 Okay, I'm ready to begin. The topic that I've been assigned for this period, let me read it off to you. It is an Austrian critique of mainstream economics. So I'm gonna be talking about an Austrian critique of mainstream economists. I would say if we had a Venn diagram and here is Austrian economics and here is called the mainstream or the neoclassical economists, that there is an overlap. We Austrians have certain views that are unique to us. They have certain views that are unique to them. And then there's this overlap in between the two. And I'll be mainly speaking of this part where we disagree with them, but let me first say that there are areas of agreement. For example, most economists, whether Austrian or mainstream, favor free trade. Most economists, whether mainstream or Austrian, I think that the minimum wage law will create unemployment for unskilled workers. I think that run control will take resources away from residential rental units and make it worse for tenants. So there is an overlap, a great overlap. There's even an overlap in terms of econometrics. Some people, radical Austrians, not me, I'm a moderate, that's why they call me Walter Moderate Block. And Jeff Herbiner on this one is an extremist. He says that there's no use in Austrian economics for statistics or econometrics. And in my view, if what you're interested in is an empirical issue, well then why not? For example, the elasticity of shoes. We know that there's a downward sloping demand curve for shoes. And if we raise the price of shoes by 10%, we know that fewer shoes will be purchased. But how many fewer? 1%, 2%, 20%, what? What's the elasticity of the demand curve for shoes? And we Austrians really have no dog in that fight. We're happy to go along with the mainstream people and say, well, if you wanna find that out, the way to do it is through econometrics or statistics or mathematical economics, there's nothing wrong with that. So we're not against math, per se, period. But we do have great reservations about it because a lot of math and economics, it assumes a smooth curve. Because if you want to get, I don't know, a slope of a curve, you can only, whatever it is, say price and quantity and that's say some sort of demand curve, and you wanna pick the slope of it, you have to take the slope. And you can only get a slope if the curve is continuous. And if you wanna differentiate or integrate a curve, it has to be a continuous curve. But we Austrians believe that there is no smooth curves out there that depict reality because economics discusses human action and human action is discreet. So you don't get curves like that, you get some sort of jagged lines in that regard. And therefore, we have great suspicion of it. For example, let me give you an example of that. Here is an average cost curve and average cost curve, quantity, price, and the mainstream think that the best place to be is at the bottom of the average cost curve. And if you have a downward sloping demand curve, which means you're not in perfect competition, well then the demand curve has gotta be tangent to the average cost curve at an inefficient point. Everyone following us? But Murray Rothbard in his man economy in the States says look, this whole thing depends upon smooth curves and what you're doing is you're letting the mathematical tail wag the economics dog whereas it should be the opposite. The economics is more important, the math is just a handmaiden of the economics for economists. For mathematicians, fine, but the math, you know, math uberallus for mathematicians, but not for us. So what Murray does is he draws the curve like this and then he says, look, here's an average cost curve, there's quantity, there's price and we can be at the bottom of the average cost curve even with a downward sloping demand curve. And the whole reason that you're not is because of a smooth curve assumption. So that's sort of completely backwards. So that would be just one example of math and economics where we Austrians disagree with the mainstream people. Those of you who are going to graduate school in economics, especially in the US, not so much in Europe where they're more Austrian, but in the US it's mainly math. I had some graduate student or a student who graduated from Loyola went off to graduate school and took one look at the micro text and it was all math and she didn't wanna do math for five years so she quit. I wonder about that, but that's a whole other story. Okay, so that's one area where we disagree and here I would say that getting back to this diagram, I'm gonna be going over many, many areas where the Austrians disagree with the mainstream and I'm going to take the Austrian point of view, I'm an Austrian economist and I'll be taking the Austrian point against the mainstream. Okay, I've got about 15 things like this on my list, I don't know how far I'll get through but I'll just keep pushing until we come to the end of the period. Okay, another one is this thing called the synthetic a priori. What's the synthetic a priori? A synthetic a priori statement is a statement that's apodically necessarily true and yet has something to do with the real world and this is one of the sticking points for me when I first was introduced to Austrian economics, I was introduced to it by Murray Rockboard. Just when I was finishing up my PhD at Columbia which was a logical positivist kind of a place, a mainstream place if ever there was one, my main mentor was Gary Becker, Nobel Prize winner and I was a logical positivist and I couldn't understand how that could possibly be, it seemed like magical, it seemed cultish, it seemed weird, it seemed ridiculous that there were actual statements that have to do with the real world and yet we know them absolutely for sure and we don't have to test them, we know them just by the logic of them. The way the mainstream sees this is there are two kinds of things and the two shall never meet. One is analytic or tuitology or a priori. Two plus two is four, the Pythagorean theorem, all bachelors are unmarried, men, things like that which are necessarily true but they don't impact the world. They're more how we use language, that sort of a thing and on the other hand there are empirical statements that do impact the world and do describe the world and do explain the world and help us understand the world. For example it's sunny outside or it's nice and cool in here but it's very hot outside or there are about 50 people in the room. These are empirical statements which are not necessarily true, you have to test them. Go out and look and see if they're right and they have to be falsifiable. We have to know what it would mean for them not to be true and never the twain shall meet so that there are analytic statements that are necessarily true that don't impact the world and then there are empirical statements, aposteriori statements that do impact the world, that do describe the world, that help us understand and explain the world but we have to test them and where do you get a statement that has both? Well we Austrians, not me originally but Murray Rothbard, Hans Hoppe, other Austrians have come up with a series of them. For example, if I trade you this pen for my watch it must mean that I value the pen more than the watch at least in anticipations right now and it must mean that you value the pen more than the watch more than the pen. Necessarily true. Why else would you do the trade? Now you might think that if you make the trade I'll give you an A in the course. Who knows? Or you might think if you make the trade I'll be your best friend. I don't know why you're doing it. All I know is there's something about this watch you like more than pen views, you're giving up the pen to get the watch and there's something about this pen that I like more than the watch otherwise I wouldn't give it up. This is necessarily true. I got into a big debate with, what was his name from George Mason, the guy that wrote about the irrationality of democracy, Brian Kaplan, got into a big debate on this and he wouldn't even concede this, that this is necessarily true. He kept coming up, well maybe people are lying or something like that. It's hard to deal with these people. I used to be one so I can sort of understand but they're fixed, it can't be. And now I'm gonna read off a whole bunch of other statements that are synthetic a priori and I say that this distinguishes Austrians from the mainstream because they don't cotton to this. They think it's cultish, it's religious and they dismiss us as religious cultists. Okay, so one is the gain from trade, the opposite ranking of two goods, there's a tendency for profits to be zero. A tendency, whenever you say there's a tendency you can't falsify it. I say there's a tendency for profits to fall to zero and right now profits aren't zero, some are positive, some are negative, some are zero. Well, that doesn't refute the fact that there's a tendency and yet we know there's a tendency. And there's also a tendency for profits in all industries to be the same, the same zero but at least the same because if they're high here and low here the resources will flow out of here and into here pushing down the profits here and pushing up the profits there until you get some sort of equilibration. There's a tendency for markets to equilibrate, we never reach equilibrium or the evenly rotating economy but there's a tendency for it. Others are law of margin utility, whenever the supply of good increases by one unit provided each unit is regarded of equal serviceability by a person the value attached to the unit must decrease, diminishing margin utility. Another one is the Ricardian law of association comparative advantage, whenever minimum wage laws are enforced that require wages to be higher than existing market wages involuntary unemployment will result whenever the quantity of money is increased while the demand for money is held is unchanged the purchasing power of money will fall. So Austrian economics is littered with synthetic a priori statements. Statements that are necessarily true and yet impact on the real world. The Austrian business cycle theory is a synthetic a priori statement, it's a much bigger statement, it takes a lot of premises to get it out and I'll talk a little bit about it, but that's another one. So these are a priori unfalsifiable and people like Krugman will say, well if it's unfalsifiable it's magic. So this is a crucial distinction between the two. Okay, another one is this thing about testability. Let me tell you a little story about my dissertation with Gary Becker and my dissertation was roughly of the sort that, well all econometric equations are the sort A equals, Y equals A plus B1X plus B2X2 plus B3X3 plus an error term. And what I was trying to do is here was my rent control variable and what I said is that the more rent control allows you the housing would be. Holding constant, what else do I have to hold constant? Well wealth, I have to hold constant. Anything else that might impact the quality of housing such as weather, you know if it's very bad, whether you'll have lousier housing than otherwise. And here was say good housing and what I expected was that this thing would be negative namely there'd be a negative relationship between more rent control and less housing quality. Holding everything else constant. That was my dissertation, roughly. There was a lot more but that was one of the points. And most of the time I got the right sign and most of the time thank God it was statistically significant at the five or even the one or two percent level sometimes at the 10 percent level but every once in a while I get the wrong sign. Don't ask, I got the wrong sign. And every once in a while the wrong sign was statistically significant. So how did Gary Becker react to this? Well if he were a neoclassical what he should have said was well you know maybe rent control doesn't work the way we think it does. You know I mean rent control is there's the supply, there's the demand, there's quantity, there's price, you put a maximum price on housing, demand is greater than supply, there's a shortage. The usual rent control story that you get in Economics 101. Becker didn't say that. He was too polite to say but this really what he meant to say, he meant to say block you more on, go out and do it again until you get it right. So what was testing what? Was my econometrics testing the supply and demand and rent control of which we all know and the Austrians and the neoclassists agree on that? No, it was the other way around. The theory was testing my econometrics. A very similar thing happened with rent control, sorry, with the minimum wage. Now we all know that the minimum wage is a very similar sort of thing only now we have wage and here we have the quantity of labor and if you put a minimum wage above equilibrium you're gonna have a surplus namely unemployment. So Cardin Kruger come out with this cockamani thing and there was some New Jersey and Pennsylvania, one of them raised the minimum wage and then Cardin Kruger tried to see if there was a difference in the unemployment rate for unskilled workers between the two because of this increase in the minimum wage and this is what Krugman relies on, this is what Hillary Clinton and Bill Clinton relies on, Bernie Sanders, everybody loves Card Krugman on the left. So again, if Gary Becker and Newmark and other of these mainstream people were really logical positives, if they were really neoclassical economists, you see my thesis is if you scratch a good economist you're gonna find an Austrian whether they admit that they're Austrians or not. So what they should have said is well maybe economic law works differently in New Jersey. I mean it's pronounced New Jersey so who knows what's going on in New Jersey. Maybe the minimum wage story only works 95% of the time or 98% of the time. They would have been moderate here but no they had fire in their eyes. What they did is first of all a replicatability. They called up the same people that Carden Kruger called up to get the information and they couldn't replicate it. So that's one problem. But they came out with real fire in their eyes. The idea was that this is wrong and we're gonna get that Carden Kruger people but they shouldn't have done that. Only Austrians should do that. So I now am awarding these people honorary Austrian degrees. They're not gonna accept it but I'm gonna award them whether they like it or not I'm gonna pin the tail on the donkey. I'm gonna pin Austrianism on a lot of these mainstream people that are good economists even though they don't think they're Austrians. By the way, the reason we call it Austrian economics has got nothing to do with the economics of Austria. It's because the people who started it came from Austria, Mises, Bamba Vert, Manger, Hayek, Roland Austria. It's the same with Chicago economics. It's got nothing to do with the economics of the city of Chicago. It's rather that Friedman and Becker and Stigler just happened to be at the University of Chicago and had a unique look at economics. Okay, so we've now had two or three of the 15 or so elements and let me go on to another one. What else have I got? Let's talk about entrepreneurship. For Austrians, entrepreneurship is very important. Israel Kersner wrote a book, Competition and Entrepreneurship. Peter Klein, one of our fellow teachers here is a expert in entrepreneurship and specializes in it and emphasizes the importance of entrepreneurship was if you look at any mainstream textbook, what you're gonna find is land, labor and capital. And if you're lucky in the index, the word entrepreneurship will be there and it'll be one page. And if you're not lucky, they just ignored. I might be exaggerating a little bit, but not much. Whereas if there was an Austrian textbook and there are a few, David Gordon wrote one and there were a few others. Entrepreneurship is, I don't say the only thing, there are other, land, labor and capital are also important, but entrepreneurship is very, very important. The entrepreneur is the one who sees an opportunity and sets up a business. You know, and there is a debate between Murray Rothbard and Israel Kersner on this. Israel Kersner has this thing called a pure entrepreneur who has no capital whatsoever, whereas Murray insists that it's a capitalist entrepreneur and I'm on Murray Rothbard's side of this particular debate. Israel Kersner says, well, you have this idea of entrepreneurship, but if you wanna do something, if you wanna impact the world, you have to buy or sell or invest or do something, you just can't have pure entrepreneurship divorced from anything else. And if you borrow money from someone else, well, you had collateral with which to borrow it in the first place and you had some labor to go to the bank and ask for money. So I don't think that there's any free-floating, pure entrepreneurship, but entrepreneurship is very important, whereas for the mainstream, it's not at all important. Another is the difference between ordinal and cardinal utility. Ordinal cardinal utility is ordering. I like apples better than bananas and bananas better than carrots. That is legitimate and fine and that is a fine distinction and we Austrians believe in ordinal economics. We support it, it's a rational thing. It helps shed light on economic issues, fine. What is cardinal utility? Cardinal is counting. Udils. So an apple is 10 udils, a banana is 20 udils, and an apple is 10, a banana is 20, and a carrot is 30. Therefore, the carrot is three times as much utility as the apple. And the banana is twice as much as the apple and the carrot is 150% more enjoyment than this is nonsense. This is nonsense on a stick. I'm getting the word, not a pogo stick, nonsense on something. What am I missing here? Nonsense on something. I'm not sure what, steroids maybe. Okay. Now you might think, well this is just sort of airy fairy crap and who cares about, I mean, what's the importance of it? Well, the importance of it is antitrust. Let me give you a little antitrust stuff which the mainstream loves and Austrians reject entirely, whereas the Chicago school is supposedly a free enterprise school and they have a sort of a moderate position. Let me get into that. So first I'm gonna draw the usual complicated curve. Here's the average cost curve. There's the marginal cost curve, hitting the average cost curve at the bottom point. You always have to be at the bottom point. Quantity price. Here is a demand curve. Here is a marginal revenue curve. We know that the perfectly competitive industry will be right there and we know that where marginal cost hits marginal revenue is where the quantity of the monopolist will be and he'll move his way up to the demand curve and that'll be where the monopolist will be and here is the price of the monopolist. How many people have seen this before? Good, okay, I'm glad that we're in sync. And now what do we have? We have profits. And here's the indictment of, on the part of the mainstream of monopoly. And one is that the price of the monopolist is higher than the price of the competitor and don't ask me why a high price is bad, but high prices are bad, don't ask. And we know that the quantity of the competitor, the quantity of the competitor is greater than the quantity of monopolist and quantity is good. So the more quantity and the lower the price the better and notice that monopoly is bad on both these counts and perfect competition is good on both these counts. The third one is, what's the third one? Profits. Profits are evil, we all stipulate that. Who could disagree, profits are evil. And the profits of the perfectly competitive is zero and the profits of the monopolist is this little box here, the shaded box, right, call it the box, the shaded box. That's profit and profits are evil. So that's the third indictment. And then the fourth indictment, the real biggie, the one that really sticks in their craw, the evil thing is this triangle here and this is the dead weight loss. And this really bugs the crap out of them. I mean, it's sort of like a cross against the, who are the guys you wave across at and they run away, the vampires. Well, you sort of wave dead weight loss at a mainstream economist that gets scared. I mean, it's horrible for them. And this dead weight loss is a total exercise in interpersonal comparison utility. So this stuff about ordinal, you see, it's not only ordinal and cardinal, but before I'll get back to this in a second, but every time you have a diminishing marginal utility curve and there is quantity and there is price, sorry, this is marginal utility. Whenever you draw a curve with an axis, you're counting utils, right? So this curve from the Austrian point of view is illegitimate because it's quantitative. And we've said, to my satisfaction at least, and I'm sure most of you agree that ordinal is a reasonable way of looking at utility, but utils, this says that if you have this many units, X units, then the utils are X. And then if you have Y units, then the marginal utility goes to marginal utility Y. This is an exercise in cardinal utility, but this diagram here is even worse than cardinal utility. It's not only cardinal utility, it's interpersonal, it's even worse somehow. It's bad enough to say that I like carrots three times as much as I like apples, but it's even crazier to say, well, I like carrots twice as much as you like carrots. I mean, how do you compare? I mean, it's just crazy. So what this is saying is that we, the people, get utility under the demand curve. So let me be more colorful here. So the utility that we get is under the red, can you see that? Whereas what are the costs? The cost is the area under the marginal cost curve in blue and the difference is the dead weight loss. And what the monopolist is doing is cheating us out of stuff, cheating us out of the difference between QM and QC. Because if he was a nice guy, if he didn't want to create a market failure, which is a whole other thing, the mainstream loves market failure, monopoly, the public goods, externalities, unequal income. I mean, in order to get into the American economic review, you either have to have just math or you have to come up with a new market failure. They just love market failures, whereas for Austrians, no such thing as a market failure. They're imperfect people, entrepreneurs make mistakes, but that's not what they mean by market failure. What they mean by market failure is something that the government could step in and tell the monopolist, you know, produce a QC or will break you up or will nationalize you. Those are the three solutions to the problem. So this is an exercise in interpersonal comparison utility, namely they're saying that the buyers value it at the red area. The sellers, it only costs us at the blue area and yet it's not produced. Let me give you a real world example. Here we have Djokovic, who is the best tennis player nowadays, give or take. And Djokovic enters 15 tournaments a year. He really should enter 25. He's cheating us out of 10 tournaments a year, that dirty rat. And what we should do is use the antitrust against him and make him play more. I mean, look, if he plays an extra 10 tournaments, his shoulder is gonna hurt or his knees are gonna hurt or whatever. He only picks 15, but thanks to neoclassical economics, we can order him to play more and know that economic welfare will be enhanced because we value the extra 10 tournaments more than he disvalues it. That's sort of a reductive ad absurdum, isn't it? It's just barking mad. And yet that's the implication. Okay, now how does the Chicago School fit in on this? They're the free enterprise school. They adopt all this crap. And what they say is, look, antitrust costs money. True, who could deny it? You have to have courts, you have to have lawyers, this and that and the other. And sometimes the deadweight loss is bigger than the cost of pursuing it. In which case we should pursue it, get it? And in other cases, the costs of pursuing it are bigger than deadweight loss and we shouldn't. You see what free enterprises they are? They're saying just because you have deadweight loss doesn't mean you should have an antitrust suit. Now I have to tell you my antitrust joke and I told this to a bunch of people who were lawyers and economists, all specializing in antitrust. I have a friend, Ben Klein, he was a professor at UCLA and he used to specialize in money. And then one day he told me, there's no money and money. You can't make much money studying money. Where is the money? Antitrust cases. Mises said to his wife, I'll be studying money but I'll never have much of it. That was a quote from Mises to Margo, Margo and his wife. Well, there's not really that much money and money. There's a little bit and people have done studies on just who supports the Fed. Yes, economists have been paid stuff down their throat with a lot of money from the Fed in terms of going to five star hotels here and there and being able to bring their wives or significant others. So there's a little bit of money and money but the real money is an antitrust. So here's the antitrust joke, it's a two-part joke and the first part is there were three Soviet prisoners and as prisoners do, people know you've been in prison, you talk to your buddy, why are you in jail, why are you in jail? And the first guy said I was in jail because I came to work late and they accused me of cheating to stay out of my labor services, okay, fine. The second guy said I came to work early every day and they accused me of brown nosing. You know what brown nosing is, okay. The third guy said I came to work exactly on time every day and they accused me of owning a Western wristwatch. So they put me in jail and I got a big laugh out of the economists and lawyers and other people who batten off antitrust cases whether on the plaintiff or the defendant's side. And then I told the other joke, I said there were three prisoners in jail in the US because of antitrust violations and as prisoners do, they were comparing notes and the first guy said I charged higher prices than everyone else and they accused me of profiteering and gouging. Second guy said I charged lower prices than everyone else and they accused me of collusion and cutthroat competition and predatory pricing. And the third guy said I charged the same prices as everyone else. It's hard to see how he did giving these other two guys but what the heck, it's just a joke. You know, you've got to give me a little leeway and they accused me of collusion and cartilization. The point is, no matter what you do, they can accuse you of antitrust violation. Look, the law of murder and the law of rape are legitimate laws. You murder, you go to jail, you don't murder, you don't go to jail, you rape, you go to jail, you don't rape, you don't go to jail. But with antitrust, no matter what you do, they can get you. Poor Bill Gates, he was out there in the boonies in Washington state. Mining his own business, creating a nerddom and whatever he was doing. And he wasn't paying off the boys in Washington. By the way, I think seven out of the 10 richest counties in the country are all around Washington. It's just a coincidence. It's inexplicable why that should be. The money goes there and comes back minus a little bit from the boys in Washington. And Bill Gates wasn't paying off either. He was supposed to pay off both, like Donald Trump. He would pay off the Democrats, pay off the Republicans. That's what a good businessman did. So they launched an antitrust suit against them. Why not? They're gonna get them on something higher, lower, the same prices, whatever, they'll get them. Murray Rothbard went through economic history and he said there were certain presidents that were Morgan presidents and they would go after the Rockefeller companies. And then when a Rockefeller president got in, he'd go after the Morgan companies. It's just a crock. It's dead from the neck up. It's incoherent. No matter what you do, they can get you. And yet the mainstream love it. Getting back to an intermediate microtext, you got two or three or four chapters while there's Monopoly and then there's a Hearth and Dahl Index, there's Olicopoly, Duopoly, thisopoly, thatopoly, and then they just love this stuff. The more concentrated you are, the worse. You start out, well how did McDonald's start out? It was just one store, two stores. And then it spread out because they served the public and made a good product at a low price and they out-competed whatever was in the market. And now they can be subject to monopolization. So that's a sharp distinction between Austrians and mainstream. Tom Di Lorenzo has done a lot of good work on that. I'm not sure if he's speaking about this subject this time but if you read him, he's good on that one. Okay, what else do we have? Let's try transitivity and rationality and indifference. Another thing that the mainstream love are indifference curves. They're always indifference curves. Here is an indifference curve, there's a good one, there's good two, there's indifference curve one, and indifference curve two, and here's a budget line and here we have another budget line and we get a, what do you call it? Giffen good, the way you get a giffen good and the income effect and the substitution effect and all that stuff. The Austrians reject this entirely. Not entirely, it's sort of like chess for economics, namely irrelevant but fun if you're weird and you like this stuff, nothing wrong with it per se is a mathematical exercise but the problem is with indifference, there is no way to establish indifference. I bought this watch for 20 bucks, I demonstrated or revealed that I valued the watch at more than 20 bucks, otherwise I wouldn't have bought it for 20 bucks in the ex ante sense, ex post I might not value it at more than 20, it might not keep good time but at the time I bought it I valued it more than 20 bucks, more than. The guy who sold it to me valued it at less than 20 bucks, otherwise he wouldn't have taken 20 bucks for the watch. How can you establish indifference? You can't, now here I had another big long debate with Brian Kaplan on indifference because he wrote a thing, why I'm not an Austrian economist and one of the things was he loves indifference and Guido Holtzmann and I and about five others all attacked him in, I think it was the Eastern Economic Journal, they wouldn't publish any of our critiques, they only published his attack on Austrianism, well that's the mainstream, they don't like to have debates, because they lose. This reminds me of another story, I'll get back to this in a second, what happened was some jerks published in the article saying why is Austrian economics wrong? And the proof was there were fewer Austrians than there are mainstreamers. Can you imagine that? I mean this was a serious article, it was published in a journal, Sherwin Rosen, a Chicago economist, I think it was him published in an article saying that the proof that Austrianism is wrong is that there are fewer Austrians than mainstream. I mean can you imagine when the first guy said that the earth revolved around the sun and not the other way around and people said well you're wrong because more people believed the other way around? This is science, democracy, you take a nose count as to who believes what and that's the truth. So my co-authors and I said, look this is crazy and we gave all sorts of cases where the minority turned out to be right, but if you want an objective test of which is right we've got an objective test and we think that it's also wrong but we're trying to reductive ad absurdum. And what we said is that the last guy in the debate is the winner and we got all sorts of debates between Austrians and mainstreamers and we got like 175 debates and I think we had the last article and about 110 of them. So I said on that basis Austrianism is right. Now obviously that's just as silly, right? Because some people die in the middle of a debate and they can't reply so you can't say, well just because he died or he doesn't think it's worthwhile because you can't, look my articles are attacked by a lot of people and I can't reply to all of them. There are so many. So some of them get the last word on me. So we're not seriously saying that he who gets the last word in the debate is the winner but we're saying it's just as good as counting noses to see who is the rightful winner, who is correct in economics. Okay, getting back to indifference. There's no way to establish indifference because every time you do anything you establish preference. There's only preference. Look, you people are all here. You could have been in one of the other debates, one of the other presentations. You could have been out bicycling or swimming or sleeping or eating or God knows what you could have been doing but you're here. So you establish that you prefer this. Now you might change your mind after you hear this nonsense emanating from the front of the room but at the time you chose you, I get that stuff from David Gordon. He tells me I have to do that. There's only preference. Look, here are two bottles of water and a lot of people pick, you know, which one do you want? And most people say, well, I'm indifferent. I don't really care which bottle. They're both perfectly good bottles of water. You see, the problem is that the word indifference is a perfectly good word in the English language and it applies to things like this and Brian Kaplan says, this shows indifference and I say, no it doesn't because what you're gonna do is you're gonna pick this one. Why did I pick this one? Well, it's closer. Well, maybe I picked this one, it's further away and I need the exercise too. I don't know but the point is you all have bottles of water, you all have things that are sort of homogeneous and you picked one of them, right? You've got a few bottles of water. Why did you pick those when there could have been others? Well, who knows? You just sort of close your eyes and pick a bottle of water but you pick that one, that shows you preferred it for some reason or other. Now look, we have a technical language in economics and we also have an ordinary language. Ordinarily, I don't have no objection to the word indifference. It's a fine word but as a matter of technical economics, it's all wrong. Let me give you an analogy from physics and physics work equals mass times distance, namely you have to move an object through a certain distance and that's what work is. Now suppose these are 20 pound barbells and I hold them like this. What's gonna happen? I'm gonna start sagging soon because it's hard to keep weights up at this angle and the sweat is gonna start dripping down my face and in ordinary language, we would say, I'm working. That's a good exercise. Instead of lifting weights this way, try this too. It really burns these muscles and it's very, very hard, even five pounds. Try holding five pounds for one minute and you're gonna be sweating and breathing heavily. So you're working. But in physics, are you working now? Because assuming it's rigid, there's no movement of anything, there's no work. So in physics, they have an ordinary language and a technical language. Well in economics, we can do that too. You've heard of penis envy? There's physics envy. Physics envy is what economists have that wanna make economics like physics, like testable hypotheses and stuff like that, whereas we Austrians, there are certain hypotheses that are testable, namely elasticity of shoes, as I mentioned, but there are others, namely the synthetic, a priori, apodictic statements that are not testable. So to get back to indifference curves, the reason we reject indifference curves is because indifference is not a proper economic element. And then they're used for all sorts of nefarious purposes. They come up with Giffen goods, which means an upward sloping demand curve. But the whole problem with that is that when you have a demand curve, everything else is supposed to be constant. So along the demand curve, there's quantity, there's price, there's demand curve, income is supposed to be constant. If it's a true demand curve, namely ceteris, parivus, everything else is constant, including income. And if income changes, the price of this change is like in the potato case with Ireland, where potatoes were such a big part of their diet, and the price of potatoes moved up and down and that heavily impacted income, well, you're supposed to do a shift at demand curve. You're not supposed to move along at demand curve. So the Giffen good is nonsense. The Giffen good is beloved of the mainstream economists, and the Giffen good comes out of this sort of thing where the income effect is bigger than the substitution effect, that sort of thing. So, you see, a lot of times you might think, well, you know, noodles, big deal, but noodles have important implications for antitrust. And you might think, well, indifference is really unimportant, but it has implications for the demand curve. And the demand curve is very important because one of the big fights in the minimum wage fight is are demand curves down when sloping or not? And these Cretans, you know, in every other way, they'll admit that if the price of peas rises, we'll have fewer peas, the price of shoes falls, we'll have more shoes. When they wanna get rid of, what is it, the abortions, those abortion clinics, the states in the South, what they do is they raise the criteria up through the roof, you know, you have to have hospital attachments and all sorts of things in order to get rid of them. Well, that's what the minimum wage law is. Look, if the minimum wage law was so good, as Tom Woods said the other night, the first night here, why have foreign aid? Just tell Bangladesh to raise your minimum wage. Why have it at 15? Why be so niggerly? 15 is cheap skating. Why not make it 50 or 500? We'll all be rich. We can all make 500 an hour. I mean, the poverty, you know, with the stroke of Hillary, President Hillary's pen, we can all be fabulously rich, but she's only doing it for 15. What's the matter with her? She's against the poor, right? If I'm elected, I'll raise it to 5,000 an hour. I'm kidding, I'm kidding. Okay, what else do we have here? Externalities, that's another biggie. The mainstream loves externalities, and what's going on with externalities? What we have here, education is the usual example that they use, and this is the quantity of education, and this is the price of education, and there's the demand curve, and there's the supply curve, and this is the actual amount, quantity actual. That's the amount that will be bought in equilibrium, and that's reasonable. Here's, remember, I drew the, what was it, the Venn diagram? That would be part of where we agree. This, so far so good. But then, what Milton Friedman and the other people who, other free enterprises who hate the market, what they say is, this demand curve is only private, private benefits, and there are spillover benefits on neighborhood effect benefits, or positive externalities, or external economy benefits. Namely, if you're educated, you're less likely to be a criminal, you're more likely to vote more intelligently, you're more likely to be a good neighbor, this young lady is shaking her head, I'll get to that part in a second, but I agree with you, it's all nonsense, but I'm trying to present the case the way it's presented in the textbooks. And what they say is when you, you know, with demand curves, you add up demand curves, this is demand curve A, and that's demand curve B, then this would be the sum of the demand curves, right? You add them up. So what they're saying is this is private, but then there are also public benefits, and let's just say the public benefits are here, so that when you get the sum of the demand curve, you add this one and that one, and you get that one. Everyone with me? Namely, if we took the total demand, namely all the benefits of education, not only the internal ones that, I'll get a better job, I'll get a better spouse, I'll personal, I'll learn stuff, it'll edify me, whatever, but also the spillover benefits, by me being educated, I'll help you guys, and you guys aren't paying me, and yet I'm benefiting you, you dirty rats. You ought to have some respect. So anyway, so anyway, we now have a total demand curve, and this is the quantity, call it ideal. Namely, that's how much education we should have if we took into account the external effects. And what are we gonna do? Well, Friedman's gonna have his voucher system, or we'll subsidize education, somehow we gotta push us in that direction, and this is a market failure because the market only takes into account selfish, personal, individual benefits, we don't take into account the fact that we're helping other people. There's no charity. Kidding here, I'm trying to refute the thing. Obviously, we do take into account other people, or to put it in neoclassical terms, other people's utility enters our utility function. We are made better off when other people are made better off, especially if we like them, family members, kids, parents, whatever, friends. Okay, so that's the argument. What's the refutation? Why is this wrong? Well, just because, look, right now I'm smiling at you. See, teeth, smiling? And by the way, I take a shower once a month whether I need it or not. You people owe me. Hey, give me some money because I just smiled at you. Right, or give me some money because I took a shower a month ago. I mean, what kind of an argument is that? Just because I benefit you, I can charge you? And that's the logic of this, that I'm entitled to tax you so that I'll have more education because I'm benefiting you. That's crazy. I mean, if we apply this, I'm a big fan of reductio's ad absurdum, and a reductio ad absurdum is if every time you benefit someone else, you can charge them. Well, every time a woman wears a mini skirt, she should be able to charge everyone because all the guys in their eyes are bugging out, and we should pay for her mini skirt. And this is nonsense on wheels or nonsense on stilts. That's the word I was looking for. Not on steroids, on stilts. This is nonsense. Okay, so that's one refutation. Another refutation is where did Bernie Sanders get all of his buddies for the minimum wage? I'll tell you where. The People's Republic of Ann Arbor, People's Republic of Cambridge Mass, the People's Republic of San Francisco, and what's true in all these places? Lots of universities. And what do they learn at universities? Most of them don't take economics, they take sociology, or feminist studies, or queer studies, or God knows what studies, black studies, and what they teach them is Marxism. So really what we have is a case of external diseconomies. What we ought to do is tax education, because we've got too much of it. We should move this direction. Too much education. So, there are problems here. When am I supposed to go from 11 to 11.45, or? Oh, so I'm finished. Until you're finished, I can keep going. Well, I can keep going. I've got plenty of stuff, but okay, let's do negative externalities, external diseconomies. The usual case there is pollution. So here we have supply and demand again, quantity and price. I'll just go another two minutes, because otherwise those greedy people will beat us to lunch. We don't want those greedy people to beat us. We greedy people want to beat them. Okay, so here's supply and demand, and I'm producing these wristwatches. And in order to produce wristwatches, I have what's behind the supply curve is costs. Okay, fine. And these are only private costs. And what are the private costs? Well, I have to pay my workers. I have to pay the raw materials. I have to pay insurance. I have to pay to buy or rent a factory. I have to buy machines to make the watches. Those are my private costs. What are the external costs I pollute you? When I produce these watches, out of my smokestacks comes pollution. It gets into your laundry and your lungs, and we don't take that into account. So this is the actual quantity. Quantity actual, but if we included all the costs, we would have higher costs. And therefore the optimal, quantity optimal would be less. And now we've got to move us in that direction, okay? And now we have a debate between Pogu, who wants to have taxes, and Kosu has Kakameni scheme that I don't have time to go into. And we have a government, just the government would just tell people, that hockey stick thing, we're polluting too much, and they would just say you can only pollute two-thirds of what you're now polluting. Murray Rothbard in the best article ever written on environmentalism, it's called Something Air Pollution. It was 1982 in the Cato Journal. The first half of it is just libertarian law on property and trespass. And the second party applies this to the pollution case. And I'll summarize the second part of it. And what Murray says is that in the 1830s and 1840s, what you had was a spate of environmental cases where some little old lady hung out her wash on the line and started out wet but clean, came back two hours later, dry but dirty. Or you had a railroad setting off sparks to the haystack of the farmer and burning the haystacks because of the sparks go 300 feet. And the plaintiff, the environmental plaintiff, would go to court and the court would pretty much uphold, not always, based on the evidence. This is not apodictic. This was an empirical examination. Did this guy trespass onto your property or onto your lungs or onto your haystacks? Sort of fire or whatever. And this led to several good things. People would use anthracite coal instead of sulfur coal, even though anthracite cost more, because it didn't pollute. And if it polluted, you'd get some plaintiff who would demand damages and injunction. And injunction is a letter from the court saying, you polluter, cut it out or we'll put you in jail. And damages. So the economy was moved in an environmental direction, a green direction, if you will. And there was even environmental forensics trying to figure out where this dust particle come from, from this factory or that factory. There wasn't much in the 1840s and 50s, but it was something. Now we move to the 1890s, 1900, 1910. And now we have the progressive period. Who was number one then? Great Britain. US wanted to become number one. Become number one, you need battleships, airplanes, tanks, guns, bullets, whatever. So the next time some environmental plaintiff came into court, the court said, yeah, yeah, they're violating your property rights. You're stinking lousy, selfish, private property rights. There's something more important than your property rights and that's drumroll, the public good. And what does the public good consist of? Of letting manufacturers run wild. Because if you wanna be number one, you can't take the side of a little old lady against the factory or a railroad, a stupid farmer. And that's why we had pollution problems and that's why we needed the Clean Air Act. But Murray's point was that if you could sue the environmentalist, the polluter, you wouldn't have this externality. So this is not a market failure, this is a government failure, a government failure to uphold the law like they did in the 1830s and they didn't in the 1910s. Thanks for your attention.