Moreover, taxes and inflation. Do not bring about new resources. They only increase the amount of resources that are consumed according to politicians and bureaucrats preferences. Welcome to Keith's night. Don't tread on anyone in the libertarian Institute. Today. I'm joined by the author of this book, titled the broken window. Dr. Jonathan Newman. He is an assistant, professor of economics and finance at Bryan College and Associated scholar of The mises Institute, dr.
Newman. Thank you so much for your time. Oh, thanks for having me. What is economics? Economics, I like to to Define it as a study of individuals, making choices. At least that's how I introduced it to my students and I like to start with that sort of easy to recite definition and then I'll get into the to the weeds a little bit about. What does it mean? What do we actually do in economics in terms of studying
individuals making choices? It turns out that one could easily conflate that definition with perhaps the definition of psychology because psychology is also looking at people making
choices. So, the way I narrow it down by saying, in economics, where you look at the things that go along with all people, all individuals making choices for all time in any culture in any sort of context and those are the sorts of things that we look at in economics is, what are the things that apply to everybody making choices. And when we look at it, that way, the first things that we discover is that, well, we need means to attain Our ends. So we've got all these different goals.
We've got Goods around us, and what that means is that we've got to make choices about how we use, this means to attain designs. So that's how I usually get the ball rolling. When I'm teaching what economics is to students? What differentiates a good Economist from a bad Economist. Oh, man. What an excellent question. Really the first thing that came to my mind was acceptance or rejection of says-- law. I think, I think that's a really good litmus test.
And the reason why is because if you reject say's law, it means that it means that you deny a very fundamental fact, which is that production must proceed consumption. We have to produce things before, we can consume in order for you to demand something on the market. You have to have First Supply something on the market. The reason that's so important is because if you deny that it opens the door for governments to fix problems. It opens the door for governments to fix.
What looks like a parent imbalances in either a micro economic framework or a macroeconomic framework, where the government is now, empowered to say, hey, there's a mismatch between supply and demand, where there's there's something is going wrong in the market. And so, now we have this
justification for intervening. So, say is laws that Good one, obviously, If you deny other fundamental things like denying scarcity, there are some people who do that, if you only employ empirical methods, I would say that that's probably indicator of a bad Economist that didn't really understand the the epistemological status of good economic theory, so there's lots of good answers to that. But really a great question.
I love the answer about focusing on Supply because usually, after Anytime I speak I'll talk about the Diamond Water Paradox and say that Supply is. So vitally important that anything that artificially restrict Supply licensing, all these regulations. That means we're getting worse quality in higher prices than we, otherwise would so bare minimum. You just have to legalize, all capitalist acts between consenting adults.
For the same reason. We should have legal interracial marriage and legal homosexual acts between consenting adults. We got to extend it to this realm, so it feels He's like you're not giving them a big ask but meanwhile work that's basically everything. We're rothbard got couldn't have asked for much more. I love focusing on the supply. Let's get into opportunity cost and why that is important.
So opportunity cost is one of those fundamental things that we discover when we first start doing economic. So if economics is about individuals making choices, a choice means that you choose something over, something else and opportunity costs, refers to that. Something else. That's, that's discarded or for
gone. So, if you choose one plan of actions, say you choose to do a as opposed to be, it means that you can't do a. And so the value of a, what do you For go at you can't do because you choose a is B. And the reason that's important is because you have, you have to think about the true impact of policies. The true impact of our of the decisions that we make, the true impact of events that happen and you held up a copy of the broken window and that's really what that's all about is.
It's basically just teaching the lesson that what matters is the opportunity cost. What matters is what can we not now? Now, have because of this thing. What can we not now, do or have or enjoy? Because the window is broken or because the government passed this law, or because I chose this as opposed to something else. And so that's why, that's why understanding what opportunity costs are is critically important because it allows you to see exactly what is the
impact of this choice or policy. So when we look at an infrastructure Bill why what's wrong with helping people and creating jobs? Up, so you could think nothing government has an unlimited supply of money. The Janet Yellen just enters numbers into an account. Explain how opportunity cost can help me understand the real cost of say an infrastructure bill or a stimulus package. Oh great question. So if you are just looking at spending if you're just looking at the the flows of money that
are coming from government. It really don't necessarily see the true cost of these massive stimulus bills and infrastructure. Sure bills and other projects that the government pursues, you have to remember that underneath all of the flows of money is a real economy. Real meaning tangible goods and services, real Labor's capital goods, producers our own time that we have that we can produce
things. And so whenever government does something to to Simply stimulate one thing to, you know, build a new bridge, for example, it means that those resources Go into making the bridge cannot be used to do something else. So, whenever the government decides to build anything, it means that we have to use, scarce resources, people's time, skilled labor, not to mention the physical resources involved.
We have to use all of that stuff to make dep thing or repair that one thing and we can't do something else. That might be more valuable. It might, it might be better for us to use those resources to do a different sort of project. Correct, but when government decides we're going to do, we're going to do x with all of this money.
You don't see what we could have done with all of those resources when something is privatized, that is really bad because it means people focusing on their own self-interest. When something is public. That means people who we elect are acting in the collective interest of the rest of us, what's wrong with that analysis. If any well there's there's definitely a lot wrong with that.
One issue is that we don't if you're just using government spending and government power means that there's a disconnect between the revenues that are collected and what the money is spent on. So there's a huge disconnect. So when government is collecting taxes, for example, or if they're acquiring resources, through the use of monetary inflation, they're getting all of that stuff and that's that. And then they decide to spend money on a bunch of different
things. He's and probably the incentives of people in government in terms of how they spend money is probably going to be based on re-election or doing favors for friends or doing favors for yourself as opposed to supplying something that consumers really want to demand.
So we can contrast that sort of set up where the revenues and the in the spending on what's being produced or disconnected with what happens in the market economy in the market economy businesses only collect revenues from consumers who decide to spend The on the good that's produced by those producers. So I decide I'm going to buy a cart full of groceries at the grocery store. I have as the consumer. I have to go in and say yeah, that's worth it to me.
Yes, that's worth it to me. I want to put three of those in the cart because those are worth it to me and that money that's spent by the consumer, goes to the person who is produced it. It goes to the person who has made it available to Consumers. And so there's a connection between what consumers As our spending and what is is being provided by producers entrepreneurs who are in the business of making those sorts of decisions or providing those kids for consumers.
They are incentivized to profit meaning that they want revenues to exceed their costs. They want consumers to see art to, yeah, they weren't consumers to see that what they're getting out of the exchange is more important to them than the money that they forgo by getting it and it's only worth it to the producers. If It cost of production are at least or at most less than that amount.
So there's a profitability calculation that entrepreneurs undertake that there's no such connection when it comes to
government spending projects. And so, as a result we get all sorts of waste, we get all sorts of boondoggle Bridges to Nowhere type projects from government, but in the market economy, we see the massive consumers are provided with all sorts of their wants and needs in an isn't way if we assume that Watchman will exist in any society Watchman, meaning any bad person who was greedy, who can heavily Influence People in a - mechanism, which sort of society would we want to, what set of
rules would we want to embrace to keep Watchman at Bay and put them in service to the public? Oh man. That is another good question. That was probably above my pay grade in terms of my own preferences and ideas. I would say that c to keep Watchman. You said, Watchmen are defined as so the robbers, the yeah, but will usually when Watchman is used. It's the people in power who end up being corrupt.
Almost inevitably. So in order to sort of have a society that puts Watchman, that puts Watchman in a place where they can only benefit themselves by benefiting the public you would want us to Some of voluntary exchange and competition. But we're as well with the state. They can basically print whatever tax whatever. And anyone who resists them is an evil terrorist or the of solitary confinement. Sure. Yeah.
So just to expand on that. The the way we keep businesses in the market economy accountable is with our spending so we can decide to spend money on this good or that good. If we don't like what a business is doing or what? There. Do you think that we can restrict that because say, I don't like what you're doing. I don't like what you've produced.
I'm not going to spend money on your good and so that keeps that keeps businesses in the market economy accountable to what people want accountable to people's valuations, but you write with government actors with, with Watchman as you described, there's no, there's no real way to do that except through the rules of thumb ad-hoc, sorts of things like we can vote. Vote. We can we can we can say that the people who are The Watchmen are based on hereditary. So like a monarchy sort of
thing. So you have to use those sorts of non-market rules to make those decisions, but it's clear at least is clear to me that in a market economy. The feedback is much more direct and it's much more precise in terms of as related to Consumer values. Dealing with the real world effects of what market economies produce. Do we see wealth staying in the hands of a few for Generations? After Generations, but Rich getting richer and constantly exploiting the poor.
Well, it sort of depends in a market economy, know in a market economy. The only way to stay rich is to continue to provide what consumers want. The only way to hold on to your wealth in acquire wealth is to serve your fellow, man. That's the only way that you can do it. However, with with the with government, there's all sorts of ways that you can explore create wealth, and increase your own income, at the expense of other people without having first provided, you know, some sort of
value. Good to Consumers. So like in the case of government money printing, there's this thing called can see on effects where if, if the government or if there's an increase in the money supply, somebody gets to spend that money first and they're able to use that money to buy all sorts of goods for themselves, maybe even productive capital goods or ownership stakes in a company so that they can now increase their own income after the inflation after the increase in the money supply.
And as The money ripples through the economy. That's what can't see on effects described then then all of the prices rise. So being the first spinder of new money allows you to expropriate wealth from everybody else. Whereas you wouldn't be able to do that if we had a free market for money, provision. What are counterfactual 's and why are they important? Oh, we already talked about that. Actually, when we talked about opportunity costs.
So opportunity cost is a counterfactual when you choose a, instead of be the, actual course of events is a. So I choose course, of course of events or State of Affairs. A, and then whatever is for gone, the highest-valued end for gone, or highest-valued State of Affairs. That's for Kong is be, it's whatever you don't choose. So counterfactual 's are important to, to remember, and
Because we need it to realize. What is the true effect of a certain policy for example, so if we decide to go in with the previous example, if the government decides to build a new bridge, the counterfactual course of the Vince's. What could we have done with all the resources that went into building that bridge? So if we the bridge might be nice, it might be a bridge that connects two cities that otherwise wouldn't be connected, but we don't know what could
have been. Done with those same resources. We don't know if maybe the bridge could have been built in another place. We don't know if the the parameters of the bridge like its weight rating and its length. We don't know if it would have been better for its have been built in a different way. Those are all counterfactual 's the, it's the Alternatives. It's the things that we don't see.
It's the things that could have happened but didn't because we chose a particular course with regard to mainstream economics. What are some other shortcomings in the Empiricism in the empirical attempt to understand economics for example, in order to determine whether or not the minimum wage should exist. We need to have a number of studies. We need to engage in a number of tests. What's wrong with? Let's look at the studies when trying to have a develop a significant economic theory.
So you phrase that perfectly by the way, so the problem is trying to use observation trying to use our own. Own view of what actually happens to inform our Theory. So we can't use, observation to say, this is what economic theory, economic theory is built by logical deduction. So if like I said, economics is the study of individuals, making choices and choices involve us for going one end over.
Another, if the, if we have a set of means that could be used to satisfy all sorts of wants, it means that As we as we acquire additional units of that mean, each one would go towards less important ends. All of these things are derived. They're all put together. Logically notice. I did. I just sat in my chair to
develop that line of thought. I didn't have to go out and observe people making actual choices to come up with the law of diminishing marginal, utility the law of demand the loss of why they're there. True logically there, there apodictic lie as mises like to say that politics. If we certain that that the Relationships are that way as opposed to empirical methods, empirical methods.
We could see some relationship over one time period in a different relationship over another time period in when we're making observations, we don't see all of the confounding
variables. We don't see all the things that are at play that are determining the outcomes that were looking at. So one thing that we could see Is we could see a government implements a new higher minimum wage and we could see employment increase, that doesn't mean that minimum wage has caused an increase in employment.
We know from economic theory that minimum wage is cause a surplus of Labor supplied over labor demand at the higher wage rate, which means that there's something else going on. Something else has changed in our observation period that has caused employment the number of people employed Zen. Increase. Well, we can say with economic theory. However, is that if the minimum wage hadn't been enacted, we would have even more employment
than was observed. So, so that's the benefit of economic theory is derived in that logical or praxeological method. As opposed to just making a bunch of observations and seeing what sort of relationships we can we can find with the numbers. I want to give you three things that I learned at, Arizona. University in the economics Department, you tell me if these economic narratives historical, narratives, are accurate or
inaccurate. America is very wealthy only as a cause of result of large amounts of cheap labor under the guise of slavery. All right. I don't, I don't think so. I think, what really drove economic growth in the United States was the relatively free markets. It was the, it was the individualism, championing championing of Entrepreneurship. And the laws that were pretty conducive for anybody to start a business and grow it, and own it and take responsibility for it.
I think that's a better predictor of what drives sustainable economic growth as opposed to As opposed to finding cheap labor somewhere. It's frequently said that health care costs are very high in America and America has a heavily privatized Health Care system, are there examples of products and services, increasing in quality and decreasing and cost as a causal result of being done in the free market, as opposed to the government sector?
I think we see that when when things are left to themselves, when an industry is left alone by the government, we see, Quality increase in prices go down. Probably the greatest example of this, that comes to my mind is like TVs. So ten years ago, a large, you know, 65 inch TV that was you know, 4K was thousands of dollars. So like a really nice TV back then was was thousands and thousands of dollars.
But if you you know, stroll down the aisles at Walmart today, you can see the same TV spec for spec as you know, a few hundred dollars, and so there's not a lot Lot of energy. There's not a lot of regulation of TV, production in the United States, including for imports because a lot of those are probably produce somewhere else. But the point is, you see, not a lot of Regulation, not a lot of government involvement and product, quality has increased tremendously and prices have
decreased. You see the opposite happening whenever the whenever the government gets involved. I mean, for obvious reasons and we've already discussed the theory of why government can't make those efficient choices. Like we see Business is making in the market economy. The main issue being the lack of the ability to calculate profit, the lack of the ability to Compare costs and revenues.
So when someone says yes health care costs have significantly increased and with a growing FDA a growing CDC growing Medicare growing Medicaid, but thank God for all those things or prices would be even higher than they already are. Now. What do you say to that mindset? I would simply Please say that the theory doesn't bear that
out. And also, all of the, the things that we can observe all the industries that we can see where prices have decreased without government, involvement seem to disprove refute that claim imperialism, made the West Rich, true or false. He said I would. That would depend on the time frame. Although I would still fundamentally reject. That claim. The main thing that drove.
wealth creation in the in western civilization I think was it was the rules, the institutions that they adopted that being private property, individualism the rule of law, the law treating everybody in the in the same sort of way as opposed to you know, who's winning wars and the expanse of an Empire for example as sort of out of my wheelhouse though, but that's that's what I would say and then just final narrative countries are wealthy and poor depending on Man of Natural
Resources, they have I think natural resources do have some impact, but we have really, really good examples of countries that don't have any natural resources, whatever and are very rich. Some good examples would be like small countries in Asia, are small regions in Asia, like, Singapore and Hong Kong which are extremely wealthy, but no, real natural resources to speak of. So, obviously, it's something else. That's Determining the level of wealth.
And once again, I would point to the institutions that allow entrepreneurs to start and run businesses as being the ones that determine good sustainable economic growth. What is subjective value? And why is it important? Good question, subjective value. That's the only way really to conceive of value in the economic sense. So subjective meaning that it's personal. So, one person values something in one way. And another person values that are another way.
There's no real objective value built into our intrinsic value built into an object. So one opposing Theory to the subjective theory of value, use the labor theory of value. That the A good is dependent on how many labor hours are put into it. That was, that was popular in the, but the classical Economist, and it's also popular among Marxist today, but I mean, there's not, you can show lots and lots of examples to show how absurd that is.
Like, if I go outside and I dig a hole, fill it back up and redig it over and over again. And so that I've spent a whole day digging and feeling back in that hole. I haven't made something of value. There's no. Value in the whole or in the covered ground. Whatever. I ended up with, at the end value, is based on how we perceive objects and it's a, in a personal sort of sense. It's not something that we can say is built into an object based on it, based on what went into making it.
Lack of government. Regulation causes Financial panics, recessions and depressions. How do you respond? So, there's an important caveat here. So I disagree with that. I think that there's nothing in the market economy that causes crises to be inevitable. There's nothing in the market economy that causes what rothbard called the cluster of Errors to occur, where they're all of the sudden, we realize that everybody made these sorts of errors in the past.
And so we have to liquidate our investments and we have a business cycle. There's In the market economy, that would cause that. Now the caveat that I mentioned is that there's this debate among economists today over whether or not fractional, Reserve banking would bring that about and whether or not fractional Reserve banking is something that would exist in a market economy, in a free
banking setup. I'm of the opinion that if we had Free banking, meaning that there's no Central Bank, that's, that's making rules and being a lender of Last Resort for all of the private banks that What would happen is that those Banks would choose to hold 100% reserves under Compass under competitive issues? And the reason why is because One Bank could drive another bank out of business by simply Redeeming the overextended notes.
So if banks are keeping fractional reserves in a free banking set up, it seems like the incentives are built in for banks to keep 100% reserves and not fractional reserves. So I know that's probably not what you were attending with that question, but but If it's true that fracture Reserve banking would exist in a free market, then it seems like we could say that business Cycles might occur if that, if that, if that is in play, but but I don't think that it would, what is
Austrian business cycle Theory? Great question. So Austrian business cycle Theory, describes the artificial or unsustainable Booms that lead to an inevitable bust. The culprit is an artificial credit expansion. So if we decide to extend more loans without increasing your savings, in the form of fractional Reserve banking or with the Central Bank deciding to increase the amount of reserves. So it's that commercial Banks,
can extend more loans. If those new loans are not are issued in excess of real savings. It means that entrepreneurs are going to undertake new longer production processes. They're going to Start all these new projects and consumers are going to increase their consumption as well. Usually the main indicator. This is an artificially low interest rate that that allows entrepreneurs to Discount future cash flows less. And so they start a bunch of new projects.
Lots of new spending on the part of consumers and producers and the types of projects that are undertaken, are the ones that take a little bit longer. The problem is to follow up on or to continue a longer production. Process. You need more goods and services. So if you want to extend production, you actually have to make more Goods available for producers to complete those projects.
But if we have an artificial credit expansion, meaning it's not backed by savings that those resources don't exist. Those resources aren't there for producers to complete all those new products that they started. So what happens is interest rates eventually rise, probably from a central bank deciding to Put the brakes on inflation, that's happening. And we had to liquidate all those projects. So the entrepreneurs realize I cannot continue this.
This project. I I cannot profitably finish this production project that I started in the past. So they have to lay off workers. They have to liquidate capital goods. Consumers are also, there's lots of uncertainties of consumers, Universe trip their own spending, and we have a, in the boom. We had lots of increases in spending and It increases in
prices. We have the opposite during the bus, and it's a painful sort of bust because people have to find new jobs producers have to sell their, their lines, their capital goods at a loss. They have to, you know, start from scratch so to speak because all of the decisions that they made during the boom, were malinvestments. They were incorrect decisions about how Capital should be allocated in a production process.
So if we have this depletion of savings bless savings, then we otherwise would have had under free market conditions. What's wrong with government? Giving everyone a Ubi or a stimulus check to ramp things back up. This is often the response from governments in the events of a bust. Usually what happens is governs decide to either prop up prices or prop up the mound vestments.
Or as you said, you know, give increase the money supply and give it to Consumers so that they can keep their their spending inflated. The problem with this is that that doesn't address the problem. The problem is that we don't have enough stuff to finish those. Those projects that were started. We don't have enough consumer goods. We don't have enough capital goods to finish all of those projects that were started in the boom. Baking.
A bunch of new green, slips of paper doesn't make it possible for us to make more houses or make bigger houses. It doesn't make Possible for us to build. All these brand new manufacturing factories. It doesn't it doesn't make it possible for us to, to Really in real sense. Increase production. All it does is allows us to bid up the prices of things that
already exist on page. 19 of economic depressions, their cause and cure rothbard says, invariably the booms and busts are much more intense and severe in the The capital, goods Industries, the industries, making machines and Equipment. The ones producing industrial raw materials, or constructing industrial plants. Then in the industries making consumer goods. What does that mean?
So, what he's referring to there is, there's more variation in the prices of capital goods than there is in the prices of consumer goods in a business cycle. And one reason why is because the capital goods that are made during the boom are Specific their specific meaning that they apply to approved. It a particular type of
production process. So if we if we make a bunch of new, if we make a bunch of new trucks that turn and pour concrete in the artificial boom, if that's the sort of malinvestment that we make, we can't in the bust, phase repurpose the concrete trucks in a way that would that, that would say, Satisfy consumers, hunger for examples, like we can't eat the truck. You can't use the truck and other production processes. Like it's probably not very applicable to education which people demand.
So because we make specific capital goods in the artificial. Boom. It's harder for us to find alternative uses at a similar price for those goods in the bus. However, with more nonspecific Goods, like consumer goods and also, Neighbor. It is a little bit easier for us to find the alternative profitable uses when the correction time comes. And so that's one reason why we see more fluctuation in capital goods prices than other prices. What is the Socialist
calculation problem? Oh, great question. So I mentioned earlier that the way that we economize production, the way that we efficiently produce things that consumers value is with the profit and loss, accounting by comparing costs and revenues. If we have a government policy that says producers are, are not going to own factors of production. It means that they can't exchange those factors of production. We won't have This is for those factors of production and it
means we can't calculate costs. We can't add up the costs of production. So and that's what happens under socialism under socialism. The private ownership of the means of production is abolished under under all varieties of socialism. That's one thing that's common. It's that you can't own privately factors of production and what that means is, we lack prices for those things. If we don't have the prices, then we can't do that necessary, economic calculation. We can't use that.
We can't do that. Necessary comparison of costs and revenues that allow us to make sure that what we're spending money on is, is actually something that will make us something that consumers value. So, without that essential guide, post without that essential piece of information. It means that the production decisions that we make, where the central planner makes. In the case of socialism. Are there just willy-nilly there, they're based on the whims and preferences of the
central planner. It's not based on what do consumers value. If we have a dictatorship of the proletariat, can we just constantly take polls or maybe one poll of month? Everyone says what they want in each industry and the government produces it. And what we don't need money. Supply, would just need one. One Central planner who has people in States representing them as people in cities and counties. What's wrong with Democratic votes?
Replacing a system of money. I'll give you quite a few responses that one, one problem with that is, often times consumers, don't even know what they want until they're actually faced with the choice. So, one person why it's indicate on a survey that they like apples more than oranges, but then, you know, they get to the grocery store and they've got their cart and they see that the oranges are looking good in the apples aren't looking so good and they decide to buy the
oranges instead of the apples. So they've indicated in a survey or poll that they have one set of preferences, but then when it actually came time for them to make a choice that it totally changed. And I think this happens to all of us like we make a shopping list and then go to the store and what we leave with the store is not exactly the same as
what's on the shopping list. So we don't even know where own preferences well enough to, to honestly, and and reliably predict what they're going to be when it comes time. For us to make choices, how, how could we give that same information to a central planner through, like the representatives that you talked about? How could we get that information to a central planner and that Central planner? Make good decisions for us.
It just it's just impossible. If we can't, if we can't pre-plan our own decisions, then how could we use that prior information? Given to a central planner to also do the same thing? So that's one problem. The other problem is there's no time left. There's the problem of even with survey data. How do you, you still don't have numbers that you can use to make the decisions on how something is produced or how long their production process should take or who to employ or what capital
goods to use you still lack. The essential price information to make those sorts of decisions. Whereas survey if somebody has asked on the survey, which do you prefer apples or oranges that tells you Nothing about how do we actually produce all of the goods that go into producing, all of the goods that go into producing the stuff, does this shortcoming and knowledge.
Also apply, apply to chief executive officers of private companies who are very far removed from the consumption products of the services that they provide to an extent. But but before I answer that question, I just want to clarify the Hyatt called it, a knowledge problem of central planning socialism. But what I'm referring to is what means is called the calculation problem, which is that we lack the ability to engage in economic calculation.
It's it's just a slight sort of difference in terminology. But there is sort of a fundamental difference between those two. It's there is a knowledge problem, but I think more fundamentally. It's the, the lack of the ability to engage in economic calculation, that causes us to not be able to produce what consumers value. That's your question about the CEOs. They're Ali is an issue with the size of certain companies, one limitation of the size of companies is their ability to calculate.
So one reason why we don't see one firm in the entire United States economy is because that firm would lack the the calculation capabilities that I talked about before because that would essentially be a central planner. So one limit on the size of firms is their ability to calculate I wanted, I would refer interested listeners to Works by pure biology talks about this.
He talks about the limitations of firms size due to due to the fact that if you get too big, it becomes harder for you to figure out the efficient allocation of resources within your firm because you lack meaningful market prices. So, that along with consumers, free to disassociate and employees are the great checks and balances. I think of in the free market economy. Is there any other check and balance that we see?
See, the reason I think it's important as they just see it as sort of the wild west, where the rich do whatever they want without repercussion. So besides consumers and employees free to disassociate with their time or money on top of the diseconomies of scale. What are other checks and balances in the market economy? I think those are those are two really good ones, but you're right.
A lot of, a lot of socialist and people in the left in general will say that a purely free-market economy tends towards business. This is getting really really big always getting bigger or businesses always exploiting and making bad choices and inefficiently allocating resources, but you're absolutely right. It at the end of the day, consumers are the ones who decide to spend their money or not spend their money.
At the end of the day. All of the firm choices had to be made based on profit and loss in cancer patients, which means that they have to expect to provide something that consumers want. So those are exactly right. Those are two really good checks on the size. Scope and and decision-making of firms. When you go to a factory or a supermarket, the people that you constantly see their everyday are the employees, putting in
the labor putting in the effort. This means that stores and factories should be owned by the workers. Who occupy those places, not people from thousands of miles away, who never even visit the store. What's wrong with that analysis? If anything? Well, I think The only issue with that, that scenario, that you talked about, is that workers do have the ability to
do that. There's, there's absolutely in a free market Society. There's nothing stopping a group of people from going together and starting a new business, or going together and purchasing a business. That's, that's exactly what a stock market is. So, a stock markets, is an open stock market. Is when companies say, hey, we've got this big company with
anybody. Like a slice of Of ownership in it. And here's the price that you have to pay for it. And so they sell off all the little, the little slices of ownership in a company. So we have distributed ownership of firms through the stock market already in a free market and we also have some examples of firms that that decide to pay their employees with stock options with with ownership shares in the company that they
work. For, which actually is probably a good idea in some Guard because that gives their employees a greater stake in the success of the company. So I think that can work to an extent. Now there there is some some literature by Peter Klein who talks about the really flat sort of the really horizontally structured firms in some issues that arise when it's when it goes to an extreme case like that, but I think that there are some good examples of first deciding to structure themselves
in a way. Way where their employees had that sort of ownership stake and we already have in their free market, the capability for any worker anywhere. It's a purchase to purchase stock in any company that they would want to work for. So there's absolutely nothing stopping from stopping people from doing that sort of thing. That you described been saying this for years.
Stop giving money to Democrats and they can get just pop all the money themselves or they can have an Indiegogo or a GoFundMe, which is still way more efficient than giving. To the mass murder and government is far as someone like Jeff Bezos, having so much power and so much wealth. What are the benefits of allowing? Let's say, such inequality in income property and influence.
Well, I just don't see any particular Authority that I have personally to to request or take away the money from somebody else. I mean, especially if the money is earned in an honorable way, in an ethical way, you know, like without robbing somebody. So I think that anything that we do to try to to mitigate income or wealth inequality. Only serves to hamper the good results that we see in the
market economy. So if we decide that, if you make money over a certain amount, we're going to start texting. You hire. What that does is it discourages people from undertaking those those production projects that would be consumer satisfying, it actually limits what we produce for consumers in general. So anything that we do to try to equalize incomes and wealth, I think has a bunch of unintended consequences. Quences and we shouldn't pursue that sort of thing.
I don't know. I think you ask your question and more of like, I can't remember how you phrased it. But like in a more ethical sort of sense, even even in the, with the ethics of income inequality. I can definitely say that government actions, exacerbate inequality. So if you are one of these people on the left who dislikes income and wealth inequality, you should hate the government. You should hate me. Money printing in the Katie on effects that exacerbate income and wealth inequality.
You should hate all of the favors and the spending that's done by the government to their friends. Such that a small group of people are in rinsed enriched at the expense of everybody else. So if if income equality or less income inequality is something that you value, you should dislike almost everything that the government does. Assume I completely throw ethics aside and just want, you know, this great win for the working class and the proletariat.
Why not kick Bezos to the side, take all his wealth and distribute all ownership among Amazon employees. Same for Elon Musk, same with the Walton family. If I'm just caring about wealth of the masses. Why should I not support that? Well, I think you're destroying the potential for future wealth for everybody. You're destroying the potential for future growth for more goods
and services to be produced. So, if that sort of scenario was in place, nobody would want to to become the next very successful entrepreneur, because all it means is I'm going to, I'm going to be the next person on the chopping block. When the, when the lower classes rise up and decide to to kill me and take out my stuff. So people wouldn't take those sorts of entrepreneurial risks that are necessary for us to actually have all the goods and services that consumers value.
So I just want to clarify, you said, throw all the ethics out the window. What's the problem with that? The problem with that is, we would have less stuff. We would have less goods and services that we value, if we decided to go about that sort of. So, even from like a really selfish perspective. We should want entrepreneurs to become wealthy or have the opportunity to become. Wealthy by taking those sorts of
risks. Yeah. I'm trying to think of a non straw man to way to ask does being the head of a company require any unique skills are some people better at it than others and does that justify them? Having more power in the market? It just to ask. The question is just so obvious that I benefit from Eminem being able to sell more albums than Jonathan Newman and Jonathan Newman selling more. Books than mmm. So even though this is an evil inequality that we must elect George Soros to reconcile.
I still think there's nothing wrong with this at all. Is there anything? I'm missing about the workers taking over the factories as Bernie Sanders. And AOC are constantly making more popular feeding into this envious idea. I think you're right that the Existing entrepreneurial class. If we could say, if we could use such a term exist because they have made good decisions on
behalf of consumers in the past. So if somebody is successful today that indicates that they provided something that a lot of other people valued in the past, so there's no, there's no real. I mean, people will always be envious people. Always covet what their neighbor has that's going to exist, no
matter what. But if we're talking about the sorts of rules and institutions, that we should have place in society such that, we can provide for Consumer values and also have you, no morals and ethics that. We've discarded for this discussion. It seems like we should have the sorts of rules that would allow people to privately owned even large amounts of wealth 11
issue. Good question that comes up in these same sorts of conversations is that we don't make Society more ethical by forcefully, taking wealth from one group and giving it to another. There's a common example of quitting a government that taxes the rich and gives to the poor as a robber who does the same sort of thing who a robber who takes from rich, people who gives up to poor people. That robber doesn't really have the right to To do that sort of thing.
Once again, I'm getting out of my wheelhouse talking about all the ethics and institutions here, but it seems to me that it would be worse for everybody. If we had that sort of way of going about things. One of the trucks often employed is to just make people bitter about the current system to get them to sort of justify an alternative where the shortcomings are equally bad. One of the major. And I see is often employed by say the new school, as I'm
frequently hearing them called. So what they'll say is you are a business owner. If you go to hire someone say you pay him $20 an hour, you're only doing that because you think you can make more than twenty dollars an hour off that person what you're doing is extracting their Surplus value and you are engaged in exploitation. And this is why the free Get capitalism is a parasitic system. What's wrong with that analysis
could question. So what that denies is what the employer or entrepreneur has has done. So the laborer might agree to a twenty dollar wage. That's a voluntary wage contract. The labor has decided. Yes. I'm willing to receive that in exchange for the services that are provided to the entrepreneur. What the entrepreneur has done. They're not just, they haven't just, you know, setback and and they're just watching the Are you coming? They're the ones who were taking
the risk of the entire project. Whereas the labor is not taking any risk at all. The labor is concerned. The entrepreneur is contractually obligated to pay the labor $20. Even if consumers don't buy the final product at all. The labor will get their wage, no matter what the entrepreneur, however, may or may not get paid and so the the extra that they get as a result of that. At of this sort of setup. It's not just Surplus, not extortion or expropriation of the worker.
It's the entrepreneur is doing something different than what the worker is doing. The worker might be doing something that's more physical. And more, is more visual. We can see with the workers doing, but that doesn't void, the fact that the entrepreneur is the one who is taking the risk, their, the worm. They're the ones who have their money on the line. It's Your livelihood. That's that would be taken away if the entire business venture fails and coming up with what to sell at.
What price at what location is. I mean, kind of important do the purchase completely leave that out. As, as if meeting consumer demand, at doesn't really matter whether whether you make mud, pies or iPhones. You just the money just starts piling up. Indiscriminately. What are the best? Real world examples of free markets? Helping the poor. Free markets tend towards capital accumulation, meaning that we save and we invest in new technologies that increase our own productivity.
So one thing that that capitalism and free markets in general due to benefit everybody is that our productivity and therefore the wages that we can command on the market are multiplied. The use of capital goods. So more capital goods means that I can get a higher wage. I can get paid more. Imagine the difference between a worker who who decided to work on a construction site.
For example, who decides I will never ever use a tool, I can is one of my religious things, as I'm not, I can't use tools. I can't use machines. Compare that worker to a worker who is okay with using to Tools and machines, what sort of wages would those workers be able to command in the on that worksite the worker? Who's not willing to use any tools? Not willing to use any of the big machines that we use to make buildings these days?
They would not they I mean, they might get a job at an extremely low wage. Just cleaning up the mess basically because you can do that with your with your own to
enhance own two hands. So, you know, move Rubble, move, you know, the stuff from a construction site from one area to another, but Worker who's actually willing to swing a hammer, the worker who's actually willing to, you know, climb up a ladder and get on top of the roof and use a nail gun to put shingles in. They are much more productive because of all the capital goods. So one huge thing that capitalism in general does for everybody is with capital accumulation in the use of all
these capital goods. Everybody's more productive and everybody can Now command higher real wages as a result. I learned that the hard way, when our major infrastructure at work, had to have cost tens of millions of dollars. One day, it went down and I think I helped like 1/30 of the customers that I helped on the average day. That's why I'm like, you know, I'd probably get paid about 1/30. Well, what is the wage of someone in Bangladesh or Haiti or America?
200 300 years ago. Well probably would have been. It would have been the same like that. So so often were just called people who are Pie-in-the-sky libertarian Theory, but in every scenario. I think we're able to have real real world examples. You have any ideas or tips on how economic growth or wealth
can be measured outside of GDP? So I'm glad you said outside of GDP GDP has some issues, the main issue being that includes government spending, which we've already discussed is not connected to Consumer satisfaction. So, One good measure. Besides GDP, is gross, private product. So if you just take GDP and you take out government spending that, get that gives you a good measure of the the size of an economy.
One issue with that. However, is that it doesn't include all the spending that happens in the structure of production, all the spending on intermediate goods. And so one piece of data that you can look at if you're interested in that measure is called gross output or gross domestic expenditures. As opposed to gross, domestic product or gross private product.
However, if we are interested in an predicting which economies are going to grow and which ones aren't what we should look at is not the total amount of spending especially spending on consumption Goods. We should look at the total amount of savings. So our previous topic of conversation was the benefit of capital accumulation the benefit of using capital goods in worker productivity.
If on like a global scale, we wanted to say this economy is going to grow and this one isn't the thing that we should look for is the level of capital accumulation the level of saving that's happening real saving. Because then we would be able to say this country is primed for lots of sustainable economic growth based on increased productivity this other country that doesn't have as much capital accumulation.
They are not laying the groundwork for them to increase their own productivity and And have more consumption and producer Goods in the future. One of the charts that really stood out to me was from Stephen Moore of the Wall Street Journal. Yes, usually bad. The point is a seat. This was a good contribution. He had shown a percentage of poor people in 1970, that had
the following products. VCR refrigerator TV dish, dishwasher and running pipes, and all this other stuff versus the The average person in 2012. So he said there was an increase in access to products and services and an increase in quality and a decrease in price and a decrease in the number of hours worked in order to achieve access to those products and services. As far as number of hours worked and increase in the general populations ability to access
those products and services. Are those two good? Are those good measures or Is there something I'm missing? Oh, no, that's great. And one thing one reason why that's great is because it takes into account. The fact that labor is not a good labor is is a cost or we have disutility from from doing labor. So we a lot of people will compare countries by looking at the level of employment is saying this country has more
jobs. There's are a higher employment rate or lower unemployment rate in this country versus the other one, but that doesn't really tell. Tell you anything all that, all that tells you is that there's more people working in one country versus the other, but I mean news, flash every weekend, we decide to stop working. A lot of people, at the end of their careers. They decide to retire. So labor is not a good. Labor is a bad in the economic sense.
And so we shouldn't be looking at employment. So what you just described takes into account, the fact that we actually don't like working a lot to get the things that we want. We would rather work a Number of our, a fewer number of hours, to get the same number of goods, looking throughout history in the late, 1800's Industrial Revolution up to the 1900s. We see a lot of children. Working in bad conditions later on, we get a child labor law today. We do not have child labor.
Therefore, the non-existence of child Labour is a cause of result of government intervention. Is that accurate? I would do. Is agree with that. Although it's not really my area of research. There's great Economist by the name of Ben Powell who talks about the the history of child labor laws and also the decision making on the part of parents and families that decide for the children to work.
And one claim that he makes and it's quite convincing is that child labor laws are only implemented once it's economically feasible or once it's a non-issue for that economy. So once Adults, labor productivity has increased to a certain amount, then it means that we don't need to employ children, our own children to eat. So, I it, if, if a family decides to, you know, send their children out into the fields to
help them with the farming. It means that they're probably in Dire Straits. It probably means that if they don't do that, they're at risk of starving. So, it's like a, it's a last resort sort of thing for those families. However, if we increase the productivity of V like with tractors and with other capital accumulation, as well as all of the government or I shouldn't say government, but societal institutions in place that protect property rights in those sorts of things.
Once we have those sorts of things in place such that we don't need to employ children. What we see in history is that children, leave the workforce and go to school instead because they don't need to be in the farm. They don't need to be in the, in the field producing. So the child labor. Laws that we see happening throughout history are usually in response to that economic growth already happening. It's not that it's not that the laws were actually binding or had had an effect.
I'm sure that there were some marginal families that were affected by it. But the point is that it seems like those laws would only be put in place once it's economically feasible for families to not have the have their children working. And schools have kids working five hours a day, five days a week or plus homework, 40 dollars an hour. So I'm not sure why they think they're on such a high horse, calling us out. They get no on-the-job experience.
They get bullied by teachers when they don't believe the war for Polish Independence, ended with giving Poland to Stalin. If you don't blindly believe that, then you're an idiot who needs to sit at the back of the class. So no, you're not intimidating us. Anymore with the fake child. Labor narrative, very nice. Try though. Few more questions, sir. Thank you so much for your time. Why?
I oppose occupational licensing? What's wrong with reliable products and services meeting basic standards. Well, it goes back to the economic calculation theme. That has emerged in this interview in the case of Occupational licensing. If there's a government entity that is deciding who can work in a certain field and who can't and it's not based on like a profit and loss decision. It means that they're going to make incorrect inefficient choices. They're going to, they're going
to disallow. Some people who should and they're going to allow people who shouldn't is that? So It's going to happen because you don't have the proper price signals. That are that are operating what we more often, see? However, as opposed to just being incorrect choices being made is we see a lot of bias, the people who are in charge of of giving out the licenses, or often the ones who are already working in that industry, which means they have an incentive to not bring competitors in.
So like if I'm, if I were in charge of deciding who could teach Teach economics in my region. I would say just me, I would disallow. I would disallow any possible competitor from coming in? And so we see those sorts of incentives that play with all sorts of Occupational licensing. It's really interesting.
I just watched The Joe Rogan, Robert Malone interview, and they're in Robert. Malone was talking about how medical licensing has been used as a weapon by the government with all this covid stuff going on. Where if you go against the CDs team, It is. If you go against fauci, then you are actually at risk of losing your medical license in various in various ways.
And so not only is it an efficient economically, but you're also by giving government, the ability to to allow and disallow people into the workforce. You're giving them a huge potential weapon against you. If you ever decide to go against the government narrative, one of the benefits of government. Allegedly is uniformity. So instead of everyone having their own type of money in there, being Bitcoin and all these 50, other currencies Wildcat banking. We have one currency that we can
be confident. And instead of everyone having every law, that is different from one another and us some constantly in Conflict. We have uniformity in law. What is wrong with that analysis of anything? Uniformity is good sometimes, but variety is also good sometimes and we see The market economy. Consumers are provided with uniformity when they value it, and they're provided with variety when they value it.
So one thing that you notice about going to eat at McDonald's, for example, is that if you go to eat at the McDonald's here in Dayton, Tennessee, what you get is probably almost exactly the same as what you would get from the McDonald's in Alaska or, or in in Europe somewhere. So like there's there's a lot of uniformity in McDonald's offerings and the reason why? Why? It's because they have realized that consumers value that aspect of of their decision to buy from McDonald's.
However, if you go to, if you go to an ice cream shop, then you've got all sorts of flavors that you can choose from all sorts of variety that you can choose from. And the people who are running the ice cream shop. They've realized consumers value having all of these choices to make in in deciding what sort of ice cream dessert that Want. So the market provides uniformity when consumers value it and the market provides variety when consumers value government is bound to get that wrong.
I was thinking that the other day in the liquor, aisle at the supermarket. I look, there's all these bottles of wine that, you know, someone who works in a job, like, me can afford. And I go how many kings in the past had access to this much for. I bet I know they had wines and all these castles and everything else. Do they have this many options and I'm always trouble. All told. Well, our choices are restricted in capitalism work or die. Meanwhile. Communism of course, is work and
die. But but but look at all these choices. It almost gives us decision. Paralysis to the point where no matter what we do, we'll be unhappy because there's so many things that we could have done that. It puts us in a state of anxiety is a shortcoming of Freedom decision, paralysis and more anxiety than you, otherwise would have. If decisions were kind of nudged or forced on you. I don't know. That's it's a good question. I don't really have a good response to that.
It's not something that I've been estimated to answer before, but it seems to me that that's not on the businesses. It's not on government to to either increase or decrease the number of choices that consumers have it seems to be more of a personal problem. But one thing that you reminded me of in that in your in your question was talking about Out how we're better off than the kings of old.
I think that's absolutely true. There's a Matt Ridley talks about that, a lot that the kings of old had an army of people to prepare to prepare a meal for them. And we have the same thing as consumers in the 21st century. It, I live in a very rural part of the country. But even in this very small town, I've got a whole Army of people who are ready to provide me with the Meal right now at
the snap of my fingers. I all I have to do is open up my wallet and give them some money and they're ready to prepare any sort of meal that I could possibly want. It. Just even, even in this part of the country where there's not a lot of, you know, options. I have that ability to do that. So you're absolutely right. We indoor plumbing, air conditioning, the all of the conveniences and entertainment of Modern Life. Make us much wealth. Higher than the kings of old.
Another criticism is, someone could say, you know, what, fine, I concede that we are wealthier than many kings in the past and even like, have poor Calvin Coolidge's. Son got like a blister on the tennis court in the White House and died because he didn't have access to penicillin. Something we all have now. So even like recently the president of America, the average person can have a longer
life expectancy than their kids. People say, all right, I can see it all that but what This capitalist free-market does is it gets people obsessed with products and services and buying and selling and trading. I care about the higher things in life, spirituality, family, doing what's best for my group. My nation, or the race at large capitalism gets people into a dumb primitive mindset, stripping them of their Humanity. Well, how do you respond?
I would say that they're probably not mad with capitalism. But with consumerism, they have an issue with people's own psychology. Not with the economic landscape. Not not with not with the wave firms who are responding to Consumers psychology. So that seems to be a problem. If you're if you say people have the wrong values, then it's It doesn't make sense to blame it on the people who are responding to people's values.
Does it make sense? So like if I think people are too, but see, realistic, they shouldn't, they shouldn't want to eat at McDonald's. They make all these cheap hamburgers. They should want nutritious food. Suppose. That's a value that I have. I, it wouldn't make sense for me to blame McDonald's. McDonald's is only responding to the values that consumers already have. So it seems like that. It seems like the finger is
pointing in the wrong direction. That sort of criticism, the problem is with with people's own values, not with not with the economic framework. That gives people what they want. If that makes any sense. Yes. And a similar but sort of different question, is just caring about the ends and being
pretty squirrelly about. The means that most often the one that most often pulls at. My heart strings is, you know, I just want to live in a society that has the Beautiful Gothic cathedrals of Europe, whatever gets me there. Whatever. Gives me the sense of sublime. Feeling this great architecture. Makes me feel one with the universe. That's what I want. Someone wants that result. Why should they Embrace private property? Free exchange and voluntary
contracts? Well, I don't really have a good answer to that. At least, there's not one that's coming to the top of my mind. All I can say is that It seems like if you want if you want that universe and people aren't providing it for you. The problem might be with your own desires and not with what everybody else is doing and producing. I don't know. Is that the direction that you're going with that question? I'm just trying to get at what what is really behind the gosh.
I hate driving and seeing businesses. I want to drive and see beauty. I don't care if the Beauties provided by the church. The state or the market. I just want it. Why should that person be on our side instead of theocrats, monarchists or Democratic socialists? Well, I think, in under capitalism, there's an increase in the productivity of Labor and so people can live and survive easier than under other
arrangements. Other Alternatives like you mentioned with with other varieties of government socialism stuff like that. And in that case it actually frees up more time for us to focus on the the non-essentials. So if we have Increased productivity such that we can eat more and all of our needs are met it frees up more time for us to do to do the things that aren't necessary for Life, Like Making art building, beautiful buildings, and churches, making music or writing poetry.
So all we have more time, more ability to do those sorts of things under capitalism, that maximizes, the productivity of everybody as Who's the other other situations where we're not as productive, three more questions for you? These usually go much quicker. Thank you so much for your time. The book, by the way. Just a reminder, is the broken window Link in the description below.
It's a kids book, very friendly. And in the back you get a real summary that will teach you more than you could learn at any University that I've come into contact with. What is the most important intellectual contribution of Joseph Salerno? A whole Oh, man. He okay, so I'm not going to point to something specific. Although I could point to something specific, he is, he has done a lot of great work on business.
Cycle theory, on monetary theory, on analysis of monetary policy, lots of great stuff, but it personally for me, one thing that I love to see about a Salerno. Is he, the way that he goes about approaching any topic when he's writing? And what you'll notice is the theme where he does not immediately discard what has been written in the past. So he does not immediately discard or try to totally construct a brand new framework.
He what he does is he makes use of what has already been developed by other great economists. Like Ludwig, von mises and Murray rothbard. So he one unfortunate Trend that I've seen and he's seen in in Austin writing is a lot of people try to reinvent the
wheel. A lot of people try to, you know, start from scratch with Austrian economics, you know come up with the theory of Austrian business cycle theory, for example, from scratch, what, what Salerno shows and and I hope I can emulate in my own career is that we can simply rely on the good ideas that have already been formulated by. The great Economist of the past, we shouldn't try to be our own me sis. We shouldn't try to be your own
rothbard. We should use the wonderful Foundation that they've laid for us, most important intellectual contribution of Jeffrey her burner. My favorite thing. I know this isn't what you asked. But my favorite thing about Jeffrey, her burner is his clear articulation of economic theory, so I have the pleasure of watching him, give lectures at mrs. Universe. City almost every year since 2009 and it's just an absolute
pleasure to see him. Very systematically, very carefully, start from scratch with action to, to proceed into the law. Diminishing marginal, utility law of demand subjective value, market prices, a theory of money, a theory of economic growth. It really needs starts from. I know this sort of it sort of contradicts what I just said about Joseph Salerno. No, he starts at the very Basics and builds up the entire economic theory, and it's a very careful easy-to-follow sort of way. All right.
So the reason why I'm not contradicting, what I just said about what makes Joe Salerno great. Is that what her burner is doing is, he's simply relaying and condensing what he has read and pieces and rothbard in particular. So he's not. He hasn't he doesn't have his own economic theory that he's presenting. He is Simply very systematically and carefully relaying to students the, the body of economic thought that we have received from mises and rothbard
and anger and boom, bovver. Get all the great Economist of the past and I was going to end it there, but I see you have a copy of man economy and state in frame. So I got to say what's the most important contribution you think of rothbart's? Rothbart did a really good job of systematizing mises and formalizing mises. So if you pick up Human Action and you flip through it, you'll notice that there aren't any charts or graphs or anything
mises was also. He spent quite a few pages debating with the economic fallacies of his Time in rothbart in many economy and state, we see him do the same thing. But we also see him draw some graphs. We see him draw out a structure
of production. And so, I think that for pedagogical reasons and makes it easier to follow and makes it easier for us to work with and expand on when we have, when we have those sorts of diagrams and also it's not just it's not just his graphs but it's also the way he explains it in a much, more formal sense that makes it easier. For students, especially like myself to to, to expand on. So, that's really one. Great thing about rothbard.
I think just in general rothbart has a very clear writing style. The, he was an amazing author and Economist and we owe a lot to him book. Is the broken window by dr. Jonathan Newman. Dr. Newman. Thank you so much for your time. Thanks for having me. This. This has been great.