 Okay, my topic today is the four ingredients of economic growth and what Danny presented was economic growth sort of in a microcosm and I'm going to be speaking about economic growth more in terms of the economy in general and then Peter is going to take us right inside the entrepreneurial process that provides for economic growth. What I'm also hoping to accomplish here is to show you the difference between the Austrian school and mainstream economics. As I said in my introduction, Austrian economists are all about the free market and all the benefits it provides. There are a few free market economists in the mainstream of economic thought but by and large they represent a different way of doing economics and an entirely different point of view and beliefs in terms of economic policy so it's method its theory its policy big big differences and so what you hear today is not what you're going to hear typically from mainstream economists what you're going to hear from the six o'clock news and the reports from Washington DC and things of that nature so be aware of a very wide difference of approach and conclusions between what you see here and what you would typically see out there. Let's begin with the topic of what is economic growth. Well of course Mr. Sanchez explained what's involved in economic growth. It basically means that we have a greater ability to produce goods and services that we value. Of course the the mainstream economists are all tied up in statistics. You know they talk about the consumer driven economy when actually you have to produce before you can consume. Economic growth means that our standard of living has improved. Our standard of living. What's the standard living for Americans for example? Well we have houses with plumbing and cars and TV sets and computers and iPhones and all sorts of clothes and all sorts of appliances. Our standard of living is higher than in most places around the globe. That's because we've experienced a great deal of economic growth in terms of our ability to produce goods and services that we value. One sort of noteworthy measure of the standard of living was the percentage of houses with indoor plumbing. Now the kids here today would probably can't imagine the idea of living in a house without toilets and indoor plumbing and running water. But such was the case in the United States a hundred years ago where many many houses did not have indoor water or toilets. You had to go outside to the outhouse. You had to go outside and get your own water from the well. Okay so that's sort of a slap in the face about what's happened in terms of economic growth. I just heard of a house recently or person recently that was talking about when they grew up in Columbus Georgia and they had to install the water because there was no running water in their house. Importantly it does not necessarily mean that government statistics are accurate measures of our standard of living. Gross domestic product for example you probably heard of GDP. Well you can't rely just on GDP as a measure of your standard of living. For example during World War II the gross domestic product or GDP in the United States increased remarkably because of the World War. Unemployment shrank to almost zero because we sent millions of people overseas to fight the war and very often were hurt or killed. But if you looked at what people were consuming in America during World War II they were just as bad off as during the Great Depression in terms of food clothing transportation so on and so forth. So don't be fooled by GDP. Anybody can make GDP grow. The Congress of the United States could pass a law tomorrow that says we're going to offer a million jobs paying a hundred thousand dollars a year to dig ditches. That would make GDP go up by billions and billions and billions of dollars and they could pass a law the next day that said we're going to hire a million people at a hundred thousand dollars to fill in all those little holes that the other million people were digging and GDP would go up. But we wouldn't be better off. We would have lost the labor of two million people. We'd be worse off even though GDP went up. So numbers can be rigged. You got to be leery of the statistics. There are a lot of alleged causes of economic growth and so you guys are all going to be inoculated against all this rubris that's out there. For example recently in the news the headlines in the business page were about a lack of public infrastructure spending in the United States that infrastructure spending in the United States has gotten lower because of the bad economic times that we're in. The government doesn't have enough taxes to build new roads and schools and therefore that's acting as a drag on the economy and that if we just built more roads and if we just built more schools we could get out of this mess. That sounds plausible doesn't it? If we started building those roads and we started building those bridges in those schools employing people them spending money. Geez that sounds plausible. That's a plausible cause of economic growth. Another one is public education spending. You know if we just spent more money on schools and teachers and reduced the class sizes and gave away more college student loans and more subsidies to higher education people would be smarter they'd be better at their work. They'd be more high tech and we'd get economic growth. Well geez that sounds kind of plausible. Another favorite is research and development. My fellow professors like this one a great deal because it means more money in their pockets. More government grants. More student loans for scientific education. That's all the rage nowadays is we need to have more students taking more science courses, more engineering courses, more math courses, more technology because technology is where it's at. Technology is the good high paying jobs. Well geez that sounds plausible too. And then of course we have our Keynesian friends who believe that you can generate economic growth by having the government increase aggregate demand in the economy. The government borrows, the government spends, the spending could be on infrastructure for example that creates jobs. Those people go out and spend money sounds reasonable right. Now for our fellow monetarist friends from the Chicago school and others say well you know if we decreased interest rates in the economy that would cause economic growth. We'd get more investment. We'd get more capital goods. There'd be more homes being built. There'd be more factories being built with lower interest rates. Well there's a certain plausibility to that as well. However all of these things including state economic development policies. A friend of mine was talking to me about a week ago and his county legislature, county commission had gotten a very large retail outlet, the Bass Pro Shop, to agree to locate within the county. All the county had to agree to is to give the Bass Pro Shop a couple thousand acres of land to pay for a new on ramp and off ramp onto the interstate going through which is millions and millions of dollars. And plus they wouldn't have to pay sales tax to the county and the county only had to pay them three million dollars to come there. That doesn't sound like a good deal does it? But of course they had six different, the Bass Pro Shop people had six different counties that they were trying to get you know the best deal from. But basically all of these arguments reverse cause and effect. Infrastructure, education, technology, that doesn't work as a generator of economic growth. We've tried this, we've seen this around the world. India sent millions of its citizens to the United States to be educated in high tech industries and nothing ever happened in terms of improving the Indian economy until they reformed their economy in the direction of free markets. Infrastructure projects in Egypt, they didn't work. All of these things don't work independently of real economic growth. In other words, if you have economic growth, if your economy is moving, if it's growing, more jobs, higher incomes, more savings, then yeah, you're going to see more infrastructure, you're going to see more spending on education, you're going to get more research and development in high tech as a consequence of economic growth. These are things that are just associated with economic growth. When you look at infrastructure spending, education spending, research and development, those are the result of a growing, thriving economy. And as I said, independently, they don't work. You can't just build roads and expect the economy to grow and create jobs and permanently and hire incomes. And then our friends, the Keynesians and the Monitorists, what their solutions are in terms of deficit spending, driving up aggregate demand, reducing interest rates, those are all short term fixes. They produce tangible, knowable, seeable benefits in the short run, but they impose much greater cost in the long run. Deficit spending causes the national debt to go up, which means the future has a continuous bill of paying interest and the short run benefits disappear. Reducing the interest rates in the short run provides short term benefits, but longer run, what do they get us? Well, they get us the business cycle. They get us recession. They get us economic crisis. So when Alon Greenspan actually reduced interest rates in 2001 and 2002 drove them down to 1%, you know, we had the housing bubble. Everybody thought it was great. Everybody's making money, flipping houses, building houses. Why work at Lowe's selling paint when I can go out and become a home contractor and make lots of money? Okay, so those are short term fixes and they don't work for the type of economic growth that we actually want. There are four basic ingredients to economic growth. You need to have a free market economy where there are no government controls, regulations, taxes, subsidies, price controls, et cetera. There's a lot to know about how a free market economy works. The United States is largely a free market economy. A lot of other economies have moved in the direction of free markets, such as India, such as China, and they've gotten better. You have to have private property where the means of production are owned and they're not threatened by government. So in terms of private property, your home, your business, yourself, you're not being taxed by the government, your home is not being taxed, your business is not being taxed, or regulated, or subsidized, or given certain price controls. So you have to have the right to use or trade your property and not to have it abused. Thirdly, you need sound money and that typically means gold and silver coins is money. Things that are a commodity that have a tangible value that are valued outside of their use of money. So gold can be used not just as coins, but as jewelry and electronics. There's gold in computers and iPhones and so forth. It's a great conductor. It's used for medical purposes. So it has an outside use. And as a result, sound money holds its value over a long period of time. And then we have, of course, the savings and investment process where we all save, we put our money in the bank, and the bank lends it to people in order to make houses, to operate businesses, to warehouse, capital goods. Growth is like baking a cake. You need all the ingredients to have real good, solid, tangible, lasting economic growth. And you need to have them in the right amounts, which means the more free market your economy is, the better. The sounder your monetary system, the better. The more private property is upheld by society, the better. So with cakes, you need flour, you need sugar, you need eggs, you need butter to make a cake. But if you only had flour, butter, and water, you wouldn't end up with a cake. You'd end up with tortillas. If you only had eggs, sugar, and butter, you'd make frosting instead of the cake. And the frosting wouldn't be much good without the cake, some say. Some may disagree with that. And if you had flour, eggs, and water, you could make pancakes but not a cake. If you had sugar, eggs, and milk, you'd end up with pudding instead of a cake. So in terms of cake making, the maker of the cake in our scenario is the entrepreneur. That's the key person who puts all the ingredients together in just the right amounts and puts them in just the right container and puts them at the oven at just the right temperature to make a great cake. Now if you have government bureaucrats in charge, this is what you get. The entrepreneur is guided by profit and loss. So no one has to regulate their behavior. They want profits, they want to avoid losses. So they're self-directing in a free market society with private property and sound money. Now one of the stories you're no doubt aware of is the tremendous growth in the economy of China, that they've had 30 years of basically uninterrupted growth in China. And in recent years it's been double-digit growth, which is unheard of in most economies around the world. The United States would be almost impossible to get 10% growth on a sustained basis. And they say that, well, China is a combination of communism and capitalism. But in reality, it's more like capitalism without the private property and communism without the central planning. So it's very chaotic over there. It's very hectic over there in China. The government statistics are increasing at double digit levels. But they don't have private property. The government can just take your land whenever they want it, throw you off your farm, level your farm, and allow somebody to build a skyscraper. So they don't have a true free market economy with private property and sound money. What actually happens in China is that each province in China is given a growth target by the Central Communist Party. And basically if you're the ruler of the province and the Central Committee who owns the army tells you, you must get 12% increase in GDP, you'll do anything to get that. Or you'll lose your cushy job or they'll kill you or put you in prison. So each province has this growth target. So they end up building infrastructure. They have factories and farms and stuff like that that's relatively free market. But the government is actually in charge of building the infrastructure. And so they build infrastructure and they can do that because they can borrow fiat paper money from state-run banks. And the state-run banks are more or less obliged to give these loans to these provinces and other entities, government and non-government entities within the province. And as a result, GDP is going up at double digit levels. Obviously I don't have time here to get into a lot of that, but I will encourage you to go to YouTube and look for a couple of videos on YouTube. The first one is China's richest village, which is a little video that shows how this little farming village became the wealthiest village in China. And it seems like it's really great. There's a couple of caveats that you'll find interesting. And then another video on YouTube called China's ghost cities. They're building about a dozen cities a year for inhabitants of a million people or more and nobody is living in them. Okay? So all those cities that they've built with skyscrapers and factories and malls and all that stuff, that added up to more GDP, right? Increases in GDP. But if you have houses and factories and malls and stuff just sitting there for years and years without being occupied, how much value does that produce? I would say not much value at all. Now, I came up, I just found these statistics this morning, actually. And I wanted to present them to you because it's sort of a snapshot of our economic crisis. And this is statistics put together by Professor Robert Higgs, who is a historian and a statistician, but who now believes in the Austrian approach, but he's really good at statistics because that's what he was taught. And what he's done here is he's looking at private investment in the United States. Okay? And what he's looking at is real, which means it's inflation adjusted. So he's adjusting the thing for inflation. And what he's doing is he's taking gross investment in the economy, the total amount of investment in the economy, and he's subtracting out depreciation. That's depreciation is wear and tear, basically. You know, things wearing out. So this is a picture of how much money entrepreneurs are willing to put into the economy. And his starting point here was 2007. So that's an index number of 100. And it indicates that if you go from 2005 to 2007, there was a big increase in investment, mostly in houses over that period. So that's the boom phase of the cycle. And then you see after 2007, that the number quickly recedes to 68, which is recession. And then it turns negative 26, which means depression. And then it's only slowly recovered in 2010, 2011, and 2012. And we're still 40% below what we were in terms of new investment in the economy as we were in 2007. And of course, if we continued on the trajectory of 2005 to 2007, new investment in the economy, if everything had gone right, would be a lot better. If we had really been on a sound monetary system with completely free markets and private property, that savings and investment process would have made us much more wealthy rather than much poorer as a result. And of course, in addition to what the Federal Reserve has been doing, we've got all sorts of bad policies that have impacted our private property rights, our free markets, and our sound money, namely things like financial regulation, Dodd-Frank, and Obamacare. So we've gone in the wrong direction. Thank you very much.