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Thomas Sowell -- Basic Economics — Transcript

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0:00welcome to uncommon knowledge I'm Peter
0:02Robinson be sure to join us by the way
0:04on Facebook at
0:07facebook.com uncn knowledge
0:11facebook.com uncn knowledge an economist
0:15syndicated columnist and best-selling
0:17author Thomas soul is a fellow at the
0:19Hoover institution over the course of
0:21his long and storied career Dr Soul has
0:24taught economics at institutions
0:25including Cornell Amherst and
0:28UCLA Dr Soul's latest book a revised and
0:32updated version of his classic volume
0:35basic economics here is the first
0:38edition of basic
0:40economics and here is here is the new
0:43edition showing that Tom soul never
0:46rests to quote from basic economics
0:50through its various additions the
0:52fundamental idea behind basic economics
0:54Remains the Same learning economics
0:57should be as uncomplicated as it is
1:00informative close quote welcome Tom no
1:04charts no equations all words plain
1:08English that's right no graphs no graphs
1:11no graphs all right um well would you
1:14help me to uncomplicate a few things
1:16today all right all right segment one
1:18the present crisis now uh I posted
1:21notices several places that I'd be
1:23interviewing you and asked folks for
1:25questions and got overwhelmed with
1:26questions I can only offer a few but
1:28here are some from Ken Sweeney of
1:31Ricochet this is the basic of the basics
1:34how is wealth created and why does the
1:37United States have the highest per
1:39capita GDP of any major
1:42country wow how many how many years do
1:45we do I have to answer this question
1:48it's television you've got about 90
1:49seconds at the
1:51most oh I guess wealth is created uh
1:55when the circumstances are such that
1:58people who know how to create it are
1:59free to do
2:01so uh one of the things that pains me
2:04current in the current crisis is people
2:06saying that Congress really needs to do
2:07something to make the economy recover no
2:10they need to let the economy recover
2:13that the economy did not get to be the
2:15the biggest in the world by politicians
2:17doing things all the millions of other
2:20people that we whose names we don't even
2:22know those are the people who made it
2:24the the biggest economy in the world and
2:26if politicians will get out of their way
2:28uh we we we can and let the economy
2:30recover it can do that Tom we've been
2:32talking about the the crisis let's take
2:35a step back 1983 until 2008 the American
2:39economy experiences a quarter of a
2:41century of nearly uninterrupted economic
2:44growth then beginning in the Autumn of
2:472008 trouble what went wrong well
2:50actually it started it started much
2:52earlier and I think the first it was the
2:54housing boom followed by the housing
2:56bust which occurred in 2006 2006 so and
3:00then so the reverberations of that that
3:02is there were people out there who had
3:04trillions of dollars invested in
3:06Securities based upon mortgages and when
3:09people stopped paying their mortgages
3:12the value of the Securities vanished
3:13Into Thin Air so you do not argue that
3:16this was a financial crisis that spilled
3:18over into the real economy you argue
3:20that it was a problem in the real
3:21economy particularly the housing market
3:24that started the problem in the
3:25financial sector oh absolutely if people
3:27had kept paying their mortgages the
3:29Securities would have been good and we
3:31would have all lived happily ever after
3:33now now the problem is that the
3:35politicians uh made the mortgages more
3:37risky by changing the rules in other
3:40words at one time mortgages were
3:42considered the safest investment this is
3:44for the widows and orphans who need need
3:46the money coming in regularly and you
3:49put it into into real estate but the
3:51politicians decide that we must have
3:53more uh home ownership and more
3:56affordable housing and so they began to
3:58prescribe rules you had to uh lend money
4:03to people you wouldn't have lent to
4:04before and of course there was a reason
4:06they weren't lending to them before and
4:08we discovered the hard way what that
4:10reason was that they weren't likely to
4:12be able to pay them to pay them
4:14back very import profound question here
4:17I think
4:19anyway did what happened indicate the
4:22housing market problem did that
4:24indicate that markets some markets
4:27wonderful as they are wonderful as you
4:29demon over and over again in basic
4:31economics that free markets are that
4:33they sometimes
4:35experience troubles calamities even that
4:39the markets are are imperfect because
4:41they're rooted in human experience and
4:43we live in a fallen world or did it
4:47demonstrate that the government messed
4:49things up the government messed them up
4:51after all the for a century you never
4:53had this kind of crash in the real
4:55estate market for centuries people who
4:57have been who made it did their life
4:59work lending money for mortgages did
5:02that without the politicians interfering
5:04once the politicians started meddling uh
5:07the results were what you could have
5:08predicted it's what was predicted in
5:10fact all right response to the crisis
5:12the Federal Reserve floods the financial
5:14markets with liquidity while first the
5:17Bush Administration and then the Obama
5:19Administration enact stimulus and
5:21bailout packages that now amount to as
5:24best I can make it out something like
5:25$3.6
5:27trillion correct responses
5:30to the to the crisis did the government
5:32do the right thing
5:33no uh those are easy
5:37questions all right uh one of the
5:40painful thing I mean you can call
5:41anything anything you want to call it
5:44you can call it a stimulus all the data
5:46indicated didn't stimulate anything
5:49except boondoggles across the country uh
5:51as politicians handed out money to all
5:53the special interests that they are
5:54interested in uh uh pleasing uh but uh
5:59for example when when they dumped all
6:00this money into Banks the idea was the
6:02banks would then pass that money on and
6:04more lending right lending went down uh
6:08they dumped all this money into the
6:09businesses the businesses reduced their
6:12investment uh all kinds of money is
6:14piling up there's wrecked amounts of
6:15money piling up what about GM surely
6:18that's the one success story workers are
6:20still employed GM is now a competitive
6:22company again they're paying back
6:24billions to the American taxpayer oh
6:26this is this is the famous one where uh
6:28we we we guaranteed them and and it
6:31didn't cost the taxpayers a dime right
6:34yes yes
6:36uh it's like going to Las Vegas you know
6:39and saying uh uh uh I I put my quarter
6:42in the machine and out came all came
6:45$100 yes now put another quarter and see
6:47if you get another hundred and put a
6:49million dollars in there and see if you
6:51get a million dollars back uh we had the
6:54same thing with the Savings and Loan
6:55crisis in couple of decades ago they
6:58said you know we're we're we're backing
7:00the Savings and Loan industry we're
7:01guaranteeing it but it's not cost the
7:03taxpayers anything well it's not until
7:05it fails and then it cost the tax payers
7:08all right segment two what is to be done
7:11now fed chairman Ben Bernan announced
7:14this past Autumn that the Federal
7:16Reserve would engage in a new round of
7:18quote I'm using his term quantitative
7:20easing the so-called
7:22QE2 the FED will purchase Tom wipe that
7:24smile off your face this is serious this
7:27is serious the FED will purchase
7:29something 600 billion of Treasury
7:30instruments to keep interest rates low
7:33and spur economic growth that's Ben
7:35Bernan on the other hand we have our
7:37colleagues at the Hoover institution
7:39John Taylor Mike bosin and John kogan
7:42signing an open letter to Ben Bernanke
7:44which read in part quote we believe the
7:46largescale asset purchase plan should be
7:49discontinued the planned asset purchases
7:51risk currency debasement and inflation
7:54and we do not think they will achieve
7:55the fed's objective of promoting
7:57employment close quote who side is Tom
7:59so on oh I'm on the size of people say
8:01they should shouldn't have done it easy
8:03another easy one oh my gosh yes there
8:06used to be a phrase was it was called
8:08monetizing the debt it means that that
8:10the Tre the treasury Department has
8:12deficit spending so they put out all
8:14these bonds that they're selling and if
8:16the public won't buy them the Federal
8:18Reserve will buy them because the the
8:19Federal Reserve can legally print its
8:21own money so it's no problem for this
8:22Federal Reserved by them it's just that
8:25that's what that amounts to is one
8:27inflation and two it amounts to a hidden
8:29tax which will not be confined to the
8:31rich as we as they call it I mean in
8:33other words if you've got uh X th000 of
8:36in your bank account and the Federal
8:38Reserve starts printing more money it is
8:40simply stealing the value of the money
8:42that you put aside so and so that that's
8:45the same thing as a tax only it's it's
8:47an inflation tax but Tom this is you're
8:51answering these questions with a
8:53greatest of ease and even and you even
8:54find I can tell from your face you find
8:56some of the questions amusing but so a
8:59Layman like like me like our viewers is
9:02who now wait a minute Dr soul is an
9:04eminent figure and I even had in these
9:06emails somebody commenting on your
9:08lovely baritone voice you're a sterling
9:10you're a sterling figure in all kinds of
9:12ways but Ben Bernan is a princ in other
9:16words what is he thinking what do the
9:17other what what does Ben Bernan think
9:19he's doing it can't be that easy can it
9:21to say oh no that's a mistake well you
9:24know
9:25uh Ben verik is Chairman of the Federal
9:28Reserve System he's no longer a
9:30professor at Princeton well he's he's an
9:32Abit imerit or right right right he's
9:35taking a leave of absence right yes yes
9:37and so we have a whole different set of
9:40incentives and constraints on him one of
9:43the most painful things uh for me was
9:45reading um an article by arthor F Burns
9:49based on his experience when he was
9:50chairman of the Federal Reserve System
9:52uh in the 70s this would be 60s and 70s
9:54Richard Nixon right uh and he spelled
9:58out that you know when when you're when
9:59you're in the Federal Reserve System
10:01you're not a free agent it's not like
10:03you're conducting a seminar uh at
10:05Columbia and can just simply say and do
10:07whatever you want to do you're operating
10:09within very narrow limits uh the Federal
10:12Reserve is quote independent unquote but
10:14Congress can change that the amount of
10:16that Independence anytime they take a
10:17notion and so even if you're following
10:20policies that are good policies you've
10:22got to watch your back because Congress
10:24can step in at any time and stop you and
10:27so it's it's a very kind of
10:30situation all right um Wall Street
10:33Journal December 8th quote in accepting
10:36the deal to cut payroll on business
10:37taxes and extend all of the Bush era tax
10:39rates through
10:412012 as you and I speak this hasn't been
10:43enacted in the Congress but that we're
10:45talking about the deal that President
10:47Obama cut with Republicans to continue
10:49the quotation Mr Obama has implicitly
10:51admitted that his economic strategy has
10:55flopped he is acknowledging that tax
10:58rates matter to growth that treating
11:01business like robber barons has hurt
11:03investment and hiring and that tax cuts
11:06are superior to spending as stimulus
11:10close quote you buy every word of that
11:12oh yes okay well but what what is
11:15painful to me really looking back that
11:17this argument is not a new argument this
11:20argument was made in the 1920s people
11:22were saying the same thing on both sides
11:24they're saying right now the difference
11:26is that 75 years have elapsed and
11:28they've been four administrations of two
11:31of both parties that have reduced High
11:34tax income tax rates every single time
11:37name them uh the kulage Kennedy Reagan
11:41and George W bush right every single
11:44time the reduction in the tax rates has
11:47led to an increase in tax revenue so I
11:49hear people on television saying how the
11:51government can't afford to give to give
11:53this tax cuts to the rich you know not
11:57giving anything to anybody right uh
12:01here's a question about Ricochet
12:02contributor Steve Manis quote it's as
12:04close to Dogma as there is among
12:05conservatives that cutting taxes
12:07particularly marginal rates Spurs
12:08economic growth but Bill Clinton raised
12:12taxes including marginal rates and the
12:14economy boomed do tax rates really
12:18matter to economic growth and if they do
12:20how do you explain the Clinton expansion
12:22I haven't looked at the Clinton
12:23expansion but I know that the Clinton
12:25quote Surplus was Surplus taxes uh that
12:30those laws are passed in Congress all
12:32spending and taxing bills originate in
12:34the House of Representatives and when
12:36the House of Representatives is in the
12:37hands of the opposite party I don't know
12:39how any president can take any credit
12:41for what what whether there's a surplus
12:43or not okay this Milton Milton Freedman
12:47defined surpluses when the money comes
12:49in so fast that even Congress can't
12:51spend
12:52it um that's true segment three
12:55Healthcare let me give you a quotation
12:57and a fact the quotation comes from you
12:59in basic economics quote a long-standing
13:02staple of political rhetoric has been
13:04the attempt to keep the prices of
13:06Medical Care reasonable or affordable
13:10yet the amount of resources required to
13:12supply the things we want are wholly
13:14independent of what we're willing to pay
13:17it is completely unreasonable to expect
13:20reasonable prices that's the quotation
13:23here's the fact the United States
13:25devotes
13:26177% of its GDP to healthcare the next
13:30country down and that is Switzerland at
13:33about 11% of its GDP so we devote
13:36something like 50% more than the next
13:39country down now surely it's not
13:45unreasonable to suggest that we're just
13:47spending too much the question is uh
13:50people when people are spending their
13:51own money I I don't know how third
13:53parties can say it's too much ironically
13:56Rah emanuel's brother who's a doctor uh
13:59has on board for this whole Obamacare
14:01thing but really he he he he revealed
14:04why Americans spend more uh Americans uh
14:07don't when they go to a hospital they
14:09are in private or semi-private rooms
14:11more often than in countries on
14:13government uh uh health care and so
14:16instead of being in a ward uh you're in
14:18your own private or semi-private room it
14:20costs more uh you know American doctors
14:23are more readily available uh there is
14:26less waiting time uh some people prefer
14:29to pay in money and other in waiting
14:30time now when you have a painful disease
14:33and the government tells you it's
14:34there's a six-month waiting list uh that
14:37you you're paying in a different way it
14:39doesn't show up in the statistics but
14:41you may you may not even live the six
14:42months depending on what you have so we
14:45pay Seven we pay more and get more
14:48that's it that's that's that's it that's
14:51all there is to it that's it you don't
14:52want to say but at the same time our
14:54system is terribly inefficient in
14:55various ways you know no it's not it's
14:57not inefficient for people to buy what
14:59they
15:01want it to be more complicated than
15:05that you know it's what's inefficient is
15:08having third parties decide what you
15:10need and don't need as for example in
15:12Sweden where if they and it's not like
15:14an insurance company saying they won't
15:15pay for it in Sweden if they say that
15:17you don't need this you can't pay for it
15:20with your own money because they control
15:22the whole system and so your your choice
15:25at that point is to leave Sweden uh
15:27which if you're very sick may be a
15:28little hard to do or to have what you
15:30need smuggled into you right Tom in one
15:34of the last conversations I had with our
15:36friend Milton
15:37fredman I recall his saying he was
15:40musing about the future of healthcare
15:41which as you know interested him for
15:43five in fact there are no new ideas just
15:46proposals by Milton fredman that haven't
15:47gotten around to being enacted yet I
15:49sometimes feel but Milton said the
15:52situation we have in this country is
15:53untenable over the longer term and he
15:56said broadly speaking about 50% of
15:59American Health Care is private subject
16:03to the usual incentives of the private
16:05Market but about 50% with Medicare
16:07Medicaid and so forth about 50% is
16:09effectively socialized run through the
16:11government in one way or another and
16:13Milton said this is untenable we will
16:15probably either go to a much more
16:17socialized system in which we will at
16:19least have the virtue of controlling
16:21prices quality May deteriorate but
16:23prices might be controlled or we'll go
16:26in the other direction and
16:29push more of healthcare into the market
16:30which would control prices and improve
16:33quality does that make sense to you that
16:35analysis yeah it's about 5050 but it's
16:38untenable that we're at I don't know why
16:39it's untenable it's one of the few times
16:41I'm I'm sure if he were if he were here
16:44he' of course you'd say I misstated it
16:46or yeah yeah yeah but uh when people
16:49want something and and you know when I
16:51when when when I was in the hospital
16:52last I had a private room no doubt that
16:55cost more than if I were in a ward right
16:58particularly as as in Britain you know
17:00where you can be ignored by the nurses
17:02uh you know the women in in Britain one
17:05of the scandals is that they having
17:07their babies in the hospitals but not in
17:08the delivery room I mean they're having
17:11their babies in the hallway and the and
17:12the elevators because they're calling
17:14for the nurse and the nurse will get
17:16around to it when she feels like it uh
17:18and the baby is not going to wait okay
17:21let me ask you then a question about
17:22practical politics you one of the points
17:25you make in basic economics is that the
17:28Govern politicians face incentives the
17:30way ordinary actors in the free markets
17:32face incentives so here's a question it
17:36seems to me as a Layman watching things
17:38that the people who are in favor of
17:40pushing more Healthcare into the free
17:42market have been on the defensive for
17:43the last couple of years since President
17:45Obama was elected now we've had a change
17:48in the house of election and Republicans
17:50have come in and they are saying we're
17:53going to fight this thing every step of
17:54the way I hope they do well it still
17:56feels defensive to me we're we're going
17:58to hold up the money here we're going to
18:00file a court challenge there and it's a
18:02kind of a peacemeal
18:04attack
18:05how how can the terms of the debate be
18:09changed if indeed they can so that the
18:13the the argument for for the market
18:16becomes dominant and
18:18unselfconscious and and and and
18:21aggressive in a certain sense well that
18:23that would require articulate
18:25Republicans all right now on to the next
18:27question
18:29no well we have are you encouraged when
18:31you look at the current Eric caner these
18:33new people who've emerged in the house I
18:35I must say I saw I saw Chris Christie
18:37governor of New Jersey for the first
18:39time I thought my gosh an articulate
18:41Republican when was the last time I saw
18:43one of those articulate and also willing
18:45to fight yes yes yeah all right segment
18:48four
18:50trade lots of questions about trade
18:55China the rest of the world here's from
18:57a rioch a member who calls herself
18:59faded
19:01rattlesnake if you read her post she's
19:04highly intelligent and very amusing uh I
19:06don't know where the name comes from but
19:07here's the question how much should
19:09people really worry about the balance of
19:13trade somewhat less than you worry about
19:15being struck by
19:18lightning okay here's a statistic I
19:20heard just the other day here's how many
19:22cars Korea sells in the United States
19:25every year
19:27500,000 here's how many cars we sell in
19:29Korea every year 5,000 why shouldn't we
19:32be worried about that
19:34imbalance I'm not sure why we should
19:38obviously if the Americans want that did
19:40were Americans forced at gunpoint to buy
19:42these cars from
19:43Korea clearly not no no so no problem I
19:47see I I don't see why third parties
19:48should be should concern themselves
19:50about it okay you've done it again
19:53you've batted away the question so with
19:55so easily that it leaves me wondering
19:57what the argument is on the other side
19:59why do some people why do some people
20:01worry about the trade balance then oh
20:03because the argument that they're making
20:04is that uh this is sending American jobs
20:07abroad now unfortunately this this
20:10argument was made some years ago uh in
20:141930 uh a thousand economists took out
20:16full PID page ads across the country
20:18saying do not put up International Trade
20:21restrictions it will not increase
20:23employment it will just set off a new
20:25round of
20:26retaliation uh it was one of those
20:28wonderful things the media like it was a
20:30bipartisan effort the Democratic
20:32Congress want to pass the smooth Holly
20:34tariffs and the Republican president
20:36signed it into law and it was one of the
20:38biggest disasters in the history of the
20:40country uh at the time this this law you
20:43know people think that the reason for
20:44the high unemployment in 30s was because
20:46of the stock market crashed right after
20:48the stock market crashed unemployment
20:50peaked at 9% for one month and started
20:54downward it was down to 6.3% before the
20:57federal government
20:58intervene it was only after the federal
21:01government intervened that the downward
21:03movement reversed itself and shot all up
21:06or in a few years to
21:0725% so the people who are out there just
21:10dying for the government to come in with
21:11their solution uh I don't know if they
21:13have studied history or not um what's
21:17the correct way here I'm interested in
21:19the way to think about the problem China
21:22We There are constant predictions that
21:24soon maybe within a decade or so the
21:27Chinese econom will become as big as
21:29ours so bigger economy than ours that
21:33sounds in some way something about which
21:35we ought to be nervous on the other hand
21:36there are 14 14 times as many Chinese As
21:39Americans so when their economy becomes
21:42as big as ours it only means that their
21:44per capita GDP will be
21:461114th that of ours so should we be
21:50worried about what the growth CH should
21:52be worried as to why their economy is
21:53not got it's so far behind that of the
21:55United
21:56States all right right um although I
22:00must say their economy is enormously
22:02better than it was in the days of of ma
22:04right and and is and is so as a result
22:08of putting in more Market uh allowing
22:11more freedom in the market just as uh in
22:14the past couple of years we're trying to
22:15reduce the freedom of the maret well
22:17okay so let me take the United States
22:19out of it for a second at the end of the
22:20Cold War
22:22Russia as we were allowed to call it
22:25once again the Soviet Union ceased to
22:26exist Russia
22:28embraced democracy pretty rigorously
22:31under Boris yelson true election to the
22:34Duma and so forth and suffered an
22:36economic collapse from which they have
22:39never recovered
22:41China Embraces the markets to a limited
22:44extent but still a very extensive extent
22:46but refuses to touch democracy refuses
22:50to permit political freedoms and
22:52experiences this period of some two
22:54decades now of economic growth
22:56unparalleled really for country of that
22:58size anywhere at any point in human
23:00history so what does that tell us about
23:02the connection between democracy and
23:06economic growth we Americans like to
23:07talk about Democratic capitalism as
23:09though the two are somehow intertwined
23:11are they not well China is proven that
23:13they're not inevitably so um there are a
23:17lot of things that you have to have to
23:18make make an economy work first of all
23:21you have to allow the people allow the
23:23market to work and the Soviet in Russia
23:26uh when when the new capitalist was
23:27simply the old Communists who had taking
23:29over the uh Industries uh you didn't
23:32have uh capitalism in the real sense of
23:34the word you had what some have called
23:36crony capitalism uh and you had people
23:38who disappear off the streets when they
23:40uh you know get in the way of what the
23:42government wants to do so it's really uh
23:45I think sub RS of fascism fascism being
23:49different from socialism and that the
23:50private ownership is there but the
23:52government tells people what to
23:54do and what about China do you believe
23:58that they can continue to sustain High
24:00economic growth
24:02rates without some semblance of
24:05democracy without beginning to open up
24:06political freedoms can they I I think
24:09they are doing some of that and
24:10particularly as you get larger and
24:12larger numbers of people who are
24:14successful in the private Marketplace
24:16and who then begin to have influence and
24:18as the old guard dies out I think but
24:20it'll be a very slow process I mean I
24:22wouldn't I wouldn't hold a stopwatch on
24:24it all right um from China to Europe
24:29here in the United States nobody would
24:31start talking about the threat to the
24:32dollar as a currency if Texas has
24:36experiences a a high growth rate and
24:38Michigan experiences high unemployment
24:40and Manufacturing decline no nobody
24:42talks about that as a threat but in
24:43Europe we see that the troubles in
24:46Greece and Ireland and now Spain and
24:48Portugal are being talked about as a
24:50threat to the euro why because they're
24:53trying to create something that that
24:55that a country would would would create
24:57uh in in a situation where you have
24:59sovereign states and so you you can't
25:02have a common currency and then have
25:04each government go off on its own little
25:06tangent because they they'll they'll end
25:09up in situations where that common
25:11currency is threatened because of what
25:13someone did in Greece or Spain so do you
25:16consider the Euro untenable over the
25:17longer term I don't know but because
25:20people people can always change their
25:21policies and uh uh personally I I never
25:24thought it was such a great idea what
25:26would you have done instead just permit
25:28with what they've done for centuries all
25:30right have each you know Mark L that's
25:33it all right segment five Theory lots of
25:37questioners want to know whether you
25:39share Congressman Ron Paul's skepticism
25:42of the fed and I'm going to quote you
25:43this isn't in basic economics but a
25:45recent column quote for most of the
25:47history of this country there was no
25:49Federal Reserve System there you go that
25:51dirty trick of bringing in history oh
25:53yes uh there was no Federal Reserve
25:55System which was established in 1914 to
25:57prevent bank failures but bank failures
26:00in the 1930s exceeded anything ever seen
26:03before the Fed was established close
26:05quote if you could if we could make you
26:08dictator would you abolish the FED yes
26:10you would yes I mean for for the reasons
26:13I just gave the history there's no you
26:16know the FED represented wonderful hopes
26:19but but we've had so many programs that
26:20represented wonderful hopes that ended
26:22in disaster I don't doubt that someone
26:25who is sufficiently uh scholarly could
26:27come up with examples of where the
26:28Federal Reserve made things
26:30better but the question is overall what
26:33was it supposed to do was supposed to
26:34not only prevent bank failures it was
26:36supposed to prevent huge changes in the
26:39money supply in particular uh great
26:43deflations right the greatest deflation
26:45in American history occurred under the
26:46Federal Reserve System you know we there
26:49was a crisis in
26:511907 uh JP Morgan the original JP Morgan
26:54called the other Bankers into a room
26:56supposedly locked the door doors and
26:58said we got to do something or we're
26:59going to all collapse and they did
27:02something and they didn't all collapse
27:03but but the but people the progressives
27:05were were shocked that one man could
27:08come in and take command of the
27:09situation and especially someone who
27:11wasn't the UN in the government right so
27:15but so what would you do you'd move us
27:16back to the gold standard or you'd let
27:18Banks issue their own currencies the way
27:20they did uh up through the Civil War say
27:23you you could I could I could well they
27:25weren't doing any of those things as the
27:27the Federal Reserve was was created we
27:29were on the gold standard though but uh
27:33whether we're on or off the gold
27:34standard there's that's another whole
27:36set of arguments there's no evidence
27:38that I can see that over this vast
27:40period of time that the Federal Reserve
27:41has existed that things on the whole
27:43have been better the great post World
27:46War II uh uh inflation was fed by the F
27:50by the Federal Reserve doing exactly
27:51what they're planning to do now namely
27:53buying up the bonds issued by the
27:56treasury oh but don't you have I have to
27:59say I wasn't expecting your answer to
28:01run in this direction so I don't have
28:02questions followup questions prepare you
28:04may actually have I may actually have to
28:06think here in real time but don't we
28:08have the example of that period from 83
28:10through uh couple years ago that 25
28:13years of economic expansion we had only
28:15two downturns they were both very
28:17shallow and very brief and what you had
28:20was Paul vuler whom Carter appointed but
28:22Reagan gave the freedom actually to ring
28:25inflation out of the currency he did
28:26that by the 80s the economy takes off
28:29Allan Greenspan does a reasonably good
28:31job and then at the end there's too much
28:34money in the but maybe five years of
28:36getting it wrong so what vulka did was
28:38undo the harm that previous federal
28:40reserves had done including Arthur Burns
28:43yeah unfortunately who was my teacher
28:45and one of one of I much admired right
28:49right so but what would you replace it
28:51with how would the currency who who
28:53would how would the currency run we we
28:55we we would replace it we could replace
28:57it with what existed when it was created
28:59which was the gold gold standard well it
29:02maybe the gold standard but maybe not
29:03but I but there's no evidence these what
29:06would you replace it things always
29:07bother me you know when someone removes
29:09the cancer what do you replace it
29:11with okay all right all
29:16right closing few questions here that
29:18didn't really seem to fit in they just
29:20but they struck me as good questions
29:22from JJM director on Twitter some claim
29:25the bailouts worked we have the banks
29:29recovering now you mean banks have never
29:32recovered before all right thank you
29:33very much Michael lots of questions on
29:36keynesianism Michael leite of Ricochet
29:39what explains the Allure of Keynesian
29:41economics excuse me we've already said
29:44that this effort to stimulate the
29:45economy Obama's first two years that was
29:47essentially keynesianism so Ju Just to
29:50tie that in to what we've discussed
29:51earlier what explains the Allure of
29:54Keynesian economics despite its
29:55lackluster empirical record or here we
29:58have a fellow called Jack rehea of our
29:59Facebook page does the Keynesian school
30:02have any credibility left close quote
30:05well there are ideas of canes that that
30:07that still exist Milton Freeman said
30:09said as much as he said there there's uh
30:13in a sense we're all keynesians now and
30:15in another sense nobody's a Keynesian
30:17meaning that no one buys the whole
30:19Keynesian package anymore uh but there
30:21are particular insights that and and
30:24ways of think of analyzing that came out
30:26of canes that people of different
30:27schools of thought will use when they
30:29feel like it so KES was K's provided us
30:33with technical with tools yes rather
30:36than a prescription he provided us with
30:38both it's just that the prescriptions
30:41haven't turned out as well as the
30:43tools all right we began the program I
30:47began the program by asking why does the
30:50United States have the highest GDP per
30:52capita of any major country and what I'd
30:55like to ask final
30:59question basic
31:01economics you've said that some of the
31:03debates taking place today are
31:06frustrating to you because they took
31:07place in the 20s and the 30s and you
31:09just feel as though the country isn't
31:12making
31:14progress is there within basic economics
31:17has the discipline made enough progress
31:21and will the political realm respond to
31:24progress in the discipline enough that
31:27and here I come finally to the final
31:28question you feel confident that 25
31:32years from now and 30 years from now the
31:33United States will still have the
31:35highest per capita GDP of any major
31:37country I think the answer to those
31:39questions would be uh yes no and
31:44uh and no uh and with an addition that
31:49uh fortunately I'm at the age where I
31:50don't I don't we well what's going to
31:51happen in 25 years well okay but you
31:55have children um
31:58well are you optimistic about you're not
32:02uh it's the problem is not that the
32:04profession hasn't reached a level that
32:06that that of understanding I think if
32:08the average citizen understood economics
32:12as well as it was understood by
32:14economists 200 years ago most of the
32:17nonsense that's done in Washington would
32:18be impossible
32:20politically uh so economists have very
32:24little uh influence in that sense the
32:27people in Washington decide what they
32:28want to do and they find an economist
32:30who will Who will go along with it but
32:32Tom the Tea Party just arose out of
32:34nowhere we just had a Title Wave in
32:36which the Republicans won 61 new seats
32:39in the House of Representatives they
32:41have a majority of 49 seats which is the
32:43biggest majority the GOP has had in
32:45decades nobody supposes was because they
32:47were Republicans it's because of anger
32:50at the nonsense doesn't that give you
32:52some glimmer of yes yes yes cuz if if if
32:55if the if uh Obama had retained the
32:58power that he had had before the
32:59election I think I I would have been
33:02more than pessimistic I would have just
33:03been despairing all right Dr Thomas Soul
33:07the nond despairing Dr Thomas Soul
33:11author of the fourth edition of basic
33:14economics which I have already bought
33:16for my college age student at home thank
33:20you very much thank you I'm Peter
33:22Robinson for uncommon knowledge on the
33:24Hoover institution thanks for joining us

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