 Welcome to the first-ever Mises Academy debate. The government spending can play an important role in boosting economic growth. Let me introduce our debate contenders. Carl Smith is Assistant Professor of Public Economics and Government at the School of Government at the University of North Carolina at Chapel Hill. Smith also contributes to the popular economics blog model behavior. And Robert Murphy. Robert Murphy is an adjunct scholar of the Mises Institute. He runs the blog Free Advice and is the author of Chaos Theory, The Politically Incorrect Guide to Capitalism, The Steady Guide to Man Economy and State with Power and Market, The Human Action Steady Guide and the Politically Incorrect Guide to the Great Depression and the New Deal. Now I'm going to go over the debate procedures. Each speaker will have 12 minutes to present his case followed by eight minutes each for rebuttals. Then each speaker will have one minute to present a list of questions which his opponent will have four minutes to answer. Finally each speaker will have five minutes for concluding remarks. The 60-minute debate will be followed by a 20-minute question and answer period in which each speaker will have 10 minutes to respond to questions submitted by attendees. And the place to submit those attendee questions is, let me post it real quick here. I'll post that in the, in there's a link. Oh, here we go. Here's a link for Carl Smith and here is a link for Bob Murphy. Those are the links where you will post, you can post questions for them to answer during the Q&A period. And of course you're free to use the chat box too, but just so you know that it's going to be kind of crazy in the chat box. So they might not be able to answer to respond to everything in the chat box, but mostly they're going to be focusing on the questions in that forum. So since Carl is going to be the first contender, I'm going to pass the role over to, the presenter role over to him. Hi Carl, I can see you. And if you're ready, I'll start the timer for your initial 12 minutes. Okay, so I'm Carl Smith and I'm going to present the case that a government spending can play an important role in boosting economic growth. This is my first time doing this, so I'm going to start a little throat clearing and hope me calm down. Hope it won't be too nervous. So obviously thanks to Bob and the Mrs. Academy for letting me do this. So it's an honor. I want to say that what I'm going to say here are, you know, my own views and I don't know if they commit other Keynesians or new Keynesians to this. So if you may not, you may have other Keynesians say things that agree with, that I agree with or don't agree with, I think there's just as much dispute between us as between, you know, Austrians and New Keynesians. All that being said, I do think of myself as a New Keynesian, which may be a little bit different than a traditional Keynesian, but certainly in the tradition of Mankiw and Woodford and Bernanke, and the kind of stuff, the kind of models that the Fed uses today, and the kind of models that are used to push ideas like the stimulus and other things. So I hope I'm a fair presenter of that point of view. So what do I start? When I'm talking to most audiences, I usually begin with a monetary policy and sort of trying to convince them that monetary policy works, that monetary policy can influence the economy. I think because this is probably a largely Austrian audience here or a lot of people who are already familiar, I don't have to do that. And so I'm going to say what I think that we already agree on. The New Keynesian paradigm and the Austrian paradigm, and maybe I'm wrong and if I am, Bob can correct me. One of the things I think we agree on is that lowering interest rates can lead to boom. So that lowering the federal funds rate, lowering the prevailing interest rates in the economy can increase at least measured economic growth in the current period. I think we'd also agree that raising interest rates can lead to bust, or I think that raising interest rates can lead to declining economic growth in the current period. And lastly, and I think this is a crux of making my point sort of work, is that in the absence of any intervention by the Central Bank, which is of course the Federal Reserve in the United States, that if the government borrows more money, that's going to tend to make interest rates rise. And so based on those three facts, I'm going to say why I think that government spending, or more generally government expanding the deficit, the government expanding the amount of debt that it holds can help boost the economy in the short run. And then in the end, I'll discuss what I think our differences are, what I think may be crucial areas of difference. One of the things I've noticed, at least going over preparing for this, is that sometimes the debate between changingism and maybe oceanism or other points of view gets mired and concerned about industrial policy, or what I would think of as public finance, it's not strictly micro. If we want to talk about that, I'm fine to talk about that. But I don't think that those are the real macro differences. So I'm not going to focus on that. What I'm going to focus on is, okay, so how would this work? How is it possible that the government increasing borrowing at least would cause the economy to grow? And so I'm saying, let's imagine this scenario, right? The government increases borrowing. The government runs up a lot of debt. The natural thing we would expect is for interest rates to rise. So the interest rate on tech treasury bills to rise, right? Then the Federal Reserve intervenes to lower interest rates to the previous scenario. And the boom and shoot suits. And I think that Keynesian and Austrians might agree on this scenario. Maybe I'm wrong on that, but I think they would. So what I think people would focus on is saying, well, the boost in the economy comes in these two parts, right? The Fed lowers interest rates and then a boom ensues. Why is this point over here even important? Why is government borrowing even important? And so I'll build up to that. But first we imagine this scenario where government increases borrowing, interest rates rise, Fed lowers interest rates again, and then we have a temp. Okay, so then what we can do is just collapse the two middle steps into one. So the government increases borrowing, but the Fed holds interest rates constant, and then a boom ensues. And this should be basically the same thing. So in the first case, the increase in borrowing raised interest rates and the Fed responded by lowering them back. In the second case, the Fed just holds interest rates the same. And so by the exact same mechanism, we should get an increase in output. We should get a short-term boom, right? And all of this ultimately has to do with much money is sort of the root of what causes the boom. And it's the Fed holding interest rates constant in response to what would normally be a rise in interest rates based on government spending. To do that, they have to print more money, a boom ensues. Okay. So then you say, so then the natural response is, well, doesn't this mean that government spending is unimportant even in a New Keynesian world, right? Is everything completely dependent on the Fed? And the short answer to that is yes. And I think that for the last, I don't know, maybe 15 or 20 years, most New Keynesians focused on, well, what's the role for the Fed? What's the way, you know, how do we, what's optimal Fed policy, right? But there's one case, and I think it originally was highlighted by Japan. And we sort of say that the Great Depression in the United States was a similar case to this, where the government spending can play an important role. And that's when the Fed has the ability to hold interest rates constant, but it doesn't have the ability to lower them, right? And so if you're in a place where you can raise or lower interest rates as chairman of the Federal Reserve, then you don't need fiscal policy. You can just do everything with monetary policy. But if you are in a place where you can't lower interest rates, then fiscal policy could come and be important. And the place where this is is the zero lower bound. It's when the interest rates get to zero. And the reason this is important is because it's very difficult for nominal interest rates to go below zero. I've spent some time on my blog arguing that it is indeed, it is indeed possible for nominal interest rates to go below zero, but it's really difficult, no limits to how far below zero you can go. And we might as well just assume that zero is the lowest that nominal interest rates can be. And so you would say that fiscal policy, fiscal expansion, enables monetary expansion at the zero lower bound. When you're away from the zero lower bound, you just do everything with the Fed. The Fed handles stabilization of the economy. But once interest rates get to zero, the Fed can't simply lower them anymore. But what you can do is run up fiscal debt. That would raise sort of the natural interest rate. But the Fed keeps holding the interest rate at zero. And that's equivalent to a monetary expansion. And so at the zero lower bound, fiscal expansion enables monetary expansion. So then there are a couple other questions that might come up to this, one of which is even at the zero lower bound, couldn't the Fed just expand anyway? And this is something that I think is a big debate among new changes. Isn't this going to work? Can't you just print more money anyway? Can't you just do quantitative type easing? And that will get you out of it. I think a theory says that you could, but that it's hard to make it work. And in practice, it doesn't look like people have been able to make it work. And there are a couple of reasons why. One, I think that price is particularly important. And so that the interest rate is what people look at. And that's what affects choices. And the actual quantity of money is not as important if we want to have a quantity versus interest rate debate. We can have that. But I think that, and this is probably in line with the way Austrians think about the world, is that prices are actually what people respond to. We can build these equations where it's the money stock. It's the level of money stock that's making people do things that they do. But when you go out and decide whether you're going to buy a car, you look at the price. You look at what the price of the car is. And so that's one reason that the interest rate might be important. Another reason is that you could make a commitment to have interest rates low for a very long time until the economy recovers, until it returns to price level that it was on, to the path of price that it was on, until nominal gross domestic product returns to the path that it's on, or until unemployment falls below a certain level. In practice, central banks are unable or either unwilling to make this commitment work. And I think there are a lot of reasons why. One is that the central bank isn't always completely independent from the political process. And so you want to make a commitment to, sometimes we call this a credible commitment to be irresponsible. You want to make this commitment, but you can't because what it will involve is a period of higher than normal inflation, and the political process won't allow that. Or you want to make this commitment but you can't because there are going to be different central bankers in the future who are not going to go along with what you said. Or even in some of the most basic models, you want to make this commitment but you can't because it's always in your interest to lie. So if the central bank wants both low unemployment and low inflation, it's always in the central bank's interest to lie and say that it's going to keep interest rates low. But then when inflation starts to come, just to raise interest rates anyway, to sort of stop the inflation. I think that's more or less the trap that the Japanese central bank got itself into. Oh, we can debate about what not that's really it. But that's, Carl, there's about two and a half minutes left. Really? Okay. So I'll try to be quick. Okay. So that's that. All right. So this is in short, how can the government spending help boost the economy by enabling monetary policy to zero lower bound and removing the difficult step of making a credible commitment to be irresponsible? Let me just go really quick. So I only have two minutes through what I think are some of the possible objections. I'll just cover them really quick. You could say, well, government spending is too wasteful to help. I think that that's really a public choice thing. I wouldn't advocate focusing on wasteful spending. And indeed, I tend to push tax cuts as the way to do this. And in particular, certain kinds of tax cuts that I think are particularly stimulative. We have more time to go get into that. Some other objections might be, well, since you're really just talking about enabling monetary policy, you're going to have all these bad effects. It must induce malinvestment. It must set us up for you in worst fall. It must induce hyperinflation. And it must debase the dollar. So to go through those quickly, I think at least the standard issue that new chains can have with the malinvestment hypothesis is that it requires that the bond market not do its job. And so if the bond market correctly understands the path of interest rates, then investors and entrepreneurs ought to be able to just borrow money at long bond rates and have an accurate prediction of what the future of short rates are going to be. And so we have to think of something that's going wrong in the bond markets in order for that to happen. I don't know that evidence is serious. To set this up for you in worst fall, I think that when we watch the history of this, we have had soft landings in the past. We have done it soft landings in the past. And we've also known, we've correctly sort of estimated how rough the episode of bringing down inflation was. So in the 1980s, we had a higher inflation. We wanted to bring it down. We contracted the money supply. The economy went to recession. And then once that was done, the Fed released and the economy exploded. And it was a bad period for a time, but we kind of got it right. It must induce hyperinflation. I think the problem there is that even though we simply think of money producing inflation, and that's a good shortcut, it's got to run through the actual economy in order to happen. In order for it in crisis to go up, somebody has to be trying to buy things. And so the process of the economy expanding has got to happen before you get to the hyperinflation. And unless you're just completely asleep at the wheel, you're not going to central bankers out a lot of it to happen. I think most examples of hyperinflation are central bankers intending to expand the money supply to point where it would induce hyperinflation. The last thing is debasing the dollar. And I think that what I say to that in my little remaining time is that that's just not that big of a concern. So that's probably one of the more controversial things that I would say. But that debasing the dollar is probably, probably wouldn't have that bad of an effect to the United States. It's by debasing, we mean the dollar falling relative to other currencies. The dollar is probably inflated for a number of reasons, not least of which is China purchasing a lot of dollar denominated assets. So the falling dollar would be in some ways a good thing. But perhaps even more importantly, it's almost practically impossible because it's highly unlikely that either China or the European Central Bank is going to allow this to happen. Because what it would mean, the United States would have to stop running a current account. That doesn't even start running a current account surplus, which neither Germany nor China have any interest in seeing happen. And so they're simply not going to allow the dollar to collapse. And I don't know where I'm on time, but maybe I'll stop there. Is that? Yeah, the time is up. Thank you. Carl Smith. I'm going to pass the presenter roll over to Bob Murphy now. Okay. Everybody seen hear me? All right. Yes. Okay. And I will start the timer for 12 minutes whenever you're ready. Okay. And can you mute whoever's then keeps? Yeah, sorry about that. Okay. Well, welcome everyone. Thank you for attending the Mises Academy's first ever online debate. I'd like to thank Dr. Smith for his agreeing to participate with us here. For those of you who don't know him, I mean, it's not like we just grabbed some guy off the street. I mean, he is a very respected economist blogger that, you know, he gets linked to by several of the big guns, if you will. So I'm very glad he agreed to do this. And we hope that this will be a good precedent for the future, the sort of undertaking. But now with those pleasantries are overlapped under the cage match of death. So in many respects, this is my debate to lose the way I'm looking at this, because what Carl has to do here is, in my mind, he has to defend an absurd proposition that he has to argue that government spending is going to play an important role in boost economic growth. So like I say, it's for me, I what I'm going to do right now is just go through my sort of standalone presentation without referring to Carl specific things. I'm going to save that my rebuttal to him his particular remarks for the eight minute segment that's coming up. So why don't I just walk through here and just point out why I think that no government spending cannot play an important role in boosting economic growth. So first of all, there is a general presumption against having resources being allocated by the government. And I think Carl would agree with me, Paul Krugman would agree with me. But in general, there is a presumption that decentralized markets are the proper way to allocate resources for all sorts of reasons. But since I don't think anyone is going to disagree with me on this, I'm not even going to belabor the point, because there's other things where there is controversy. So the only issue is that we're focusing on a very narrow set of scenarios where possibly it could work. And there it's going to be, of course, during a recession. I mean, that's really the only time where somebody might say it might make sense for the government to have to spend money in order to boost economic growth. So in other words, if the economy is already at what the Keynesians would call full employment, we're in a healthy economy and there's nothing seriously wrong going on, then just about any economists that I know in today's climate at least would agree that, yes, the government is not going to do anything positive by spending. I mean, you might make particular arguments about research and development, things like that. But there, that's not a generic thing about boosting economic growth. Okay, so this clearly, we're just focused right now on recessions. So that's what I'm, the reason I'm bringing this up is to point out that that's why this is really the onus is on Carl to make a case here, because we know that normal times when the government starts spending money and resources are getting directed for political purposes, not one based on what consumer preferences are, and you're not having entrepreneurs and investors decide what the best use of resources are, but you're having bureaucrats decide. We know that in general, that's a bad idea, that lowers consumer welfare, whether you're in Austrian or New Keynesian or Chicago School, it comes, we all agree on that. So that's why I'm saying that there is this general presumption against the resolution tonight. The other thing before we move on here is I just want to point out, I try to pick some amusing pictures to remind us of the bumbling people for whom we're now giving credit to fixing the economy, but it's not just that, oh, there are idiots up there in Washington, and we all know that. That's not merely my point. If you look at in practice, what it is that the US federal government does with its money, it becomes even more absurd to claim that letting that government get control of more resources is going to boost the economy. I mean, all sorts of things that the US government does right now is hampering growth, and again, this isn't just a purely Austrian thing. The government, I mean, just today, the EPA finally agreed, okay, we're not going to tighten the screws on our regulation of certain atmospheric pollutants, and I know this is an obscure thing, but if you guys were following the debate, what they were going to propose to do was actually going to render more than 90% of the US in violation of the EPA's new air quality regulations. In fact, there are areas of Yellowstone National Park that would not be in compliance with it, so the EPA today backed off, right. They're also right now with unemployment benefits. They're literally paying people not to work, okay, so you can say that that's a good thing in terms of, you know, morality or what have you, but in terms of its basic microeconomics, we're saying why is unemployment dragging on and on and on? Well, part of the reason is the federal government keeps extending the period for which they'll send you checks if you don't have a job, right. So what I'm saying is that it's not merely that the government is bungling and so forth and how could they know the right thing to do, it's that we know in practice they actively do the wrong thing. So again, it's just, this is a very difficult thing that Carl's going to have to try to argue here tonight. All right, let me spend a little bit of time just talking about, so now again we're focusing on recessions, right, because that's the one area where possibly this, the proposition could be true. I think Carl's going to agree that in general, it's not true only possibly during a recession and he's even already conceded, I didn't know that he was going to go this route, but he's even conceded, it's not just during a recession. It's during a recession when we're at the zero lower bound, okay, so here there's a very narrow set of scenarios in which Carl thinks the proposition might be true and on the other one, we all agree, no, government spending is not going to help things. So here what I want to point out very briefly is that what you need to know, why are we in the recession in the first place? Why is there larger than normal unemployment for which possibly bigger government spending might be helpful? And so here you need to look at the Austrian theory of the business cycle and as Carl has alluded to it, central bank lowers interest rates that causes an unsustainable boom and then eventually, because there's not the real resources to complete the projects that are started, there's a necessary bust and it's true what the central bank in a sense causes the recession by raising interest rates, but in the Austrian view, that's just allowing reality to rear its ugly head sooner rather than later. That's ending the charade quicker rather than letting it go on and on and on and digging ourselves into a deeper and deeper hole. So it's not that, oh, if only the Fed would keep interest rates low, the boom would go on forever in the Austrian view at least. They're saying, no, it's unsustainable. All you're doing is you're getting phony inflated growth that people think they're getting richer and richer during the boom when in fact, they're consuming capital. So if Carl wants to go that way, let me just state for the purposes of the debate that I would not classify that as successful economic growth for the purposes of the resolution. When I say the government can can boost economic growth, what I really mean is sustainable, genuine growth, not illusory growth where people think that they're doing well, but actually they're consuming the capital stock unknown to them. So if you buy the Austrian theory of what gets us into the recession in the first place, well then clearly in that environment, what you need to do is let the market work, let the market reallocate resources to where they need to go. Having the government come in, spend money, just kicks the economy when it's already down. Let me, so now I just briefly there touched on the theory of it. Let's now quickly go through some of the evidence, the historical and empirical evidence of this. Let me just give you a medical analogy. Suppose there's a doctor who's using this thing that he thinks is a medicine and there's other doctors out there who disagree and they say, no, no, that's poison. All right. Now, when the doctor, he looks at a patient, he says, wow, you're pretty sick. I think you're going to be in trouble. If I don't help you, you're going to get really a lot sicker. This is how sick I think you're going to get. If I give you this medicine, you're going to get better and you're not going to be cured tomorrow, but you're going to do a lot better than you would without giving you this medicine. The patient says, okay, the doctor applies it and then the patient gets sicker, then the doctor even predicted would happen in the absence of what he thinks is the medicine. All right. And the doctor says, holy cow, it's a really good thing we acted when we did because you were worse off than I realized. You'd probably be dead right now if I hadn't given you that medicine yesterday. Okay. Well, let's now re-evaluate. So in that scenario, it's true. It's still possible that that is medicine. Okay. It is possible that the doctor just misdiagnosed the patient the first time around, and that stuff really did help. That's possible. But if he's arguing with other medical doctors and the other ones are saying, no, I think that stuff is poison that you just put in the patient, my point is that particular episode, either the doctor thinks the medicine is going to throw it out and say, well, yeah, I just misdiagnosed the patient, or if anything, it's evidence that it is poison. But clearly you couldn't point to that episode and say it's evidence that it's medicine. The way you would try to establish that, how could you know if it's medicine or poison, is you would want to look at hundreds or even thousands, ideally, of cases of patients who are very similar in other respects, and then some got the treatment and some didn't, and then you would look at their relative performance. That's the way you would evaluate it. So keep that analogy in mind, as I go through this, I'm running out of time here, but just keep that analogy in mind, and I think you'll see that when the Austrians claim that government deficit spending is poison, and the Keynesians claim that, no, it's medicine, they're in the position of this doctor who the patient he just gave it to got sicker, and then when we look back at all the history and say, okay, well, can you point to all the patients that got better, we're going to find out, no, they can't. There are no such patients. All right, so the Obama stimulus package, I think most of you know this story, so I'll be really quick. This is, and I'm sorry that it's a little bit hard to read, but if I blew it up more, it would just get real distorted. So this is from the Romer Economic Team, right when Obama first came into office in early 2009, and you remember they were arguing over what was then touted as a $787 billion stimulus, and you can see that they said, with the recovery plan, unemployment was going to just about paper off under 8% without it, they did nothing, unemployment might get as high as 9%, and of course, we got the stimulus package, and unemployment in practice broke 10%. Okay, so that's a case of, you know, the most recent application of the so-called medicine, the patient got worse than the doctor thought the patient would be doing nothing. Okay, when you ask the Keynesians, you say, all right, clearly, this last time around, it didn't work, or at least, you know, you can't point to this latest success as an example of this being medicine, point us to a case where it did work, they'll say, oh, well, when FDR came in, he ran big deficits, and the unemployment rate started improving, and then, foolishly, he tried to have austerity, you know, 1937-38, and so the Keynesians will point to that as proof. Okay, now because of the time I'm going to move on here, but you guys can see this slide, what the facts are, FDR's deficits when he first came to office were only a little bit higher than Hoover's at the depth of the Great Depression, right? So it's a little bit odd to say, oh, it's because FDR spent more, and that's why the economy started picking up, but even if you want to go that route, still three years after this alleged medicine was supposed to be working as magic, unemployment was still 14.3%. Okay, so it's odd that it's taking that long for the patient to get better, so my point is the Keynesians say, oh, it's because FDR took away this medicine in 1938, and that's why we went slid back into a double dip during the 30s, but throughout history before then, the free market doesn't take four years to recover from a boom bust, all right? It's odd that this medicine that FDR was supposedly giving, the patient was dependent on it four years down the road, such that when you reduced it, all of a sudden we're back at 19% unemployment. This is what the world would look like if that wasn't medicine, if it was poison keeping the patient sick. Okay, World War II with success, sorry, I don't have much time, let me just go over one last point, I'll turn it back over to Danny here. The Keynesians say World War II is a success, and here's what happened to real GDP, but look, if you decompose it and you net out what the government did in terms of government expenditures versus private expenditures, you can see that actually what the private sector got, these blue bars were lower at the height of military spending during World War II than they were back here under the dark days of Herbert Hoover, right? So this is statistical artifact, it's because the way they compute GDP, they count the military spending a billion dollars on bonds as being the same amount of output as if private industry spent a billion dollars investing in factories, and clearly those aren't the same thing. And so when you look at these figures that show World War II allegedly pulling us out of depression, I'm going to say no, it didn't, yeah, it may be the official GDP figures go up, but did it meaningfully cause true economic growth? I would argue that it does, how much time have I got Danny? Is that it? Okay, one last thing. Yeah, time is actually up. Oh, okay, all right, well thank you everyone, and I'll pick up some of these points later in the next session. Okay, thank you Bob, and I'm going to pass the presenter roll back to Carl Smith. It's possible for me to go back to the slide that I have. Yes, if you just click on the tab. Okay. Yep, that's the way. All right, so I'm sorry, you'll have eight minutes for rebuttals. All right, but if I have enough time I'll go through a few more of the slides I have, but I'll talk about a couple of things that Bob said. First, that government spending, there's a presumption that government spending is bad. I'm going to go ahead and agree with it, like you said that government spending at least is bad at allocating resources to their most productive uses. What I want to respond to that is we have, in terms of in a recession we have, and actually maybe my next slide gets to that, is that, yeah, so we can have horribly wasteful government spending, but one of the things that is true about a recession that's extremely important is that we have high unemployment in low capacity utilization. So we have, sometimes I could say, we have workers without capital and capital without workers at the same time, and it's difficult to tell a story, and I think this gets into the details of Austrian business cycle theory and capital theory versus New Canaan theory, but it's difficult to tell a story of how it's a good idea for us to have people who are sitting on the couch not working at the same time that we have machines that are idle and not producing anything. And it seems like at a very minimum we could be producing some of the stuff that we were before that people do seem to want. And so if we look at, think about our current predicament, our current recession, he could say, well we put too much emphasis on housing, we put too many resources into housing. I actually, you know, question how bad that was, I don't know if we'll get to the details of that, but even if that's the case and even if we put too much emphasis into housing, in terms of housing, there's no other things that people like. People seem to like televisions, they seem to like, you know, cars, they seem to like, you know, clothes, all the production of all those things fell during the Great Recession. And there was still the capital there to produce it, and there were still the workers who could have produced it, but the workers in the capital were torn apart, I think because there wasn't the general spending. And it's hard to see how that's an efficient use of resources, right? So if we can get people back to doing something that has a productive use, then that can be better than this total waste, the total waste that we have. I think it is right that we'd like to get people to the most efficient use as possible, which is why I tend to prefer things like cash grants, and actually I tend to prefer things like payroll tax cuts, which aren't strictly government spending, though, if we wanted to play little games, we could say, well, instead, we're not actually going to cut your taxes, we're going to give you a check that's like a work subsidy check, and then we can kind of under spending rather than taxes. But the point is, yeah, if we get people cash, then it's a little bit less likely to be wasteful. At the same time, there are other things the government might want to do that are not 100% wasteful, right? That are not just an utter failure of use of resources. And that's like building infrastructure. So the government spent some money to build the interstate highway system, and we can argue about whether or not that would have been better done by the private sector. But what we probably would think is that there's some positive return, right? That it's not just throwing resources away. And if we have workers who can do those types of jobs and we have the capital that can do that, then combining them together to make them work and produce something is more productive than producing nothing. So in his graph, Bob showed how, you know, there was all this government spending that sort of crowded out private spending, and is that just completely a waste? And so my push would be that although there's a strong presumption that it's not as efficient as private spending, it's not just trash, it's not just 100% wasteful that we can, the government can do things that have some positive return. And that's higher than having people having unemployed capital at the same time as you have unemployed people. So that's one thing. Also, since this is a rebuttal, I want to address sort of the Obama stimulus argument. That comes up a lot. I think there are two issues there. One is whether or not the hubris of trying to forecast the inflation or sorry, the unemployment rate during what we, I believe by that point, knew was going to be a once in 75 year experience was just what was wrong with that. So you can say, well, what was wrong with that was that the Keynesian stimulus was bad, and it made the economy even worse than that. And I would say what was wrong with that is that you even thought that you were going to be able to forecast the track of unemployment during this sort of once in 75 year storm. We didn't know how bad that was going to be. The other thing is there is always a question like Bob said, is this poison, is this medicine? That's a great analogy. Possible evidence to show that, well, maybe it really was medicine is in order to argue that it was medicine, you have to say, well, things were worse than we thought. Well, we got revisions to our economic data. So we try to produce real-time economic data, and then later we come back and we get revisions. And our revisions show that things were much worse than we thought. And so that sort of supports the notion that things were much worse than we thought. The other thing to go quickly, I don't know exactly how much time I have left, to the Great Depression and then World War II and getting it out. What now? Oh, two and a half minutes. Okay, so to the Great Depression and World War II is that we had a boost in total output. We had a decline in total unemployment. We can talk about whether or not the use of the government spending was useful or whether it was important at all. I mean, if you think that defeating the Nazis was a useful use of resources, then you might feel actually that that was a good use. It might have been better if we could have produced, we didn't have the war in the first place when we could have put those resources towards some peaceful means. But after that, we'd had this prolonged depression. And then after that, we continued to have the sort of growth. And so that sort of started the notion of, oh, if we can get out of this slump, then we can be set on a path of prosperity. And that story sort of goes along with it. Also, if you believe this New Keynesian story that I pushed, then you would say, oh, one of the things that we also saw during the Great during the World War II expansion, the government took on a lot of debt, but the Fed held interest rates low. So there was this massive expansion of money. This is a huge monetary expansion during that period as well, facilitated by the government spending a bunch of money. And then we moved on from that to a prosperous economy and one of the best periods of economic growth in U.S. history. Did you see the government's bad patient sticker? I'm sure I've got everything. I'm covering everything. Okay, so that's, I think, that's my basic case about that. Let me go on to, let me think, a couple of things here. So, Bob just sort of alluded to the sort of Austrian capital theory and said that we were just going to make the economy worse if we keep doing these unsustainable things. One of the questions that I have, and maybe we'll bring this out earlier or more depth when we have questions, is how it is that we would know or how it is that we would measure us depleting the capital stock during these booms. So I took a first stab. I have a bunch of these different charts and I don't know if we'll get to them. But we can look at the period in the boom that we just had and we see various different measures of what we were spending money on. Here's construction spending. This is what most people, I guess, would say was the biggest, most wasteful part of it. One thing to note, not to get too much in that, is that construction spending was rising even as the Federal Reserve was raising interest rates. So it's not entirely clear that the Federal Reserve, the loose Federal policy was pushing this, that we were tightening and tightening and tightening in that entire period. But then other measures were going up as well. So consumer, so industrial production of consumer goods was going up during that time and then the production of business equipment, which is here in green, was going up in that time. And so I have more houses, more consumer goods, more capital goods all at the same time. I have another little slide. I'll just go until I get stopped. Yeah, actually that's the time's up. Okay, the time's up. I will pass the presenter rollback to Bob Murphy. Okay, great. Let me flip back. Let me just get in this ties right in with what Carl was saying there. So let me just finish the main point there from my original presentation. So again, what I was going through there was saying with that medical analogy, we have a case where the patient got sicker. Now that by itself doesn't mean that the thing was medicine or poison. You know, it's presumptive evidence that it's poison, but it could be medicine. Maybe the patient really just did get sicker. So here what I'm talking about in this slide right here is that there are cases and I also went through and showed when people ask the Keynesians, they say, point us to an example of economies that where your medicine worked, the pattern is very eerie. They always point to economies that are awful and then say, but they would have been even worse had we not given the medicine. So again, Krugman and others were pat themselves in the back. If you remember, there was a Krugman article in 09 that came out and said, big government saved the day. And his point was without the Obama stimulus, we would have been back in the Great Depression where not the economy is recovering. It's sluggish, but okay. So he's pointing that Christina Romer, you ask her, we'll give us an example and she pointed to FDR, you know, 34 to 36 is evidence of big deficits bringing the economy out of recession. So clearly the U.S. was awful. The economy was awful from 34 to 36. And then World War II is the one possible exception. So I already talked about that. That's the one case where Keynesians can point to the at least prima facie. It looks like the economy was doing very well. The unemployment was down, GDP growth was to the roof. That's the one possible case. And I've talked about that. On the other hand, there are plenty of cases where government cutting spending even in the midst of a recession actually leads to a strong recovery. So ironically enough, June 2, 2010, the ECB, European Central Bank, came out with a bulletin listing these historical cases, talking about them. And it's true in some of them, the way they implemented austerity, meaning they reduced their deficits was they did a combination of spending cuts and tax hikes. So that obviously isn't good from an Austrian point of view. But believe it or not, not only were they in favor of reducing government budget deficits, but they said it appears that the benefit from reducing your deficit by having the government cut spending is more likely to lead you to a strong recovery than doing it through raising taxes. So this is totally consistent with the Austrian view. What's really interesting is when this came out, Paul Krugman and the other Keynesians that I saw, they didn't say, oh, you're making those numbers up. They didn't deny that all of these cases were true, that there really were countries that were in a recession and had huge budget deficits, cut their spending and got out of it, or cut their deficits and got out of it. And then a few cases, it was from largely through spending cuts. They didn't deny any of that. What they said was, oh, well, that doesn't really help us now because, and they just went through for each case and came up with some particular thing. Like, oh, well, the reason Ireland was able to do it was that their currency fell, and so they had an export boom. Or the reason Canada was able to do it is because their central bank lowered interest rates while they were doing it. And so that masked the problem of the fiscal, the contractionary fiscal policy. And we can't do that now because the whole world is already up against a zero lower bound. The whole world can't depreciate its currencies against each other because the world has a zero trade deficit with itself. So he just went through five or six of these cases and just boom, boom, boom, for each one gave some particular reason that that case wasn't proof or wasn't something that we could use right now, that what we needed to use right now was more deficit spending. So again, any particular case, it's true. Just because the patient appears to get better with the Austrian medicine, doesn't mean it's medicine. Maybe the patient was healthier, was more robust than we realized and would have recovered even without the medicine or without the application. That's true. But what I'm saying is, the Keynesians had at best one case and at the middle of World War II, where they're saying that's a great economy because of our medicine, where it clearly works, the Austrians had tons of cases where austerity ostensibly worked and the Keynesians concede those points. They just say, well, it's not a good, you know, it doesn't help us during the liquidity trap. Okay, let me talk a little bit now. And the time of this time I got left, got a few minutes about Carl's response there. All right. So I think his strongest point, if I may be so bold as to say what I think his strongest point is, is that he's saying, look, right now there are idle resources. So if somehow government spending could mobilize them, then wouldn't that be a good thing? And it does, admittedly, it does seem odd that we Austrians are sitting there. There's people unemployed. There's factories running at 70% capacity and so forth that, you know, gee, why can't they get together? But here I'm coming back to, Carl has yet to explain to us why are we in a recession in the first place, as Hayek said, you know, before we can explain why things go wrong, we first need to know why they should go right. And then you got to figure out why did it go wrong in order to fix it. Okay. And so this is my problem with Keynesians in general. And I, here, thus far, I'd have to include Carl in this, even though he's a new Keynesian. I mean, Paul Krugman frequently says things like economics is not a morality tale. And I'm not concerned, you know, let's fix the problem right now of insufficient demand. And then later on, we can worry about how do we get here? Okay, but right now we got to fix the problem. And then later we can do a post game show and figure out why we got into the problem. But that's totally wrong if the Austrians are right. If we're right, the reason we're in this problem is because of government in particular central bank interventions. And that's why resources are misallocated. Let me just use a quick analogy. The way that the Keynesian framework works, it just looks at things like the total capital stock and the total labor supply. So when the government comes out with these figures that the CBO comes out showing, the gap in GDP, there's the potential GDP, and then there's the actual GDP, and there's an output gap. And they're saying, you know, Paul Krugman and others are like, oh my gosh, there's all these unemployed idle resources, government spending could mobilize them. But that's only because, how many? Two. Okay. But that's only because of their models, obviously, right? Nobody knows for sure what the economy is capable of producing. They're using very simplified models that don't take into account the capital structure the way the Austrian school does. So just to give you a thought experiment, let's say that, you know, gnomes or something during the middle of the night took all the capital goods in the country and just rearranged them. So they took all the tractors that were on farms and they put them up, you know, New York City, and they took all of the goods that were in warehouses in New York City and they would spread them out through Iowa and stuff like that, right? And they took all the skilled workers in one city and dispersed them all across the country, just mixed everything up. Well, from an aggregate point of view, we've still got the same capital stock, we still have the same labor supply. Why the heck would output fall? I mean, clearly, the next day, when everyone got up to go to work, they'd realize they're in the wrong city, people would go to their factories and realize, where the heck is all my equipment? Why are these cows in here going to the bathroom on the floor? They wouldn't be able to produce anything. Output would just fall off a cliff in terms of the measured GDP statistics, and yet it would still be true that the aggregate capital stock was still the same, the aggregate labor supply, and people would be slapping their heads saying, gee, how come the economy all of a sudden can't produce? Well, government better start running bigger deficits. That's the only thing we can think of. It must just be people are afraid to spend. Well, no, clearly, it's because the production structure would have been paralyzed. So that's obviously a ridiculous absurd scenario, just a thought experiment, to get you to see the point. The Austrians are saying, during the boom period, capital is being misallocated. And just the last point I'll make here, Carl was showing those charts showing how investment spending in various categories goes up during the boom. Yes, that's true, but that's consistent with the Austrian story. The Austrians say the low interest rates are causing entrepreneurs to start a bunch of projects that they can't complete. Okay, so the fact that these certain measure statistics go up, I mean, people are consuming more during the boom. They're also trying to invest more during the boom. The Austrian point is just because the central banks printing money, that doesn't create more real resources. Something has to give. So for a few years, relying on these statistical aggregate figures, yeah, it looks like, gee, investment spending going up, consumption is going up. This is great. But in reality, the production structure is getting all out of whack. And again, the analogy is, if you just picture rearranging all the resources, clearly the economy would not be able to produce at the same level of output the next day after discovering that. So that's the analogy I would use there. Okay, thank you. That's the time. Thank you so much. So I'll go ahead and unmute both of you. But I'll pass the presenter role to Carl. And so now this is going to be the list of questions period. So Murphy is going to have a minute to present a list of questions to Carl Smith. And then Carl, oh, sorry about the frog. And Carl will have four minutes to reply. Okay. Are we going right now? Yes. Okay. All right. So I just got four questions for you. So the first one is looking at your chart where you have the original, the five stages of the government borrows money that pushes up interest rates, and then you consolidate it down to just government borrows, the Fed holds interest rates constant, and then the boom ensues. So they're even on your own terms, haven't you just proven that at best government spending can set off what the Austrians would call an unsustainable boom? So it seems to me that even theoretically, your whole case, at best, all you could prove is that the government could set in motion what we Austrian say is an unsustainable boom. So the question there is, is that what you mean by it could create growth? Next question is, do you agree with me when my characterization of the historical evidence that generally speaking, when Keynesians are asked to point to evidence of their remedies working, they typically point to economies that are awful, but that they say, well, yeah, but it would have been even worse if it had not been for the medicine. Third question is, do you agree in principle, in terms of your economic analysis, if pickpockets went around and took money from people and then went and spent it, and by hypothesis they spent, they were more likely to spend it than the people they took it from, those people might have saved more of it, with that boost economic growth. And then the last thing in light of Paul Krugman's recent CNN presentation, do you have any knowledge of an impending alien invasion? Okay. So I could just go ahead. Yes. All right. So I'm going to start with the second one about the historical evidence. I think that that is more or less correct. I mean, we have a fundamental problem here, which is that even if you believe, even if you believe me and you believe that there are these certain cases where government spending is the only appropriate response or expansion of government budget deficit is the only appropriate response, those cases are only when the patient is on the death bed. So what I'm saying is, if you've got a patient and they're about to, they're just about to keel, then this is actually something that's worth a try. And so we're just going to have, we're going to have a fundamental difficulty resolving this, because we're only talking about intervening in cases that are bad. Now, the couple of things that I could say to sort of refute this, and I mean, I just want to point this out, I'm going to lean too heavily on it, because Bob has really, really no way to respond, I guess, or maybe he has looked at this stuff, is if you look at, you try to isolate, you know, try to pull apart this cause and effect, the patient's sick because of the medicine or whether he's sick or before the medicine, some people have tried to do that, Christina Romer and her husband were one and they looked at sort of tax cuts and to see, well, will tax cuts start a Keynesian type boom, a boom that looks like it's spending driven? And what they found was yes, and the way they did that was look for tax cuts that were driven by sort of ideological reasons and not by, oh, the economy is sick, let's go ahead and cut some tax. Let's look at some people who said, I just ideologically want to cut taxes, and then we thought that. The other example is just looking at military spending more generally, and Robert Barrow, who's no friend to Keynesians, looked at that, I think in an effort to sort of disprove Keynesianism, and you can look at it any way you want, but I think the core result they found is the higher unemployment is, right, the more positive government spending, government military spending has on the economy, right? And so if all that was happening was that the government was falsely soaking up a falsely taking resources and employing them in the government sector, but having no impact on the rest of the economy, then the unemployment rate is not fully clear why that should matter. But if the government is really mobilizing resources that otherwise wouldn't be used, then a higher growth rate or higher push in the economy when unemployment is high from increases in military spending would make sense. And so New Keynesian would say, if you start a war in the middle of a boom, nothing is going to happen to the economy, it's just going to stay. The government's going to try to take these resources, but it's only going to reduce private sector resources. If you start a war during a bust, then you'll be able to pick up some of these slack resources, and so you will get economic growth. That's consistent, I think, with Barrow's stuff. Okay, into the unsustainable boom. Yeah, I actually think, and I mean, if we get to do this again, this would be good to do the crux of it. That's our key question, and I think that's really where Austrians and New Keynesians disagree. I think we think the monetary policy works the same way. We think that spending works the same way. It's just a matter of whether or not the boom is unsustainable. So I think that's a quick key question. I don't think that booms are necessarily unsustainable, and I might have some questions to go to that, and if I have any time at all, I'll see if I can talk through some of my charts as to why I think that is. I think we've had long stretches of positive growth in the economy from good monetary policy. The third thing about pickpockets. So that's sort of a complex example. I think there are always sort of two effects here. It's probably the case that if pickpockets took money away from people who had it, that this would increase the velocity of money, which would be the same as printing more money, which would boost economic growth. The problem, of course, is that you're doing that in a destructive way, and you're doing that in a way that's going to produce defensive behavior by the people who are getting pickpocketed. And so those are two separate issues, and I think that's what I get when I say there's the macro issue of would we increase the aggregate level of spending? Would we employ more resources? And then there's sort of the public finance or industrial policy end of it is, which is, are we allocating resources in a bad way because this is already causing the defensive behavior? And those two things are separate, and that's why there are certain New Canaanians like myself who say, well, I mean, there's nothing that you can do with government spending that you can't do with tax cuts. And so just cut taxes. And then that will be that will provide the deficit financing that you need to get to get out of it. Okay. And I mean, we think, you know, Kerman and other people are not here to defend themselves, but I think some people who push for spending over tax cuts it's for because they think that the government that there's the government could do things the private sector is not doing that they would want to do anyway. I've been beat down for saying that, but I think that's true. I won't address the alien invasion question. How much time do I have? Actually, time's up. Okay. So there you go. Okay. I will pass the prisoner rollback to Bob Murphy. And Carl, you can present questions to Bob Murphy for a minute. Okay, Bob. So I have a bunch of questions down here, and you can sort of choose which ones you want to answer because I think they'd all be interesting to me. One is the issue of capital consumption seems to be a big thing here. How would we go about measuring that? Or how would we know whether or not that was wrong, you know, empirically? Also, in that same vein, how would we go about measuring roundaboutness in production exactly? So those two kind of questions. Next question is, why doesn't the bond market solve these malinvestment problems? So do you think that there's this false path of this unsustainable path of interest rates? Don't bond traders know that? Isn't that their job? Shouldn't they be able to arbitrage that away? I'll skip over one. That's not that important. The other thing is co-movement generally. I mean, we may be able to get a little bit more of that. But as far as I can tell, and I was looking through stats for prepping for this, I mean, there's no stat that I can find that where we don't see co-movement in the data and to put the audience, what I mean by that is that when the economy is good, just about everything that we're measuring as productive input is going up. So if there's something bad we're doing to the economy, how in the world do we find it? And the last thing is, is inflation, the inflation that could potentially occur with monetary investment, doesn't that eat away at consumption and provide room for investment? So see what are their false savings, but doesn't inflation actually push some of these resources to investors? So I'm sorry, that's probably over a minute. But get you to which ones you want. Okay. Good questions. So I think the first one I'll take on is this issue of why doesn't the bond market correct it? So if I understand what you're asking and you're saying, well, maybe this is what you meant, but a lot of times people say, how can you Austrian, you're normally in such, you know, such praise for the entrepreneur and for speculators and so forth. And so you're saying that when that Fed comes in and pushes down interest rates by my big or rather that the Fed makes asset purchases, if it's just so transparent as you guys are saying, and clearly we just know that this is all phony and it's fake prosperity, then why don't people in the bond market just correct for that? Why don't they just make an adjustment? So there's a couple of, there's two main responses, I'll just go over them very quickly that Austrians have given. One is to say it's sort of like a prisoner's dilemma. In the prisoner's dilemma, everyone can know the game and yet they still go to the suboptimal outcome. So the similar thing here, that even if we're all, everyone in the market is a, you know, fan of Austrian economics, when the Fed comes in and starts buying assets, and that's real money, it's not that people can just refuse to take the phony Fed money as opposed to the phony Fed money that's in their pockets, right? So you can't prevent the Fed from coming in and giving money to people and then them being able to go out and start buying real resources with it. All right. So you can't, even if everybody were fully aware that the Fed was setting in motion an unsustainable boom, it's, you know, nobody can really stop that from happening. So that's one thing. The other thing is that people, it's not like we know what the real interest rate is supposed to be, except by looking at it, right? So in the Austrian school in particular, market prices really do serve a function. So if the Fed comes in and starts inflating and buying bonds with it, yeah, we know that interest rates are lower than they otherwise would be, but we don't know how much. So we can't just perfectly offset what the Fed does because part of the point is we needed to see the free market interest rate to know what the available, you know, balance was between savings and investment. And the Fed now has distorted that. So we're not getting an accurate signal. This issue about co-movement in the data, I'm trying to think of the best way to describe that. Let's make sure everyone knows what you're talking about. So what he's saying is during the boom period, wouldn't you expect from the Austrian story, wouldn't you expect to see consumption go up or, or sorry, consumption go down while investment goes up or vice versa. And yet we see them moving together. And so that seems to be an anomaly. So part of the problem is that there's, it's a focus on GDP rather than the actual capital stock itself, right? So if you if you're running down a factory, but you're cranking out new stuff over here. So in other words, if you, if you're not putting in the maintenance on your factory, and you're using those resources that you otherwise normally would have used to maintain your factory to go crank out new drill presses, the way they measure GDP, it's possible that could show up as enhanced investment spending. Okay, now it's true theoretically, if they did everything correctly, and they did the depreciation accounts right and so forth, it should be fine. But I'm saying in practice, the crudity of the data that they're working with, I think that's part of what happens. And again, this is, this isn't just, you know, after the fact I was trying to cover. So this is the Austrian story, the Austrian story relies on entrepreneurs engaging in all sorts of investment spending that is unsustainable. But beyond that, the problem, again, it's not that we're wondering, well, gee, the capital stock keeps growing. In the Austrian story, the issue is not, are we getting more capital goods or less? The issue is, do these all interlock with each other in a sustainable fashion? And so again, just going back to that story I talked about it, the gnomes in the middle of the night, rearranged all the tractors and all the drill presses and moved the farm animals around and rearranged all the skilled workers. It's not that they would have destroyed the capital stock as conventionally measured. There still would have been the same amount of wealth in the economy, but clearly, production would crash and it would take years to move everything back to where it should be because the point is the economy, the structure of production was not correctly lined up. Those things, even though they're interlocking and they were complementary goods and so forth, they weren't able to dovetail with each other. And that's what the Austrians say gets screwed up during the boom. So just looking at macro statistics, you're not going to be able to catch that. So I admit to you, you're right, I thought about when Paul Krugman, the one time he publicly acknowledged me, I was trying to come up with empirical measures because that's what he said to me, too. He said, okay, your story is theoretically possible, but proved to me that really what was happening during the housing bubble years. And it's hard to do that precisely because using macro Keynesian statistics, you can't look at something like, is the production structure sustainable? But one thing I can say is in the Austrian view, that's partly what the interest rate does. That's the function of the interest rate is to coordinate activities over time to make sure that we don't start projects for which there are insufficient savings to complete. So it's not surprising that if you mess with the interest rate and push it down, which is what would happen if there were more savings, that you're going to get a screw up just like if the government pushes down the price of apples, that leads to a problem. Well, in the Austrian view, if the way they push down the interest rate is not through an explicit price control, but by printing them a bunch of money and giving it to investors, that is going to screw things up. But what happens is it gives a false period of prosperity that then leads to a loss. All right, so I must be out of time. Yeah, that's right. Okay, so next we will go to attendee submitted questions. So I'm going to pass the presenter role back to Carl Smith. And you'll have 10 minutes for responding to questions. So I'm going to read the questions out loud. Don't we get five minutes to conclude? Oh, sorry. Instead, we'll just go straight to concluding remarks. So I'm going to unmute Carl Smith. And if you'd like to start your five minutes concluding remarks, you can do so now. Okay, yeah, I will. So I want to go and finish a little bit about what I think that the evidence for this is. And what we think it is, and I mean, is that one of the periods I think is most conclusive of this are things that go in reverse. So I talked a little bit about some of the spending sort of natural experiments we tried to tease out for tax cut natural experiments with military or ideological things. The other thing that we say is during the 1980s, there was a concert or a conscious effort on the part of the Fed to cut interest rates in order to reduce inflation. And they thought that this would cause a recession. And then it did. And then they thought when they loosened that there would be a boom and there was. And so there was this period where things sort of worked out the same way. And it's hard to, at least in the models that we work with, and we can go in the depth of question that think about how you could, how the Fed could be right on its ability to push the economy up and down, but couldn't coordinate with the federal government at the zero lower bound to push the economy out of a recession. So there's a lot of, there's a theory in there, but our experiment, a lot of our experiments, some of them have to do with military spending that was unrelated to the sickness of the patient. Tax cuts unrelated to the sickness of the patient. And then monetary moves that were done for the purpose of bringing down inflation and knocked for the sickness of the patient in terms of unemployment. And all of those seem to go in our direction. So that's part of what I wanted to address and concluding. The other thing is that, I'm not sure if I should attempt to go through any of these, more of these slides at all, but the traditional changeings are really, really aggregate. I think that there's, with the expansion of different data sources, there are people who try to go more disaggregated. I think of myself as one of those. And still it's hard to find what the evidence would be for some other story. And I mean, I like the sustainability of the boom is the question thing. And so let's see if I, let's see if I can do anything on my charts here. So yeah, I try to find the most disaggregated thing that I could think of to go with, to show that there was sort of co-movement here and what we think we wouldn't be. So we can talk about employees who are heavy civil engineering in civil engineering construction. So these people who are in the beginning stage is a building, the largest buildings and structures in the world. And that's represented by our blue line employment in our blue line or whatever. And then we have leisure and hospitality, food service and drinking places. Those are people who just serve beer and like fast food, right? For beer and food. So that's like probably like the least, the least planning thing that you have to do to show up and, you know, you make, you cook some food and you sell it to people. And if you look at the period that we're talking about employment, those industries rose together and then they fell and then they rose again together. That seems like there's some general, there's some general sort of aggregate demand out there for stuff that's moving together. Now there's a secular trend here that we're drinking establishments or rising over time, whereas construction is not. But heavy industry construction is not. So they don't perfectly match up. But you see they're rising in the boom, they peak around the same time, they fall around the same time, they recover around the same time. And so that's the kind of co-movement that we get. And we seem to get it as disaggregated as we go. And so that's part of us that there's not this distortion between prices that's causing these things. There's really some overall aggregate demand. And what we would say is sort of the distortion that comes out of printing money is inflation. And so what the central bank has to worry about is unemployment versus inflation. It's not that changing the real interest rate is going to cause different industries to do the wrong thing. And we think that the bond market basically works to solve that problem. The bond market is good at predicting what the spring of interest rate is going to be. But I can quickly go to, let's see, I have all these things that are trying to measure capital stock or the capital stock in different ways. Okay, so here is my measure of savings versus, and this is our best thing of sort of net investment. So FBI is fixed private investment, COSC is a consumption of fixed capital. Now we can look, and there's basically co-movement in the data to there. So people try to measure how much fixed capital we're consuming, try to take that out of investment. And it looks like investment is rising and savings are rising during the boom and they're both falling during the bust. Now it's the case that these two things are a little bit off in measurement. So they don't have exactly the same numbers here. But we don't see a pattern, we don't see a pattern where there's lots of extra investment. Lastly in the un... I know this is really crazier. But lastly, just trying to think about, trying to think through, well, what about, can we see any pattern where savings are not high enough to sustain projects and that's associated with some changes in the economy? So I did gross savings in the economy minus fixed private investment adjusted for inflation over time and compared that to payrolls. And what you generally get is virtually no pattern. But to the extent that there's some pattern at all, payrolls, and I'll show you some few periods, tend to be high when gross savings is above fixed private investment. So that's basically saying that when people are saving a lot relative to investment, that's when lots of people are employed. So that seems to go against the idea that we don't have enough savings and that's what's going wrong. I looked at them a little bit in a scatter plot. Like I said, there's basically no relationship here. But what little there is looks to be mildly paused. And so that to me says that I don't know that there's this relationship that there's false savings out there and that's what's happening in the boom. I think that the interest rate mainly solves a liquidity problem, which we don't really have time to get into that. But our key disagreement I think between the options in this school is, is the boom unsustainable? And if we dig, as far as I've dug through the evidence and thought about this, I just don't see the case for this capital consumption. I mean, it could be there, but I can't find it. And without that, I don't see what reason or think the boom is unsustainable. That's sort of my conclusion. Thank you so much. Okay, now five minutes for Bob Murphy for his concluding remarks. Okay, great. Thank you, Carl. Let me, let me actually go back. Are you moving it? It's the very beginning of, yeah, I'm trying to do that, right? You guys continue moving his because I wanted, I think there's a crucial point here. Whoops, I went too far. I just want to make sure you guys see this. All right, so again, here, this is him presenting his positive case, right? This is he is saying this is the one area that he's going to focus on where he's going to try to prove the case. So he says that, you know, government increases borrowing that would normally push up interest rates. The Fed comes in, you know, prints a bunch of money by bonds to push the interest rates back down. And so then the boom ensues, and then he's just, well, we can just cut off these middle two things for simplicity. And that's what led him to this chart. So he said, okay, the government increases borrowing and so it's increasing the expending, the Fed holds interest rates constant and the boom ensues. Okay, so let's step back from it. Why does he think that's proving tonight's resolution? Because he's saying, oh, look, if the government, under this scenario, the government increases its spending, and this sort of thing could happen. So what I asked him in the Q&A period, and he just basically conceded it, is aren't you thus admitting then that the one case, you know, your entire case rests on the proposition that government spending in conjunction with the central bank can lead to a boom period. And so, you know, at the time, I don't know if he was clear one way or the other, but clearly in just some of the remarks, he said yes. And so now he's just saying, but I think it's sustainable. Well, okay, that's interesting, but I think he's, I'm very thin ice at that point, because even people like Paul Krueman, and again, I know Paul Krueman's not the representative for Al Kainzi and Thoth, but clearly he's a heavy hitter and one of the best representatives we've got out there, he certainly agreed that the housing bubble was unsustainable. And just think about what we're saying here. So it's true, I confess, I can't come up with a working definition, you know, a quantifiable measure that in every recession or boom, theoretically possible boom period, we could deploy this thing and look at the data and say, aha, yep, we're sure we're in an unsustainable boom. I can't do that, right? Well, surely after the fact, we can all look at the housing bubble years and say that was unsustainable. And yet, Carl has been back into a corner where he's having to argue that, well, no, looking at these charts, for all we know, that housing bubble could have gone on forever. And so I just, I think we have to use our common sense, they know that can't be right. Why is it unsustainable? Well, for one thing, and I just have to move on because of time, for one thing, it's unsustainable because it relied on foreign investors continuing to acquire mortgage-backed securities that was only going to keep working so long as the housing price has kept going up and up and up. But as people realized as we got into 04, 05, 06, home prices were getting pushed up well beyond median incomes and so forth, right? If you look at vacancy rates, those were going up throughout the housing bubble years. That's what a speculative bubble looks like, that people were buying houses just to flip them. There was not the demand there for people to live in those houses. More and more people were acquiring housing stock just as a thing to flip, right? So when Carl says, well, how do you know that was unsustainable? I mean, I can point to common sense things like that. It's true. I can't give Keynesian hype macro statistics or things that the FRED database would show us, although the FRED can go look up a housing vacancy rate. All right, let me move on. Another amazing concession that he made, perhaps without realizing it, is he said, yeah, it's true. The historical record, he agreed with me that in general, austerity sometimes works. We don't really have any good cases of government, big deficit spending, quickly leading to a healthy economy. And he said, and this is, you know, in fairness to him, this is possibly true. It's a book. Come on. The only time we would ever be using this is when the economy was awful in the first place, when it's already on its deathbed, all right? So that's, and he's creating is right, right? In fairness to him, he did say at the outset, I'm going to restrict my analysis to cases where not only are we in recession, but we're up against the zero lower bound. So obviously, that's an economy that's already on the ropes. So we'll give them that. But what's interesting is, think back, why did we have to have a federal reserve in the first place allegedly? It's because of the wildcat free market and the awful boom bus period of this unregulated laissez-faire stock market and so forth and wildcat banks, right? So it's interesting. And if you look back through those time periods, yeah, there were some really awful financial panics, depression with a small D, but we never had anything as bad as the Great Depression. And we never had anything like our current worldwide slump back then in those dark days of laissez-faire. So when he says that our medicine is only rolled in to be used when the patients on the deathbed just realize, huh, what a coincidence. The patient has only been on that deathbed since big government came on the scene, since we started having central banking and massive counter-cyclical government spending. For some reason, back in the days when we were on a gold standard and the federal government was a lot tamer than it is now, the patient magically never got sick enough for us to need all of these Keynesian revenues. Isn't that a coincidence? All right, the last point, or sorry, too quick once he says, Romer is part of this defense. He's saying, yeah, Christina Romer and her husband found out that tax cuts actually can help in an economy. Well, again, I'm not going to, obviously they're thinking it's through increased spending, but from the Austrian viewpoint, I'm happy with that empirical result. And I'm just going to say, no, you guys misidentified the causality there with the correlations there. I agree with you, cut taxes. That's a way to help an economy. At last point, he brought up Robert Barrow. I'm out of time, so I can't read it to you. But Robert Barrow in the Wall Street Journal, I think it was in 2010, he actually said that when you go and study the World War II period, the multiplier is .8, meaning that you don't, there's no free lunch. That was the title of the Wall Street Journal. I bet if you just go Google Robert Barrow, Wall Street Journal, no free lunch, you should see that. And Paul Krueman went nuts saying, yeah, Robert Barrow, of course, the multiplier didn't exhibit itself during World War II because there were controls on consumption. There were things that the government did to control consumption. So Krueman was saying, we wouldn't have expected to see the multiplier show up then because they had rationing. So I'm not denying what Carl was saying about whatever his published papers are, but I'm saying when Barrow tried to dumb it down for the layman and say to the Wall Street Journal audience what his results were, he said, I studied the period of military spending at least during World War II, and I found no evidence of a fiscal multiplier. So in conclusion, I think that there's no evidence, both in theory and practice, that government spending can meaningfully boost economic growth. Thank you. Now we'll go on to attending questions. So I'll pass the presenter role to Carl Smith, and I'll read the first question after I silence the fog. Okay. Albert Nock asks, Arnold Kling gave names to different pathways by which a stimulus could take effect, with the ones resulting in a larger multiplier being the Keynes and Galbraith effects. The Galbraith effect is just a standard idea that government can provide some public goods, which is true regardless of the state of the economy, though borrowing costs may be lower. I restrict my question to the Keynes effect of simple deficit finances spending. My question is, is there any Keynes effect achievable by fiscal policy which could not be easily achieved with monetary policy? Immediately. So I mean, this sort of gets to what I was saying is, I think we more or less concede it, you know, is the term that Bob uses or the modern view in Keynes is that when the interest rate is free to move, when we're not up against a zero lower bound, that no, we can't. And when you've seen this sort of explosion and the upsetness in the mainstream economic discipline, it's because I think largely we have accepted that monetary policy is the way you're supposed to do this, unless you know you're up against a zero lower bound or just stuff that Paul Krugman had been talking about for a long time in Japan, and then suddenly this crisis happened and there was a fraction of us, which I'll put myself then, who were like, okay, we're up against a zero lower bound now. This is time for fiscal stimulus. And then there was another fraction said, what? I thought we were done with this fiscal stimulus stuff. Why are you guys talking about it again? And that's because when the interest rate was moved, you don't hear a lot of talk from most economists about, oh, what we really need to do is have some sort of fiscal stimulus. So I think it really is that case where the monetary authority can't really move around the street. I hope that answers that question. Okay, thank you so much. Next, Steven Yorgasson asks, why is John Williams of Shadow Government Statistics wrong when he says in a report of December of 2009, the US economic and system and systemic solvency prices of the last two years are just precursors to a capital G great capital C collapse, a hyperinflationary great depression. Such will reflect a complete collapse in the purchasing power of US dollar, a collapse in the normal stream of US commercial and economic activity, a collapse in the US financial system, as we know it, and a likely realignment of the US political environment, the current US financial markets, financial system and economy remain highly unstable and vulnerable to unexpected shocks. The Federal Reserve is dedicated to preventing deflation to debasing US dollar. Okay, that's a long question. I'm going to take the opportunity, I think, to say both what I want and then I hope this isn't cheap, but like to respond, I think to some of the last things that Bob said. So hyperinflation, I think that the reason that we are not likely to see hyperinflation is because it's got to operate, inflation has to operate through the normal channels of microeconomics, supply and demand. And so before you're going to see rapidly exploding inflation, you're going to see people trying to buy a lot of stuff, people actually with actual money going to actual stores buying lots of stuff, and that process will lead to an economic recovery. What you can get or what we'd say is that every time you do, every time you sort of push on the gas here, you have to raise the rate of inflation in order for there to be any drop in unemployment. And so when we see periods of high inflation and high unemployment at the same time, it's because the Fed kept pushing on the gas, kept putting inflation into the economy over a long period of time and never cut back, and never cut back. And so every time you push on the gas, the rate of inflation has to go a little bit higher and a little bit higher and a little bit higher and a little bit higher. And so that's the sort of mal-effect that we think occurs from just irresponsibly pushing on the gas, making it that. And then hyperinflation are periods usually when the Fed is attempting to finance the entire function of the government through printing money. And it's not really concerned with trying to balance employment, unemployment, and inflation. It's just concerned with trying to pump a lot of money into the coffers of the federal government so that it can continue to make war payments or whatever it is it's doing. And so that process just keeps going with no stopping. There's no, there's no central bank are saying, hey, maybe this is too much. I mean, it's just willful, conscious effort to do bad things. There's no, it's not like you just stumble into hyperinflation by mistake. You keep doing the wrong thing over and over and over again in obviously wrong environment. I think, actually, let me stop there. I was going to address something else, but I just stopped there. Okay. Nikolai Lace asks, is it irrelevant whether it is C, I, or G that is the reason for a rise in GDP? Well, the short answer is no. I think that those, so C is sort of the, when you go to, I don't know what you want to call this, but like tainism 101, you sort of break the economy into consumption, investment, government, net exports. And so C is consumption, I is investment, and G is government. And does it matter which one boosts GDP? Yes, it matters a lot. Consumption is going to produce benefits in the current period for people in most of us. Investment is going to produce benefits in future periods and government is, can go a lot of different ways, right? So, I mean, I think there are government investments that turn out to be pretty good. There are lots of them that turn out to be pretty bad, and you don't know. So, I think it does, and my simple answer is that it does matter. Next, Matthew Torres asks, if my understanding of change in theory is correct, the solution to the current, quote, economic downturn would be the increased aggregate demand via deficit spending and or monetary policy, i.e., increasing the money supply, which would in turn lead to a decrease in unemployment and a rise in GDP. Ignoring for the moment any negative consequences of such policies, what is the goal in reducing unemployment and increasing GDP? Does there exist some, quote, optimal level of unemployment? Does an increase in GDP actually correlate with an increase in living standards and greater production of useful goods and services? Okay, so the, yes, it would be the short answer. I think that that analysis is pretty much, pretty much right, and what we'd say is that the ideal level of unemployment, we try to estimate it, but, you know, I mean, if you are, if you're an honest economist, I think you do take these estimates as a grain of salt. We think of it as the neighbor or non-accelerating inflation rate of unemployment, which we guess is somewhere around in the 5% or 6% range. So we think that if unemployment was down to about 5% or 6%, that would be good. And why do we think that all the direct evidence on the ground says that unemployment is bad? For one thing, people don't like to be unemployment, and I think that's a raw source of evidence that's important. People tell us that it's unpleasant. People seem to like to buy stuff by consumption goods. They can't do that when there's a job. They don't have a job. People like to produce stuff. We see that virtually the production of virtually all goods, not all, but virtually all goods goes down in a recession, and so it's hard to imagine that that's better, that, you know, we don't have any goods. And as for GDP, for things that are measured at market prices, and it's always hard to make sure that you're doing that, I think we think GDP is a pretty good measure of people's living standards. Now, when you have things that are not measured at market prices, so pure government production, then that's harder. You have to estimate it. And, you know, some, it could easily be lower. I think that there are some cases where people might argue that it's higher. So when we measure the GDP, if it's something the government produces, you're going to say it's just worth the cost? Well, even if the government's not as profitable as a private corporation, there might be examples in terms of building roads or something where there is some positive return, right? So you did get more out in the cost of concrete. A road is better than just if you sum up the cost of concrete and the wages to the workers. And if it had been a private firm, that would have been represented in the private firm's profits, since the government doesn't have profits, and I've even measured that. So you don't know for sure what you might guess that there are. Okay. Sagoka Digbo asks, do you accept SAVE law? Do I accept SAVE? So SAVE law is a system that supply and demand, or sometimes it says that supply creates its own demand because anyone who wants to sell something is only looking to sell something if they in turn want to buy something. I think in general, that's a good way of looking at the economy. What it ignores is the money market, right? And that sometimes what people want, and I think this is the key insight of Keynes and why we, you know, people who are new Keynesians who are kind of divorced a little bit from some of the old Keynesian things, what we keep from Keynes is the insight, is that sometimes what we want is money. And what we mean by that is like actual dollar bills. And if that's the case, then you'll have people supplying goods on the market to accumulate dollar bills, but then not spending those dollar bills, so hoarding those dollar bills. And the reason they would want to do that is because in times of uncertainty, I mean, generally speaking, we said that there's liquidity demand that goes up and down. But especially in times of uncertainty, we think liquidity demand goes up. And so people want to hold more cash so that they, if there's an opportunity out there, they can take advantage of it, or if they're, you know, they lose their job, they can still pay their mortgage or something like that. And so they want more cash. And so everybody's trying to build up their stock of cash at the same time. And so that means that people are trying to sell more physical goods than they're trying to buy because they're trying to increase the amount of cash that they hold. So yeah, today's law, but with liquidity constraints, or liquidity considerations. Okay. Well, thank you so much. That's 10 minutes. Now we will go to the questions submitted for Murphy. And I'm going to try to pick people who haven't already had their questions addressed by Carl Smith. Okay. Jesse Porch asks, is deficit spending fundamentally different from taxing and spending, close quote, when it comes to stimulus? Or perhaps more plainly, how does the source of stimulus money influence the impact of such stimulus spending? Well, from my perspective, government spending is really the thing that's bad in the sense of misallocating resources, right? That whenever the government spends money, no matter where it got it from, the government buys tanks or something, it doesn't matter how it got the money. That means there's steel and other resources that go out, or actually don't know how you build a tank. Don't look at me if we're ever getting a tax. That's what goes into making the tank. Oh, the resources aren't available for the private sector, end of story. Now, it's true though that the way it's financed can have other bad effects. Okay. In terms of the spending, the spending is bad. For example, people would say, oh, so if you don't like deficit spending, should we just raise taxes and to close the deficit? And I would say, no, because there you're doing a double whammy. The government's still spending that money, so siphoning those resources out of the private sector's use. But when you raise taxes, of course, taking it in effect at gunpoint from various people. And so that's distortionary as well. So that's just a double whammy. So I guess if you're the question saying, if I have to choose and the government's going to spend an extra 100 billion, should it do it through borrowing or spending or sorry, taxing, I'd rather do it through borrowing because at least it gets the money voluntarily. But that voluntarily is in quotation marks because yes, the private investors give their money over voluntarily to the government to go spend in exchange for government bonds. But those bonds are ultimately only financed by the government going around the IRS cracking down on people who then give their money up involuntarily. So in the limit, if the government tried to do nothing except one deficit and never taxed anybody, that would be great because it would all be voluntary and the government would collapse, of course, because the government wouldn't be able to raise any funds or it would just turn into a regular business and have to sell things for revenue. And that's how it would pay off its bondholders. So in that sense, yeah, I'm in favor of deficit spending as opposed to the same amount of spending raised through taxes. And I think that I hope I'm answering the question. Okay, next question is from Daniel Cotter. Since M2 is now growing at over 10% annual lives and the possibility of more monetary stimulus, do you see any way we don't get significant inflation as long as this trend continues? What's a good question? So no, I don't, but I'm hesitant to jump on the rooftops and shout at the top of my lungs because I thought it would be here already. So I was on record in, what, I guess, March or maybe April 2009 saying I expected serious stagflation. So I got the stagnation part right, for sure, but the price inflation part, now it's true and fairness to myself and others who have been warning about price inflation. Basically, every price except the stuff that Paul Krugman looks at, core CPI, just about every other price is going crazy. So in that sense, I could say, oh yeah, that's right, but at the time I even thought the official government measures by this point would be registering much higher rates of price inflation than we've seen. So my answer to your question is yes, one thing though to show that really this time, this time I mean it, is that if you're looking at even the conventional BLS measures are showing, I think the last one showed that regular old run of the mill headline CPI was up something like 3.1% year over year. So it's clearly not where I thought it was going to be if you asked me two years ago, where is it going to be right now? But it is moving up there into areas where we're starting to get a little uncomfortable, even if you're a regular economist. And beyond that, it does look like at least the last few weeks of data that the access reserves are finally being lent out, that all the different measures of commercial bank lending have finally bottomed out and are coming back up. And as the questioner alluded to, the M1, M2, those things are all growing at double digit rates over the last three months or so, annualized rates. So it does look like that money finally is not bottled up at the Fed anymore, that those access reserves are coming out. And so yeah, I don't see how Bernanke's going to get out of this, except by crashing the economy and doing engaging in very contractionary policies. I certainly don't think we're just going to grow out of this gently and it'll be sluggish for a few years, knowing things will go back to normal. I don't see that happening at all. Next question from John Coates. A year or so ago, I was at an event with Mark Scousen in, or Scousen, I'm not sure if I'm pronouncing that correctly, in Oxford. He said that because the U.S. and U.K. were taking different approaches, spending versus deficit cutting, respectively, it was like a real-time experiment to see which would work best. Do you think either have proved themselves, accepting that the U.K.'s deficit cuts are hardly huge, at least so far? That's a great question. Off the top of my head, I have to be honest. I don't, I'm not familiar enough with the data. What I do know is that I'm pretty sure Paul Krugman was running around laughing saying, aha, I see the countries that have tried austerity, it blew up in their faces. So it's possible that they did do what at the time seemed to be austere measures. But with all this stuff, unfortunately, it's hard to get really clear-cut experiments in the sense that even the countries that are supposedly engaging in austerity, it's not like they're doing what Ron Paul would do. That would really be great if we had countries that were similar in most other respects, and one of them ran a trillion dollar, $2 trillion deficit, and then the other one massively balanced its budget and gave, in fact, huge tax cuts and just cut government spending by 40%, and then look at those two things over a one, two, and three-year horizon. That would be an ideal test. But unfortunately, off the top of my head, I don't know about great for exactly what they did, so I can't say. Chris Stevens asks, can you explain the education bubble and how it may differ from other business cycles? What is your advice to students graduating college during the bust? Let me give the advice first. The standard soapbox lecture that I give to all people who are just young people coming out in the job market, and I say it's because I'm bald I have the authority to tell young people what to do. I'd say, okay, don't just think in terms of what's my job going to be. You want to get multiple sources of income because no matter what you're doing, even if you have a good job with what you think is a stable company, that might disappear eight months from now. You want to get multiple streams of income going so that when one thing falls away, you can just ramp up the other stuff. Even if it's something silly, walking dogs on the weekend or something, but you want to get those things going because if and when another crash comes, which I think it probably will, unemployment is going to jump up to double digits again, and then lots of people who are freshly laid up are going to be trying to do the stuff that you've always dabbled with in the back of your mind. You know, oh yeah, I actually think that I'd be good at building tree houses for people and just putting ads in Craigslist or something. Well, if you really have been thinking about doing that for two years, start doing it now so that when a bunch of carpenters get laid off, you've already got your business up and running and have word-of-mouth advertising. Okay, so I'm not being flippant. I mean, I'm picking fanciful examples, but I'm serious that I think people should get multiple streams of income, especially if you're not a vice president in a major corporation and you think that your job is really secure. The other thing too is, be entrepreneurial. When I say get multiple sources of income, I don't mean work as a waitress at night. I mean, you go ahead and do that if you can, but I mean, try to think of stuff that you can do on your own where you're your own boss and you just have to go out and find customers because there's two things. One, you're not going to fire yourself, but also you can just work that much harder. So I'm in my own boss right now. I've worked for a jerk, right? What I'm doing is, I mean, it's because of this recession, so I'm having to work a lot more, but I can still get the income that I need to pay my bills. So that's the benefit, whereas if you're just working a punch in the clock and things don't go your way, there's nothing you can do about it. Whereas at least now I have the option that, yeah, the pain, but I can work Saturdays. Whereas I might not want to normally work Saturdays, but I have that option at least. So that's the benefit of going on a business for yourself. As far as the education bubble, yeah, a lot of Austrian people have made that analogy and it's a similar thing that the government put in all these incentives for people to go to school, these massive subsidies. And then what happens? We get a huge lot of PhDs and master's students on the market and now they can't find jobs. So a lot of people have been drawing analogies between the higher education bubble and the housing bubble and things like that. So I think, yeah, there's a lot of truth to that and you can certainly draw a lot of parallels. And so, yeah, how do you fix that? There has to be a bust. And so there's way too many kids going to college right now. And Carl will probably agree with me that he wishes half of his students would just not come anymore so he could concentrate on the cream of the crop and teach the kids that really want to learn. And I think the government, it would be doing everybody a favor. If everyone gets a college degree, it doesn't mean as much. Just like if everyone got a PhD, it wouldn't mean anything. And so if people can understand, it would be incredibly wasteful for the government to try to use tax dollars to get everyone to get a PhD and just think of all the different reasons that would be crazy to do that. Then that's what's also wrong with the government trying to get everyone to go to college. It's just not as bad. Okay. And I don't know if in a minute or so there's time to answer this, but Hans Frederick Hansen asked, Mr. Smith talked a lot about idle resources during the recession, but reading Hayek, I find his division between fixed and circulating capital interesting. If my interpretation is correct, then the unsustainable boom has consumed so much circulating capital that there are not enough capital to actually apply the fixed capital that appear to be idle. Can you elaborate on this? Sure. In one minute, let me just first say this is exactly, so that's a great question. I think you're right. What I would point people to, they haven't read it yet, is what people refer to as my sushi article. So if you just Google Robert Murphy, the importance of capital theory, it should probably be the top hit. It's a Mises.org daily article that ran a while ago. It was actually the piece that Paul Krugman linked to the one time he acknowledged my existence and said, yeah, this is theoretically possible, but this guy Murphy hasn't given us any empirical reasons to think that this is what's really going on. So in there, I do exactly what you mentioned, and I just build a little fable, a little hypothetical scenario. I tried to make it cute where Paul Krugman washes up on an island and there's a primitive tribe there. And what happens is that he gives them bad advice and they stop maintaining the boats and the nets that they use to go catch fish and then they go do other things. And so then when the nets wear out, then all of a sudden there's a bunch of people who have nothing to do because it's really not worth their time to go out and try to catch fish with their bare hands. That would just be, you know, their leisure is more valuable than the low amount of fish productivity they have. And so they just have to wait for some people to repair the nets until finally it makes sense for those people to go back and start working again. So that's obviously a very crude analogy, but that's what I think the Austrians believe happens following an unsustainable boom that there's a period there where the best use of resources is to continue searching and to reallocate them. I mean, just go back to that silly story I told, talked about during the formal debate, if people in magically in the middle of the night all the goods got rearranged in the economy, then yeah, for the reason, the purpose that I was using that I was trying to show the next morning, whenever it gets up and tries to go to work, they're going to be unsuccessful. So measured output, measured GDP would crash after that. But the other thing is if you think through what would happen, how would the economy fix itself? There would be a long period of idle resources. You know, some people immediately would find useful things to do, but it would take a long time for the heart surgeon to figure out what to do with himself if all of his equipment spread out over the country. Eventually things would get moved around, but you could see how there would be a period of apparently idle resources. But no, it's not that they would be idle per se, it's that the economy would be recalibrating. I forget what phrase, recalculating is the phrase that Arnold Kling likes to use. So I think that that's a good metaphor that he brings up. And that's what the Austrian say happens. So during a recession, it's not correct to think that the free market would just be lounging around doing nothing. No, the people in the free market who are unemployed are actively looking for work. And if you want to speed that up, what you do is stop having government transfer payments to them. If they want to draw down their savings, go ahead and let them do that. But in the market economy, everyone's incentives are correctly aligned for the so-called optimal amount of idle resources. So if people get laid off, they shouldn't just, you know, some corporate CEO gets laid off, he was making a million dollars. He doesn't necessarily need to walk into the McDonald's on the way home and start flipping burgers because they had a health wanted sign. No, it makes sense for someone with a lot of skill to have a prolonged job search to see where can I fit myself into in the economy in this post boom period. And so there is a legitimate function that so-called idle resources serves and the government by just taking money from lenders or having the bed printed up or taking it from the taxpayers and just spending it to get those people to work, even if they're just digging holes and filling them up again. That's crazy. Then that's aborting that search and you just permanently remove those people from possibly being able to contribute. Okay. Well, I think I can say for certain that if everyone had a microphone that you'd hear a resounding round of applause right now, that was a great debate. I really want to thank both of our contenders for meeting each other online in front of the sizable audience. We have over 130 people actually logged in and even more people who have enrolled will be catching up later on in the recording. So, and I just want to thank Carl Smith for coming in to Austrian Territory, so to speak, since it's a Mises hosted event. I just thought that you're so very knowledgeable and so very well polite and I just want to give you a chance to say farewell to everybody if you'd like. Oh, yes. Thanks a lot for having me. I think the sort of thing is great and if we can have more polite debates in the future. Thank you. Great. And thank you to Bob Murphy for coming up with the idea of doing this. And for Bob Murphy has many classes from Mises Academy, so if anybody's interested in signing up, please go to academies.mises.org. And similarly, I'd like to thank Bob Murphy for having such a high level debate. It's really if we could have this kind of thing on TV, on a regular basis, the public would be so much more educated on both sides. So, Bob Murphy, would you like to say farewell? Sure. Thanks, everyone, for tuning in. Again, thanks to Carl for participating and I really had a good time and I hope that everyone learned something. Thanks again. Okay. And with that, I will close this debate. I will say thank you to everyone and please keepacademy.mises.org slash blogs in your feed readers so that you can know about future events like this. In terms of single session events, we also have a webinar coming up with Robert Higgs comparing the current recession to the Great Depression. So, check that out. And also, we have a whole slate of fall courses available to check that out too.