Normal or New Normal, That Is the Question – Brian Wesbury | Hancock Symposium 2021

[Music] and to a yoga class today you have the opportunity to be exposed to topics such as covid's impact on the economy unique approaches to dealing with stress i'm glad that was going to be recorded because i'm going to have that one on continuous loop the value of sleep research on finding meaning in life our evolving understanding of the civil war and much more as i said this is a very unique and cool opportunity and all of us are fortunate to be a part and to be members of the westminster community where we have the opportunity to to be exposed to these ideas we're all fortunate again welcome to day two of the symposium i'm really glad you're here to introduce this morning's plenary speaker is my colleague dr anasour rahman assistant professor of finance and economics and faculty advisor to the blue blazers thank you david uh good morning it is very nice to see you all here um it is our great pleasure to welcome mr brian westbury as a plenary speaker this morning at the 2021 hancock symposium for a number of years now mr westbury has been a great friend and a supporter of blue pleasures which is a student-managed investment fund at westminster so at westminster we are deeply grateful to mr westbury for his continuous support thank you mr wesberry thank you very much currently mr westbury is a chief economist at what first trust lp first trust advisors lp which is one of the leading investment products and services company in the united states with headquarters in austin and chicago born in ann harbour michigan mr westbury graduated from rock rock bridge high school in columbia missouri and then went on to receive his bachelor of arts degree in economics from the university of montana and his mba from kellogg graduate school of management at northwestern university through his career mr westbury has held numerous distinguished positions in 1995 and in 1996 he served as the chief economist for the joint economic committee of the us congress he was a member of the academic advisory council of the federal region bank of chicago from 19 from 1999 to 2007. in 2012 he was named the fellow of the george w bush presidential center in dallas texas his writing appears in various magazines and newspapers and he has authored two books mr westbury also appears regularly on fox bloomberg cnbc and bnn canada tv so we are very happy to have such a distinguished expert amongst us to talk about the financial and economic aspects of the kobe 19 pandemic that has dramatically changed our way of life after living through this pandemic for more than 15 months we are all eagerly waiting when we can go back to a normal life and the title of mr whisper is talk is normal or near normal that is the question with the round of apples let us welcome mr westbury to the stage to talk about this and help us look forward to a more normal life thank you very much thank you good afternoon good morning i guess everyone and uh sorry about this my computer is in the way of all all the uh introducer's notes so they're leaning over and trying to not push buttons on my computer um anyway it's great to be here this morning thank you david uh and the reason i am involved and have been involved at least peripherally with the blue blazers is because of brock ayers uh who's a good friend uh and a good friend of our firm for strusk and so and it's been a pleasure it's actually really unique the opportunity that you get that the blue blazers get and so anyone i don't know if all of you are members of the blue blazers but if you get a chance uh to learn about investing finance and economics by putting your hands in the mud do it all right because that's the best way to learn uh and and then finally i'd like to you know thank president loft we had dinner last night uh we had a wonderful time and just so you know i got some westminster socks that i'm wearing this morning so [Applause] um it's kind of fun to be here uh what a historic historic place um and so uh i am today i guess the title is new normal or normal and and uh but i really want to talk about where we are in the economy and and i the reason i want to talk about this with you today is because we are living in unprecedented times all right now a lot of us i've written two book books as answer said and i speak all the time i write all the time with with these uh with economic pieces to communicate with our clients i'm a stickler for words i love words but we all get a little lazy sometimes with words and so people hear unprecedented and we go oh well that means it's been a long time but you all know what unprecedented means it means never never have we shut down the u.s economy for a pandemic never has the federal reserve printed three and a half trillion dollars in a 15-month period never have we spent five trillion dollars over 15 months of our children's and uh grandchildren's and great grandchildren's money never have we done these things and so what's interesting about the economy today is that you if it's unprecedented then how can history help you all right and so what i want to talk about is i think there are some ways that history can help us and other ways that we just have to walk into the future not knowing all right and so so let's start here with an announcement made by the national bureau of economic research just those six words put people to sleep but uh and this was about a month ago all right now the nber is the group of economists who tell us the world uh a year after a recession started that it started and then they tell us a year after the recession ended that it ended what help are they all right but but nonetheless that's what they do and they just came out about a month ago roughly and they said last year we had the shortest recession in u.s history march and april of 2020 was a recession and we're now in recovery and one of the things the reasons i started with the word unprecedented is that in my opinion using normal words like recession and recovery shouldn't be done today because we didn't have a normal recession we have never shut down the economy before the reason the economic activity declined is because we shut it down we locked people up we closed restaurants we stopped people from flying we stopped all baseball games all football games all everything for two solid months that is not a normal recession see i'm old enough to remember in the early 1980s when paul volcker the chairman of the federal reserve jacked interest rates up to over 20 percent remember right now the fed's holding him at zero all right you can get a 30-year mortgage today for 2.75 and he pushed short-term interest rates over 20 that caused a collapse in economic activity that was a recession caused by economic factors this one the one we're talking about right now if you look at it this is the decline in consumption last march and april was caused by a shutdown a lockdown of the economy and so to call it a recession in my opinion is just wrong and by the way to call this a recovery i think that's wrong too you know and this is not a political comment you can hear it that way if you want but it doesn't matter who's in the white house republican independent democrat but president biden's going to come out today at some point probably or one of his advisors and retail sales were reported today they were supposed to go down they actually went up and they're going to say see how strong our recovery is they're going to take credit for the recovery when in reality there's two things causing this today number one we opened up number two we borrowed from our children to spend today and so this isn't a normal recovery normal like econo economies grow organically that's the way we create wealth you can't just borrow from the future on your credit card spend it today and go look how rich i am right because you have to pay it back and so to call this a normal recovery in my opinion is a head fake it's not true all right we did not have a normal recession we are not having a normal recovery and and what's interesting is you can see it in the data today the retail sales numbers which by the way i couldn't update this chart in time for the this morning but retail sales are up 15 today 15 from where they were in february 2020. that's pre pandemic all right so i'm not comparing it to where we were after we locked down i'm going back to the before in in normal times normal times here's normal times we would be up about five percent so right now the economy is growing three times faster over the last 16 months than it normally would have how is that possible because you know what today there are five million fewer people working than we're working in february of 2020. five million fewer people working and yet we're spending 15 percent more the only way to do that is use this credit card all right now what i'm going to stop here because we're going to talk about the future after this but but i want to to lay the the to put the end to this part of my conversation by saying look this year is going to be one of the fastest growing years in u.s economic history i think we will continue to grow next year and there are three reasons for that all right three reasons number one we printed a lot of money we'll get to that number two we've borrowed a lot of money and then number three my belief is that covet is almost exhausted here is the united states based on three statuses if you will the dark blue at the bottom these are people that had coveted they tested positive all right the cdc tells us that for every person that tested positive there are four other people that also had governed that never got tested all right so that so that number by the way is over 120 million americans that have natural immunity now you can decide whether you believe in the vaccine or not i'm not trying to make a point about that but here's the vaccinated people right now the reason this thing goes almost to 120 percent is that some people that have had covet have now been vaccinated so we have more they have double immunity if you will if that's what you think the vaccine does but we are now at a place where over 80 percent of americans at least 80 percent directly and i know this number says 120 have some sort of immunity natural or vaccine immunity to covet that means it's over and by the way if it's not over and we shut down again get ready because i think we have already damaged this country ex deeply i will go to my grave believing that the shutdown of this economy was the dumbest economic policy the dumbest sociological policy the dumbest political policy that we could have ever done we have will have no idea how much damage we have done to the economy to individuals to health to our budget we won't know that for years but we have done massive amounts of damage nonetheless we're opening up all you got to do is turn on the tv on saturday sunday there's packed football stadiums no one's wearing a mask are those people stupid some people think so but i'm going to tell you americans want out a vast majority of them want out and we can't stop the fact that economic activity is going to go back now there's here's the here's my word is that we do shut down again but when i look around and read the news we're not shutting down i mean l.a county put a vaccine mandate in if you want to go to a restaurant so did new york city but they didn't shut down right if you go to oregon you have to wear a mask outside alone walking your dog all right they didn't shut down and so i don't believe we will shut down again so that's going to happen on top of that all the money that the fed is printed is going to flood into the system and then finally all the money that the federal government is spending all right so that's it the next 12 months if you want to call it that i don't know foreseeable future however you want to think about it i think we're going to boom now here's the deal i want to talk about two things and then get into what the government has done my one of my favorite essays economic essays is is written by leonard reid and leonard reed it's a it's about 2 000 words you can find it on the internet he wrote it i believe in the late 60s early 70s somewhere back there it's called i capital i comma pencil i pencil the first sentence of this essay is no one knows how to make me now think about that i mean you all know what a i mean yellow number two pencil looks like right you go oh it's wood it's paint it's that little metal thing on the end that holds the eraser on it you know that it's it's a pencil but if you think about it you can't make one by the way nobody that works at the plant that packages up the yellow pencils can make one either you know why you need lumberjacks you need somebody to make the paint you need somebody to make the little metal ring you have to get somebody to get rubber to make the eraser and and then it all gets put together at a plant with machines that people invented a long time ago but the bottom line is no one person can make a pencil no one person if you think just think about the lumberjack out in oregon or washington state getting the cedar wood for the pencil i mean they have to sleep right so where do they get their bed they have to have linens to sleep on they have clothes to where they have to have food to eat they have to have a a chainsaw and they have to have char a sharpener for the the chain they i mean it takes a million people to take down a tree i mean i get it you can take an axe out but what i mean is an operation where you can make millions of pencils and so the bottom line is is that when you think about how many people it takes to make a pencil pencil it's tens of millions of people now by the way when they make the yellow paint they use it for the school bus too so there's multiple uses for the yellow paint because nobody would make yellow paint just for a pencil you might go you have to be able to sell it to a lot more people but the whole point i'm getting to is that even a pencil takes millions of people and this is where i'm going to about shutdowns what if you shut down the yellow paint factory what if you shut down the rubber tree plantation you you can't make pencils and if you wonder why there are shortages of things today this is why and when you turn an economy off like a light switch you wreck it it it it has been built up over centuries really to to make a pencil for eight cents and if you turn everything off guess what pencils now cost 14 cents because we can't make as many of them and and and we've now wrecked the interconnectedness of this magnificently amazing blessing we have of a market-based economy the only way to distribute resources is through the market you can just you i don't mean that enough what i'm talking about is the most efficient way to distribute resources through the market the minute the government comes in and shuts it down or or uh or or redirects resources it messes up the balance that we had before and we are going to pay a big price for this uh in the years ahead all right and so let me get to what we have done uh these days all right here is the federal government spending u.s federal government spending as a percent of gdp and what i did is i took defense out of this right so so actually go back to 1930 this is at the beginning of the great depression government spending was two and a half percent of gdp all right it ended the great depression at 10. but we started at two and a half today we are 27 of gdp right now this chart only goes back to 1960 but if you look at this this green is government spending and i indexed everything right it's a one it starts in 1960 at one this is government spending the orange line is gdp and the blue line is corporate profits which part of our economy shows the most greed i'm serious we all we hear is corporations all they want to do is make profits i'm going to tell you all government wants to do is spend your money they are the fastest growing entity in the u.s economy they have grown 10 times faster than gdp since 1930. do we have more problems or less well if i turn on the tv it seems like we have more problems so so tell me again the government solves problems because they've increased their spending 10 times faster than the rest of us have earned money and yet our problems multiply so something must be wrong there right but let's go back because all of this matters for the economy now why did i take out defense i'm not trying to hide anything what i'm trying to do is get to underlying spending that that we use to help people and build bridges and all of those things all right because wars um and defense i mean it's a it's a necessary evil right and the other reason is because if you put world war ii in there it's this massive increase in government spending that makes all these charts look really weird so that's why a lot of people will start charts of government in 1950 just to keep that big hump out of there if you understand statistics and charts you understand that but but so then the question is people have today is okay is joe biden or is nancy pelosi are the democrats are they repeating lyndon baines johnson and the great society or are they repeating fdr franklin delano roosevelt and the and the new deal and and i would argue and that this is the new deal this is the great society and i would argue those aren't the right answers yet those aren't the right comparisons right now i do believe the correct comparison to what we are doing today is world war ii in world war ii we ended up with government debt over 100 of gdp today we have government debt over a hundred percent of gdp we didn't we there's only the last two times in the last century that this has happened all right and so how do we pay it back well world war ii by the way it took us all the way to the late 1990s and this was bill clinton until we finally paid our debt down we got into a surplus situation now we're back to 100 of gdp in terms of debt so i believe this is the right comparison why because what did we do in world war ii i mean winston churchill stood right here yes we we fought for our freedom but what we really did is we built bullets bombs from an economic perspective bullets bombs planes tanks we built stuff to blow it up all right we wish we didn't have to do that we didn't ask for the war all right but but at the end of it we had won great but we had 100 of our gdp actually close to 200 percent in terms of debt all right and and we had to pay that back well today what did we do right if you think about actually i i have i own property in colorado and it's right on the colorado river and i have a little spot on my property is like 70 feet over the river i'm looking down one afternoon and just you know i'm admiring the view the colorado mountains and and i i you know i don't know why i didn't focus on it at first but i'm looking at the colorado river and there's a lot of people that use the river but it is jam-packed it's like a traffic jam in chicago on friday afternoon all right there are boats everywhere there are always fisher uh men and women there's all there are always raptors and white water raptors but this is packed and it's last june july august because i couldn't i couldn't travel for work so i was doing zoom meetings and and conference calls from out there and it's the middle of the summer and i'm like what is going on there's always a lot more boaters in the summer but this is unbelievable and my friends out there they go they're stimmy boats and i go stemmy boats i mean i know drift boats that's where you fish from you disco makes raps brunswick makes rafts stemi boats never heard of they're like stimulus payments and i'm like oh and so if you think about it colorado here i'm out kind of close halfway between beaver creek and steamboat spring so it's the ski area all right this river all these areas on the river all there's 20s and 30 years old 30 years year olds out there all over the place because they all work in restaurants bars the mountains they love to ski they want to live in the mountains for a while you know there's all kinds of reasons but they're all young and they all work in the service area and so so guess what none of them were working and they were all getting stimulus checks and by the way there are things legal in colorado that aren't legal everywhere else and and so what they were do you know if you think about this and this is sad to me and i love being in the place to say this right now where winston churchill once spoke because we we spent all that money back here in world war ii and we sent mostly young men to die for freedom you know what we're doing today we're paying people not to work and party both of which are a total waste of a human life to die i mean you have to win your freedom so i guess that's not a complete waste but to party which is what we did and if you want to tell me something different that ain't true because i saw it on the colorado river nobody cared they just took their check bought a boat and partied and that's what that's one of the other reasons why i don't think what we did to this economy was good but here's the point we finally paid this back because we we became massively good at manufacturing during the war plus everybody else was bombed so we we were able to grow our way out of the debt the u.s economy boomed after world war ii so the question is what happens here if now if we if so far all this spending is temporary we handed it to people the party we gave out ppp loans we gave it to hospitals we gave it to education we gave it to states localities we gave it to a lot of people but it's a one and done thing so government spending should come back down now the democrats are talking and we'll get to this in a minute about another three and a half trillion another trillion on top of the five i get all of that but so far everything that we've done is temporary so it's in that way it looks like world war ii but what about what about how do we grow out of this well one of the things that happened during cobid is that we learned how to use technology way better these tech companies had 10 years of growth in 15 months you know you think about how we use zoom or i mean every i mean all the there the s p 500 which is the 500 kind of biggest stocks in america not completely but five companies make up 22 of it right it's microsoft it's google it's amazon it's because attack got us through cobin just like manufacturing helped us win world war ii so so when we look into the future what's gonna what do do we have growth yeah i mean one of my favorites is elon musk's starling i mean i don't know if you followed this but he wants to put up almost 40 000 satellites around the world low orbit and you're going to be able with a little dish to connect to a a a 5g rap fast wi-fi network and i don't know how many of you are from rural areas of this country but i have hughes net out in colorado i can't wait for starlight because it is so i it is so slow it is so cumbersome it is so awful and star lake is going to be today's generation wi-fi satellite system and by the way the apple iphone that came out this week the new one it has a special feature that is a satellite sos satellite so they connect they've made a deal with global star so that if you're in the middle of nowhere with no sell signal you're going to be able to talk to the emergency responders or not talk but at least text them tell them you're in trouble well this is the first step just the way technology always works the disruption of the world it it the first step is always just simple it doesn't seem like a big deal but my belief is that eventually they're going to make a deal with starlink and you're when you carry your apple iphone it is going to be a satellite phone anywhere in the world anywhere and and the cell phone change in the world wait till wait do you see what that does all right it is huge allowing anyone to connect at high speeds anywhere all right mrna technology you heard from from uh the pharmacy uh pharmaceutical industry yesterday whether it doesn't matter what you believe about the kova day it is changing research with cancer all right blockchain which is the the distributed ledger that we trade bitcoin and crypto currencies on blockchain is going to change the way we transfer information and store information on the internet the cloud is still in its infancy right these things are huge and and we're gonna we're they're gonna provide a lot of growth and so if you wanna know the only way we can get out of this the debt we have done is we have to grow out of it we have to earn and then pay back those resources now what's interesting about this is that i want i want to kind of share with you how i think of the world so let's go to 1935 we had government was 10 of the economy all right now this isn't perfect and if you wanted to you know debate me on it you could because it doesn't mean there are 10 people in the wagon all right but government but 90 people basically have to pay for that that 10 all right that 10 of the economy and then if you go to the end of the great society we had 17 people in the wagon and now 83 are pulling which one of those wagons goes faster i mean remember government doesn't pay for itself the private sector has to pay for government it's the only way the government can get resources tax or borrow from the private sector and then today if you look at it we have 27 people in the wagon and we have 73 people pulling so once again which one of those wagons goes faster and i would you know by the way of these 73 people 13 work for the government so by the way they should probably be in the wagon too right but but if you think about this there's two ways that we end up forecasting using this model number one how many people are in a wagon all right now if this goes down to 20 then we end up with 20 all right and 80 people pulling so it's not as bad as 27 and 73. the other question is how strong are these 80 you know and i would argue with the technology we have today they're strong all right and and i don't mean like people haven't changed well they have i mean you look at nfl football players today versus 30 years ago they've changed all right but but 80 people today with the technology had 150 years ago you had to use a shovel to dig a ditch now you use a backup that's my point and so these people are stronger and we have more people in the wagon but i would argue the only reason we can keep going forward is because we keep getting stronger in terms of growth in terms of technology because the minute becomes if it ever became a hundred in the wagon and nobody pulling we we don't we're done and and at some point you put more and more and more and more and more people in the wagon you can't go anywhere so the last 15 years the us economy has grown about two percent a year that's it real gdp after world war two it was four or five percent a year so we've slowed down and i believe it's because we put more people in the wagon so the only question i have about the future is how much more are we going to spend and how fast is that spending going to go back to 20 if it does if we pass three and a half trillion infrastructure deal another trillion uh i guess it's hard and soft infrastructure but the government spending is permanently up to about 25 percent of gdp and all bets are off the table about how fast we grow but the the the last thing i want to talk about i actually want to talk about two more quick things is this we are going to have inflation and it's really really simple we printed too much money and when the federal reserve i i knew milton friedman when he was live i met him a number of times um what the heck just happened there i met him a number of times and what he told me to do is watch m2 all right m2 is the is the money supply and when you when you when you look at what we have done with the the deposits in the banking system they have grown faster than ever in history like i told you what we have done is unprecedented the federal reserve did quantitative easing they paid banks to lend they gave money directly to people to deposit in their banks and as a result the banking system has exploded in size in fact today we have 33 percent more money in the economy than we had in february 2020. 33 more money now what does that mean and i'm gonna tell you uh the exact way that i really truly learned about monetary policy and it's a simple way to think about it all right let's say we have an economy where there are ten dollars and in that economy there are also ten apples so how much does each apple cost well it's a dollar ten dollars 10 apples now what if we increase the money supply to 13 we've gone from 10 that's a 33 increase 30 in increasing the money supply so now we have 13 but only 10 apples now how much does each apple cost guess what a dollar 30. we just had 30 percent inflation because we increased the money supply by 30 and the output of apples didn't move now if the output of apples went up to 13 then we would have every apple cost a dollar but by the way if the output of apples went up to 13 and we would have only had 10 dollars then apples would have fallen to 79 cents or whatever you do the math so so really when you increase the number of apples they should fall you should be able to buy more of them but when you print more money you can't so you offset the benefits of productivity with me on that all right so now let's go back we have 13 and we had 10 apples but because of the covid pandemic and the shutdowns we kept people from going into the apple orchard and so now we only have five apples we had 10 now we have 13 we went from 10 apples down to 5. 13 and five apples how much does each apple cost two dollars and sixty cents wanna know why gasoline is over four bucks a gallon because we've increased the amount of money and we've slammed the amount of production all right and and so if you come back to apples for a second we're now up to 260. now here you go the federal reserve jerome powell's the chairman of the fed he says inflation is transitory now now by the way i told you i'm a stickler for words what does transitory mean everybody thinks it means temporary that's what the fed kind of makes it sound like but actually the root of transitory is transit and transit means to go from one place to the next so transitory actually means in my view going from lower inflation to higher inflation transient means temporary all right and so they use the word transitory i think it's kind of on purpose because they actually want inflation higher and and i'll come to what inflation does in just a second but let's go back to this because guess what you think the fed might raise rates soon or they're going to change their position they're not they want inflation to go higher plus here's about what's to have here's here's about what is going to happen this is what is about to happen that's what i wanted to say and and and that is we're going to let people back in the orchard so guess what we have 13 and five apples and we're going to get 10 more apples we're going to eventually we're going to fix supply chains i pencil all the millions of people we're going to finally figure out how to work it all again and we're going to get back to 10 apples and people are going to go well now the apple fell from 260 back to a buck 30. see jerome powell was right inflation was transient but here's the problem is that yeah apples come from 260 down back down to 130 but they're still 130. they used to be a dollar and so what we have done is eroded the value of our money and when you erode the value of money you erode living standards in the u.s you make it harder to plan for the future uh inflation in and this is the problem with a lot of our we haven't had inflation since the 70s early 80s people haven't seen it all right but the bottom line is the where it comes from is printing too much money inflation is the value of goods in money terms and if you print more money money will become worth less not worthless worth less so let me finish up by by just telling you that um and i won't even show you this model but i i still believe today believe it or not that the stock market is undervalued however and there's two components of the of the market there's profits and there's interest rates and profits are at all time record highs why is that i think number one we're using technology number two we've printed money and borrowed money like never before so retail sales are a 15 if you're a company that sells retail goods you've just had the best year of profitability ever but what happens next year because we're done we're not going to pay unemployment benefits past september all right we're done the the the all this government in infusion of cash into the economy is going to slow down and that means profits are at risk because i think a lot of these profits are artificial you know here's the way i think about the money supply and all this government borrow if you're in a car accident what do they give you like right away morphine or whatever some kind of opioid some kind of painkiller and and some of this stuff is so strong you know you forgot you were even in a car accident i mean your leg is shattered in five places and you you can feel no pain you you'll get up and walk and you'll ruin it even more all right and that's what we've done to the economy we shut down this economy we turned off the supply chains we have heard it dramatically and all we did was give morphine and that morphine's going to wear off and so while i still think that the market is undervalued today it's because if you look at current profits and then you discount them by current interest rates which are really low the market's worth more than than it's trading at today however if profits fall and interest rates go up because of inflation that can change in an instant so what i've been warning our clients after 13 years of being pretty bullish really bullish on the market because it's undervalued is that we might pay the price here pretty quickly see a lot of people don't know but 1966 to 1980 the stock market went nowhere it was trading lower in 1980 than it was in 1966 and and people don't remember this because anybody around today all they know is stocks go up you open a robin hood account you buy stuff it goes up it goes up it goes up it doesn't always go up and i've warned people today that that's true and then finally let me just quickly talk about where we are with tax rates and and government spending um you know right now the the democrats they they they've worked with republicans to get a trillion-dollar infrastructure bill and now they want the republicans will not work with them on a three and a half trillion dollar soft infrastructure bill which is really about climate change and uh inequality and health care and the things that really aren't infrastructure but they're calling it that because i guess politically it sounds okay all right but here's my problem with this just as a financial fiduciary somebody with kids we just spent five trillion dollars if i spend my son if i send my son money in college for food and he spends it partying and then he calls me and says i need food i'm like what am i supposed to do and what's interesting about the us government is we just paid people not to work and now we say oh we need money for infrastructure and i'm like wait a minute you just spent five trillion dollars now you're telling me oh this spending is really needed well you don't get both you shouldn't in my opinion because there's it's not fiduciarily responsible to run this country into debt right and they'll claim well we're going to create jobs and all this stuff that's not true it's never worked we've gone from two and a half percent of gdp to 27 percent of gdp government has grown 10 times faster the economy and we have more problems today than we ever have at least that's what that's what they tell me when i turn on the news all right and so government is not an answer to all of that but having said that the question is are we going to get any of this then i'll i'll close up by telling you this you know i've i love alternative sports i've always watched the tour de france and you know i love watching lacrosse on tv and i mean i love baseball basketball football all that but i kind of found myself drifting towards sort of alternative sports you know what one of my favorite lately has been tractor pulls believe it or not i love those things i don't know if you've ever been to one but the but they have like four engines on these tractors there's like 28 000 horsepower and there's all these rules they only get like 10 gallons of you know the gooch to run each engine and and and then the sled at the back that they pull as the further they get down the track the more the weight goes up and then that sled starts slamming into the dirt and and that it gets harder and harder to pull then the wheels spin they run out of gas it's over all right and and so so the the winner will be out 518 feet or the leader and and they'll be you know you get a big tear off and i'm watching these things i'm like he's going to make it and then and they get to 480 feet and all of a sudden that thing starts digging into the dirt and they're one engine three goes out engine one goes out and they just die out at 508 feet they don't win and my belief right now is that that's where these three and a half trillion one trillion dollar bills are that's where all these tax sites are joe manchin has come out and said it's not responsible to send spend more money all right we have inflation we have to slow down and my belief is that this tractor isn't going to make it past the finish line so so my view today is that the spending we've had is temporary and we are not going to end up with another massive increase a permanent increase in the size of government and as a result i have a pretty i have decent hope about the future because it would worry me if we've done another new deal another great society on top of shutting down for the pandemic so i'm cautiously optimistic about the future and i still believe that the market is undervalued thank you very very much we're going to do something we're doing a q a yes okay all right you have some time oh i do if you want to yeah [Music] now there is a microphone there will be a microphone here and uh if you are joining anybody so um introduce yourself oh uh i'm andrew lurkins i'm in blue blazers um so with the increased inflation and like um most likely the tax rate do you can you forecast kind of like almost a 2008 style recession that we had with the housing market or is that like a more unrealistic scenario all right good good question all right so andrew you know with with tax rates coming inflation here could we have another 2008 kind of housing uh correction um uh problem and i'm real i actually wrote a whole book about 2008 so i i i will resist going all the way with this but if you go back and look at 0 3 0 4 0 5 0 6 if the price of homes versus the rental value of homes was out of whack with all of history and we are not there today um the second thing is is that we weren't inflationary then um and so what was driving the price of homes what were it was the existence of subprime loans i i i mean subprime roads were cr i was hearing in 0304 506 like stories coming out of california and and i i don't know how many of you have ever you know thought about owning a home or watched the process but but people would go look at a home and let's say it's a 300 000 home and and they could get financing from the bank for 90 of it which was 270 000 but they really didn't have the other 30. and so what the bank would do is they would say we're going to give you a mortgage for 270 um of the 300 but then we're going to give you a home line of credit at the same time for 30. and so what you were able to do is go buy a house with no money down and i would hear these stories and i'm like there is no way that's happening banks would never let that happen well it turns out it was absolutely true and and one of the reasons that people would do that is that house prices kept going up and interest rates were really really really low and back then everybody was doing adjustable rate mortgages so when the federal reserve raised interest rates so now you had a 100 value of your home loan and and what happened is and interest rates were all adjustable so when the fed raised rates were 1 to 3 you couldn't afford that home anymore today everybody's getting long-term mortgages so you can get a 30-year mortgage first of all we don't have 100 loans happening i'm sure it's one-offs somewhere um but we don't have that happening but but we also don't have people getting all these adjustable rate loans that's not why house prices are up house prices are up for really a couple of reasons one people want to get out of the city um out of chicago either to the suburbs or to florida all right and they want to do it because there's unrest uh in the streets and tax rates are high in the northeast in chicago and san francisco and so people are moving to places with lower taxes number two interest rates are really low number three house prices are up because we're printing all this money we have 13 and the same number of houses and then finally there's a shortage of houses there has been all the way since 08 we we need one and a half million houses a year just to keep up with population we haven't done that since 2007. and so i i think houses are permanently higher in price especially in lower tax more suburban areas of the country for all those reasons so thanks for the questions i have a question how do you think about you know your wagon analogy with the uh the baby boomers moving into uh the retirement years social security medicare and so on how your wagon potentially gets bigger there within a lower birth rate and then the demographics would that are coming along to grow us out of to the debt issues that we're at how do you think about that as an economist right yeah i mean well you're i mean i that's a great way to put it as as as as we age i mean the the the trustees of social security medicare medicaid that the government trustees just came out and said we're in real trouble with all of these uh entitlement programs and their trust funds um and and but yeah because we've set up social security the way it is we're gonna keep putting more and more people in the wagon and i fully get that that it's you're not a it's not like putting a full person in the wagon you know i mean i don't know if you remember one of the problems i have with the wagon pulling analogy is republicans especially conservatives i'm a libertarian um they get all angry when it comes to politics because they think oh anybody who's getting a government check isn't going to vote for me and and and mitt romney at one time in a party like can they surreptitiously take them he goes well i'm starting out with a you know 43 percent of the country won't vote for me because they're all getting money from the government and that leaked and and i fully understand his frustration and the political process of of the government kind of giving people money and therefore counting on people to support that but but that's not the way he should have talked about this you know because it's only parts of people it's not you know some people count fully on the government but not all you know so social security is part of somebody's retirement but the more and more people that that we get older and we are certainly at that stage right now where where baby boomers are leaving the workforce they're not pulling the wagon anymore and they're getting in the wagon and that's going to slow the wagon down it's happened in japan uh it's happening in europe um european europe most european countries have flat to down uh birth rates and and so these are all issues and plus they have social security and and retirement entitlements and so these are problems i mean i you know how you deal with this you deal with this is a real issue and and uh and it's gonna get harder and harder and harder to pull the bag as that happens uh because tax rates have to go up uh then people are less willing to work uh the wagon grows more slowly revenues grow more slowly and you just dig a deeper and deeper hole sorry that sounds really pathetic and terrible but anyway hello sir hi i'm john langton i'm a recently retired professor of political science here i'm a progressive i i thoroughly enjoyed your presentation sir and without getting into a big debate here i my my problem with your presentation is that you have completely sidestepped the whole pressing question of climate change what we're going to do about it and on the other hand the growing the growing and acute inequality in the country i'd like to see what you have to say about climate change how we're going to react to that how we should react to it and what we should do about the growing inequality in your country economic social political as it were i'd just like to hear your views sure so let me just start with inequality real uh briefly um if if we so inequality they use what's called the jenny ratio and and we compare the income of the highest 10 earners versus the lowest down or the highest quintile versus the lowest quintile there's all kinds of ways to to find that ratio and there is no doubt that over time that has increased all right let me give you a nuts and bolts answer first if we go in and adjust incomes because we all know that well i hope you know the top 10 of income earners pay 70 of all the taxes so if anyone thinks we don't try to adjust address address inequality i don't know what to say because the bottom 10 percent of earners on an income tax basis actually get tax credits we give them money whereas the and it's the top 10 percent that's giving them and we've tried and tried and tried we have spent ten tens and tens of trillions of dollars trying to address inequality and it doesn't go away the bible says the poor will always be with us i guess the bible's right because we've spent tens and tens of trillions and we can't stop it all right and and so that's number one if you take away the taxes that people pay and you add the benefits that people earn turns out inequality hasn't moved very much at all but more importantly than that let me just address this from uh it's kind of my one of my favorite parables about the economy i was hoping i hoped i was going to get a chance to share it with you today so so let's say we live on an island and there are 10 people on the island and every day we wake up and we go catch two fish got a spear you do whatever you do all right catch them with your hands because you're so fast but everybody catches two fish and and and you eat them and then you go to bed and you have to have two fish to live that's enough protein enough food for you to live every day but you every day you wake up this is subsistence living all right now all the all these stories i'm telling are really simple i got it but they have a underlying theme to know and so so you catch two fish you go to bed and that's it that's life by the way there's no savings if you get sick your and your neighbor gives you a fish they're they're gonna starve too so so i mean this is not a good world to live in and we did live in it right how we got here i still don't know but but but that's the world all right then two people figure out how to make a boat and a net and they come up with this idea and say if we go 500 yards offshore throw this net in i bet there's more fish out there and and guess what they do it so two out of the ten go 500 yards offshore they cast the net in the water they pull out 20 fish so 10 people two fish a day is 20 now it's two people 20 fish they have now replaced the entire effort of 10 people all right and so so two people can now catch 20 fish you have the other eight what do they do well there's two future worlds one they go wow this is great i hated fishing i want to be a farmer i'm gonna grow some corn another one says i like climbing trees i'm picking coconuts and i you know i hate fishing another one says i'm going to clean the fish and cook them i'm going to be the chef another one says i'm a mechanic i'm going to fix the boat and the net when it breaks down so that they can keep going out catching 20 fish a day and so at the end of that day you have mechanics and chefs and fruit pickers and farmers and fishermen and women all right we have so many jobs on that island that we have to invent the department of labor to keep it up with all right and and that's how wealth is created all right and and so so but but then let's go back to inequality the the other way this island could go is there eight people on the beach and by the way one of them is bernie sanders all right and and bernie starts giving speeches to these other eight people and he starts saying you know this is unfair we can only catch two fish a day those two with the boat they catch ten fish each every day they're rich we're poor they make five times more money than we do they catch ten fish we can only catch two this isn't right it's inequality so when the boat comes in bernie marches over he's he and his eight people in his army and they take 16 fish all right because we want to give two fish of these from these rich people to all these others so then guess what happens right everybody gets two fish just like before but no one benefited from the boat and slowly but surely these people that invented the boat they're not going to fix it but the the net's going to tear the boat's going to sink and they're going to go back to using a spear to catch new fish and so because we tried to redistribute wealth because we tried to make the world more equal place we actually wrecked the productivity and the growth that we had so the more people we put in the wagon the more fish we steal the more wealth you take from somebody from that creates wealth you know this is the problem like people somehow think that you can't create well sam walton he's not far from here i mean a lot of his family lives not i mean within 50 miles of this place and he had a little thousand foot store read his story a little thousand foot five and died he didn't come from money he didn't go to yale his parents didn't stop staking and he became worth millions made it out of nothing he's the fisherman he's the two people that they invented the boat that's the way everybody has equal opportunity i believe at this point in our lives i mean it might might not have been true the whole time of this history of this country but we anyone can start a five and dime you have to come up with a good idea nobody's going to stop you elon musk can put up satellites everywhere all right and and um you know so so the bottom line is that's where inequality comes in my opinion from creation productivity growth you know the reason bill gates is worth more than all of us combined is he made all of us wealthier so guess what he gets ten dollars from every person on the face of the earth and he improved my life by a thousand dollars so that's a deal all right but he's rich i'm rich or way richer than i am and so so that's you know unfortunately some people get rich some don't but it's not a it's not a function of evil it's a function of the market and trying to fix it actually makes it worse because when you slow down growth when everybody only catches two fish that's not as good a world is when you sit down with cornbread or coconuts and you don't have to cook your food and you don't have to fix the boat because that that's the system that grows when you when you create it climate change i don't even want to go into because you don't want to hear what i have to say i i i think maybe the world's warming not as much as the models have predicted i think the models have been way way off and this idea that we have to change all of mankind to fix it i don't buy it and one of my worries today and i you know i almost hate doing this but but klaus schwab i don't know if you know any of you know the name he is the head of the world economic forum and that's the the group that has davos every year and i don't know if you've ever ever heard of this but davos is a ski resort in switzerland and the richest people in the world and the most powerful people in the world go to davos every year and and by the way in order to kind of go there you got to be pretty arrogant you got to think you're the elite of the elites of the elite all right this is this is the richest people in the world and the most powerful and klaus schwab founded this thing and he just wrote a book last june called covet 19 the great reset and here's his view of the world in a nutshell all right it's a 200 page book that climate change and and by the way i still think it's about climate change not warming change but nonetheless climate change creates an environment that allows more viruses to multiply and that's really where covid came from scientists are certain that covet came because the climate was changing no mention of the wuhan lab but nonetheless it happened because of the climate and then kovid because it affected uh uh lower income people more than higher income people uh actually cause more inequality and then inequality because of its inefficiency causes more climate change and then climate change causes more viruses and and so therefore we need government to reset the whole world joe biden called it build back better other people call it reimagine the world all right and and what's amazing about this is i'm looking at government from two and a half percent of gdp to 27. we've already reimagined the world government's grown ten times faster than the s p 500 than that than gdp in the last 70 years that's reimagining the government's 27 of gdp today it used to be two and a half and and supposedly now we have we need a great reset well i would reset i had reset back to 1965 and go back to when government spending was 10 percent of gdp and i think we'd get a lot better outcomes but but that's where buildback better reimagine all of these things come from is klaus schwab's book the great reset this is not this this is not a conspiracy theory i'm not wearing a tinfoil hat it's in print go pick it up read it all right this is exactly what he says and and i i i here's the deal climate change may be real but i'm not willing to pay that price i'm not willing to put people in poverty to get away from anybody else okay thank you it is simple you know by the way it is simplistic that fisherman's argument is simplistic but but i've not found any better way to explain where wealth comes from like redistribution reverses it my name's ben parks i just gotta briefly mention it but i like to hear your thoughts on robin hood more and so many people getting introduced to the market in that way and sort of um driving these certain stocks just be so separated from their fundamentals and do you think that's going to have bigger repercussions when that bubble eventually pops right okay yeah this is good um and thank you and i'm by the way i didn't mean to i hope i hope you're on robin hood i hope you're trading i hope you're learning it's it's it's valuable hugely valuable as you live your life for all kinds of things buying a house or investing in a graduate degree or getting in anything all right and so so that's a really good question i i want you to be on robin i also i mean go ahead buy amc buy gamestop i mean and learn all right because but but but yes they have become hugely uh uh divergent from fundamental values what what really creates the value of a company is how much money they earn and and and and you we usually do it right the price of a share versus the earnings per share and then you compare it to all kinds of other things so by the way you you could buy a laundromat and you spend seventy five thousand dollars on a laundromat and it returns you seven thousand five hundred dollars a year in profit that's ten percent or a pe of 10 to 1. the price was 75 000. you earned 7500. and so you can use it for anything and so when if you're on robinhood if you're thinking like that there's all kinds of advice that i could give you about what to buy or what not to buy but i i would not be buying what they're telling me to buy on social media i would do my own research or find a researcher that you trust and it's not the one that just happens to have 10 you know million followers like that may be for real it may be just for hype i mean but don't forget on the other side of gamestop and amc hedge funds lost nine billion dollars those are supposed to be the smartest people in the room and then and and a lot of people say well that's the democracy of investing and it is um but um but i would just be careful of all the hyped names you know one of the early ways i learned how to or learned about one of the early things i learned about investing is by companies you know one of my best trades ever was when my wife came to me and said have you seen these ugg boots like this was 15 years ago i'm like ugh like what the heck i never heard of them at all she goes a lady came up to me in the store and i had mine on and i didn't even know she owned them but she lady told me she had three pairs she's like they're hot and i went and bought the company that made it it's called decker and and i bought it at like eight dollars a shirt i sold it at 180. it was like and i had no idea it wasn't because i was a great trader or anything it's just that i listened to the market and and so you know if you like ford cars if you like nike shoes if you like you know you know there's a million ways to invest but i i would just argue be really careful about social media and uh bitcoin there is no way the government is going to let that become money there is no way there's only 21 million bitcoin we could possibly i know we lost a bunch and all that but 21 million which means you can't print any more money if if bitcoins are money the fed can't increase the money supply and they what last year what they did is they increased it by 33 so are they going to let a a a currency exist that you can't increase no they'll never do it they won't let you pay your taxes in it and therefore it will never be a money so all this talk about how bitcoin's going to replace the dollar i don't believe that either no watch i'll be wrong but but uh i i just don't think the government will let it be because you can't manipulate it and it's like the gold standard you know the reason we aren't on the gold standard is because it was hard money it was hard money we find two or three percent more gold every year but that's it but with dollars we just increased them by 33 and the government likes that they like to be able to play around with the money supply because they can make everybody feel good during a pandemic and eventually we'll pay a price with inflation and with bitcoin they could not have done that they couldn't have spent five trillion dollars last year so i think we have time only for one question so you can come up yeah um there we go uh so i kind of want to pick your brain on the other on i think it was dr lincoln's question um on your i would say i'm probably fall somewhere between the two of you um i kind of agree with um your um i guess the story with the fishes um that's that's a good analogy um something that the one flaw i find in that though i want to know how you would respond to this is it makes the assumption it requires the assumption that everyone started out from the same place now i come from st louis county and that's a pretty stratified area i come from the south side that's where most of the wealth in the county is concentrated and i guess my question to you would be um what should we do about i guess i'll use the analogy the people on the north um because even if you wanted to start a business there you it's really hard to get the funds to do so and even if you did you would probably have to take out a loan you wouldn't be able to pay it back because you can't make your prices high enough to where you can sustain that and as a result i mean i was learning yesterday there's places there where there's no grocery stores even within reasonable distance how would you deal with that yeah and and this is a great point and i'm just going to if i rephrase it badly um uh you know come back and correct me but this this point is is that hey on the island everybody's equal in my parable and it's all equal but we don't live a world where people are all equal all right i a thousand percent agree there are some neighborhoods you know in i'm from the chicago area south side west side your opportunities like i mean it's a miracle when people get out of there you know with and get an education or open a business and and are successful like that um we're talking sixth generation of of impoverished like like families and and that's unbelievably sad and so i'm actually gonna go back um and i apologize i don't know if you're ready to get out of here and tired of this but i'm i'm going to go deep on this and i'll and we'll close up right here um if we go back far enough in mankind all right uh and womankind all right people kind and and we think about how it's what ludwig von mises called having having and you know he's a germany and we would call ownership so how did we get stuff like own it and and there were two ways we we were the first ones there so this is my forest i'm gonna build my cabin out of these trees okay and you and therefore you had them you owned it all right you were the first one there you claimed ownership or the second way is you stole it from whoever got there first all right so you could go back in america and talk about american indians and and and and so so i got to tell you life isn't fair that's not my answer to your question but but it wasn't fair all right and so as a people what do we do you know and and so one of the things that we know happened is that well i believe happened moses walked down the mountain with stone tablets and one of his tablets said thou shalt not steal all right so what started happening is that is that there was this ownership and it was and it was really by violence with swords with with with dukes and earls and feudal society and we just steal stuff back and forth and the romans would fight the goths and the you know it's just like it went on for centuries for millennium and and then slowly but we had the magna carta and then i believe the uk constitution and then the u.s constitution and and other it was mostly western civilization but we we kind of said okay this is the ownership that exists today we're now going to kind of set it into law all right now now this raises a whole bunch of questions was it fair was it fair did rockefeller have too much when the when you know when that was set into law i'm making this stuff up but uh i mean history but you get my point i'm just trying to make a point about it and so that so that when you have this distribution of wealth and land and income and then you create the laws that respect private property that give people contracts that don't allow you to steal from me and you make it illegal all those things then you've kind of set society all right now we all know that whatever was set somebody could argue wasn't fair and i look at the history of america and women weren't allowed to vote and property blacks were allowed to vote or they were slightly no doubt all of those things happen and as a result i would argue that there's there's some like if you go back historically there's some um unfairness that we could look to by by uh race by gender that was kind of set in law but then the second question comes how do you fix that and here's the problem the only way to fix it is with violence because and what the law is supposed to be about is peace but if we violently go and take stuff from one group and give it to another the government is now doing exactly what we did before we got the law so that's a problem all right that's i hope you understand that is a problem with trying to fix all of it but the second thing is if we have law and now everyone is equal in like the eyes of the law then from this point on everybody has equal opportunity and that's what we're that's what the law was we okay look we get it you had a bigger army than me you stole that from me all i want is you never to steal another thing for me and i'm going to compete against you in the open market that's fair all right i get it i can't i can't go come back you've got all those soldiers i can't steal it back i'm not going to try i'm going to try and start walton you know walmart and i'm going to beat you that way i'm going to control more resources because i'm a better business person and so so so what i would argue is that that law this is kind of the difference between conservatives and liberals um uh socialists really but but but it's and conservatives kind of want to keep it they don't they don't want to change it because and it's not because they won but it but it's because when you change when you use violence to try and fix it you're you're wrecking what happens with property rights and the rule of law and all of that and so the key is today it's like okay how do we make up for the wrongs that we've done do we make certain that we make it fair and up in equal opportunity in the future or do we try to go back and fix you know with the mistakes that somebody made in the past and and i would argue that trying to fix it can kind of record for the future which is sad i mean i get that i totally get i don't know the right answer because the law is it whatever it locked in place wasn't fair because some the day before the law locked it in place some duke stole the serf's wife i don't know you know and then we locked it into law and that that's just not fair all right but it but that's where it was and then 200 years later you have to say boy that all these laws have given us pretty equal opportunity and then the final and then i've said it before we've spent tens tens of trillions of dollars trying to create equality and it hasn't worked i mean we have inner cities like in chicago st louis places where there's four or five six generations of poverty and and that's on that's after trillions of dollars so what's the plan because that didn't work in chicago we had caprini green and we tore it down i mean we've tried you know we've tried all kinds of different things and we built standard apartments then we moved people to suburbs and we've we've tried a million things we just keep spending more and more money and we're now we used to be on the third generation then the fourth then the fifth now the six and and it hasn't worked and so i think we need to look we want to build back better go back different and don't try to use government to fix all this but we don't seem to have any other answer and um and that to me that would be my message i guess for today stay invested because the market's undervalued be careful of what you buy and think about how the world's built thank you very very much thank you mr westbury for such an interesting and thought-provoking talk on the topic now i invite our team david robert for closing remarks that was a very thoughtful presentation uh intelligent presentation i enjoyed it a great deal i was thinking while while brian was speaking i know based on my youthful appearance it's hard to believe this but i took college economics almost 50 years ago in my freshman semester i've learned more economics from you last night at dinner and this morning i think that i did an entire survey it was a very poorly taught economics class i thank you for being here this is very very good remind you that we have some more great presentations coming out at 10 30 and 1 and i hope

Channel: Westminster College

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Id: fXMaMJ5ynuA

Length: 87min 24sec (5244 seconds)

Published: Thu Sep 16 2021