of all, 9-11 occurs which sends federal spending into hyperdrive. We then begin to prosecute the wars in Iraq and Afghanistan in the 2002-2003 period. We also passed one of the single worst pieces of legislation in American history called the Medicare Part D Prescription Drug Act. I was working for Ron Paul in Congress at the time. That bill was passed in a very unholy fashion late in the evening in the fall of 2003 and it was passed purely out of naked partisanship so that W could get votes from seniors against John Kerry a year later. So I guess in that cynical sense it worked. But when you take these three events together and then you see federal debt intensifying after, I think it really shows that this was the last chance. In other words, when W comes into office at the beginning of 2001, we have about $5.6 trillion of debt. I see that little arrow that says last chance. Now I would submit to you that as recently as 15 years ago we still could have dealt with the debt. Now I'm not saying that the political will existed at that time, but I'm just saying mathematically. It was still possible for us to cut benefits and do other things to make that debt, to restructure that debt or make it possible to deal with it mathematically. But when these three events occurred and Spendering went in sort of a parabolic line there, I think you can almost envision it as a car. James Dean is in a Porsche and he's going around a curve too fast and there's a cliff. And there's a point at which and a speed at which, no matter what James Dean does with counter steering or braking, it's too late. He's going over that cliff. So I think that the early 2000s represent that cliff. And there's nothing that's going to happen that's going to come along and make us pay off this debt in any real sense. I mean if you look at the 20th century there were huge revolutions, people moving from agricultural areas into cities, the automobile, the telephone, electricity becomes commonplace in households. Later on, air travel, space travel in the digital revolution, the internet. None of these vast changes caused some enormous spike into federal tax coffers. So when people say, well, we got those shale oil or somehow going to help us pay the debt, it just simply isn't true. And here's the thing is the world knows this. The world knows that we are never going to pay this debt off in any real sense. We might pay it nominally, but not in any real sense. And so the world is awash in dollars, especially Asian creditors of ours. And so they're caught between a rock and a hard place. On the one hand, it's not in their short-term interest for the dollar to sink rapidly, but it is very much in their long-term interest to no longer have the dollar as the world's reserve currency because the people behind the dollar, the U.S. Congress, are completely out of control. And they know this. And one thing that's very important to understand is this chart just represents history. This is backward-looking. This doesn't represent what Congress has said it's going to pay people in the future. I don't know if you've ever heard of this concept called the fiscal gap, but there's an economist named Lawrence Kotlikoff at Princeton who says, you know what we've promised people in the future in today's dollars versus what we're likely to take in in the future in tax revenues? Well, there's about a $200 trillion gap. So the debt's never going to be paid and entitlements are never going to be paid. That's just something we have to understand. And this is the result of this myth, this myth that we can live for today at the expense of tomorrow. And this is the fiscal example of this. This is what Congress is doing. This is what democracy leads to. But there's also a monetary element to this. I'll call it monetary hedonism. This chart just represents the monetary base. Now what's the monetary base? We talk about money supply, we talk about this, but the monetary base is one form of measuring money. What it consists of is the actual physical currency out there in circulation and then also the commercial bank reserves with the Fed. So the money that commercial banks have parked with the Fed. So we might call it base money. So it's really, I think the best indicator of what the Fed itself is doing. So the Fed's created in the 1910s and you see that line, the Fed's balance sheet is low and low and low. And then the first real shock to that is 1971 when Nixon declares we no longer have to have gold. Our foreign creditors can no longer exchange dollars for gold. So in that sense, the Federal Reserve doesn't need any gold whatsoever to back the dollar. And then that trend line continues up and up and up and the Fed continues to add to its balance sheet more money, more money, more money. And then what occurs, well, what David Stockman calls the Blackberry Panic of 2008. This is the big crash, which is still in all of our recent memories when Congress goes crazy, passes tarp and some other bills to bail out big companies like AIG and certain investment bank houses. If you read David Stockman's great book, The Great Deformation, you can learn more than you ever thought about what happened behind closed doors during that period. But what happens is the Fed starts buying up assets from banks, from commercial banks. Now some of those assets were U.S. Treasury debt, so in that sense they're considered safe. But some of them were worse. Some of them were these collateralized debt obligations that were backed up by mortgages and these mortgage portfolios aren't worth anything close to what their paper value says. So this increase in money by the central bank, this parabolic rise in the amount of money and treasuries on the Fed's balance sheet and correspondingly the amount of reserves that commercial banks have is just absolutely unprecedented in human history. Now central bankers will talk about we're in a period of extraordinary monetary policy. Well, that's for sure. Because when you look at this, we have no idea what this is going to lead to. We have never had an example of this in human history where the world's reserve currency, not a national currency like the Deutsche Mark in Weimar, Germany or what we saw in Argentina in 99-2000, this is the world's reserve currency. This is the currency that's used to settle payments internationally. And for the Fed to do this takes us into such uncharted waters that extraordinary is frankly a kind word for it. And if you read what the Federal Reserve officials say, they'll even tell you, look, if we keep all this stuff on our balance sheet forever, you know, we really are just monetizing federal debt. I mean, imagine a scenario where U.S. government needs to spend more than it takes in so it sells treasuries to people, it gets the money, and then a few years later the Fed just comes along and buys those treasuries from the banks that are holding them. I mean, wouldn't that be a neat trick if you could just do that forever and ever? And we've been doing it for so long that it's starting to feel like we could do it forever and ever. But I think this graph shows you that it's a very, very scary thing and really it's hedonism. It's monetary hedonism. It's kicking the can down the road and saying instead of taking the bullet today we're going to push it off sometime in the future and a very uncertain future because this could all blow up in our face in a very unpleasant way. So I'll leave it to you to decide if this extraordinary monetary policy really is the new normal because I think it's hard to conceive of an event where the Fed would ever reverse this trend or even significantly raise interest rates. So I'll just leave you with one further chart which is not shocking that the Fed says it's not monetizing debt but there's an awfully particular parallel between the rise of the U.S. government's debt and the increase of the Fed's balance sheet. So when we say that there's no connection between government debt and monetary policy I think that perhaps history tells us otherwise. So what does all this mean for us? Well, no society in human history has ever done this. When we look around this beautiful venue today it often hosts symphonies and spoken word events. We see a media I think that it was built by people who cared quite a bit about the future. They wanted to create something lasting, something that would not only survive their lifetimes and serve future generations like all of us sitting here together. They actually broke ground on this building about 100 years ago. It was a Christian science church and it served for decades as such. But in a sense you got to hand it to the people who built this building because the individuals who did so I think live on today through their work, through this building. I don't know if you've noticed some of the Tiffany-style lighting, the terracotta on the outsides of the building and also particularly thick masonry which is designed to produce warm acoustics in this building and I think it still holds up very well. They persevered for about six years to build this building and while they couldn't have foreseen that we might be sitting here a hundred years hence, I think that they undoubtedly hoped that it was built to last and it would remain standing for a long time and in fact it has as Seattle grew up around it. So this desire to build things beyond one's lifetime I think is innately human. It's hardwired as humans to build societies and I think the most ambitious humans have always sought to build lasting monuments and lasting modes of living and that's not possible unless people work toward a future that they will not be around to enjoy themselves. And we can see that Congress and the Fed are encouraging us to do the opposite. I mean imagine our primitive ancestors, what they would have given in their short and difficult lives to have lasting forms of sustenance, of food, of water, of shelter instead of having to produce that sustenance day after day. And really in fact I mean we can call this the hallmark of civilization. We can call it many things but we might just say that healthy societies produce capital. They consume less than they produce. So this capital accumulation creates a kind of upward spiral that increases productivity and increases investment and makes the future richer and brighter. And capital accumulation is what made it possible for human populations to rise up out of subsistence and to create agricultural revolution and industrial revolution, a digital revolution. And this is nothing new. Economists talk about this activity at least from the consumer end in the context of time preference, the preference that people have for current consumption over future consumption. People with high time preferences like members of Congress they want everything that ain't no matter what the cost whether we're talking about buying material goods or simply enjoying the empty pleasures of idleness over productive activity. But people with low time preferences the kind of people who built this building are the opposite. They'd rather forego some relaxation or some purchase today to build the future or their children's future. And it's not just to benefit their own family or tribe the society benefits across the board when people accumulate capital. Economic, cultural and philanthropic development. So time preference is not just an economic concept it also has a broader relationship to society. And now plenty has been written about accumulating capital and time preferences in the 1800s the French classical economist Jean-Baptiste Sey gave us his law of markets and if we wanted to we could reduce that law to the proposition that production precedes consumption. We have to produce before we consume that's what real world scarcity means. Society either produces goods or we return to subsistence living. And Mises argued that just from the study of human action alone we can assume that all other things being equal individuals prefer to achieve an end sooner rather than later, right? The future is uncertain and our lifetimes are limited. That's why we'd rather buy our dream house at age 40 than at age 90, right? We can understand that. But what we have to consider is what consuming that capital or even incurring debt to buy that dream house at 40 might mean for us at age 90 if we're so lucky to make it. Now Hans Hoppe a particular favorite of mine he says that low time preferences a willingness to accumulate goods for the future actually initiates the process of civilization. A positive feedback loop in which developing societies accumulate more and more capital which makes them more productive which leads to longer lifespans and hence more concern for the future. So it seems self-evident I'm sure to most of us that capital accumulation and low time preferences are undeniably healthy, virtuous, necessary part of an advanced society. But the two most powerful forces in the modern world central states and central banks work tirelessly to force us into this kind of economic hedonism fiscal hedonism and monetary hedonism and democracy so-called is really at the heart of their plans for us because as Hans Hoppe points out democratic politics makes politicians have high time preferences, right? The effects of their policies are going to occur long after they're out of office. Why shouldn't they vote for popular spending measures today and win support? Consequences won't be felt until long after they're out of office. This is an inherent feature of democracy and it's why democracy doesn't work and democracy can't work. At least not in the long term. And these moral hazards that it creates are huge. We're not just talking about lower income Americans who perhaps would rather have food stamps than work a difficult and low paying job. We're talking about huge middle class constituencies facing moral hazards. Think of what Social Security does to people's outlooks. Why buy a Hyundai and vacation in Florida when it's pretty easy at least with credit to buy a Mercedes and vacation in Europe? I mean how many economic decisions are subtly influenced by this knowledge that at least a portion of one's retirement costs will be borne by others? So this is what our central government and our Fed has wrought. They make us buy houses that are too big, cars that are too elaborate and college educations that are too expensive. It makes us worse people. This is not just an economic issue. This is a moral and cultural issue. So I'll leave you with this. I think the root of our problem is mythology. We've cast aside our most human impulses to save for a rainy day and build a better tomorrow for ourselves and for future generations. And we bought into the myths of politics and political money. We've let them get away with this economic hedonism. And let's be honest here ladies and gentlemen, we've all enjoyed some of the benefits of that hedonism of living at the expense of our grandchildren. It's been a great party for America but good luck electing someone who wants to talk about the hangover. Thank you so much.