Today, I have this fun, yet informative overview of four things the state is not. Now, that's nothing scientific about that number four, it's just as easily been set. It's just four I thought of by the time they they reached me. So I want to start off with an example that I guess you guys will be familiar with, I hope, by this point in the week and then, as we go along, they'll get more fun. We start off with the most technical one, then I get more fun. Then at the end we'll try and figure out what the state actually is. But we're all misled into thinking that it's something else. From the time I was in I guess elementary school. I was given the impression that the state is a public service agency, that is committed to carrying out the common good implementing the will of the people. And it is populated by selfless Crusaders for justice who want nothing more than to See, now people are cynical already. Can you believe that? And we are only at Thursday. They're not buying this. But what you will buy is my contention that that is what we're told this thing is. And of course, we need to be told that in order to engineer our consent to it. I mean, what kind of an ingrate wouldn't consent when a bunch of Crusaders for justice are just trying to help them? But I'm suggesting that it's not that, and it's not a lot of other things that people say it is. So, for instance, every four years we are subjected to somebody claiming that government is or ought to be run like a business. Right, we get that in the presidential elections there will always be somebody from the business world who will say I'm from the business world and if I could get in power I would run this thing like a business and it would be in tip-top shape before you know it. Yes, we've all heard that. We've all heard that from a certain person from 2012 Whom I am afraid is threatening to come back again for 2016. We won't mention that that person's name. But it goes back twenty years. Anyway, we heard this with Ross Perot, but so many of you are too young even to know who Ross Perot is. I can't believe this world that there are people who don't know Ross Perot. But, he was a businessman, and he was claiming that that would give him some special insight into the problems of government. But it is not, and cannot be run like a business for numerous reasons. Only a couple of which I will give you here. And, of course, this is the thesis of Mises book, "Bureaucracy". For one thing, the government is not actually a firm producing goods on the market, so it doesn't have any genuine sales revenues. The revenues, if you want to call them that, that it earns, are earned coercively. They're not voluntary payments for goods and services that people thereby indicate they desire. And if they have no genuine sales revenues, then the decisions they make in terms of resource allocation are arbitrary. A private owner is not arbitrary in his resource allocation, because he can calculate profit and loss, and he can get some feedback from the general public about what they like about what he's producing, what they don't like, whether he's producing his product using inputs that are too expensive, or that are more urgently needed in other lines of production. All these things he can calculate thanks to the profit and loss system in the price system of the free market. The state does not have this. It does not have that type of feedback mechanism, so it doesn't know is it supplying something the public wants? Is it supplying the most urgent thing the public wants? Is it supplying it in the proper quantities? Is it supplying it with the proper inputs? These things are completely impossible for the state to know. Now, I often have given this example, example of customer service. Think of a private business trying to figure out how many resources should we employ in customer service. Now, at first, the superficial observer may be inclined to think: "You can't have too much customer service". But, in fact, you can. If every customer service agent followed one customer around and just kept pursuing that person constantly, giving the person massages, reminding that person of important appointments coming up. I mean this would be too much, no one would want that, but likewise, if your entire customer service department is an answering machine, that would be not enough. So, somewhere, somewhere in the middle, there, is the right amount of resources, but how can you know? Well, you have to use the profit and loss test. You have to see, on the one hand, the public wants some customer service, but on the other hand, any additional resources you employ in providing customer service, and here's the key, have to be withdrawn from somewhere else in your business. So it's a trade-off. You can have more customer service, but you have to have less of this. There isn't a supply of infinite resources whereby I can expand customer service and everything else. When I expand here, I have to withdraw from there. Does the state face that constraint? Of course not, it can expand everywhere, it does not have to withdraw from anywhere else. When it withdraws, it's simply withdraws from civil society, not from itself. Now, of course, the way the state normally handles this is not by giving us too much customer service. It's by, you know, you've got three people at the post office even a week before Christmas. They can't, it doesn't occur to them: "Could you have two more registers open or something?" Usually they do that. Or you get a lot of customer service, but the type of service is more or less like "I'm sorry, Sir. I'm just here to monitor your thoughts, just go about your business". That's a separate matter not demanded on the market as it turns out. So it can't be run like a business it is, of course, because you can't figure out, well, which things that the state is doing are things people want, and which things should we cut back, on which things should we expand on, the only way that that can be resolved is by privatizing it all. By turning it up by making it into a legitimate business, by seeing if it could sink or swim in a profit and loss system. Alright, so ain't no way it's a business. How about this one though? This one's my favorite one. Number two here's my favorite one The state is a public service agency, it is seeking the common good, and it has no interests of its own. Right. It has only your interests at heart. It does not have interests of its own, distinct separate interests of its own Alright believe it or not. I'm going to dispute this claim and and I'm gonna dispute it in several ways. The first way is by making reference to a phenomenon Tom DiLorenzo points to quite a bit. The so-called "Washington Monument syndrome". Now, I talked earlier today I did a show of hands. How many people had heard of Gabriel Kolko. And it was maybe 20%. Now don't raise your hand just because of peer pressure There is no shame in not knowing the "Washington Monument Syndrome". In some way, it may be you've been a happier person not knowing about it How many people are familiar with this concept? Ok, good. Oh, this is great. This is your lucky day. Then you're gonna learn all about it. Ok, your lucky day where you're gonna be made even more miserable then you are now. The "Washington Monument syndrome" is so named for a situation, years ago in which the Department of the Interior was threatened with budget cuts. Now think about what a private firm does when it has to cut back. It thinks: "what is the least necessary thing we do that we can, therefore, afford to cut back on?" The state is just the opposite. It thinks: "what is the most necessary thing, or the thing that the public perceives to be the most necessary that we do, and we'll cut that first." So that the public will do our work for us. The public will say: "hey, hey, wait a minute! Look! They're cutting this thing that I love so much. You better restore that whole budget." Before you know it, the budget is restored. So the Park Service said that they were going to close down the Washington Monument. They couldn't find a single pencil sharpener to sell off. They had to close the Washington Monument. And so, tourists were all up in arms. "Hey whoa, whoa, we wanted access to the Washington Monument. What's going on here?" That's their first thought, is: "what will cause the most visible pain to the public? We cut there." And then, people were up in arms and before you know it, the budget was restored Now, there's perhaps an even more illustrative example of this. During the Cold War the US government, had a defensive position against any Russian attack through Germany. There was a front line covered by a Cavalry Regiment with light fast moving vehicles, and good radio intercept interception equipment, and that line was there to give the first warning of any attack. Now, at the same time as this, the US government's military also had military marching bands, and to this day the US government spends five hundred million dollars a year on military marching bands. All right. So, the Department of Defense is threatened with budget cuts. Now, on the one hand, they've got this line of defense to keep an eye on whether the Russians are going to attack Europe through Germany. On the other hand, they have military marching bands. Now, which of these do they first think to cut back. The marching bands... They are the safest. I mean, if you want to be in a military marching band, there's no chance you'll ever be fired. Precisely because you are the least necessary thing, they'll keep you forever. The first thing they said was: "Well, I guess we're gonna have to get rid of this. If the Russians sweep into Western Europe, we won't even know it's happening because of you people who want to cut back on the budget." And an odd priority. Now, It's not that I'm a big fan of the US military or whatever, but if you had a private firm keeping an eye on the Russians. Probably they'd cut back on the marching bands first. That's the "Washington Monument syndrome." Now, related to this is one of my favorite empirical examples. Back in the 1980s, There was an economist with the Brookings Institution, slightly left-of-center think-tank, and out of curiosity, he wanted to know how many bureaucrats worked in the central office of the New York City public school system. So, he gets on the phone. The first half-dozen people he talks to have no idea what that number is The second half dozen people he talks to do know what the number is, but they're not authorized to reveal it. The thirteenth person both knows the number, and can reveal it and the answer was: Six thousand bureaucrats in the central office. So, he thought: "all right. Well, I don't know what to compare that to." Let's see if we can compare it to something. Let's call the Archdiocese of New York. Now, they educate one-sixth as many students, so they should have a thousand bureaucrats. Calls them up. First person answers. He says: "How many bureaucrats work in your central office?" And the woman says: "I don't know." And he thinks: "here we go again." But she says: "wait a minute. Let me count." The answer was twenty-six. Now, what does this have to do with the "Washington Monument syndrome?" Whenever there'd be some budget cut in New York City, first thing they would go after would be police and fire. Right, your house is burning down and somebody's trying to murder you, Well, we're not gonna, you know, normally we'd be there in an hour and a half to help you out. But now, this time, ain't no way that's happening. Well, let me note, by the way. I'm sure the judge can attest to this, but just one small aside. When I was doing my graduate work I was once visited by an old friend and we went, had dinner somewhere around a hundred and twelfth and Broadway, and when we came out his car had been broken into. Now, this sort of thing has happened to me very very infrequently, his car had been broken into and and his stereo system had been removed and some music had been taken. And it so happened a policeman was driving by, so we thought: "what the heck, you know, we've been robbed let's see what we're getting for our money." So we flagged him down. We said: "we were just robbed all this stuff has been taken." And the policeman, this is absolutely what happened, he told us what an awful shame that was and he drove away. And that was it. Now, I can't... imagine if a private firm did that. "Hey look, you know you're living in New York City, what do you expect?" We would be up in arms about this? There'd be investigative reports about it, corruption, but we just sort of figured "Well, you know, that's just the way the state is, you know, can't expect them to do everything." We give that. We let them off the hook in ways we never let the private sector off the hook, right. You go clothes shopping, there's one little thread out of place, and you let that salesman know all about it. But, meanwhile, somebody just stole your stuff, and you're going: "well, you know, hey nobody's perfect." Or the TSA is actually. There's a hand going into your pants, and you're going: "that just keeping me safe!" No, look. I'm all in favor of holding the private sector to high standards, because I know the private sector can meet those standards. But it is worth noting that we have this double standard. But my point is: at what point, in New York, do they say: "We better go after the six thousand people in that central educational office doing heaven knows what?" Doesn't even... Those are sinecures. Those people will be there forever .Doesn't even occur to them, not even remotely on the radar screen. By the way, one more New York anecdote. John Kenneth Galbraith, very prominent left-wing economist for many, many years, famously said: "there was nothing wrong with New York that a doubling of the city budget couldn't solve." Then they tripled the city budget and everything got worse. And so, of course, Galbraith came forward and apologized to everyone for: No, he didn't! You know, that doesn't happen! I can't believe you fell for that! Apologize! These people don't apologize. Or what about something like the the war on drugs. Now, I talked at the Mises circle in Houston this year. We have this event every year in Houston in January about the war on drugs. We were talking about the police state and I pointed out that the war on drugs, like all government programs, is not just a matter of winning an intellectual argument. You can't say to yourself: "Look, I was the captain of my high school debate team. So you just wait till the country hears my argument against the drug war. It's gonna be over the next day." It's more than that, because there are people whose livelihoods are at stake here. It's not just a matter of dispassionately weighing the pros and cons and saying: "Oh, you know what? On second thought, maybe prison rape isn't the best solution to drug abuse after all? It isn't it. Isn't that. It's that people begin to subconsciously associate the common good with their own personal good, and their own personal good is: I get a salary from prosecuting the drug war. So the bureaucracies to which the drug war gives rise become self-perpetuating, and they're just going to go on forever. So when the budget cuts come along, they'll make sure that police and fire get cut, but these things continue. So it's not just the DEA and the military, but it's also the State Department, the Department of Agriculture, the Bureau of Indian Affairs, the the land management, they all get money from the drug war. The money is everywhere. Tens of thousands of people work full-time on the drug war. That's what you're up against you're up against that type of vested interest every single time you try to overturn something. Now, remember what this number two point was. That government is a public service agency with no interests of its own that are separate from the general interest. but here as we've seen the state is a group of fiefdoms. Self-perpetuating fiefdoms who want to expand their power and their budgets. And that is an interest that is at odds with the interests of the general public. Or what about the military? And I hear, I mean, surely this is where the government does its best job. It's just, it keeps us safe. There's no other way. We could be kept safe, so we have to take the good with the bad here. Well, when we look closely at the functioning of the military-industrial complex, it turns out that it's really a lot of abuses How about that? I have a chapter on this in my hideously titled book "Rollback". I have a chapter on the military-industrial complex. I'm very happy with it. It actually began as a paper at the Austrian Scholars Conference of the Mises Institute, which is now the Austrian Economics Research Conference held every March Well, just one of the points that I noted in there is that you notice that the military industrial complex has kind of a reputation for being wasteful, or for developing some weapon system long after everyone has concluded that either it doesn't work, or the enemy they were designing it for went kaput 20 years ago, it just carries on, it carries on. No private firm could get away with that. Producing a product that no one would voluntarily buy, and yet, it just goes on and on. How does this happen? You know, I mean you might be against it, but you've got to be curious. How do they carry on this racket? And it turns out they have two primary methods, that reinforce each other. The first one is known as "front-loading". This is a term that is used in Pentagon circles, so they all know what it is. "Front-loading" means that when the firm makes the initial description and promise of the particular system, it does so in a way that overstates what this system will be able to deliver. "Oh this thing's gonna be great. It's stealthy. You can't see it. Won't show up on radar. And don't worry it cost like 15 bucks." "Well, all right. We'll take a hundred of those good sir." Okay, you think: "All right, Woods. I don't see how that's gonna last forever. Eventually, They're gonna realize well, it's not stealthy at all, I mean, you know, it's all over the radar screen. It has a big Hello Kitty sticker on the side, you know, like at some point that's not gonna work for them. Or they are gonna realize it costs a million dollars or a billion or whatever." But that's when the second plank of the strategy comes in. This is how once they get the tax payer spigot opened, they keep it open and it never closes. The second one is called "political engineering". This is when you make sure that you divide the jobs and the profits across as many congressional districts as possible, so so many congressmen now have a vested interest in keeping that project going you especially want to target Congressional districts where the congressman is a committee chairman, where he's really influential. Then this thing will never be stopped. Never. It just goes on and on, and you think: "now, here this is the most fundamental task associated with government, people who are minarchists will say: "I agree with the libertarian, anarcho-capitalist message all the way up to a point, but I know for security we need the state. So here is its most fundamental task and even here it has interests of its own, even here. It is not just dispassionately looking out for what's best for the rest of us. And then meanwhile, of course, the Pentagon in the U.S is not subject to audit. So it's not that they fail the audit. It's that there is no audit and you wind up with all kinds of cases where there's a trillion dollars missing. Since 9/11 to 2010 there's a trillion dollars missing. Their budget increased by two trillion and one trillion of it they cannot account for. The other trillion went for the wars, but there's a trillion dollars and it's not like, well, the Navy bought a lot of ships. It didn't. The Navy actually declined during those years. Etc.You look through the armed forces that doesn't seem to account for where the money went. Oh, well, you know, Can't win them all. Can't please everybody. It's a standard that we do not, we would never think of holding the private sector to such a pathetically low standard, but when it comes to this when it comes to the state, we've just been taught these are wise public servants doing their best, and that leads to this naive result. All right, let's go on to another thing that the state is not. Let's see, I got a whole bunch of these here. I picked four at random. How about a problem-solver? Right? The state's just trying to solve our problems, and ingrates like us won't just sit back and let them do it. All right. So let's look at some problems ,problems solved by the government. You know what? It's one of the world's shortest books, you know, "Problems Solved by The Government." All right. Well, we have two different categories of problems solved by the government. Number one: problems that solved themselves or weren't problems to begin with. And secondly: problems the government created and then pretended to solve. That's what it boils down to in case after case. So, let's see. What should we talk about first? We'll leave depressions to the end. I did monopolies to some of you guys. I said I'll repeat some of that for those of you who weren't here, but let's start talking about poverty because today it's very fashionable to talk about inequality, inequality is the end of the world and all that. Even though when you look at the Gini coefficients, which are used sometimes to give a rough estimate of inequality. You look at the Gini coefficients for the 25 freest economies, and you look at them for the 25 least free economies, and it turns out there's less inequality in the freest economies than there are in the least free. I wonder why that would be. Because it turns out that, for example, in the Soviet Union, which was committed to Marxian notions of equality, yeah, they got rid of some class designations, and replaced them with others, the ruling class versus everybody else. And there was a yawning chasm there. I mean, even the cemetery you'd be allowed to be buried in was distinguished by whether you happened to be in in the nomenclatura or not. But let's think about poverty. Now, there's been tremendous advances against poverty over the past two centuries, and the past two centuries have seen the greatest liberalisation of economies in the history of the world. And this is not a coincidence, for reasons I've talked about elsewhere. I have a talk on YouTube. It is, I mean, I've told, I've tried to tell you guys that I'm the worst title Person in the world, and you think that's just false modesty. No, the title of that talk is: "Applying Economics to American History." I mean, that's one of the worst of all time, and yet it has like 60,000 views, so it must be good. Like, with a title like that people still watch it. But in there I explain why and how the free market yields us rising living standards over time. What I want to do now is just look at the figures, instead of explaining the logic behind it, because I do that over there. When you look at the figures, it's absolutely astonishing. What's happened? And that most of this happened before there was any welfare state of any significance in the world, and certainly in the United States. I mean, FDR brings about a very very modest expansion of a welfare state, but it is a pittance. It's nothing compared to today. And what you see, and certainly in the United States, is the percentage of people in poverty consistently going down until the late 1960s, when they really start spending money on it and then it levels off, and more or less after trillions of dollars spent, the amount of poverty in percentage terms that's been alleviated is like a rounding error. It's of no significance at all. And I often say, I realize this argument is not definitive, but just imagine if the situation had been reversed, imagine that there had been government spending all along on poverty alleviation, and poverty had been falling, and falling, and falling, and then, you know, the terrible people in this room took over, and we defunded those programs, and then we stopped making progress against poverty. You know what they'd say. "You wicked selfish jerks. We were making all this progress against poverty and then you've defunded the programs." But the exact opposite occurred. There were no programs and we were making progress against poverty then they funded them, and the progress leveled off. And so what do we hear about that? Crickets. Nothing. No acknowledgement of this at all. Now, if you were to ask the average person on the street: "How do you think we're doing in terms of poverty around the world?" I mean, "you think we're making advances? You think we're retrogressing? How do you think we're doing?" I would be willing to bet, and maybe someday I will test this, I should do that. I have a microphone and a camera. Why don't I do this? I bet you at least seven out of ten people will tell you poverty is worse than ever, worse than it's ever been, right? I bet you they would say that on the basis of what they're learning in sociology or whatever. I bet they would say that. And yet the truth is so absurdly the opposite. We've never seen this type of success against poverty. So the figures, Pardon me if you've watched a lot of my youtubes. But I was telling you to Joe Salerno before, you know, in the age of YouTube, it's hard to repeat yourself. But sometimes you have to say the same thing. And in this case, the numbers are just so overwhelming, when you look at the percentage of people around the world living in what economists sometimes call absolute poverty, a level of poverty that in the United States we can't even imagine. I mean, everybody in this country is living like a king compared to what we're talking about here. That figure was at 85 percent in the year 1820. And it had been brought down by 1952 to 50%, by the 1980s, down to a third, and by the 21st century, down to 18%. So from the early 80s to the early 2000s that 20-year period. And by the way, these are these figures you can easily consult. They're almost any anywhere, or you can write, I could give you sources for stuff. But in that 20-year period, we saw both the percentage and the absolute number of people in poverty decline. This is an unbelievable astonishing thing. More progress against poverty in 50 years than in the previous 500. You'd think people would say: "Hey, you know, that's pretty good. Hey, let's have one acknowledgement of that." Nothing. Like, no one even knows that. And as I've argued, it's, This is not a coincidence. This this is what happens when people are allowed to keep the fruits of their labor, and invest their, profits plow them into buying capital equipment. "There is no shortcut." Mises said. If you want to increase the standard of living, there is no shortcut to increasing the amount of capital per worker. This makes the workers more physically productive and we wind up with all these goods in the economy, that are now correspondingly less dear for us. I have to tell you about the American statistics though. In the year 2011, as the most recent stats I have. Now, in the United States, over the course of the 20th century, the figures are variable, but we see that the purchasing power of the lowest quintile of income earners increased anywhere from 10 to 20 times. Amazing, right? Absolutely astonishing to see something like that. So, as of 2011, and by the way, let me say as a caveat here that my wife grew up in a very very poor situation and had to struggle quite a bit, and my own father grew up in very challenging circumstances. So I'm not trying to make light of their situation. I'm not trying to say: "hey, look, you know, you have a flush toilet. What are you complaining about?" I'm not saying that. Because people do have a lot of challenges to me. I simply want us to instead of constantly criticizing the system that made it possible for us to live at the standard of living that we live at to at least be grateful for it. Okay, the ingratitude theme. We've got to be grateful for what we have. So for instance, 97.8% of people who are poor in the United States have refrigerators. And they: "oh refrigerators. Now, you're really stretching, Woods. Everybody has a refrigerator." Yeah, I know. That's my point, right? Yeah, I know. That's what I'm saying But you say that's no luxury But it is. It is. Oh, absolutely is a luxury. I mean, consider that at their vacation home the Habsburgs in the early 20th century didn't even have flush toilets. I mean, yeah. Yeah, they would have taken a refrigerator. And also, you know something, you guys. Even I'm too young for this, but I watched the reruns of the "Honeymooners." Ralph Kramden, now, we all know that Ralph Kramden was a cheapskate, but it was at least plausible that in the 1950s a household could still have an icebox instead of a refrigerator. So for your icebox to work, there was a guy who came to your house with a giant ice cube. Regularly. Yeah, that's how they did it. It was a big ice cube. And that was considered normal as recently as the 1950s. They had no telephone. They had to use the Norton's telephone. Now again, that was unusual, but again, not preposterously unheard of. Today if we had a TV show where somebody didn't have a phone it would just seems stupid. But it was at least plausible. You might not have a phone, you borrow your neighbor's phone. Today, 80.9% of the poor in America not only have phones, they have cell phones. In addition to their landline phones. Cell phones that are like 500 devices in one. 96.6% have gas or electric stoves. 96.1% have televisions. 93.2%, microwaves. 83% have some type of DVR. I mean, could you imagine somebody from Kenya? I don't why I picked Kenya, that was at random. But suppose somebody came from Kenya just, you know, visiting the US, and we explained to the person what DVR is? They would not say: "well, you must be really poor, if that's your only method of entertainment." 58.2% have computers, and of those who don't, a 100% have a local library that does. That's amazing. Like, we've never lived at a time like this. Now it's not to say that material things are all that matter, right, you know, friendship is the most important ship of all, you know. I know that. But You know, I'm happier with a refrigerator than I would be without it. You know, I'm happy being able to cook things in my house, then I would be not being able to. I mean, to some degree it's a lie to say money can't buy happiness. Yes, it can to some degree. It can't make you non lonely, and it can't buy you a real friend, but it can make you more comfortable. I mean, tell somebody who's sitting in Auburn Alabama when it's a hundred and ten degrees out, and they can't afford air conditioning. "Well, that wouldn't make you happier anyway." I think I'd punch that person in the face. Yes, it darn right it would make me happier. All right And then look at, in the case of foreign aid in the United States. The United States has given away an enormous amount of money in foreign aid, and the consequences have been terrible. Almost everywhere it's been tried. Terrible. Free-market economists, a handful of them, primarily Peter Bauer, warned that this would happen. Explaining the logic of these programs and said: "no, no, no. What these people need are, well, private property rights and, all the sorts of institutional aspects that we associate with a prospering economy." That's what they need. They need the cultural mores that are compatible with this, and they'll be fine. And sure enough, Chile took off after foreign aid was cut off. South Korea, likewise. Hong Kong, likewise. So this problem of poverty solved itself by and large. Solved itself. It was not the government. Solved itself. All right, how about, I'll do monopolies quickly because some of you heard my presentation on that today, But this one though, I mean, this one your teacher really let you have, right? Just in case you were gonna be sympathetic to the free market. Oh, no. No, no, no. We had: the economy was dominated by guys with cigars in their mouths with with an evil cackle, you know, in a gold tooth and a monocle. Under laissez-faire. You know, you can't have that man. We need competition. We need whatever whatever, okay. But then I went through with you guys, and I gave you some references, and we looked at some actual people, and actual industries, where the accusation of monopolies has been the most frequent over the years. And we saw that, actually, what they did was they increased output and they lowered prices dramatically. Andrew Carnegie overwhelmingly reduced the price of steel rails by about 90% in just a quarter century. That has ripple effects through the whole economy. That's more than any government has ever done ever in terms of increasing the standard of living, because, yeah, the government can take your stuff and give it to another person. Yeah, any idiot with an IQ of 50 can do that. But when Carnegie lowers the price of steel, this makes everything cost less. So this increases the purchasing power of everybody, and now you have more left over to go buy more stuff. And to make your life more comfortable. So he does that. Rockefeller when it comes to kerosene when it comes to oil refinery, prices dropping dramatically. We talked about the figures there. By the time the government dragged him into court, his market share had already dwindled just through normal market competition. Cornelius Vanderbilt, in steamboats and steamships, first he was up against an outright monopolist by the real definition of the word. Robert Livingston and Robert Fulton had been given a 30-year monopoly on steamboat traffic in New York, by the New York state. And so he was undercutting them illegally by shipping passengers at low fares and not getting caught. Finally, that was overturned, and he goes into business and he's opening up routes all over the place, New York to Philadelphia, New York City to Albany, New York to Providence, to New Brunswick. And every one of those fairs is cut in half, is cut by 7/8. Some of them are cut a hundred percent. He actually cut the fare from New York to Albany to zero. And just said: "you know, I hope you're hungry while you're on board. I'll try and sell you some food." And that was how he prospered against the competition. And then, later on, he had subsidised opponents, by the 1840s. He crushed them completely. This free market guy. And, in fact, the New York Evening Post said that he was the greatest practical anti-monopolist in the country. Correct. Correct. He was not a monopolist in any sense of the word that would be in any way meaningful or helpful to advancing our understanding. So you have examples like that. You have James J. Hill and the railroads. Doesn't get any subsidies and yet he prospers These other railroads go bankrupt in the panic of 1893, they're begging the government for low-interest loans. And he is saying: "no the government should not provide capital to these companies to compete against certain railroads." Which I wonder who would that would be? Him himself. That managed to accomplish this with no government aid whatsoever. Oh, you can't build a railroad without government aid. Well, who are you gonna believe? That claim by your teacher, or your own eyes? Because you have James J. Hill in front of you. Or the great example, a great example of Herbert Dow. Again, I went through this today. I gave the long version, and I give you the short version here. Herbert Dow the chemical manufacturer. I talked about his work with chlorine, but here I'll just do bromine. Some of you know this story, but long in the short of is, Dow is a great innovative chemical man in the US, and he wants to sell bromine abroad, but the Germans dominate in Europe, and a German cartel does all the sales of this chemical in Europe. And they actually visit his office and say: "we have evidence that you have been selling bromine in Europe." "Well, yeah, as a matter of fact, I'll just tell you right now, I've been doing it." And they came: "no, no, no, You don't do that, because we're selling it." They're selling it for 49 cents per unit, and he was selling it for 36. So they gave him a visit and he just ignored them. So they thought: "well, we'll just drive him right out. Well, we're gonna use predatory pricing ." Which supposedly drive out all competitors. So they're gonna drive him out by selling bromine in the US for 15 cents. And that will destroy Herbert Dow. So, but his response is: "well, they're gonna sell it that cheap. I'll buy it." So, so his purchasing agent buys up enormous quantities, and then repackages it and sells it in Europe at 27 cents. Now, the Germans have got to turn a profit in Europe to make up for this heavy loss they're making in the US, and they cannot figure out what's going on. So they say: "oh we'll show them. We'll sell it for ¢10.5." Even better! Well, and he gets another visit by the way, and he's threatened that they're gonna keep on doing like that's some threat, they're gonna keep on doing this, and he says: "I just don't care." And as he leaves the meeting this representative of the German cartel is screaming threats at him as he's walking away. And they figure out what he's up to, but they don't really know what - how to stop this. They don't really know what to do about it, and they finally just give up basically. They give up the fight against it. So I have an article online that I'll refer you to on the general subject of monopolies and so-called predatory pricing. Predatory pricing is this claim that somebody can become the sole supplier of a good by lowering the price of the product below cost, the competitors can't compete at that price. You drive all your competitors from the field, and once they're gone you then raise the price and enjoy so-called monopoly profits. So I have an article on that because I went through the reasons, even though that sounds superficially plausible, it really doesn't work. I went through that in my talk earlier today, but you can also read it in an article of mine called: "The Misplaced Fear of Monopolies." You just google that, that article will be the first thing that comes up. Alright, so let's go on - oh, no, no, no, wait, wait. I'll say one quick thing about depressions. I wrote meltdown in 2009, so I sort of more or less refer people to that, but I wrote that book because I knew that the Paul Krugman version of events was going to ossify into the conventional wisdom if there wasn't at least some attempt to challenge it right away. And so meltdown was actually the first book on the market that dealt with the downturn of 2008 and also covered the bailouts. There was one book that slightly beat me on the downturn, but it was too early for the bailout, so we rushed this thing out like crazy. I was a complete lunatic and mental case at that time. But we did it. It got done, and to my amazement, it spent 10 weeks as a New York Times best seller. I mean, you know, the economy is bad when people want to read about business cycle theory, you know, that much. But that was great. That was a wonderful moment for for me. And you know, I think it it was nice to to see that happen. But my point is that in that book I give, you know, I hope, a reasonably compelling case that this was not a matter of the government and the Federal Reserve were just innocent bystanders, you know, carrying out their usual efforts to bring about the common good, and then, one day, out of nowhere, a housing bubble burst. Right, and just it occurred on their watch, but as usual they were just innocent bystanders. And that's true of everything with the US government. When there are military attacks or whatever it's always because they were just standing there, and they're just so awesome that the rest of the world is envious of them and these things happen. Well, I dispute that in there, and I go through and show the role the Federal Reserve and all this. The subsidiary role that was played by various forms of government intervention into lending. And you get this claim that the problem there was the government wasn't involved enough, you know, as Lew Rockwell would say: "if only they could have cracked some more skulls. They could have solved this problem." But on the eve of the crisis It turns out that there were on the state and federal level, 115 federal and state regulatory bodies tasked with the function of overseeing and regulating financial markets. 115. So apparently what we're hearing is that: "if we had had 116, then we could have stopped this crisis, but only 115?" But then when you look at these 115, or you look at the Federal Reserve itself , which is supposed to be the chief regulator of the whole banking system It's not like they saw a problem coming but their hands were tied by laissez-faire George Bush. I mean, none of that statement is correct. There's nothing in that statement that's correct. To the contrary, none of them saw a problem. I mean, Alan Greenspan was saying things were fine. "Go out and get your adjustable rate mortgage while you still can, and the fundamentals look okay in the housing market doesn't seem to be a bubble." And all that. I mean, you know. We have all seen the youtubes where they put together all the, well, with Greenspan the tricky thing was finding a coherent statement by him, but when you can't match one together, it tends to be pretty incriminating. This whole crew hadn't got any idea at all what was going on. In fact, I had Bob Murphy on my Tom woods show not too long ago, and we were talking about Janet Yellen, the current FED chair, and she's being portrayed as the great prognosticator. And, yeah, compared to Bernanke and Greenspan. She was a great prognosticator . But was it late 2007? December? Or was it 2008. 2008? Of course, yeah, right, because 2008 it got bad. Yeah. So here's the thing, At this at the time when others are saying: "well everything looks good," and, I mean, Herman Cain who was at one time with the Kansas City FED, he was saying the economy was fine in September of 2008. Like, one week before Fannie and Freddie went under. "Everything's fine. It's just a liberal media plot against the president." To say as there's anything wrong. So Yellen, in December 2007, was saying: "well, you know, I mean, it's possible things might, you know, not be as good as you guys think." And yeah, because it turns out the NBER had already identified the US was in a recession at that time, and she's kind of doubtful, you know, "I mean, it could could turn. You know." And that makes her a great prognosticator compared to them. So, in other words, as Bob says, far from being able to predict a situation, she couldn't even postdict it. So, again, it's not like, well, everybody knew what was going to happen, but, you know, because of deregulation or something they couldn't do anything about it. The deregulation that did occur, I don't see is relevant to what happened. Because what happened, basically, was that banks made a lot of rotten loans, and that's that's the traditional function of banks, to make loans, and they made a whole lot of rotten loans so the question should be: "why did they make a whole lot of rotten loans?" And it's not like all of the features of securitization and all that, these were old features of the of the system, I mean, whether they were wise or not is another matter, but this wasn't something that just suddenly occurred five years earlier. So there's meltdown and then I have a chapter in "Rollback" that further develops the argument about why deregulation is a red herring on this. But here my point is that I have made a case that it would be a little bit rich for the federal government to take Credit for solving a problem - number one: they have not solved. And number two: that they caused, they were the cause of. it's like Paul Krugman saying: "well, you know, I early on, I saw there was gonna be, you know, housing had been given artificial stimulus." Yeah, because in 2001 he said: "you know what we need is artificially low interest rates to spur housing." And then later, he says: "you know, housing has been artificially spurred." Wow! How does he do it? Is it tarot cards? Is it tea leaves? How does he figure this out? Alright, so now, finally, number four. The fourth thing that the state is not The indispensable provider of services, right? There are certain services we need, and only the state can provide them. Now, I will grant you, that there are some tough ones that I will not cover here. So I'm not going to be able to consider every possible objection. But that's what we have Bob for, right? Bob will answer the rest of your objections. I want to take a few of the relatively easier ones, and think for example about - let's think about safety. We need the government for safety. Now, I'm not talking about safety from terrorists. That's a separate question. I mean safety so that when you plug in your toaster, you're not instantly electrocuted, that kind of safety. Or you turn on your computer monitor, and it doesn't blow your limbs off. Like, that's what I mean by safety. All right. So let's let's consider that. First, let's think about an office called OSHA, Occupational Safety and Health. Ok. This was started around 1970, 1971. And what they'll say is this institution has yielded us fewer workplace accidents and fatalities. Just look at the graph, and and it's true. You look at the graph, those things have gone down since OSHA was established. But you know what they don't ask? At what rate were these things going down before we had OSHA? I mean, just out of curiosity, wouldn't you want to have some baseline of comparison? Like, as a society becomes wealthier, it becomes easier to make provision for safety. So let's just look. Well it turns out, as usual, government is taking credit for an already existing trend. In fact, in the previous twenty five years before OSHA, The decline in accidents and fatalities had been 70 percent faster. Now, that doesn't mean that OSHA has actually made it harder to deal with fatalities, but the point is that apparently something was making this happen. And there are a variety of explanations. There are wage differentials between different types of jobs. Some jobs are more dangerous, so they pay more, and because they have to pay more, that gives the firm an incentive to try to diminish the danger so they can reduce the wage premium. There are all kinds of ways that you can that you can deal with this, but the government will take that sort of credit for things. Or they'll say - you know, what? Here's a funny one. The seat belt thing. Now, I don't really get up in arms with the seat belt thing, I have too many things to worry about, I wear my seat belt, probably makes sense to wear the seat belt. It's better than the airbag which will kill you, but the seat belt is probably okay. But they're claiming: "we have to do the seat belt, because that will save lives." And yet, Sam Peltzman, at the University of Chicago, drives them all crazy. I mean he he was getting threats about his scholarly research. And what he found is that, actually, contrary to what you would think, the seat belt law has not diminished the number of fatalities out there, in traffic related. All it has done is it changed the composition of those fatalities. And what he means by that is that there are fewer deaths among people sitting in the car. But because - and I know this is hard to accept, it was hard for me to accept at first till Bob talked me through it and then I got .it It turns out that with the seat belt, without realizing it, people drive marginally more recklessly. So you have the same number of fatalities, except now it's the sucker on the bike who gets killed, not the guy safely in the car, but it's the same number overall. Now, this is not to say that the government couldn't figure out some way to make us all perfectly safe. I mean, they could lock us all in our homes. You know, and take the electricity off, or something, whatever, like, they could figure something out. but the point is that you can't just automatically assume that because something is done in the name of safety, therefore it leads to safety. I mean, after all, we just had something passed called the Affordable Care Act. I mean, by now, we know what these Orwellian titles mean. It always means the opposite. Of course, many of us are familiar with the Underwriters Laboratories (UL) example of a private certification agency for electrical devices. You have the UL logo on the box, this means we're pretty sure you're not going to be killed instantly when you use this product Now, what happens, though, if you are killed instantly when you use that product? Well, the reputation of Underwriters Laboratories suffers, they would - oh, in the age of Facebook and and Twitter - they would be mercilessly slaughtered in memes and everything else. Right. I mean, it would be, you know, that'd be like blood dripping from the UL like, you know, a guy, you know, with a noose hanging from the letter L or something. It would be awful, like, they'd be finished. But suppose the United States Department of Electrical Safety has this problem where they release a toaster that kills everybody. Imagine what would happen then. Would we say: "you know, maybe this isn't the right institutional structure maybe, the incentives are off." No, we would double the budget instantly, right? So you see, there are divergent incentives that are at work. The matter of, Oh, no, no, no, I was gonna talk about occupational licensing, but because my time is limited you all know that. You probably know something about occupational licensing. This is an area where Milton Friedman is very good. But no, I want to just say something about the, I find this fascinating, the National Highway Traffic Safety Administration, founded in the 60s. This is to make traffic safer, right? And they say: "look we have made it safer, because in the 25 years after we got that the rate of decrease in fatalities per mile traveled was 3.5% percent a year. Hm But again, the question is, well, what was the rate of decrease in fatalities per mile traveled before they had this. Again, just to have a baseline to compare it with. Would you believe 3.5% a year? Hm. How about that? So I raise these, because I don't think these examples get brought up a whole lot. But they do shed a different sort of light on questions like this. All right, what about other things - and I'm running out of time. So I'll wrap up, but I think I have a good six, seven minutes. So I'm gonna use those babies. How about art? There's no profit in art by and large, or you have to really really work, or have a nitch to make a profit in art. And, in fact, during the modernist period, it became very fashionable among modern artists to be so contemptuous of the public. First, contenders the public as they're too stupid to recognize how profound my art is So, of course, they're not going to voluntarily hand over their money. And secondly, I am entitled to their money. I am entitled to be funded by government funding, that was the attitude in the art community. And the argument would be that why would there be - there wouldn't be enough art if it weren't subsidized. But, here, this is refuted simply by experience. Because what is the budget of the National Endowment for the Arts? I don't think it has ever exceeded 200 million dollars in a year. And yet, private donations to the arts amount to billions of dollars per year. And I bet nobody knows that. They think: "yeah without the National Endowment for the Arts, where would we be? You know, there'd be much much less urine in our art." Well, maybe there would, but maybe that's what the public wants, I don't know. But, again, to think about what the public wants is to just violate every standard of decency in the modernist community. My wife and I are on the mailing list of a theater in Kansas where we live. And it's called the Colombian Theater in Wamego, Kansas. This is where The Wizard of Oz museum is located. So all of you, who have been restraining yourselves not telling me Wizard of Oz jokes this week. I appreciate that. Don't ever go to the Wizard of Oz Museum, by the way, it's all replicas. There's nothing authentic in the whole thing. They have a display with ruby slippers in. You say: "oh are these the slippers she wore?" And you look at the thing and it says, it says "Judy Garland wore slippers like these in..." What am I doing here? I could have a Wizard of Oz Museum in my own house. Anyway, the Colombian Theater sent us an email because, Sam Brownback, the governor of Kansas, apparently, has cut the Kansas art, whatever it is, you know, where they were subsidizing the arts. They just cut it. We don't have the money for it. We'll try and substitute private funding for it but that's it. And they wrote us this email. They were so outraged at this because they were going to be out five thousand dollars. For an entire theater they're out a mere five thousand dollars and they haven't got the slightest idea what they're gonna do. Five thousand! What is that? Three bake sales? Or you go to your hundred biggest donors, and you say: "look we're gonna go out of business I know you gave us 10 grand last year. Could you just hand over another 50?" That's all they would need, like, I would, actually, if I seriously thought that was the difference between them being open and closed. I would just write them a check. I mean, like, I'm sure there must be other people like me in the world, but they are so accustomed to this that it makes them all intellectually lazy. And morally lazy. I might add. You know, the the gun in the ribs is the way we're gonna put our plays on, well, you know, maybe there's another way to put on a play, you know, maybe people might want to come see it, you could charge for tickets, you could then ask for donations, but they had no idea how they were even gonna deal with $5000. In fact, and I guess, back in New York, I was giving a talk at a church once. It had nothing to do with economics. At the end of the talk, a guy in the audience asked me a completely irrelevant question. He said the Social Security Administration has just abolished the $250 death benefit that people used to get who are on Social Security. "What are people gonna do without that $250 death benefit?" Now, he's standing up in a parish hall, full of 300 parishioners who had come to hear me. And he has no idea where they would possibly come up with $250 to bury someone in the church. Like, he thinks they couldn't raise $1 per person to buy a coffin, to substitute for that missing 250. He thinks that even in that church, if he went up and asked somebody the person would say: "let's see, a dollar versus a dignified burial for my friend. Well... This is a though one." Like, no conception of what society is supposed to be. You know, I mean, it really brings to mind that George Costanza line: "you know, we're living in a society." That's what I wanted to say to him. Aa a matter of fact I think that is what I said to him, or maybe I thought to myself. "We're living in a society." That was the line, and I drove back to - Now, that's the jerk story line. That's a whole different line, But it makes you, you know. We get into this, and by we I mean to exclude all you good folks, but people in general we get into this lazy mode, because we think that, well, the government is the provider of these services, and I can't imagine life any other way. I do have a section in Rollback on the subject of science and science funding, and I'll close with this. I'll just give you some suggestive thoughts on it, but I'll tell you that the key book on this that you'll love, because if you're like me, you like books where you're learning something on every page. I don't want a book where it's all witticisms, and I don't actually learn any new data But this book by Terence Kealey, "The Economic Laws of Scientific Research" will blow you away. Every page is refuting preconceptions you didn't even know you had about science, how it works, and how it's funded. It turns out that, actually, the private sector as a percentage of GDP, was much more generous with the sciences in terms of funding, then the public sector has been. And there are a number of reasons for this. But people who say that there's no profit in science, therefore you won't have it, or you can't capture the profits from a discovery because everybody else will have public access to that discovery and the profits will be dissipated. It turns out that, although these sound plausible, it turns out that when you look at - Well, in the 19th century, you look at Britain which spent zero dollars on government funding of science it vastly outperformed the Germans and the French who spent hand-over-fist money on the sciences because it turns out that science grows, not so much by arbitrary experimenting in laboratories, as it does from developing existing technology and adapting it to current needs. But even basic science, in laboratories, is more generously funded in free societies, than by government for reasons that I explained in there. So even, even things we think: "well, surely we can't be unreasonable. We need the government for this." It turns out we don't. So what is the state after all? It is exactly what Rothbard tried to tell you. It's exactly what Oppenheimer tried to tell you in Albert J. Nock tried to tell you. That you got the old two ways of acquiring wealth: you got the political means, where you loot, and exploit people by means of the government, and you got the economic means, by which you provide something, some good or service that your fellow man wants. There are only two ways of acquiring wealth in this world, and the state is the path of the political means, of people who rather than try to help their fellow man, just want to grab stuff. And then we wonder why does this institution attract such sociopaths? Ladies and gentlemen, I believe we have our answer. Thank you very much.
