MMT vs. Austrian School Debate

hi uh my name is hewan Kim I'm kind of representing ran gray who organizes this and he told me to thank a whole bunch of people so here we go um so thanks to Columbia Law School for hosting and the AV Department with lisis Bellow and our own videographer Rebecca roare and thanks to the workers rights student Coalition and the libertarian society and the Federalist Society all at Columbia Law School for their support and uh lastly thanks to John waren and Bob for participating and everybody who submitted their questions online thank you and uh lastly

there's a special event uh related to our regular seminar series and um that can be found more information at uh modern money andpublic purpose.com and also we're in the process of developing our 2013 and 14 Series so we're looking at and that we're looking at the legal underpinnings of money and encourage uh we encourage people to come to those next fall and and please stay tuned for further announcements and thank you enjoy uh good evening uh someone once said that economics is a lot like summer in New York in the 197s there's a lot of

heat not enough power and everybody wants to escape from it uh apparently a few of you disagree uh and so we're grateful that you showed up rather than attempting to escape uh so to begin with I just wanted to ask are all economists Bonkers uh it's a question we fac in tonight's debate we come to you tonight from Columbia University on New York City's Upper West Side uh and people have been asking here for a long time are economists crazy the definition of crazy is getting one result doing the same thing and then over and

over and over again uh economists seem to offer plans to improve improve economic conditions and yet economic conditions do not improve and yet they still have their plans to improve things uh we have before us two unconventional economic thinkers who will offer up their differing answer to the question what can we be done to improve the current state of economic Affairs notice that the question is odd because it assumes what is not in evidence that conditions can be improved rather than just suffered through but I ask you to suspend your disbelief in Improvement long enough

to indulge our two extremist world improvers uh sitting to my right Warren Mosler uh immediately to my right tells me that he is best thought of as a 40-year Insider in monetary operations he began in banking in 1973 and likes to say he grew up on the money desk at Banker trust in the mid 70s after founding and managing the fixed income arbitr desk at William Blair and Co in Chicago for four years he co-founded two more funds uh and today makes his contribution from somewhere in the Caribbean he can disclose the location later uh

Mosler uh co-authored soft currency economics in 1993 after meeting Don Rumsfeld in the steam room at a at the Chicago Racket Club where Don directed him to Art laughers firm uh and from there he he founded what was originally known as mosar economics a few years later somebody coined the term monetary Theory and uh that's how it led to become a school of Economics Robert Murphy to the appropriately to the farther right um uh has a PHD in economics from New York University which is kind of like Colombia except it has uh a higher rate

of piercings and lower SAT scores uh after teaching for three years at Hillsdale he left Academia for the financial sector moving to Nashville Tennessee to oddly enough work for laer Investments he tells me there was no steam room encounter involved in getting him that position uh Murphy is now the president of Consulting by RPM uh where he specializes in economic an analysis for Lay audiences I is the author of hundreds of Articles and several books including the politically incorrect guide to capitalism and how private banking really works I'm John Carney the editor of cnbc's netn

net our blog at CNBC about Wall Street I'm tonight's moderator let's begin by asking Warren to answer the question what policies does mmt offer to improve economic conditions thank you John and I want to thank all the organizers and everyone for showing up so let me just get right into the proposals which say a lot about uh what I'm about my first proposal is for a full payroll tax holiday uh which means to suspend the FICA taxes that were actually allowed to increase at year end I would have gone the other way and eliminated them

okay the second one is for a federally funded transition job okay which means the federal government would offer a transition job and I'm just going to throw out a number at $10 an hour to anyone willing and able to work and the purpose of this job would be to assist in the transition from unemployment to private sector employment I've got my healthc care proposal I've got 8 minutes so I I'll go through it quickly which has got me support from both the tea party and the farle and that is where everyone gets 5,000 and again

the numbers are uh subject to discussion everyone gets $5,000 at the beginning of the year from the government for their healthare 1,000 for preventative 4,000 for everything else if you need more than 4,000 you're covered by Medicare for all if you spend less than a 4,000 you get the difference back as a Christmas present at the end of the year and your account is topped off $44,000 the next year the 1,000 preventative uh get your teeth clean get your checkups you don't get that topped off you either use it or lose it okay uh fourth

I would make the zero rate policy permanent I see no reason for the government subsidy of interest rates it's I see it as counterproductive I would just leave it as a Perman zero rate policy uh and this is in the context of our current floating exchange rate policy on a practical level I'm categorically against the issuance of Treasury Securities but for all practical purposes I would simply um limit the treasury to selling nothing longer than three-month treasury bills okay I would remove the FDIC Insurance cap I don't see any reason for that once you understand

the um monetary operations and how the system works and having a cap on FDIC Insurance all it does is tends to give the large Banks a funding advantage over smaller Banks and more important it feeds the entire money fund industry which would otherwise not exist uh if the cap was unlimited I would have the FED provide unsecured Bank liquidity and we can get into that later if anybody wants to challenge it but let me just say the FDIC already examines the banks examines all the bank assets and if they're not up to snuck off to

federal regulations and they don't have sufficient Capital which is net worth they're supposed to be shutting them down the FED lending to the banks is nothing no different than you and I making a deposit in a bank the FDIC has already examined their assets and if the FDIC says they're okay that should be good enough for the FED they shouldn't need to ask for additional collateral uh and I would domestically Source strategic inputs I'm fine importing steel at the best price wherever in the world but if we need it for our military and we need

it and it's something we would need in time of war that needs to be sourced domestically so it would ensure the supply I'm covering a lot of areas here as long as you give me eight minutes campaign Finance reform okay it's one of my uh interesting proposals I think I would allow unlimited contributions to any candidate except 60% goes to the candidate and 40% goes to the opposition I think that would take all the uh problems of campaign Finance out of politics uh in terms of um their energy policy I think we need long-term contracts

with Canada and Mexico to um Supply our oil needs all Commodities major Commodities are done on a long-term contract basis uh only oil do you know they you don't do it in the spot Market with oil we've been doing the whole thing in the spot market and leveraging our economy to the spot price of oil which you know to me makes no sense at all and with that I'm going to uh end my response to the first question as to what my proposals are thank you uh Bob do you uh you can uh respond to

that or yes I'm just going to we're sharing one pen at the table so uh it's uh austerity yeah scarcity is real despite what Warren's going to tell you okay well thanks everybody for showing up um I am going to do the opposite strategy from what Warren did uh he fired through a bunch of specific policy proposals I'm going to Instead try to give you guys first um a general framework within which Austrian economists uh like to think about economic issues so then you'll get the the few specific proposals that I'll say at the at

the end of my remarks and then during the course of the debate and in respect to your Q&A you know more specific things can come out but it's I I want you guys to understand because I know some of you may not really know what Austrian economics even is and so I want to give you that framework so that the things I say later you'll at least understand where austrians are coming from before I I jump into that let me just give a standard disclaimer here obviously um they picked us to be the representatives Warren

of what's called mmt me of what's called AUST and economics but the people in these camps are very argumentative and they're very um uh strident on online and so if either of us loses this debate I assure you our respective camps will deny that we represent them and they will say no he screwed it up uh what that should have said was such and such and just obliterated the other guy so uh now that I've taken the pressure off us we don't have to worry about letting the fans down let me just let's let's have

a little fun um okay so first of all what's Austrian economics it's not that we study the GDP of Vienna what it is it's just a name that historically came from the fact that the people who founded this school of thought were from Austria and actually originally it was a term uh sort of to to put them down because it was German Scholars who were saying oh that's Austrian economics because at the time you know the uh late 1800s Germany was the intellectual Cultural Center in Austria was a Backwater so that's where the term came

from but as so often happens these things the term stuck and so now it's a a badge of honor that were Austrian economists when in fact most it's centered in the United States where most of the So-Cal Austrian economists are uh Americans but it is a worldwide movement at this point uh just very briefly what the austrians stand for um they they think that economic uh explanation should be centered in the individual so yes austrians do have uh very specific and strong things to say about the business cycle for example and that's a lot what

I'm going to talk about the remainder of my remarks but they don't look at things typically in terms of Aggregates they try to break it down in in terms of micro things and they uh most austrians think if you can't explain something ultimately by reference to the incentives uh guiding individual behavior and to be able to build up that macro outcome by reference to the individual constituents that you that we as economists don't really understand what's going on uh they also tend to be very free market in terms of their perspective and their policy recommendations

but strictly speaking austr and economics is a scientific uh you know Val value free discipline it's just given the way austrians think the world works if you want there to be a reduction in poverty if you want to avoid the business cycle if you don't want there to be crippling price inflation then the austrians say you know these conclusions follow right but strictly speaking Austrian economics is not libertarian political Theory packaged up as economics it's just saying that given the value judgments that most people have if the world works the way Austrian economics does then

you these are the obvious recommendations that would spit out the other end okay so as far as the the issue for tonight's debate about what should the government and the Federal Reserve be doing because that's really what we we have in mind when we say What policies we don't typically mean what should Ford Motor Company be doing people mean when they say what should be done they mean what should the government do what should Ben banki be doing uh to understand where most austrians are coming from on that question I need to give you an

idea of what the AUST austrians think happens in the typical business cycle so the first point to make is the austrians uh they are very concerned about government not interfering with freely set market prices that they think market prices have a definite job to do they communicate information and so just like uh it would be counterproductive if the government came in and all of a sudden banned the use of cell phones uh when there was a natural disaster for example because well that would the the recovery effort if all of a sudden people couldn't use

their cell phones by the same token austrians are going to say if there's a a natural disaster and prices you know on bottled water and generators and and gasoline if they're supposed to go through the roof in terms of supply and demand the government should let that happen that it's not the price per se that's causing the shortage the the price is just communicating what really happened all right now uh in particular the Austrian what makes them different from most other schools of thought even other nominally free market schools like the Chicago economists Milton Freeman

guys like that the austrians have a very particular view of what it is that interest rates do so the austrians look the interest rate is a price in that respect it's like other prices it communicates information about the real world it's not an arbitrary number it really means something and if the market interest rate is supposed to be 7% and the Federal Reserve comes in and makes it 0.25% that's going to screw things up right just to give you an analogy uh most economists would agree that if the government came in and somehow made the

current price of crude oil 25 cents a barrel that actually wouldn't be doing people any favors right even putting aside issues about climate change uh you know if you want to pick something else like the price of steel if the government came in and made the price of steel artificially cheap you know 1% of its historical normal value most economists not just austrians would agree that would screw things up because that's not the right price it's not communicating the genuine scarcity of this particular commodity and so the market can't allocate it properly so what is

it now that happens if interest rates are artificially low so here the standard Austrian story is it causes an unsustainable boom so I don't have um too much time here I can't dwell on this uh tooo long but let me just give you the gist of the story as to what the austrians think happened with the financial crisis the housing bubble and what and why we were in the situation we were in in 2008 so the austrians are going to go back and they're going to say let's go back at least to the late 90s

when there was the.com bubble I say that was not just because of you know crazy Laz Fair unregulated capitalism they're going to say that was because of the green span fed keeping rates artificially low and there were other things going going on too but there said that was a necessary condition of that and so the NASDAQ uh internet stocks in particular were pushed up way above what they should have been there was a bubble that burst 2201 was exacerbated by the 911 attacks and the US economy should have had a really bad recession and people

at the time were saying this is going to be bad I mean like more than a trillion dollars gets wiped out in terms of wealth on people's balance sheets and so forth okay everyone's bracing for a really bad recession and then GRE span comes into the rescue brings interest rates down and people are calling him the Maestro and people are stunned that wow look at this we're having a recovery you know this is a recession where home prices aren't they're continue to going up people are amazed they're literally calling him the Maestro for a few

years there everyone's talkinging about how what a genius greenpan is but then in retrospect a lot of people not just austrians are going to say what Greenspan really did he didn't save us he just replaced the collapsing. comom bubble with a housing bubble and that bought us a few years of false Prosperity made people think that he had solved the problems when he metaphorically papered over them in terms of paper money but I say metaphorically because it's mostly electronic at this point all right so now again we a lot of uh this we can settle

in the Q&A and and you can press me for details if if you don't like that story but suppose that's true suppose it's true that greenpan really didn't do the economy any favors he didn't spare us you he didn't give us a soft Landing like the way that standard textbooks say oh gee if the economy is sluggish the fed's supposed to cut interest rates and that provides a soft landing and so what if that's not true what if all that did was postpone the necessary adjustments in real resources and then the crisis that hit ultimately

in 2008 that was far worse than what would have happened in the early 2000s so in other words in 2008 the idea that oh man imagine if we just had a collapsing NASDAQ bubble that would have been a walk in the park compared to Major investment Banks going down in 2008 so what the austrians say is what Bernan has done makes what Greenspan did look like Child's Play Right Bernan has INF put pumped in more money than all previous fed chairs times two and instead of bringing interest rates down to 1% and holding there for

a year which is what greens span did banki brought them down to basically zero held there for several years and is promising to do it indefinitely until it finally starts working all right so if you think interest rates serve some sort of function if you think they communicate information and they pushing them down messes things up then what Bernan is doing is really bad and so the a lot of austrians think yeah this it spared us the immediate crisis that yes would have happened in late 2008 first half of 2009 had the fed and the

government just stood back and let things unravel but it's not sparing us the agony it's just postponing it so that we don't know when it's going to hit but at some point there is going to be a reckoning because you don't cause genuine Prosperity by printing money and giving it to Rich investment bankers who made bad investment decisions which is what basically Bernan has been doing okay let me um let's uh I I think we've gone about 10 minutes now so I was going to let Warren have a uh a response and then you can

get your sort of the part two of policy recommendations in in the response to that okay so uh let me just start I'm took a few notes here because I had um no idea what order or what was going to happen but anyway so let's talk about interest rates let's just back up to the word interest rate well what mmt recognizes is that interest rates mean uh two different things uh depending on whether you're on a fixed exchange rate policy or a floating exchange rate policy is anybody in here a foreign exchange Trader okay there

you go any foreign exchange Trader in collect correct me if I'm wrong will tell you that if you go out in short forwards in the Hong Kong dollar interest rates go up okay but if you go out in short forwards in the Japanese Yen like they just did the Yen goes down and interest rates short-term rates stay exactly the same you've got two entirely different things going on in the monetary system when you have a fixed exchange rate policy versus a floating exchange rate policy and so what I'd like to say is what uh Dr

Murphy was describing is arguably valid in a fixed exchange rate uh policy which would be a gold standard or something like the Hong Kong dollar or the Argentine peso when it was fixed to the dollar and in fact if you look at the original authors of Austrian economics they were all in the general context of fixed exchange rates not that they always believed in them and prescribed them but that was the General context of what was happening and that best described the way the world worked at that time today we're we're in a whole different

context we're in a context of floating exchange rates and it's just entirely different and I've for one have been looking at very closely at interest rates and what they do because uh having been in the markets for a long time one thing you don't want to do is make bets based on ideology and just lose a lot of money so you kind of look at what happen so I can remember maybe 15 years ago or so talking to a friend of mine in Australia asking about how the mortgage Market was he said well rates are

17 A5 per. the Market's still pretty good I think if they put them up to 18 it's going to kill it I said okay then my next call is to somebody in Japan how's the mortgage Market well you know uh it's pretty slow right now rates are three and a half I think we bring them down to three it's going to get going right and so here we I'm thinking all right maybe interest rates don't have a lot to do with this let's take a harder look at what interest rates do and if you look

again in a in a floating exchange rate environment where banking is never reserved constraint where in a fixed exchange rate environment it's always reserved constraint completely opposite in a fixed exchange rate you compete for money fixed amount of reserves and markets determined interest rates you know floating exchange rate the Federal Reserve the government has to determine an interest rate or it just sits at zero which has often happened during catastrophes and other times when the government's not doing its job to support rates funds rate just drops to zero and sits there well anyway so I

look and I go well for every dollar borrowed there's a dollar saved okay so when you shift rates you're just shifting income between Savers and borrowers that's okay that's a political decision you want to lower rates and move income from Savers to borrowers you know that's fine uh if the propensities to consume are substantially different between the two you can have a macroeconomic outcome otherwise you know you're probably not the present values are the same but in addition in today's world the governments are net payers of interest to a lot of interest okay the debt

to gdps are very high and so when you're lowering rates you're actually lowering interest payments and it's called the interest income channels you're lowering the payment of interest from government to the private sector okay when you lower the payment the private sector has less income when you raise interest rates the private sector has more okay and so when I look at it that way that to me better explains history now just to give a little bit of this history um we can look at any one of these let me know if I'm running off time

here yeah why don't we let uh Bob have a yeah chance to respond so let let me just wrap up the the policy conclusion from the Austrian perspective then I mean I think you can get the the gist of it the Austrian recommendation then is to say look at let market prices do their job If the Fed has in fact uh incourage an unsustainable Boom by having artificially low interest rates then the worst thing in the world to do is to push interest rates way down again and think oh we're going to have to deal

with that and have a soft land you're just setting yourselves up for another boom and bust and so the FED shouldn't do so-called expansionary policy also because resources are better deployed by private owners in the private sector again the worst thing you want to do if in terms of the federal government in terms of fiscal policy is to run massive budget deficits when the economy is already on the ropes that you're just taking more resources from the private sector uh when you know so running a trillion dollar deficit would be bad with a healthy economy

it's really not a good thing to do in the beginning of 2009 all right so that's the the Austrian perspective typically on on those sorts of things and um you know it's it's ironic that the and it's I'm focusing more on what the Keynesian said I don't know exactly what Warren was saying uh throughout the the the blowby blow of the crisis but Keynesian perspective typically was okay Obama comes in passes the big stimulus and then all of a sudden the economy's falling off a cliff and they said Woo it's a good thing we passed

that stimulus cuz the economy is worse than we realized right now if they were were right then that's true you know in other words if the stimulus did help then it's a good thing they got that in there because the economy would have been that much worse but of course from the Austrian perspective you can see where we're coming from to say that's not a mystery that's not shocking that when they sucked all that money in terms of extra government borrowing that the economy all of a sudden got worse than people realized at the time

so that's U the Austrian perspective as far as his proposals U let me just give you an analogy I think I got about one minute left in this in this segment of the reply here let me just give you an analogy um obviously some we've got different people in here some of you have read his book inside and out um some of you are very new to this so let me just walk you through in terms of his perspective and where he's coming from it's it's not that I think the stuff in his book is

wrong necessarily and some of it I actually agree with wholeheartedly but a lot of the stuff that I think he's saying is technically correct but it's very misleading or even more to the point somebody might erroneously conclude from what he says that's technically true something that's the wrong thing to do so let me give you this analogy there's a a wife and a husband sitting at the table they're looking at the family budget and and he's she's just like you know what honey our expenses we cut this we cut that I need to go take

a second job that's the only way we can make ends meet and he has an epiphany he goes no no no I'm just going to put on a ski mask and go down and start holding up liquor stores you know we're not constrained by our budget anymore and she says what are you insane the you know you keep doing that you push that too much that that policy and you're going to end up in prison and goes okay you're right but I just want us to focus on the real constraint here it's not about our

budget it's about me going to prison so let's just at least now that we we're thinking clearly about the things constraining our behavior and our spending okay so is what the husband there said wrong well technically no he he's right that really the ultimate thing stopping you from spending too much is that you go to prison if you're holding up liquor stores not that you need to get a job and get income but you can see how in my mind at best he has provided a distraction and at worst he's going to justify more spending

than they really can afford and do something that would be even worse than running up your credit card to go hold up liquor store so that's when when I take Warren to be saying Social Security is not in crisis were you kidding me we just run the printing press duh that to me that's he's not helping and in fact to if he's encouraging people to spend more the politicians to spend more than they otherwise would I actually think that's a very dangerous thing and inflation is arguably a worse cure than even taxing and where we

see where the money's coming and going we I'm going to as the we're up to the moderators uh questions now and my first question is going to be are you robbing liquor stores how do you respond well what what we have to look at is the difference between the issuer and the user of anything so I'm going to use an example of subway tokens am I dating myself how long has it been since the city had subway tokens at least a decade that's when I used to live here uh when I was at Banker trust

so did everybody remember how subway tokens worked yes okay and so if you go down to the train station and you bring somebody to New York they say I see how it works first they collect the tokens and then they sell them and I go yeah I know it looks like that but no really they sell them first and then they collect them well how do you know that they're just going around and around well you know that they're the issuer of the subway token where they sell them first and then they collect them and

if and if you look at the city the city can't collect its tokens until after it gets them out there the issue of anything can't collect anything until after it gets it out there the rest of us we can't use tokens until we have to buy them first get them exchange dollars for tokens before we can spend them the city has to exchange tokens for dollars before they can collect them okay likewise with the US dollar the US government is the issuer of the US dollar in in this sense now I know there are all

these definitions floating around the dollars that can be used to pay taxes come only from the US government or their counterfeit and technically speaking a tax payment and a is a reserve drain on the bank it's inside money it's um a debit to their Reserve account only the FED can add reserves that can then get debited either directly or through an overdraft or through some other way but because you're the issuer of the dollar think of it if you've got a dollar in your pocket you know that how did it you know how did it

get there if it's not counterfeit the government spent it it came from the government it can't come from anywhere else and the government hasn't taxed it yet or you wouldn't have it now I know it's a little bit simplistic because there's government lending but we're just trying to focus on this one point all right and so the the the point here is there's a dramatic difference between the issuer and the user so if New York City owed me $5 million I'd be a lot more worried about their ability to pay me than if they owed

me 5 million subway tokens right I'm pretty sure they'd be able to get me the tokens Warren you you should check out uh Metro cards because they in some ways make your point even better um yeah you could ask uh you know where does the city get the credits that it puts on your Metro cards for rides and the answer is it doesn't get them from anywhere right and you've got to get credits before you can ride right but the but the subway system doesn't need obtain the credits from anybody but neither can they debit

your credits until after they've given them to you so the the user has to get the thing first before he can use it that's all of us with dollars that's the states the corporations individuals we often get dollars to be able to spend our checks bounce exactly like uh Professor Murphy was saying the government on the other hand is in the opposite position it has to spend them first or lend them first before it can collect them and the way they say it inside the Insiders say it is you can't have a reserve drain without

a reserve ad and in the old days before all the excess reserves were there when the treasury was borrowing the Fed was in doing repost they got to add the reserves before they can subtract them you got to spend first before you can collect it's just point of logic uh Bob what do I mean do you want to respond to that uh you know I a lot of austrians would say that government spending is disastrous and but uh Warren's making the point that the government needs to spend for dollars to enter the system well I'm

not well well sorry okay I'm saying it it can't collect them until after it cannot collect them until after after SP and that's the difference that's why a household gets in trouble because they have to collect first before they can spend the US can't can't be in that position as with a floating exchange rate currency now on a gold standard which was the context of the original uh Austrian writings yes if the government spends and doesn't tax it runs out of gold with defaults and the and the systems you know is is in default okay

and you wind up devaluing and it's a disaster which is what happened in Argentina which happens in all the Russia in 98 all the fixed exchange rate blowups where the money was backed by reserves and the government put themselves in a similar position where they have to collect first before they can the European governments uh used to be in a position where they would Greece would spend drma first and then collect it they never had a solvency problem they turned themselves into what are like US states where now they have to get Euro before they

can spend them they got a major solvency problem the European Central Bank spent a trillion Euros last month or whatever it was nobody asked where did you get it did you borrow it from China or did you know tax it they all they did was credit their accounts in their books now can excess spending excess demand driver let's okay before you anticipate all his answers let's uh let's try to okay okay yeah I'll make a few points just on this one little issue so first of all John said to Warren are you in favor of

robbing liquor stores and he didn't deny it I just want he could have been oversight but just want as a point of order in the debate we have a fifth amendment this um look there there's a lot we could get into and and this is really I think going to be the Crux of it so and I have some questions that I'm going to bring up later in the debate when he and I talk to each I'll I'll sa that as far as the the analogy of the subway tokens let me for one thing if

the government came in and monopolized Subway provision or or you they could do it with food also and and the government came in and said it's illegal for anyone else to buy or sell food unless you get these coupons from us and and he could walk through the logic there and and that would not be a good system so by the same token if it at best I would say if he's showing look at given that the government's going to monopolize the the supply of money all of my things follow I would say still that's

not a good system because I don't think the government should be in the business of producing money right most of us agree the government shouldn't be producing cars right because for 19 different reasons of why that'd be awful well why would we let the government produce the money which is the most important commodity okay so I agree then so what's that one more Point sure now you talked about deficits borrowing government borrowing taking money out of the economy okay that again is true with a fixed exchange rate where you've got your reserve constraint but when

you're in our system today if you got to borrow $50,000 to buy a car there's not somebody else out there who now can't buy a car because you took his $50,000 loans create deposits uh you know it's assets and liabilities and and match pairs it's the same thing with government borrowing okay the loan creates the deposit the and uh I can I can let me let me just ask so it doesn't take it adds to the number of dollar deposits in the economy it doesn't subtract from them the austrians stress uh this is for Warren

uh interest rates as a guide for businesses uh in economic planning yeah um you want uh the government to adopt Zer forever um are you not concerned that uh that of what you know the the capital uh misallocation that uh drives a lot of uh austrians to worry about government setting interest rates well I think we're both driven by the same thing and I'm looking at it from a floating exchange rate non-convertible currency context you're looking from a fixed exchange rate cont I would never say that in a fixed exchange rate Market but I would

in a floating and here's why when what is government interference in the interest rate Market it takes two forms it takes form of the treasury issuing Securities and the FED paying interest on reserves okay if the treasury does not interest secur issue Securities which is a interference in the interest rate Market market and If the Fed does not pay interest on reserves then you have a zero interest rate so the zero interest rate is the condition in a floating exchange rate Market it's the condition of no government interference government interferes to push rates up above

zero so if rates are at four it's because the government pushed them to four and if they go to six it's because the government pushed them it's not because there's some natural rate of six that would be in fixed exchange rates you will have that natural rate because you have competition so do we have no natural rate uh right now in a floating look at subway tokens what's the natural rate for those things it's zero or Metro cards you don't earn interest in more cars what they call the own rate uh on your extra rise

okay there the market can do whatever it wants there's never going to be an interest rate on subway tokens and unless the city comes in and says we'll pay interest in more tokens at 5% all of a sudden there's a they've created an interest rate floor above zero so if you look at the US dollar there's there is no interest rate risk- free unless the government comes in and creates that Flor uh Dr Murphy what is your uh uh how do you respond to that I mean is is the concern over government pushing down interest

rates just a hangover from commodity currencies and not applicable now or um or is that part of the problem that the government has seized control of of currency okay so yes for one thing even if it were true that everything that Warren is saying follows if we start with the assumption that the FED uh you know has such control over the banking system and is the and the government is the issuer of our currency and it's legal tender for all debts and so forth even if everything else he said followed I would still say okay

but I don't agree that that's a good system that to set up in the first place that why are we letting the government have such control over money I don't necessarily agree either okay we're making progress in the debate we'll try to get some Clash perhaps in the second half okay but I I don't agree um and and maybe I misunderstand what you're saying but to me I mean the the price of steel the fact that uh you know a certain amount of Steel exchanges for so many units of tuna fish or what have you

that's a real thing that number shouldn't be zero it would mess it up if it were the interest rate the discount on the future that's not some arbitrary thing the what's what's the own rate for steel well it shouldn't be zero that doesn't mean otherwise a ton of Steel today is the same thing as a ton of Steel to be delivered in 2,000 years and to me that makes no sense and the market you know someone building an apartment complex needs to know how much are resources today versus something not available in the future and

that's what the discount does if there's a steel Monopoly setting price the own rate is zero but this is this is a crucial Point meaning uh one one of the things that a that an investor now wants to know that somebody who who wants to expand their business wants to have information about is what will be the future consumption power of people um under a Commodities rate uh under a fixed uh exchange rate or or commodity currency uh you're your the interest rate is indicative of what of how much people are saving and therefore how

much uh currency they'll have to buy things it's also the real rate and it's the own rate what's called Marshall Economist couple hundred years ago a monopolist has two interest rates that it sets one is the OWN rate which is how the thing exchanges for itself so if it's gold how does gold exchange change for itself so if you holding gold the monopolis would have to pay an interest rate say if you hold gold we'll pay 10% more gold if you let me hold it for you the other price of monopolis sets is how gold

exchanges for other goods and services so on the gold standard the government's the monopolis they set the price of gold $35 an ounce wherever it used to be right the interest rate then becomes the own rate for gold because if they set the interest rate at five and you're holding the money you know you have $100 or $35 a year later you have enough dollars to buy 5% more gold than you had before so the interest rate is how gold exchanges for itself when it's a commodity currency how it exchanges for other goods and services

is the $35 they put on it they could have put 350 or whatever okay as a monopolis so they always set two rates how it exchanges for itself which is the interest rate and how it exchanges for other and how it exchanges for itself which is the OWN rate and what we call the interest rate and out exchange for other goods and services now with the US dollar today how it exchanges for itself is still the interest rate the own rate and that's set by the FED same and the um how it exchanges for other

goods and services is a function of prices paid by government so it's a simple case of Monopoly there's there's it's just a simple point of logic a monopoly might not be the right way to do it and you might have a better system which I'd like to hear but right now we're talking about the us today uh you know how does it work well um this reminds me and I think this is important Point Murray rothbard once wrote that um governments take control of the money supply when they find that their tax revenues are no

longer enough to support their spending Ambitions um yeah but again but yeah no so in other words they move from uh from a fixed exchange rate to a uh un you know to a floating exchange rate in part to uh relieve themselves from revenue constraint yeah um and I guess I just wanted to see if both of you agree with that um I I think you both do right that that what's happened with with fiat currency is the government has relieved itself of the burdens of Revenue constraint okay I mean you know it's I don't

know who he's asking well both of you actually well I mean I agree they're they're moving in that direction and that yes part of why uh Central governments establish central banks and then try to be you know want to get away from the gold standard was to get rid of those feds um but this is that is something I'm going to ask for well let's move on that section you know I think I have a little bit of an answer here there's always been this idea that the the the money whatever that is is supposed

to be a store of value which means an investment vehicle right okay as opposed to a policy tool to promote output win the war whatever okay and so there we've got lots of investment vehicles you know the currency doesn't necessarily need to be investment vehicle that's a political choice but you wind up with the old bu metal problem where if you try to make it do two things and you you know you fix on one you're not going to be able to do the other if you do the other you're not going to be able

to do the first one so they go on the gold standard to try and fix it as an investment vehicle so that you can if you want to save for the future you can actually just hold the money you can hold the dollars or whatever pay a real rate of interest or something you don't have to pick an industry that's going to work and have something real produced from it or anything else it's it's really a government sub okay to provide you for the future which is somewhat contradictory the same people who want the gold

standard and an interest rate a real interest rate are the same people who don't want government providing annuities for everybody you know so there's a little bit of a contradictionary one one question uh related to that is um this is for uh Bob what the Austrian business cycle um insists that uh capitalists are misled by artificially low interest rates into misallocating uh Capital but given what we've sort of agreed upon about how our current system works shouldn't that be dead meaning it why would any rational businessman look at the uh an interest rate set by

the Federal Reserve and think that is indicative of the savings of the American people or the amount of some commodity being stored up when we know that's not true sure so um what what John's talking about is in the classical expositions of canonical Austrian business cycle Theory the language that guys like mises and hike would use is to say stuff like when the government or the or the banks create credit artificially and push down interest rates that gives the illusion that there's been more genuine saving than there really has or that there's more capital goods

and they really available thus the unsustainable boom starts and he's right they do make it sound like the businessmen are fool um and I think strictly speaking that's not necessary to the theory it's the fact that prices do work and they you know there are incentives and if you lower the price that's going to cause people to borrow and invest more than they really ought to be doing all right and so yes you even if you had a whole population fully versed with Austrian business cycle Theory they not it would screw things right we're we're

getting there one person at a time but it would it would mess things up just like if the price of oil supposed to be $100 a barrel and the government somehow makes it 40 that's going to screw things up that's going to cause U you know dislocations and Supply demand let's let's let you guys ask each other questione a monopolist like that for example OPC does have at the margin they are the price that are row and that does cause excess capacity and whatnot they've got three four million barrels five million barrels a day of

excess capacity and that does prevent market clearing and Alters the market for crude oil so anytime you've got a monopolist involved you no longer have a competitive market it's the it's at the opposite end of the spectrum so let's uh we agreed ahead of time to let you guys um hear uh ask each other three questions each let's do them one at a time and then you'll get a followup after that uh yeah who wants to go first I thought we were going to flip a coin all right where would we get the coin from

right a trillion dollar platinum coin someone's got spot me all right okay Al I'm G to ask him and then he's gonna ask me okay everyone we don't want to get confusing okay then we'll go to audience question all right so this this one is more of a clarification this is not a gotcha my my next two are going to be gotas just so you know okay in page 21 from your uh Seven Deadly innocent frauds is that the name yeah yes you say yes there can be and there are self-imposed constraints on spending put

there by the Congress dot dot dot these include debt cealing rules treasury overdraft rules and restrictions of the FED buying Securities from the treasury so and I just want you to clarify it seems to me that strictly speaking the government can't do what you're saying it can do you're just saying well if the Congress just wouldn't be silly and have these arbitrary rules they have there's nothing stopping them because it's Fiat money but strictly speaking the government can't tomorrow just write a check for hundred billion dollar without having the money there because technically banki could

say no we're not going to approve that am I understanding you yeah and the budget constraints too I mean the military could go out and buy anything they want if Congress didn't say you can't so got there is you know Congress sets the rules Congress appropriates the spending and they are constrained only by themselves okay that's all I want you yeah in nominal spending not real spending nominal spending okay they can create a lot of inflation if they want to uh spend enough if you look at the viar Republic they were spending 5% of GDP

every month on buying foreign exchange selling their own currency buying gold to pay War reparations and uh they had a pretty good inflation going until the day the policy stopped and then it went back to zero so yes you can certainly do that but again um their Che congress's checks will not bounce unless they decide to bounce around checks they spend by ordering the FED to credit a member bank account and they authorize the treasury to you know instruct the FED to credit a member bank account and they give the FED instructions yes you can

do it under these circumstances no under those and most of it's left over from from the gold standard they're all vestigial things if we talk about um why don't you ask a question to or you want ask you why don't you ask a question to Bob so the question I have for Bob is do you agree that if anything can go wrong it will because of Murphy I'm sorry I couldn't help that wouldn't be much of a law right uh no um the other question I had was is it true that your it was your

great great grandfather who made the family fortune with the beds that pulled down or is that no okay Murphy bed Google I I just had to he so old okay um we were talking about Bernan pumping in money and what when I see that what I see quantitative easing happening I want tell me if I'm wrong here is that the FED um goes in to decides to buy $40 billion worth of Securities they ask for offers prices gravitate to levels where the market is indifferent between having $40 billion of those Securities and $40 billion in

reserves and when the FED buys them they debit the sellers Securities account and credit their Reserve account both just one two different dollar accounts on the books of the FED nothing the dollar Holdings of the private sector don't change it say that their Holdings go from what you could call savings accounts at the FED to checking accounts at the FED okay now under a gold standard those checking accounts were convertible into gold if beri had tried to do that back in the 30s when he was you know early 30s which is where he got his

wrote his dissertation on it would have been a massive problem people then cashing those in and taking the gold out the purpose of the Securities account was you can't get to the gold until those things mature and with fixed exchange rates that's that's the purpose Securities accounts uh that's the function of Securities accounts but today it doesn't do you know that's that's gone okay that distinction is gone and so what I like to say is like what is the channel where what's called pumping in money buying Securities debiting Reserve accounts and securities accounts and crediting

Reserve accounts you know how does that channel what does that have to do with the economy how does it you know what what what's the problem and and doesn't that explain why by 20 years of doing it in Japan uh has shown absolutely nothing and certainly if you look at the macroeconomic data in the US it hasn't done anything either apart from cause portfolio managers to shift things around because they don't they still they're still thinking fixed exchange rate or whatever they're thinking or not thinking okay um well for one thing and and part of

the reason they're hosting this debate and choosing us is that both of us are sort of unorthodox thinkers and so so I'm not going to be sit here and defend conventional open market operations let me also add you said Printing and you were talking about the Austrian not yourself printing Bank printing dollars to hand out I just don't see how that's handing anything out to anyone you know how it affects anything anybody getting anything handed out just for clarification meaning when when the F when the FED buys a treasury and you know and gives somebody

dollars your your your view is that this is an exchange of one federal government asset you know uh for another yeah or liability yeah treasury is a dollar deposit at the fed and they take your dollar one dollar deposit at the fed and they give you a different dollar deposit at the fed and it's exchange of fed liabilities exchange of it's a private sector asset fed liability but they're just it's like Bank of America decided to move your dollars from your savings to your checking which they sort of do anyway you know how is that

how is that handing out money to anybody right well okay so the handing out what I meant there and yeah that was a bit of a flourish but was buying like mortgage back things that the they drove up the price of assets mortgage back Securities and things like that that the Fed was willing to take from investment banks that had the FED not intervened and done that those Banks all would have gone down but now all of a sudden they're fine because the Fed was willing to be a back stop on those so-called toxic assets

so it wasn't literally handing out money but it was like if someone bought my house for a billion dollar technically they exchanged one billion doll asset for another but my house wouldn't have been worth a billion doll had Bernan not done that okay so you're saying they were paying above market prices for those things yeah for which mortgage back for Securities well in the treasures too I don't think treasury prices would be they were the mor back Securities were federally guaranteed they were agency Securities you know they were uh but they were at the time

trading below uh what the fed the fed the one of the purposes of the fed's uh and it was actually not necessarily the FED QE policy but the treasury's earlier policy of of Buy buying um some of these assets they were paying above where they were trading at the time you know if they were there was some premium they were doing but it wasn't the whole purchase right they paid an extra five points or something but I think most of the evidence shows the opposite but not doesn't matters the idea they did it okay I

I can understand that point but to be clear it's only the increment they paid above market prices and I'm this is so are you saying all those investment banker they were indifferent like banki didn't help them that they if if he said no we're not doing any tal blah blah blah all that stuff we're not doing anything with the Discount Windows they would have been okay we don't care one way or the other like he could have just done it with soup kitchens just coincidence he did it with really rich influential investment makers okay so

the you know we'd have to go through each program one at a time you can't want them all together because some of them were very different from others what we're talking about is Bank liquidity and again it's the difference between a fixed and a floating rate system now we have FDIC insurance which means that if anybody if you were to walk into the bank and make a deposit it's guaranteed by the federal government okay and so and what we what we realized back in 1934 is the way I like to say it is the liability

side of banking is not the place for Market discipline you don't have people trying to decide whether to put their money in bank America or City Bank based on reading the balance sheet it sounds like a good idea you get the market deciding who's but you know he asked the 20 top wall analysts 10 of them will tell you one thing the other 10 will tell you another so on a practical level it's proven entirely impossible and not not a reliable thing should Banks be allowed to issue bonds at all I mean if if we

don't want Market discipline through Li the liability side should they be should they issue bonds uh no they should just be funded with with deposits and um liquidity from the fed and then what you do is you you you regulate the asset side and the capital side and that's what we learned in 1933 when we shut down 4,000 to 8,000 Banks and reopened with proper Deposit Insurance and the mistake they made in Europe was they went back and tried to run the banking system without credible Deposit Insurance and it's like a you know Ponzi scheme

it works okay on the way up but as soon as it works on the way down the the private sector is necessarily procyclical on the way up it piles on and on the way down it pulls off pulls away it it makes the Cycles worse it amplifies the Cy Bob you have a I wanted to move on to your gacha question sorry we got a little off I have two more or one more two more okay all right all right so uh let me read so this is from page 42 so I'm going to read

something from his book page 42 and then ask you if I could tweak it all right so there were some typos in there okay because I think he's used should use the subjunctive all right you're Warren you're supposed to say the name of your book whenever anybody mentions it it's a rule of authors the seven deadly innocent frauds of iomic policy yeah for people here who haven't done or people online who are watching it is worth reading just and I because even though I disagree with it I think it's interesting to think through but anyway

here's so there's one part where he says government deficits add to our saving to the penny this is an accounting fact dot dot dot for example if the government deficit last year was $1 trillion it means that the net increase in savings of financial assets for everyone else combined was exactly to the penny $1 trillion okay so that to me that that epitomizes you know kind of thinking he's doing and allegedly shows how crazy it is that we're ringing our hands over the budget deficit and oh my gosh where we going to get the money

and it's yes that's true but could I not with equal validity say to the extent that Microsoft runs a deficit the rest of the world minus Microsoft thereby becomes accumulates Financial assets and couldn't I pick any entity yes so why is it that there's something special about the the government in that respect yeah absolutely you and I agree and that's an important Point okay and so first of all we've had um these people in Congress say the government deficit is taking away from our savings and when you borrow money it's not there it's completely wrong

it adds to the savings to the penny as Professor Murphy uh you know agreed and everybody in the CBO will tell you that after the done deficit spending the dollars are all back plus the treasury Securities or they are treasury Securities are real Financial assets just like any other savings account okay take if Microsoft spends more than its its income which is what going into debt means you spend more than your income somebody else has that income and that has the exact same effect so if you look at the US in the late 90s the

private sector was deficit spending just like you said to the tune of something like 7% of GDP it was huge and that was what was driving the do com boom and everything else the Y2K things remember we all thought the planes were going to fall out the sky and we all needed new software to keep our television sets from blowing up and and so uh and so we had this enormous credit boom and that was driving the economy the problem is the private sector when the private sector does that it's not sus it's generally not

sustainable okay you can't go into debt that fast because it has to be supported by income and it just collapsed okay when Bush and and the 7% at the same time the government was running a 2% Surplus so it was siphoning off 2% of that 7% that was a good thing to be running a surplus at that time okay so so in the private sector's deficit spending like crazy and threatening inflation it's it's appropriate for the government to be doing the other way going the other way to moderate it now as soon as the private

sector could no longer go into debt right after a bush took over and the whole thing collapsed then if you want to sustain uh spending not necessarily government spending you know private sector spending then the appropriate um thing would be a fiscal adjustment where the government would then be spending more than its income and it could do this through a tax cut or a spending increase depending on your politics uh and at that time can I tell y sure go ahead okay at that time um they had lowered interest rates to 1% nothing much was

happening uh there wasn't the borrowing binge that was happening Bush was getting worried it was uh 2003 and I was telling this exact story and some friends of mine I had a car company at the time which I just sold and uh on the board I had some General Motors people Dave mclen was head of Corvette and he said you guys got to talk you have to talk to Andy card Andy card was Chief of Staff of the White House Andy was a former GM executive with Dave and uh John heiny and the other guys

and this guy Bill Novak set it up and Elizabeth and I my wife we go to the West Wing to White House and start explaining that Andy and he's a quick study explained why interest rates weren't working for every dollar borrowed there's a dollar saved all you're doing is Shifting it government's a net payer of Interest you've just dropped interest payments to the private sector Japan's been doing it for 15 years at the time that's why it doesn't work and he goes yeah why would anybody think that's going to work so he said what do

we have to do and I explained about the uh you need to make a fiscal adjustment the the private sector was doing the deficit spending they're procyclical on the way up they get carried away until they blow up and on the way down once things are going down nobody's going to lend to the private sector they can't expand when housing prices are falling try and get a mortgage when the price of your house is going down it doesn't work works great when it's going up it doesn't work when it's going down it's up to the

government to either cut taxes or free spending he said how much do we have to do I said well I think you got to get the deficit up to 700 billion which at the time was a lot it was something like 6% of GDP he goes we don't have much time do we I said no so uh he thanked that's like a nice note we left after that President Bush was asked about the deficit he said I don't look at numbers on a piece of paper I look at jobs they got through every possible tax

cut they could they spent money on everything he possibly could prescription drugs the right is still mad at these guys for what they did by the third quarter the deficit was 200 billion annualizing at 800 billion it was enough so that there was enough deficit spending to replace the spending loss by the private sector and uh I don't know how much was tax cut and how much was spending increase maybe it was half of each whatever the economy started to do better and it didn't cost him the election so appreciate you your introductory remarks were

shorter than time so I'll give you a little bit room to run uh here but but you want to ask your third okay one more uh so let's let me just give you a hyp hypothetical scenario and you tell me how you would respond to it so there's uh this CEO and 60 Minutes Or somebody's doing this Expose and they get the guy on camera and they think they got them good because they said you know our Auditors went in he's a CEO of a major uh Corporation and they said for decades you have been

telling your employees you've been taking out 10% from their paychecks to put aside to fund their pensions and you've promised them specific payments our Auditors came and looked at your books and we found you haven't been investing in outside assets you've been mostly given it as dividends to your shareholders to boost your stock prices giving yourselves bonuses and investing a little bit in the factory and now you know you're underfunded pension by about like 10 billion dollars what do you have to say for yourself before you go to prison and he says whoa whoa whoa

I've been reading Warren Mosler let me tell you something for what that you know this is just a completely arbitrary thing if the Congress would just let us print our own $100 bills there would be no underfunded pension this is all a fake crisis and in fact because Demand right now is insufficient we would doing the economy a favor if Congress would go ahead and just change these arbitrary rules which make it illegal for us to run the the color copier and print off $100 bills that's a completely arbitrary thing how come the treasury or

the FED can do it we can't do it that's stupid it's not like you know it has to be a piece of gold it's just paper with with symbols on it if the Congress would just change this Arcane rule saying that their money is good and ours isn't legal tender all of a sudden this this so-called underf footed pension disappears like that and we create jobs so there you go yeah and the of course the 60 Minutes guy floored I I'd s us that guy to 30 years in the electric chair because why you know

he's demanding the ability to counterfeit uh you know fine he knows there's no counterfeiting allowed I mean that's you know knows or should have known that you're not allowed to counterfeit money he's committed fraud for his employees he's a user of the currency he can't spend it until after he gets it he's not the issuer and that's that's how the game is set up you know you could be playing in a poker game and say hey this is not fair let give me the deck and let me put any cards I want in my hand

so the followup I guess that uh is if it's fraud when a person does it why is it okay when the government does it right so let's say we're in a card game right and I'm the scorekeeper it's like how many points do I have I don't have any all right well then how do I give you 100 points well just write them down in your account I write them down in your account okay then you lose do I have fewer points no and then somebody else has a bad hand and I take points away

do I have more to give to the next person no somebody in the card game says like well that's not right I should be able to just change my own score like fine you want to have a card game where people can change their own score it's not going to work it's not going to function you're not going to be able to provision the government the whole point of the monetary system the initial point or what I would say as a point of logic the whole point I know there are other points of lot lots

of lobbyists have all kinds of points in their mon is to provision government okay you want to be able to move people people from the private SE move real resources from the private sector to the public sector people get together I like these people get together and say I we hate government we're just going to get together ourselves and agree to do this well that is government right and so you start off and you say we'd like to have an army we would like to have a legal system well how do you get people to

move from the private sector to the public sector you could ask for volunteers doesn't really work all that well uh it's been tried the way that we do it now they might come up with a better way is you slap on a t and something that nobody has and then in order to get the funds to pay that tax you've got to come to the government form and that way the government can spend its otherwise worthless currency to provision itself now the way I like to do that to explain that is I take out my

business card here and I asked does anybody in this room want to buy and this is called how to turn litter into money does anybody want to buy one of these cards or $100 no okay does anybody want to stay afterwards and help vacuum the floor and clean the room I'll give you my cards no right oh by the way there's only one door out of here and my guy is out there with a 9 millimeter and you can't get out here without one of these cards can you feel the pressure now you are now

unemployed you are not in terms of my cards you are not unemployed before you did not you were not looking for a job that paid in my cards now you're looking for a job that pays my cards or you're looking to buy them from somebody else who take a job that pays in my cards Bob do you want to uh you you get you could have one one more rebuttal and then we'll move to uh to to questions sure so let me just clarify uh where I was going with that analogy in case it wasn't

obvious is I think that's exactly what you say about social security that he yeah it's it's a phony crisis you know people on the right tea party types might say the government's been spending that money there is no trust fund it's underfunded but no there's no constraint they can just print off the money there's no nominal crisis okay it could be a real crisis if there's not enough food for the people older people right okay there's not enough housing you can give them all the money you want you can't buy what isn't there but my

hypothetical CEO's response is analogous to what you think the guy running Social Security should say and again the difference between the issue of a currency and the user of a currency yeah okay yeah absolutely and and that's government you know and I'm not saying that you can't come up with a better system and the last thing there's no one out there with a 9 mimer just right AI in which case this thing goes from being money back to LTE the difference between money and litter is whether there's a the tax man the guy with the

9mm is a tax man you can't enforce tax collection the value of the dollar goes to zero let's turn to uh audience questions um all right I see one right there don't let Mike ask question I don't know about anyone else here be honest Professor Murphy oh could you introduce yourself sorry I should ask everybody please introduce yourself say who you are for our audience here and at home Mike Norman I write a blog at Mike Norman economics I've been a member of four exchanges been on Wall Street for 30 years of trading uh Professor

Murphy frankly I I find a lot of your comments to be very condescending towards Warr and I don't know why you have to take that attitude I think maybe you don't understand or you said you don't like the Fiat money system which is Maybe it stems from that just an anger against it that's what we have and you don't like it and you speak up in a very condescending way and I I find that very distasteful and very disrespectful I don't know how anyone else here feels but I do but the question I want to

ask you since you don't like the current system and you say the government should be the issuer of currency what system do you like do you want to have a fixed quantity of money let me ask you something is that your system a fixed quantity of money that'll probably take care of inflation and and the you know nonprinting of money but in a world where population increases where human beings Thrive to do better where economies expand and by the way I think we gave up barter as a civilization thousands of years ago and you need

a unit of exchange what about that is that what you're proposing is a fixed quantity of money in the world that's the solution uh no I'm not proposing that so first of all um I apologize if I came off as being disrespectful uh trying to keep it light robing a bank okay first you know listen that was inappropriate that's illegal okay okay okay so let's did say his guy was at the the door with a gun so yeah I mean let's let let's let by his own analogies I mean he is admitting that his system

is predicated on people pointing guns and that's why it's a monopoly not my system or the system I'm sorry I'm sorry you're right the system and so I I think it is important to point out and I don't think uh the fact you know gold and silver if if it weren't for the government in other words the government did not create money I think that emerged from spontaneous Market forces and the supply even under the gold standard it wasn't a fixed amount there was more gold brought to the market and if if prices were too

uh low in terms of relative to the weight of gold then that would make it more profitable to mine more and so there's you know there there's Bitcoin there's all sorts of things that would come out right now so the fact is even under gold standard it be a multip Let's uh we have a question right there sir yeah I'll introduce myself I learned my economics at Stanford back in the 40s and it was Keynesian and I was interested in your remark that both of you are unorthodox econom economies I didn't realize that I don't

believe you were uh uh inappropriate your remarks Dr Murphy but I do have a question I didn't understand what you think is the solution to our problem today which is unemployment and has been for for about four or five years and was caused by an excess amount of private activity speculation and so forth borrowing money and using it as Warren said that uh uh the uh amount of money that was available credit expansion was about 7% a year from 1971 from about $1 trillion dollar in our country to about 50 trillion Warren had laid out

a number of things that his economic theory would do in order to get people back employed and I just wanted to ask the question how your um your system would do that because that's really all that we're interested in price stability and un and employment how do we go about doing that okay sure so uh I I think one thing you do is the government should stop creating artificial booms and busts because that's what causes the initial surge of unemployment in the first place and so if the Austrian diagnosis of what happened is correct then

at the very least don't push down interest rates to artificially low levels and set up another unsustainable boom and bu because we're just going to be back in this position in a few years saying what do we do about the high unemployment um I also again don't think that uh running massive budget deficits that that's uh good to encourage private sector hiring all sorts of I think things that um both Bush and Obama did in terms of regulatory changes and just changing property rights structures did have an effect of make making businesses uh clam up

and and and postpone hiring that they otherwise would have done so I think I don't think there's one specific thing I can point to that caused it but I do think that they have tried massive amounts of inflation and deficit spending over the last few years and you know somebody say well it wasn't enough but uh you know just looking historically what governments have done in response to other crises I think you know what the world major governments have done in the last handful of years clearly it's not that they've been lacking and trying to

inflate and run big deficits and that's not working that uh we're not uh censoring uh Warren but we're we do want to give the microphone to the people in the audience so when you ask the question the people who are live streaming it for yep go ahead okay you can you wait a second you said that it was the government the government who created the volatility and being in being on Wall Street for 50 years I don't think it's the government I think it's it's Wall Street and the bankers who got into a business they

didn't understand and leverage their Capital that is the people's Capital that they got from deposits in order to speculate and I think that that is what happened and it wasn't the government going out and doing that the private was doing it so I wanted to ask you am I wrong or would you might be wrong by accusing the government of having created that volatility as you just said okay so I'm glad you give me opportunity to clarify so I am not saying oh everybody was Lily white in the private sector and then the bad government

came along and forced them to do naughty things that's not what I'm saying I'm saying there's a profit and loss system and the the the what we have right now is the worst of all possible worlds where the government has all sorts of guarantees on the banking sector has the implicit you know Green span put and so forth all those things in place and then let people do whatever they wanted in the investment Commercial Banking side so that I think is a complete recipe for disaster so what I would say is is don't subsidize the

financial sector and if they make really bad Investments and it blows up in their face you let them go down you don't say oh they were too big to fail that would ruin the economy you let them go down and then say okay no one's going to do that again for another generation as opposed to what they didn't practice which is bailing out a lot of those people which just sets up a horrible moral hazard we've got a question all the way in the back there oh yeah sorry let uh Warren um uh first of

all and too big to fail as far as I'm concerned the banks did fail there City Bank stock went from 60 to two or whatever some of the other stock shareholders went to zero they got deluded out that's what failure is in capitalism it's the investor loses his money and somebody else takes over the assets gets sold to someone else it doesn't mean the building gets bulldozed or anything like that right so this nobody even challenges the idea that the banks actually did fail ask any shareholder of these Banks um what's that oh okay yeah

no they should have they should have uh taking the losses also if the capital had gone negative but normally the capital didn't go negative in most of the banks there and in fact there's there was some serious scandals about the FED transferring Banks uh or the FDI that you know below Book value right and Below actual market value of the capital so I'm not sure that uh senior debtors got bailed out when the capital because was negative there was always some Capital left but you know if there was I'm I'm against it I I don't

like what was going on by the way uh G okay um gold standard just quickly I said before the it's the money as an investment vehicle or the money as a tool for the economy the reason the gold standards failed and people went often wasn't because they were working so well and everything was so great it was because there were disasters going on in the uh in in the countries and in every country that goes into a war immediately suspends the gold standard and why would you do that if it was so good for the

economy because it's not when you need the economy to go you abandon gold and you just press on the economy and then you lose the money's function as an investment vehicle well it's a legitimate political Choice whether you want the money to be an investment vehicle and be on a gold standard or just you know have Optimum output in employment and uh let's go to the question so yeah so we're gonna have time at the end for you guys to wrap up so uh this question is for Professor Murphy uh I think that one of

the strongest uh assets of the uh Austrian School is is a capital Theory and bmck actually was the first one to uh kind of elaborate on that idea of the capital structure that uh everything begins uh from you know first when you when you mine uh The Ore of uh for example a uh when you you create a for example a computer you mine the or of the computer and then you create the computer chip and then people assemble the computer like Dell computers does and uh and then you have a consumption good but for

every person that a consumption good is something else subjective value Theory so for example at one point somebody might have think of a good as a consumption good another person as a capital good uh could you explain uh in simple terms for people who don't understand how when new money is created and how it destroys the capital structure uh and only wealth is created when uh an Innovative idea entrepreneurial ideas is introduced into this system uh not when new money is injected into the economy sure so I think what what he's getting at is the

austrians do stress the real capital structure and the importance of relative prices and the prime importance of the interest rate doing its job more than other schools of thought typically do uh so I mean it's look we have a certain amount of resources and they can be channeled into relatively short-term things like fancy restaurant meals building movie theaters uh building sports cars for people or those same resources could get channeled into things that will not produce any tangible uh enjoyments for a long time so they could get channeled into making uh Research Laboratories uh drill

presses other sorts of you know 18 wheelers instead of making Ferraris and so one of the and those are real resource trade-offs that's not an arbitrary thing and so the point is when you inject money into the financial sector and that lowers interest rates one of the effects besides you know boosting aggregate demand or whatever aggregate thing you're going to look at is it steers resources into more long-term things that which might deviate from what uh people's preferences are and that's where this unsustainable boom comes from that it the economy really does hit a physical

wall at some point and you just can't keep pumping in more money to keep it going do we have more questions from the audience that Qui sure okay so I you know I I certainly agree with the Crux of that but let's look at the other thing is and and austrians of course will'll tell you all about Monopoly and how it restricts Supply so the way to look at it is the government is the money monopolist and if it's not spending enough to cover the tax bill and the savings desire okay then it either needs

to you know I would say it either needs to cut taxes or increase spending depending on your politics personally my proposals now are for a tax cut but that's a not that there aren't appropriate spending things but the thing is if the government isn't spending isn't spending enough or or if taxes are too high to allow for a given amount of government spending if taxes are too high to not allow for the savings which uh nominal savings not real savings nominal savings which are required uh all the unspent income to go to Pension funds and

everything else then the result is excess capacity which we see as unemployment now here's the analogy you've got a runner who's a really good strong Runner that's the economy but the government's put this plastic bag over his head okay and he's done it by not allowing you know he's cut his Air Supply off he has he's not giving him enough air to breathe and to I guess you don't save air okay he's cut him he's cut them off and so everybody says oh and so when you remove the bag okay you're not adding stimulus you're

removing drag the drag in the economy that's creating a high unemployment is the drag of fiscal policy that's too tight so all these things that are name stimulus and give it a bad name they're actually removing drag and it's a question of whether you removed enough drag so I fully agree that this Runner you can't get something for nothing you can't pump money in and suddenly you know the peaches grow on the trees or what whatever happens it just can't happen that's not how you do it and adequate you know and the correct signals for

the right Capital expenditures are critical now in a private sector those signals come from sales sales prospects and your ability to sell somebody on a business plan that someday is going to sell that product at a profit capitalism driven by profits which is driven by sales and that's you know what's out there monopolis restricting Supply puts a plastic bag over all that and that's what's going on right now um you can just bring the mic right over there we'll uh yeah that's great my name is um Yakov I used to uh teach here but now

I work in finance um so I have I have a question as far as this restricting the supply of money now let's suppose we have a floating currency let's suppose the sum of this currency in the economy is a million a million doll a million units right right the the amount of of money in the system is kind of irrelevant we can add 10 zeros to it and have a trillion or a billion and then we can have three more zeros and have a trillion so the only thing important in an economy is the distribution

of the money within within the players in the economy and so if what if what you're saying is true is that that right that there's not enough money well then we can say well tomorrow the government can just announce that we're going to add zeros to all uh to all the bills and now we have a ton of more money but right if if if we renominate everything in the economy nothing changes so what you're really saying when you're saying that you want to expand amount of money in the economy is that you want to

change the distribution of the money in the economy and you want to change the you want to distort past contracts so meaning right in the past let's say I mean imagine imagine if all our bills got an extra zero but all of our contracts stayed fixed I mean that would be a huge Distortion within the Warren right so how do you explain the fact that you're changing the distribution of the money versus changing the amount of money how how to explain this so when I tell you guys you need one of these or else you

can't get out the door right and there's 25 people in this room can I what there's 5,000 people no there's 25 people in this room and I say I'm only going to spend 24 okay I'm now restricting these things that you need to get out the room this room is now in default somebody's not going to get one okay when I first announc that there's a tax you're all unemployed until I tell you how you can get the cards the money to be able to get out and to the extent that some of you are

going to want two or three it's going to be more than the demand is going to be more than 25 the demand is going to be exactly enough to cover your need to pay the tax plus however many you want to save and take home and give to the kids or keep them in case somebody else pulls this in some other classroom whatever whatever reason you want to save there's a law that says their pre-tax money can go into your pension fund whatever okay so there's going to be a demand to pay taxes and to

save and accumulate these cards if I don't allow this room to somehow get enough to cover the tax bill and the amount you want to save the result is a restriction of Supply by me the monopolist and somebody's standing here saying please let me earn another car doing something which is we call unemployment there is no unemployment as we Define it in a non-monetary society it's always the demand and somebody looking for paid work in that currency if there's 10 million people unemployed I've got 10 million jobs in St Croy where I live in the

Virgin Islands as long as they're able to work for no pay right it's about paid work that's what unemployment is all about and it's the monopolis restricting Supply and the austrians will agree that excess capacity is always the result of a monopolis restricting Supply without it Market's clear you don't get that so why once you recognize the currency is a monopoly even if you don't like the idea that the currency Monopoly it is right now the next logical step is that okay I now that I understand the currency is a monopoly that the monopolis is

restricting Supply uh the monopolist is setting the own rate the monopolis Monopoly is easy when you learn economics you know Monopoly takes about 15 minutes and then you move on to oligopoly and and when you get that full competition you got ASM tootes and all that complicated stuff takes the rest of your life the good news is it's the easy one it's the Monopoly monopolis is price Setter not price taker okay Let's uh we got yeah let's take one up front here and yeah that's yeah just where you're going that's fine so this question is

for Mr Mosler uh if you believe that we have a monopolis restricting the money supply yeah wouldn't and you're saying that we we like we're restricting it by putting uh you know bag plastic bag on the head of a runner wouldn't falling prices also provide that uh to use a different example the lubricant you require which uh a non- monopoly on money would provide okay no the answer is when there's a monopolis restricting Supply the markets won't clear so if I say there's 25 of you and I'm only going to let you earn 20 cards

the price of the card starts going up the value you know and you get your deflation whatever you want to call it the value of the money going up right and so people are willing to work more and more hours for the cards and you and the market will never clear there will never be enough to cover the tax it's just a the systems in default right there and that's true with any Monopoly hi I'm Steven Weiss and my question is for Professor Murphy and it's who is your bad guy and why is he the

bad guy because if I were to review your various points you would various points you say inflation is the bad guy or that the business cycle as it's been under fiat currency is the bad guy or that um or that delaying pain under Greenspan is the bad guy and in all in all of those cas cases moderate inflation uh a business cycle that's normalized relative to was under the gold standard or delaying the severe Cuts uh that could come with uh with any recession uh those are overall outcomes that favor people who have fewer assets

rather than those that have more uh and to the degree that you're saying that your economic Outlook or your or your monetary Outlook doesn't specifically support a given political ideology I'm wondering where in where in what way an Austrian economics policy can support the kind of liberal democracy that we have in the United States uh while being while being internally consistent okay let me uh just push back a little bit on what you just said if my diagnosis of what causes the business cycle is correct then that means there are millions of young people right

now especially out of work who basically their whole livelihood their career prect have been destroyed because of favors given to con politically connected rich people so that I mean it sounds like you're saying I'm the guy the heartless guy who's not in favor of the poor but assuming my economic analysis is correct and they followed my policy prescriptions we would avoid these massive boom bus Cycles and you wouldn't have millions of people out of work but we know that inflation deflation cyes we know that inflation deflation Cycles were far more common and severe under a

gold standard than they have been since the fiat currency I I don't think I mean it depends what you mean by severe but certainly the Great Depression you know the US went off the gold standard what we have right now people are saying is the second worst thing in modern economic history this clearly is not the fault of the Las Fair gold we've got to move on to a couple more questions cuz they're all the way over here uh he's had his hand up for a long time and then we'll come up to you and

uh and then I have a couple that I got from the internet and Twitter while this is going on and then we should wrap up I I would normally speak with a loud voice but I'm totally horse um part of what strikes me is is that you guys are actually arguing from two totally different standpoints right so I I actually am an fx and rates Trader and I would agree with Mr hler that what he is actually describing is the current rules and they govern the behavior of interest rates they be they govern the interaction

of FX and they largely explain most of the commodity price movements that we see and so it's it's more a statement of fact of this is where we are today and Professor Murphy on the other hand is describing the likely outcome of an unrestrained fiat currency what um Hayak would have referred to as the unintended consequences and so Mr Mosler when you talk about your um proposals you're ultimately saying look we should not feel that the government is bound by the possibility of default that would prohibit us from pursuing these what strike me as reasonable

policies But ultimately that's your individual perception and so part of the question I ask is one understanding that you guys are two are say are coming from two totally different perspectives one stating where it is and the other is stating the likely outcome but the second is Mr Mosler if if you were to think about the likely outcome of behaviors under your system or the system is that exists today would you come to a similar conclusion ultimately as Mr Murphy okay so let me say two things number one either you believe in representative government or

you don't right and and either you believe that that runs best with an informed electorate so if there is no default risk if we can't be the next Greece do you think that the electorate does a better job knowing that or not knowing that that's kind of what you're saying well just to and then what do I think is going to happen if they know yeah so so so so just to be clear I mean we we can end up as Greece right ultimately Greece made an uninformed decision in terms of its its Fiat prospects

but its population recognized that its government had proven incapable of managing their currency to enhance their standard of living and as a result chose to join an economic Union in which they gave up their Sovereign rights yeah or you could say it was never po popular to begin with or you could say it was done under the misconception of what what it would mean because it's kind of like intuitive it be nice to have just one currency so we don't have to change our money every time we travel around not knowing exactly what that means

so okay you know I'll take I'll take that but so if you look at the inflation risk which is what people are looking at right you know would if if people understood there was no default risk for a currency issuer would they then have Representatives support Representatives who just supported more and more nominal spending and drove up prices I I think right now the answer is no because I think people dislike inflation more than they dislike unemployment and right now the FED is talking about tapering and fighting you know worrying about future inflation when we

have unemployment that's way above where you know where it's ever been even at even during previous recessions and nobody's up there Marching In the Streets against the FED for taking this position so I think the evidence in the United States at least is that people might a on the side of higher unemployment and lower inflation even knowing that there was no solvency issue can you pass the mic forward but you know that's just my observation of where the political debate is now consequence of uninformed it all is right and so it's pretty hard to get

any data points when the the whole thing is just diabolically uninformed uh my question has to do with the pred predictive power of the schools of thought I'm not familiar with your school of thought to be perfectly honest and I'm not a trained Economist um back in like 056 the austrians were sort of raising red flags Uh something's wrong here resources are being misallocated you know this is going to end badly and they you know there books been written and I'm sure everyone's read those books what were you saying with respect to your school of

thought back back in you know the mid 2000s how we were going did you see this coming did you were you raising red flags okay so the answer there is yes and no in 2006 I said that the budget deficit had gotten too small it was down to 1% of GDP it was no longer sufficiently large to support the credit structure and we were going to see GDP flattening going the other way uh until probably through the automatic stabilizers the deficit would get high enough would go back up to five or 6% I I did

not see the subprime collapse per se and let me tell you why in the second quarter of ' 08 in ' 08 we had a flattening economy we had zero growth and Congress did $170 billion stimulus program taking the bag off the runner they were just removing drag right and uh and it worked uh GDP was up to two and a half percent that quarter and I was there with my partner Kareem bosta he's a really good economist and uh Kem says yeah I'm worried about the next quarter and I said well yeah except they

just did it and it worked they'll just do another one I said that's all they ever do is move from one stimulus program to another and sure enough things went bad the next quarter and you know Kareem was there I'm not so sure and he was right they did nothing they just watched the whole thing collapse like we've never seen before and nothing happened until uh the Obama fiscal adjustment came in it was like a year almost a year later it was March wasn't it of 09 before that finally hit and they let the automatic

stabilizers do the whole ugly thing all the way down and I've just never seen anything like that it didn't have to happen in August 08 I was proposing a payroll tax holiday then and named it the payroll tax holiday and started promoting it if they' done that it wouldn't have happened and then all the people who' forecast it was going to happen would have been wrong so the problem with the forecasting is you're forecasting um policy responses let's let's go over here rather than inevitable events we've got a couple questions there then that'll be it

um we'll just go down the line uh down to you guys if you could keep them short that would be great yeah hi my name is Thompson Clark I'm an equity analyst in New York um I guess my question to to Bob really is if you could kind of clarify the asustan position do we support do does the austan school support a gold standard as uh the other side seems to Advocate and secondly um well actually we can just oh yeah my second point was uh going back to the the the claim that without a

Federal Reserve setting interest rate policies there would be no interest rate as in there would be no you know decision of people to save versus spend like Mr Mosler advocated I think that you said there weren't there wouldn't be an interest rate the risk free rate would be zero okay it would be zero if there was no Central Bank remember right after 911 it went to zero for a while yeah well yeah that was just a government backing off I never mind that history shows that interest rate for thousands of years right around 3% I

mean I'm just you know speculating but anyway so back to the gold okay sure uh good question so um you're right there is a distinction to be made between saying uh should let the so the most austrians I think what they would actually say with regard to money is the government shouldn't be involved in it just like with with cars it's not that the austrians say oh we favor a four-wheel policy that for most automobiles we think the government should really what they mean is get the government out of the business now if the government

were running around enforcing a cartel car makers that made vehicles with three wheels then you know as a loose figure of speech the offic that's stupid they should have four but really what they mean is we think that with consumer preferences blah blah blah if you let the market decide they would be four wheels so by the same token austrians don't want the government picking what the money is and and and supporting no no taxes no taxes right can we pass the so yeah so I think um there there would be the market would go

naturally towards gold as being the Market's choice of money if the government didn't get involved in that uh market and and and pick and choose historically where the gold standard came from though was because people were using precious metals and so the government to get people to use their currencies pledged to redeem them and that and many it's true uh you know L van mises and other classical liberals liked that system because it was a constraint on inflation from the government's perspective just you know it was a check on government abuse the fact that no

they have to redeem their money for a fixed weight of gold just like they can't just lock somebody up without charging with a crime that was the way misus thought of it he looked at the gold standard is like part of the Bill of Rights you know the same class of thing that it was a limit on what the government could do to you you knew they couldn't wreck your currency if they had to maintain that uh convertibility into gold let's go to that that mmt hat okay I was just wondering if there's government spending

would government if there's no taxing are they spending I mean how's this working uh real so again we're we're getting into Austrian economics versus what political views do most austrians have and so okay uh yeah many modern Austrian economists or people who like that school of thought do think that everything should be uh done in the in the voluntary private sector and they think that a lot of the alleged horrors of what would happen if we didn't have government providing police and militaries actually would mean well there'd be fewer Wars there'd be fewer police beatings

of of people and so forth and that free people can voluntarily solve a lot of those problems and yeah there would be crazy things happening but it might not be as crazy as World War which is what happens when governments provide those services but but that's not all a some austrians are classical liberal night Watchman state that sort of thing okay yeah I have a couple of questions to Dr Murphy first of all my name is rachu marov uh I maintain uh mmt block in Bulgarian language for Bulgarian readers and um first of all I

I would like to say that I agree with you sir that um government which doesn't understand uh modern monetary system is very dangerous for everybody for us that's why I'm very scared now that uh at the moment there is even no one person in Congress or in our government including our president who understands it or if they somebody understand they uh at least don't show it which is hypocrisy which is even worse I I think so my my question is I'm sorry for um to Dr Murphy do you think that uh economy should work for

the people or people should work for the economy that's my first question can we I just because we're we're running short on time I know just one more and that's it very quick uh uh and Dr Murphy do you admit that in floting floting exchange rate regime the fat sets the interest rates and not the market okay as far as the first question uh I mean I don't really know what it means to say would people work for an abstraction like the economy uh certainly I I think the point of working is to you know

make voluntary Mutual beneficial exchanges and people earn an income that way and it's you want an institutional system where you don't have mass unemployment so I think that's what everybody in this discussion wants and we're just disagreeing on how you'd get that as far as the um does the FED set interest rates uh within reason they do but ultimately the ultimate check is that people don't want to hold that currency so yeah the the FED could promise to keep interest rates low but if people after a while if if they had to keep pumping in

money and everyone just abandoned the dollar that would be the ultimate constraint next question hi um my name is Danny Panzer just um casual follower of heterodox economists um Dr Murphy sorry to keep piling on but I've I've got questions for you as well um I think Warren and you can you can correct me if I'm mischaracterizing your views I think Warren came out pretty strongly that he feels QE wasn't effective primarily because of the interest income Channel and that because the the federal government is a net payer of interest that when you lower rates

you take you remove money from the private sector um do you agree with this View and if not what channel specifically do you think boosts aggregate demand when actions like QE are undertaken well again and I this is what I started to say I think in response to when he brought that up I certainly am not sitting here defending quantitative easing and saying the stand uh you know neoc kanesan or uh neoclassical textbooks about the proper fed policy are are the right way to look at things so I agree that what Bernan has been doing

what the ECB has been doing is silly and counterproductive it's I think we're disagreeing about why um I as an AUST we don't think in terms of what do you do to juice aggregate demand for us it's more about relative prices so to me the problem is not right now oh man we need more spending the problem is is for some reason employers do not find it worthwhile to hire people and you know so one way to say is why are nominal wage rates higher than what the employers think the marginal productivity would be and

so it's an issue of relative prices and that issue it's not shoot what do we do to get people to spend more very uh just this came up um I'm gonna ask a couple quick questions from that came up on Twitter while we were talking uh one is uh what policy Mak ERS are closest to each of your points of view if any uh Warren are there any any elected officials or who would you who do you think understands your point of view and is an advocate for in uh in the government I I can't

think of any but I'd be open if somebody else knows of any please let me know the only obvious one I would say and he just retired is Ron Paul obviously was very well versed in uh Austrian economics and uh you know my joke is that you he was a an OBGYN and he really you know he's not bluing he knows a lot more about economics than I know about delivering babies um one uh another question that came in is when you said that we shouldn't depend on the liability side of banks uh as to

regulate what kind of risk they take but instead we should regulate the capital side through supervision and the asset side right and the the the asset side right and we we we've undertaken to do that this are the the question is uh uh from whence comes your confidence that we can do a good job of supervising uh the the asset side of banks uh especially given the near collapse of the financial system we just experienced well for one thing uh you know you can't allow anything you can't allow a bank to do anything that you

can't regulate so my proposals severely narrow banking even Way Beyond glass steagle uh to things that we actually can regulate and then the rest can be out in the private sector but we're talking about the public purpose of a payment system where people have a uh depositories where they can pay their bills and write checks and not have to worry about it it's an extension of the government's um provisioning itself with Taxation and being able to uh have you know payment system in US dollars for example and uh and for that you need insured deposits

and and you guarantee the liability side on the on the asset side you don't necessarily have to let Banks lend anything and so you've got to be very careful with it you've got to make sure that this lending is serving public purpose that somehow home lending by Banks is serving public purpose or you just don't do it certainly don't let them take Financial assets as collateral and have inbank markets and all these other things so you so you would advocate for a much narrower set of uh transactions that the banks are engaged in 19 I

got my first banking job in 1973 in 1972 with 200 million people we had 2.6 million housing starts okay okay and it was all done by a bunch of dumbb snls of which I work for one of them and we got I got paid $140 a week we played golf at 4:00 every day and all we did was have savings deposits and made mortgages okay we took in savings at five and we made mortgages at eight 2.6 million housing starts for 200 million people a few years ago with the financial sector taking 30% of the

S&P earnings right is that what it was okay 2 million housing starts with 300 million people was an unsustainable bubble right clearly the financial sector is entirely parasitic and we just let it get way out of hand and it did more with less back then for obvious reasons Bob what what's your position on Bank regulation um and are you know should Banks be set free from regulation or um or should they be restrained uh I'm going to take the I think probably the opposite approach of what he just said or even earlier remarks as well

so I again going back to what I said said what we have now is a terrible combination where through FDIC and other uh more implicit mechanisms Bankers on Commercial investment side are led to believe that they can invest in all sorts of things and customers certainly when you put your money in a checking account you look at things like you know where are their branch hours how many ATMs do they have you don't go and look at their balance sheet or you don't look at their policies and I that's bad you don't want people to

be indifferent about what the banks do with the the funds you entrust to them and you know and Warren's comment that uh you know he wants to have a narrow banking sector and then have the rest of the activities out in the private sector to me no banking you don't want the government to be the financial intermediary I mean there's a legitimate function that banking serves about channeling savings into the proper Investments and that's not a proper role of the government well wait wait and that this is actually a great point to uh private bank

right well I think uh this is a great point to move on to our uh our conclus remarks uh Warren you can go first uh what have you learned tonight so what when uh when Bob was talking about relative there's a problem with relative prices he's talking about market clearing there's some wage where you will get full employment which is true in the absence of Monopoly I think it'll be the first to agree that with labor iion that's not going to happen you're going to get excess capacity and uh and the same thing is true

when the currency is a public Monopoly or a monopoly it happens to be a public Monopoly uh where you when the monopolis restricts Supply you get excess capacity you don't have market clearing and that's what we're seeing today and it doesn't matter if wages drop you're still not going to get market clearing you're just going to get lower wages less spending you've got the problem of I'm taxing you guys 25 cards and I'm only letting you earn 20 and you're going to have this downward spiral and it's it's in default and it can't work because

it's a monopoly okay and I can't emphasize that enough and the austrians agree that Monopoly is the problem with markets and they they all all the models assume competitive markets and so all I'm asking is if they pick up the idea that the currency itself is a monopoly apply that to their models I think they'll get the same answers I do on all these things now in terms of banking what he just said I actually agree I'm narrowing banking so so that people who just want to use the payment systems have public Banks government Banks

public banks for public infrastructure where you can just write checks and do things private depositories can attract your deposits you can read their balance statements they can go out and make loans and do whatever they want that's fine okay and that and what I'm going to talk about here is the idea that a financial crisis like we had in 2008 would not have even been noticed like the crash of ' 87 if it hadn't spilled over into the real economy and caused unemployment and all the rest and it doesn't have to be that way okay

and the reason you get these booms and busts I think is something I I started to talk about which is that the private sector is pro cyclical they tend to move they tend to make the upswings they accelerate things in the upswings and the private sector pulls back and and makes the downswings worse okay and so that's just the nature of the private sector and only the government sector can be there counter cyclically and it doesn't have to be there with more interference it doesn't have to be there with any of these other things that

people don't like about government um in terms of I want to get in a word about inflation and just to give the principle first when you've got a monopolist a monopolist is price Setter not price taker this means the price level is necessarily a function of prices paid by government when it spends and our collateral demanded when it WIS I'm not closing remarks I can't go into detail on that but it's it's like these cards if I tell you you got to work an hour for one of them they might exchange between you for $30

each if I tell you you got to work two hours to get them they might be $60 each okay I'm the price Setter they're my cards you need my cards to get out of your room we need the government's money to pay the tax the government decides the terms of exchange whether it knows it or not it doesn't know it and so it tries to do all this Market nonsense but it doesn't know it okay so let's see wrapping it all up let's uh so let's look at central banks and inflation okay for 20 years

the bank of Japan has been trying as hard as it can to create inflation and failed okay that's a central bank with every tool available now you can say it's an exception and everything else fine the FED has been trying as hard as it can for five years to create inflation 85 billion a month in QE and the numbers just came out Friday and today it's failed even in this last thing okay maybe it's not that easy for a central bank to create inflation okay everybody's acting like we're on this Edge and if one false

move out of banki or Bank of Japan or european and it's going to be hyperinflation these guys are trying with throwing everything they can possibly think of trying to create it and failing okay there's more to it here it's not it's not that simple and if you look at all the inflation cases the actual ones it's uh there there're always extenuating circumstances that um you know involved uh let me just say I want to thank everybody for this forum and for attending and everybody out there listening on live stream um and I'll turn it over

to Dr Merc four minutes yes you get the you get this the penultimate word La word here sure well again let thank you everyone for showing up and listening to this let me if you take nothing else away from this from my remarks let me push back a little bit because it's it's certainly um a trump card that the uh fans of mmt play a lot and they say look it we're not this is not the system we want there to be we're just saying this is the way the world is deal with it but

that's not correct and that's why my first question when I asked uh Warren and I read to him from his book on page 21 when he said okay yeah right now there are self-imposed constraints right there are debt sealing rules uh treasury overdraft rules right so since 1981 it's technically not true budget right government has budgets since 1981 it it is not true that the treasury can just run it whatever check it wants and the FED has to clear that's not been the case since ' 81 and the FED right now is not legally allowed

to just directly buy um treasury debt issued at auction they have to go to the secondary Market okay so strictly speaking right now the government cannot do the sorts of things he's recommending all right he's saying there needs to be policy changes to do what I want I mean clearly just think of it this way clearly Cally the world right now is not in accordance with what he wants because otherwise you know we'd have those millions of people that's not what he wants so he's recommending policy changes to do these things so it's not actually

the case that he's just describing the way the world is and then I'm over here saying oh but I wish the government would do such and such no we're both saying we wish the government should change what it's doing and we have a difference of opinion about what that should be so I think this it's a false way of of framing our respective positions to make it sound like he's objectively describing what is and that I'm just pining for what I wish according to my strange value system we're both describing things so now having said

that again let me remind you you know I brought up some analogies some of you like them some people in this side of the room did not like them okay that were saying look it if any other entity did the sorts of things and then tried to justify them or just explain what they were doing the way in his writings he talks about what the government's doing whether it's the household worrying about their financing whether it's a CEO who's not contributing to the pension plan if they defended what they were doing with the way that

um Professor Moser is talking about the government with respect to its budget with respect to Social Security and so forth clearly that would be fraudulent he said that guy should get the electric chair I mean was possibly exaggerating just to make the point but in the the fundamental way that he came back and said there's a distinction here that you're not getting Murphy is that it's like there's a scorekeeper and obviously the you know there's a distinction between the people playing the game versus the referee setting up the game but then that just begs the

question why are we playing this game in the first place why is that guy the scorekeeper according to his own analogy it's because they have guns and are pointing them at us and saying you're going to play this game the reason this my business card is going to work is because you're going to get shot otherwise all right so since neither of us is describing the way the world literally is right this second we're both explaining tweaks we want to make in this system it seems to me that's kind of a big deal that by

his own admission this system that we're currently in and he wants to tweak a little bit is one where it all rests on the fact that you know there's these guys with guns who set it up a certain way last point is he's saying look at you know one way to think about it is the government has a monopoly on a certain thing and and he's saying you know and I agree with that to some respects or not and so then why don't we get rid of that right if if the government right now you

know Soviet Union if they had a monopoly on uh agricultural output you know yeah there wouldd be an economist in there who could you know his career would be writing books about proper Soviet planning of government uh you know agricultural targets and so forth but surely you would think that the right thing to do for the con would be to focus on let's let's change this system so it again it's it's an awkward position where it's not even that I disagree so much with any particular thing that's in his writings and uh you know and

and I think also in terms of what he might think in terms of we were from scratch to design a system and what's the proper functions for government we obviously disagree on some areas we're actually not that far apart I I don't understand why he's focusing on certain things and just conceding yes the government's going to have Monopoly on money and so forth and that's the way it is and in that respect go ahead and you know why are we worrying about them printing money and Shifting the burden from raising taxes budget constraints to just

you know running the printing press well fortunately um just operation sure go very quickly just quickly under current um institutional Arrangements the government us government is can run unlimited nominal deficits it's got the primary dealer set up uh the treasury can sell unlimited amounts of Treasury Securities exactly at the interest rates set by the fed and you know we don't need to make those kinds of institutional changes to run any size deficit we want to sustain full employment um so fortunately I I'll say we don't have a monopoly scorekeeper Instead The scor Keeper is everybody

who's here uh but you guys have done a very good job of keeping the interest rate above zero so I thank you for that um and uh I think we are uh just wanted to thank everybody who's watching everybody who came out here uh it was terrible weather um and for the millions of students who will watch this in history in the future this historic moment uh you know we we thank you as well so thank you guys [Applause]