 Well, that's a wrap. Welcome to the UK. Thank you. Thanks for having me here. Well, thank you. And welcome to the Adam Smith Institute, who's finally hosting our event tonight. So what do you hope to accomplish on your visits to the UK? Well, really, what I'm hoping is to increase the exposure of Iron Rand in the UK. Iron Rand has never really sold. The books have never really sold very well here. The influence has been, I think, fairly marginal in the UK. And yet I think our ideas are so important and so valuable to both the intellectuals here, to the students, you know, I'm going to Oxford tomorrow and the day after. The idea is to try to increase the visibility of Iron Rand and who ideas both to kind of those activists who are involved in defending capitalism on a regular basis and to the young student population. And that kind of addresses my second question as well, what are the most important ways to promote Iron Rand's ideas in the UK when you mentioned the university stay? Well, yeah, I mean, first and foremost what we do in the US is we're really focused on young people. We're really focused on high school kids and on the universities. And I think we need to capture, get people to read the books at that point in their life and then more books we can get into the hands of students, the greatest success we will have. And then secondly, there's really smart people working in a variety of different think tanks here in England on issues of surrounding capitalism, free markets, and so on. What I'd like to help them do is bring Iron Rand's unique defensive capitalism to the forefront because I think that without, as I'll talk about tonight, without that defensive capitalism from a moral perspective, it's very difficult to argue the case for capitalism and to win. I think that from an economic perspective, after all, we've won the debate on capitalism works and we can talk about the crisis, but I think the economic problems were solved a long time ago by people like Hayek and Parmesas and some extent of the treatment. The real case that needs to be in for capitalism is a moral one and that's, I'm hoping to bring that kind of to... So once it kind of bears then, the topic of your talk tonight, so obviously we're right in the middle of this huge financial crisis, it's absolutely a full swing, we've got serious voices now calling for the nationalization of all banks in America. These are tough times to be a defender of free markets, a defender of capitalism of private enterprise. So how do you answer those voices all around the culture today who say that the free market has failed? I guess I asked them what they're talking about because the notion that free markets have failed is bizarre. What free markets is what I asked them? Where have you seen free markets? If free markets mean that the government is not interfering in the economy, if free markets mean that people are left to voluntarily deal with one another trade, exchange based on contracts, based on mutual voluntary agreements, then we have no free market. Something has failed but it certainly isn't that. If you look at the United States, which I'm much more familiar with than the UK the two industries that are most affected by this crisis, the housing market and the financial markets are some of the most regulated, controlled markets anyway, the housing markets I could go through a whole list of various regulations that the US government has housing policy as does the UK government but in the US it takes the form of anywhere from the fact that your mortgage is interest deductible. So if you take out a big mortgage you can deduct the interest. If you rent, you can't deduct your rent. So in a sense what you've got is a situation in the US where the renters are subsidizing homeowners and people who paid off their mortgages are subsidizing people who have mortgages. So that's not free. That is a governance center to take out a mortgage not just to own a home but to take out a mortgage. These mortgages are subsidized particularly mortgages for low income individuals. Freddie, Mack and Fannie Mae these two institutions that together as of 2007 owned about 50% of all the mortgages in the US in some form or another back those mortgages. They were basically government entities and they were able to provide to buy these mortgages and provide very low interest rates because of a government subsidy. The government was guaranteeing their debt. Freddie and Fannie have a huge responsibility for the crisis that we're in today. But housing policy in the US goes beyond that. There's something called the Community Reinvestment Act where Congress over the years has encouraged banks to lend to low income people. What does that mean? Lending to low income people needs high risk loans meets subprime loans. Subprime loans surprise, surprise are the core of this crisis. So there's the Community Reinvestment Act. The Federal Bank comb long. I mean there's so many government entities and that's just on the mortgage side. Then if you go to the actual building site and this is something that is common with the UK think of all the zoning, the environmental restrictions, the green belts they restrict the supply of homes. So in the United States in places like San Francisco and the Bay Area and Southern California where I live there's very limited supply of where you can actually build homes. That's free. That's not a free market. The government telling me whether I can build on my land or not that's not freedom. The government owning so much of the land. Most people don't know this but 75% of all the land west of the Mississippi in the United States is owned by either federal, state or local governments. That's not free. That's not capitalism. And then if you go to the banking sector banks in the United States are one of the most regulated industries in the world. Every aspect of the banking industry is regulated from deposit insurance which basically says that you shouldn't care which bank you give your money to as a depositor because it's guaranteed by the government up to $250,000 right now which provides pretty perverse incentives to bankers to take on risk if otherwise they wouldn't. Two banks are controlled in terms of how much capital they should take. They're controlled in terms of what loans they could make. Interest rates are of course controlled by the federal reserve. So every aspect of the banking industry is controlled by governments. So again, what free market I ask you, what capitalism has failed and then lastly but mainly in a sense most importantly the very existence of a federal reserve or in the UK the Bank of England is a perversion. Here we have a government entity controlling interest rates, controlling the supply of money. Again why not let markets determine interest rates? Why not let markets determine the supply of money? And the federal reserve and the Bank of England have such reach into every aspect of the economy that again the question has to be what capitalism what free markets what we can say unequivocally is this the mixed economy the regulatory regulated economy so the mixture of socialism and capitalism and the heavy regulation that has failed and now it's important to figure out what actually caused the crisis and get a bit of that as I think it turns out what really caused the crisis is government intervention and that's what we need to get rid of. You've made a case there that it's the mixed economy that's failed rather than free markets but even in the best of times bankers and businessmen operate under this cloud of moral suspicion. Absolutely. And in this crisis there are all sorts of alleged misdeeds that people point to you know the topical ones at the moment to the claiming of bonuses from nationalised or partially nationalised or at least failing banks there's this big fuss about John Sane with this massive refurbishment of his office and his bonus and so on. Is there really no case to say that the bankers and the businessmen have done something wrong here even if the fundamental cause is the government? Well first of all I find it really amazing that the bankers have failed again. I think that in the last thousand years probably every economic crisis that has hit the West was blamed on the bankers and I think there's a reason for that I don't think it's accidental that bankers always get the blame. And there are really two issues here one is there's a longstanding tradition in the West that's anti-usery and most people don't realise but usury really used to mean interest of any form so there has been a traditional suspicion of any kind of interest taking entity banks, investment banks all kind of financial activity has always been viewed with suspicion and that goes back to the ancient Greeks and certainly Christianity in the Middle Ages picked up on this heavily. I think part of the roots of anti-Semitism have to do with the fact that Jews were the users in the Middle Ages because it was prohibited on Christians to do it because it was a mortal sin I think Dante puts the users in the seventh rung of hell So there's a sudden bias against this idea of usury this idea of making money and I think one of the origins of that which is I think the second cause is the idea that look, business is inherently self-interested businessmen go into the office every day to make money make money for themselves for their shareholders, for their employees they don't go into the offices every day thinking about how they can maximize the well-being of the public, of society of the common good and yet we as a culture believe that morally the standard of virtue is the common good so if I say in a culture we live in today this is in the public interest everybody goes oh, that's a good thing but if I go out and say I'm doing this to maximize my profits immediately I am you know, I am perceived as something negative amoral at best usually amoral many businessmen can hide behind a product so when Bill Gates makes a lot of money he can say look, here's a piece of software you guys have all benefited from this software I did it for you, you know he says that but he could and people see that, people get it I got this benefit from this piece of software or from this furniture making a movie why the actors make so much money is obtained by the actors, so that's acceptable bankers on the hand do something that's very hard for people to comprehend they make our lives much more meaningful and valuable in numerous, numerous ways but all these ways are very difficult to explain it's hard for them to hide they are greedy on the face of it they're self-interested on the face of it and it's very hard for them to hide behind any kind of product that they produce so when we see bankers we immediately think greed we immediately think self-interest and I would say yes, that's true and that's a good thing, this is Iron Man's innovation that self-interest is a good thing it's not a bad thing yes, that's virtuous, making a profit is a virtuous thing it's not a bad thing but in the popular culture making a profit is a bad thing because it's not in the public, so-called public interest so bankers always get accused of these kind of crises because they're self-interested and in our culture self-interested view negatively with regard to the particulars of this crisis certainly there were some bankers who did things that were fraud and they should go to jail if they committed fraud anybody who steals or cheats or deceives other people should be punished but I think the number of truly fraudulent businessmen is relatively small and the ones who did commit it should be caught and put in jail other businessmen did a lot of stupid bankers did some dumb things but what's interesting is that there are circumstances that are created and the Austrian economists talk about this quite extensively when they talk about the business cycle when the Federal Reserve or the Bank of England flood the markets with credit it is very easy for bankers to then mistake basically inflationary money out of no way with real wealth and to make decisions that after the fact look completely irrational and silly but while you're in the midst of it look completely reasonable and I think that's what happened with this crisis a lot of the decisions these bankers were making were being made seem reasonable when they made it and not only that decisions often led your competitor to take a lot of market share from you and just to stay competitive you had to issue certain type of mortgages that today we look back and say why would you ever want to issue these kind of mortgages without checking people's backgrounds or without getting their income state well your competitors were doing that and they were doing it because they could basically raise money for almost nothing from the Federal Reserve because interest rates are so low so they were willing to take on enormous risk because money was so cheap so the origins of this problem really have go back to the cheap credit policies of the Federal Reserve and yes bankers made dumb decisions after that with a lot of the specifics of bonuses and offices look the problem here is not that bonuses were paid bonuses if excess bonuses were being paid if people were making more money than they deserve whose problem is that it's the problem of shareholders I don't really care as long as I don't own shares in Miller Lynch I don't care how much a CEO makes because the money he makes is coming out of shareholders if they don't care why should I care the problem has become now that the US government has put or the British government has put money taxpayer money into these banks now it's a tricky situation who owns the bank, who are the shareholders are taxpayers the shareholders but the solution to that is not penalized bankers or the owners the solution is get the government out of these banks the government has no business owning any kind of business enterprise they certainly shouldn't be owning any banks if they are now going to be in a position to decide people's bonuses people's salaries next I want to decide who to give loans to and who not to give loans to how to run a bank they can barely do a semi at running the government which is I think a relatively simple function banking is much more complicated than anything they do at what is it Whitehall or anything they do from the White House banking is far more complicated in my view than being the President of the United States I don't want a bunch of bureaucrats now making those kind of decisions bankers make mistakes who suffers their shareholders do their bondholders do and that's fine let them go bust, let them go bankrupt once you get the government involved bankers make mistakes we also that is the problem the problem is the involvement of the government in the banking sector there is no right solution in my view if the government owns shares in a bank I don't know what the bonus should be I don't know what salaries should be there are no shareholders at that point the government certainly is not in a position to dictate these things but they have to because they own shares the solution is to get them out of business this should be government's function is not to run businesses it's to protect individual rights there is the only purpose for government the protection of individual rights no individual rights served by the government getting involved in the banking very clearly what President Obama is doing now stands in fairly stark contrast to what you're saying we have this 900 billion dollar stimulus package which he's proposing which he says it's absolutely vital there's going to be a disaster people talk about deflation another great depression what do you think is it very clear what you think of that response why do you think that's wrong what do you think is the right response let me first of all defend Obama and say Obama is no worse than Bush was so this is not a democrat or a republican thing and even if you look at the republicans in congress all the entire objection to the stimulus plan has been we don't want 900 billion we want 8 or 7 or 6 the debate economics went the whole notion of stimulus bill is ridiculous the idea that you can somehow get the economy going by in a sense taking money from some people and giving it to other people is ludicrous where does this money come from $800 billion that they're going to approve or maybe have approved already come from well they have to follow in other words they're taking money from the private sector people who have savings and they're going to take that money away and then they're going to decide how to distribute it government is not very good at making those kind of capital investment decisions the private markets are much better we're sucking 800 billion $800 billion $800 billion out of the private economy savings of people and we're handing in a bunch of bureaucrats to distribute to their favorite causes which is basically what's going to happen to imagine that that has a positive impact on the economy is just absurd the 800 billion in the private hands is not sitting in somebody's mattress unused it's sitting in banks that are lending that money it's sitting in private equity funds it would go into hedge funds it would go into real investments in the economy all that money would be invested in some way or another in the economy if the government didn't stimulate it didn't use this 800 billion supposedly to stimulate I would actually argue and by the way this has never worked so FDR tried this during the Great Depression spent at that time probably equivalent dollars today he spent about 500 billion dollars and that didn't help the economy the US economy was as bad as 39 when World War II started as it was in 33 when FDR took office unemployment was still double digits in 39 nothing had really happened economically from all that money being thrown at it and Japan of course tried this in the 1990s and they went through what's called the last decade nothing happened in their economy in spite of the government spending hundreds of billions of dollars on infrastructure projects and so called stimulant I would actually argue the exact opposite if you want to stimulate the US economy the best thing to do is cut government spending stop government borrowing if the government borrowers less money that frees up more money for individuals and savers and institutions that are private to make investments in the real economy it would reinforce the market mechanisms that are already at work trying to recover from the disaster of the last year or so get the government out of banking get the government out of housing policy if you want to do anything cut corporate income tax cut the capital means taxes cut income taxes but don't increase your debt load debt that you can't pay off which causes inflation so the long time consequence of the so called stimulus plan is inflation instead of that what you want is to get government out of the economy you want to get government out of regulating the banks in the way they do out of regulating home ownership and cut government expenditures informatically that would really if Obama was cutting $800 billion from the US budget right now the economy would boom which is completely counterintuitive for most people but the more government takes the bigger chunk the government takes the slower economic growth is going so there's no case in your view for government action to halt the fall in the supply of money and credit I think there is so I mean you've got a problem once the Federal Reserve becomes the land of last resort once the Federal Reserve is responsible for the monetary system it has to do something when money and credit collapse and I think the Federal Reserve by increasing you know the money supply and by buying some of the debt and by lowering interest rate is probably doing what it should do given the fact that that's its responsibility and I would argue there should be a Federal Reserve to begin with we should have a private banking gold standard and let private bankers deal with it and then you don't get these widespread questions which you get as maybe localized issues but you don't get systemic risk the way you do right now but other than the Fed the government should have no role in this crisis so it shouldn't be bailing out banks the Treasury shouldn't be bailing out anybody they should have let best firms collapse they should have let AIG collapse the Federal the Fed's job is to continue to provide the liquidity into the market as these things are happening and it's done that you know whether it's done well or not I think we will know in a few years when we look back at the data and see how well they performed it's an impossible job so the Federal Reserve almost never does a good job it either undershoots or overshoots because there is no market mechanism to tell them where the price where the right price is so you know I don't know exactly what they're doing wrong but I can almost guarantee what they're doing is wrong but other than the Federal Reserve they should have no government intervention in the economy just leave it alone let the market sort this out and ideally extract yourself out of the as I mentioned the government should be extracting itself out of the economy extracting itself out of regulations extracting itself out of spending all this money private capital into the economy last question slightly more generally than just economics obviously President Obama has just taken office what do you think more generally of the start of his term of office and what kind of cultural changes do you think that will bring to the US over the next four years well I mean I think it's going to be interesting to see it's not exactly clear I think yet what those changes are going to be he's come in with an unspecified agenda an agenda of change without specifying any of the content of that change a lot of his nominations so far centrist nominations but I suspect he is going to govern from the left of his advisers so he's going to be pushing them leftward I think that you're already seeing greater suspicion of markets greater disrespect for capitalism greater humility when it comes to American humility when it comes to its values and when it comes to foreign policy and I think you're generally going to see a shift to the left now granted that shift started with Bush I don't like letting Bush off the hook here because Bush is to a large extent responsible the shift to the left the Republicans in Congress spent money like they were socialists never mind Democrats Bush increased regulations of American business like almost no other president in decades Saul Bane's Oxy being the obvious example but many other forms of regulation so government involvement in the economy has grown under Republican administration it's continuing now with Obama it's going to be interesting to see what kind of impact I think the overall that has a negative impact on the economy and its ability to recover I think this economy will recover but I think it will be very slow and very painful and very volatile I think we're in for probably a decade of economic news coming out of the U.S we might see a recovery but then probably another recession following that I think what we're really setting ourselves up for with Obama is whether it's in 4 years probably not but maybe 8 to 12 years another swing to the right the American people I don't think will tolerate a permanent shift leftwards what's going to be for America is what kind of shift to the right that it gives is that going to be a shift to the right towards more of their kind of religious conservatism that has dominated the Republican Party now since the 1980s or is it going to be towards free market principles that I think is the battle of the next decade because this shift to the right is going to have a permanent impact on American culture I think ultimately the right more impact on America than the left does and if it's religious right then then it's doom and gloom I'm very pessimistic about the ability of the U.S. to recover from that and right now that's the direction the Republican Party is heading but if you think of the religious conservatives they do not believe in free markets and they certainly don't believe in freedom in our personal lives they want to control our economic life and want to control our personal lives they are more inclined towards fascism than even the left is and therefore I think they are ultimately long term the greatest threat to American liberty that exists what the real challenge is going to be over the next decade is to establish reinforce and fight for a right that is pro free markets that leaves individuals alone both in the economic life and in the private life that leaves religion out of politics but really is pro markets and pro capitalism and that's going to be a real struggle and we're starting off at the deficit this is not going to be easy both the left and the religious right are far more powerful than the pro free market and the religious right