Thomas Sowell -- Basic Economics

Video Statistics and Information

Video
Captions Word Cloud
Captions
welcome to uncommon knowledge I'm Peter Robinson be sure to join us by the way on Facebook at facebook.com forward slash UNC knowledge facebook.com forward slash UNC knowledge an economist syndicated columnist and best-selling author Thomas Sol is a fellow at the Hoover Institution over the course of his long and storied career dr. Sol has taught economics at institutions including Cornell Amherst and UCLA dr. Souls latest book a revised and updated version of his classic vol basic economics here is the first edition of basic economics and here is here is the new edition showing that Tom soul never rests to quote from basic economics through its various editions the fundamental idea behind basic economics remains the same learning economics should be as uncomplicated as it is informative close quote welcome Tom no charts no equations all words plain English right no graves no graphs no graphs all right well would you help me to uncomplicated things today all right all right segment one the present crisis now I posted notices several places that I'd be interviewing you and asked folks for questions and got overwhelmed with questions I can only offer a few but here are a sum from Ken Sweeney of ricochet this is the basic of the basics how is wealth created and why does the United States have the highest per-capita GDP of any major country Wow well how many how many years do we have that's question ha ha it's television you've got about 90 seconds at the most oh I guess wealth is great created when there were circumstances as such that people who know how to create it are free to do so one of the things that pains me a current in the current crisis is people saying that Congress really needs to do something to make the economy recover No they need to let the economy that the economy did not get to be the biggest in the world by politicians doing things all the millions of other people that we whose names we don't even know those are the people who made it the biggest economy in the world and if politicians will get out of their way we can let the economy recover it can do that Tom we've been talking about the crisis let's take a step back 1983 until 2008 the American economy experiences a quarter of a century of nearly uninterrupted economic growth then beginning in the autumn of 2008 trouble what went wrong well actually started started much earlier and I think the first it was the housing boom followed by the housing bust which occurred in 2006 2006 and so and then so the reverberations of that that is peat there are people out there who had trillions of dollars invested in securities based upon mortgages and when people stopped paying their mortgages the value of securities vanished into thin air so you do not argue that this was a financial crisis that spilled over into the real economy you argue that it was a problem in the real economy particularly the housing mark yeah that started the problem in the financial sector oh absolutely if people had kept paying their mortgages the securities would have been good and we would have all lived happily ever after now even though the problem is that the politicians made the mortgage is more risky by changing the rules in other words at one time mortgages were considered the safest investment this is for the widows and orphans who need need their money coming in regularly and you put into real estate but the politicians decide that we must have more homeownership and more affordable housing and so they began to prescribe rules you had to lend money to people you wouldn't let to before and of course there was a reason they weren't lending to them before and we discovered the hard way what that reason was that they weren't likely to be able to pay them to pay them back very and profound question here I think anyway did what happened indicate the housing market problem did that indicate that markets some markets wonderful as they are wonderful as you demonstrate over and over again in basic economics that free markets are that they sometimes experienced troubles calamities even that the markets are are imperfect because they're rooted in human experience and we live in a fallen world or did it demonstrate that the government messed things up the government messed them up after after all of our century you never had this kind of crash in the real estate market for centuries people who have been who made it did their life's work lending money or mortgages did that without the politicians interfering once the politicians started meddling the results with what you could have predict is what was predicted in fact all right response to the crisis the Federal Reserve floods the financial markets with liquidity while first the Bush administration and then the Obama administration enact stimulus and bailout packages that now amount to as best I can make it out something like three point six trillion dollars correct responses to the to the crisis do the government do the right thing no those are easy questions all right one of the painful but yeah you can call anything anything you want to call it you can call it a stimulus all the data indicated didn't stimulate anything except boondoggles across the country as politicians handed out money to all the special interests they are interested in pleasing but for example when when they dumped all this money in the banks the idea was the banks would then pass that money on and Morland right lending went down they dumped all this money into the businesses the businesses reduce their investment all kinds of money is piling up there's record amounts of money piling up what about GM surely that's the one success story workers are still employed GM is now a competitive company again they're paying back billions to the American taxpayer although this is this is the famous one where we guarantee them and it didn't cost the taxpayers a dime right yes yes it's like going to Las Vegas you know and saying I put my quarter in the machine and out came all came $100 yes now put another quarter and see if you get another 100 and put a million dollars in there see if you get a million dollars back uh-uh we had the same thing with the savings and loan crisis and a couple of decades ago they said you know we're we're backing the Savings and Loan industry we're guaranteeing it but it's not close to the taxpayers anything well it's not until it fails and then it closed the taxpayers all right segment two what is to be done now Fed Chairman Ben Bernanke announced this past autumn that the Federal Reserve would engage in a new round of quote I'm using his term quantitative easing the so called qe2 the Fed will purchase top wipe that smile off your is various that's the series the Fed will purchase some 600 billion of Treasury instruments to keep interest rates low and spur economic growth that's Ben Bernanke on the other hand we have our colleagues at the Hoover Institution John Taylor Mike Baskin and John Cogan signing an open letter to Ben Bernanke which read in part quote we believe the large scale asset purchase plan should be discontinued the planned asset purchases risk currency debasement and inflation and we do not think they will achieve the feds objective of promoting employment close quote whose site is Tom so along oh I'm on the size of people say they should shouldn't have done it easy another easy one oh my gosh yes there used to be a phrase was it was called monetizing the debt it means that the threatened treasure department has deficit spending so they put out all these bonds that they're selling and if the public won't buy them the Federal Reserve will buy them because they the Federal Reserve can legally print its own money so it's no problem for this Federal Reserve to buy them it's just that that's what that amounts to is one inflation and two it amounts to a hidden tax which will not be confined to the rich as we as they call it I mean in other words if you've got X thousands of dollars in your bank account and the Federal Reserve starts printing more money it is simply stealing the value of the money as you put aside so and so that that's the same thing as a tax only is an inflation tax but Tom this is you're answering these questions the greatest of ease and even yen you even find I can tell from your face you find some other questions amusing but so a layman like like me like our viewers is woman oh wait a minute dr. Sol is an eminent figure and I even had in these emails somebody commenting on your lovely baritone voice euro sterling you're a sterling figure in all kinds of ways but Ben Bernanke is the prince Denis Oh in other words what is he thinking what is the other what what has been Bernanke think he's doing it can't be that easy can it to say oh no that's a mistake well you know uh Ben Bernanke's chairman of the Federal Reserve System he's no longer a professor at Princeton well he's he's an emeritus emeritus or right it was right right he's taking a leave of absence yes yes and so we have a whole different set of incentives and constraints on him one of the most painful things for me was reading the article by author F Byrnes based on his spirit experience when he was chairman of the Federal Reserve System in the 70s this would be 6070 years Richard Nixon yes right uh and he spelled out that you know when you when you're when you're in the Federal Reserve System you're not a free agent it's not like you're conducting a seminar at Columbia and can just simply say and do whatever you want to do you're operating within very narrow limits the Federal Reserve is quote independent unquote but Congress can change that the amount of that independence anytime they take a notion and so even if you're following policies at a good policy you've got to watch your back because Congress can step in at any time and stop you and so it's a very tense kind of situation all right Wall Street Journal December 8 quote in accepting the deal to cut payroll in business taxes and extend all of the Bush era tax rates through 2012 as you and I speak this hasn't been enacted in the Congress but that we're talking about the deal that President Obama cut with Republicans to continue the quotation mr. Obama has implicitly admitted that his economic strategy has flopped he is acknowledging that tax rates matter to growth that treating business like robber barons has hurt investment in hiring and that tax cuts are superior to spending as stimulus close quote you buy every word of that oh yes okay well everybody what what is painful to me really looking back this argument is not a new argument this Leichman was made in the 1920s people are saying the same thing on both sides they're saying right now the difference is that 75 years have elapsed and they've been four administration's of two of both parties that have reduced high tax income tax rates every single time name them the Coolidge kennedy reagan and george w bush right every single time the reduction of the tax rates has led to an increase in tax revenue so I hear people on television saying how the government can't afford they'll give to give this tax cuts to the rich you know not giving anything to anybody right here's a question about Ricochet contributor Steve nanosec quote it's as close to Dogma as there is among conservatives that cutting taxes particularly marginal rates Spurs economic growth but Bill Clinton raised taxes including marginal rates and the economy boomed do tax rates really matter to economic growth and if they do how do you explain the Clinton expansion I haven't looked at the Clinton expansion but I know that the Clinton quote surplus with surplus taxes up those laws are passed in Congress all spending and taxing bills originate in the House of Representatives and when the House of Representatives is in the hands of the opposite party I don't know how any president can take any credit for what whether there's a surplus or not okay there's Milton Milton Friedman defined surpluses when the money comes in so fast that even Congress can't spend it that's true segment three health care let me give you a quotation and a fact the quotation comes from you in basic economics quote a long-standing staple of political rhetoric has been the attempt to keep the prices of medical care reasonable or affordable yet the amount of resources required to supply the things we want are wholly independent of what we're willing to pay it is completely unreasonable to expect reasonable prices that's the quotation here's the fact the United States devotes 17% of its GDP to health care the next country down and that is Switzerland at about 11 percent of its GDP so we devote something like 50% more than the next country down now surely it's not unreasonable to suggest that we're just spending too much the question is a peep when people are spending their own money I don't know how a third party can say it's too much well ironically Rahm Emmanuel's brother who's a doctor has on board for this whole Obamacare thing but really he revealed why Americans spend more Americans don't when they go to a hospital they are in private or semi-private room was more often than in countries on government health care and so instead of being an award you're on your own private or semi-private room it costs more you know American doctors are more readily available there is less waiting time some people prefer to pay in money and other in waiting time now when you have a painful disease and the government tells you is there's a six-month waiting list that you're paying in a different way it doesn't show up in the statistics but you may you may not even live to six months depending on what you have so we pay seven we pay more and get more that's it that's that's that's it that's all there is to it that's it you don't want to say but at the same time our system is terribly inefficient in various ways you know as that is not inefficient for people to buy what they want it was there to be more complicated than that you know it's what's inefficient is having third parties deciding what you need and don't need as for example in Sweden where if they and it's not like an insurance company saying they won't pay for it in Sweden if they say that you don't need this you can't pay for it with your own money because they control the whole system and so your your choice at that point is to leave Sweden which if you're very sick may be a little hard to do or to have what you need smuggled in to you right Tom in one of the last conversations I had with our friend Milton Friedman I recall his saying he was musing about the future of healthcare which as you know interested him for five in fact there are no new ideas just proposals by Milton Friedman that haven't gotten around to being enacted yet I sometimes feel but Milton said the situation we have in this country is untenable over the longer term and he said broadly speaking about 50% of American healthcare is private subject to the usual incentives of the private market but about 50% with Medicare Medicaid and so forth about 50% is effectively socialized run through the government in one way or another and Milton said this is untenable we will probably either go to a much more socialized system in which we will at least have the virtue of controlling prices quality may deteriorate but prices may control or we'll go in the other direction and book push more of health care into the market which would control prices and to improve quality does that make sense to you that analysis yeah it's about deep it but it's untenable that were I don't know why it's untenable I it's one of the few times I'm sure if you were if he were here I course he'd say I'd misstated it or yeah yeah yeah but when people want something and and you know when I would when I when I was not the hospital last I had a private room no doubt that cost more than if I were an award right particularly as it as in Britain you know where you can be ignored by the nurses you know there were women and in Britain one of the scandals is that they are having their babies in the hospitals but not in the delivery room when they're having their babies in the hallway and the elevators because they're calling for the nurse and the nurse will get around to it when she feels like it and the baby is not going to wait okay let me ask you then a question about practical politics you one of the points you make in basic economics is that the government politicians face incentives the way ordinary actors in the free markets face incentives so here's a question it seems to me as a layman watching things that the people who are in favor of pushing more health care into the free market have been on the defensive for the last couple of years since President Obama was elected now we've had a change in the house of our election and Republicans have come in and they are saying we're going to fight this thing every step of the way I hope they do well it still feels defensive to me we're going to hold up the money here we're going to file a court challenge there and it's a kind of a piecemeal attack how how can the terms of the debate be changed if indeed they can so that the the argument for the market becomes dominant and unselfconscious and and and and aggressive in a certain sense well now that would require articulate Republicans right down to the next question no well we have are you encouraged when you look at the current Eric Cantor these new people who've Immersion aha i must say i saw i saw chris Christie a governor of Jersey for the first time I thought my gosh an articulate Republican when was the last time I saw one of those articulate and also willing to fight yes yes yeah all right segment for trade lots of questions about trade China the rest of the world hears from a ricochet member who calls herself midget faded rattlesnake if you read her post she's a highly intelligent and very amusing I don't know where the name comes from but here's the question how much should people really worry about the balance of trade somewhat less than you worry about being struck by lightning okay here's the statistic I heard just the other day here's how many cars Korea sells in the United States every year 500,000 here's how many cars we sell in Korea every year 5,000 why shouldn't we be worried about that imbalance I'm not sure why we should obviously if the Americans want that we're Americans forced at gunpoint to buy these cars from Korea clearly not no no so now see I don't see why the report should be should concern themselves about it okay you've done it again you've batted away the question so with so easily that it leaves me wondering what the argument is on the other side why do some people I do some people worry about the trade balance then oh because the argument they're making is that this is sending American jobs abroad now unfortunately this argument was made some years ago in 1930 a thousand economists took out full-page ads across the country saying do not put up international trade restrictions it will not increase employment it will just set off our new round of retaliation it was one of those wonderful things of me like it was a bipartisan effort the Democratic Congress would have passed the smoot-hawley tariff and the Republican President signed it into law and it was one of the biggest disasters in the history of the country at the time this bet is this law you know people think that the reason for the high unemployment in thirties was because the stock market crashed right after the stock market crash unemployment peaked at 9% for one month and started downward it was down to six point three percent before the federal government intervened it was only after the federal government intervened that the downward movement reversed itself and shot all up in a few years to 25 percent so the people who are out there just dying for the government they come in with their solution I don't know if they have studied history or not what's the correct way here I'm interested in the way to think about the problem China we there are constant predictions that soon maybe within the decade or so the Chinese economy will become as big as ours so bigger economy than ours that sounds in some way something about which we ought to be nervous on the other hand there are 14 times as many Chinese as Americans so when their economy becomes as big as ours it only means that their per capita GDP will be one 14th that of ours so should we be worried about what the protonation be worried as to why their economy is not God it's so far behind out of the United States all right although I must say their economy is enormous ly better than it was in the days of above Mao right and and as and so as a result of putting in more market like allowing more freedom in the market just as a in the past couple of years we're trying to reduce the freedom of the more well okay so let me take the United States out of it for a second at the end of the Cold War Russia as we were allowed to call it once again the Soviet Union ceased to exist Russia embraced democracy pretty rigorously under Boris Yeltsin true election to the Duma and so forth and suffered an economic collapse from which they have never recovered China embraces the markets to a limited extent but still a very extensive extent but refuses to touch democracy refuses to permit political freedoms and experiences this period of some two decades now of economic growth unparalleled really for a country of that size anywhere at any point in human history so what does that tell us about the connection between democracy and economic growth we Americans like to talk about democratic capitalism as though the two are somehow intertwined are they not well China has proven that they're not inevitably so there are a lot of things that you have to have to make it make an economy work first of all you have to allow the people that allow the market to work and the Soviet in Russia when when the new capitalist was simply the old communist who had taken over the industries you didn't have capitalism in the real sense of the word you had what some have called crony capitalism and you had people who disappear off the streets when they you know get in a way of what the government wants to do so it's really I think sub rows of fascism in fascism being different from socialism and that the private ownership is there but the government tells people what to do mmm and what about China do you believe that they can continue to sustain high economic growth rates without some semblance of democracy without beginning to open up political freedoms can they I think I think they are doing some of that and particularly as you get larger and larger numbers of people who are successful in the private marketplace and who then begin to have influence and as the old guard dies out I think will be a very slow process I mean I wouldn't I wouldn't hold a stopwatch on it all right from China to Europe here in the United States nobody would start talking about the threat to the dollar as a currency if Texas has experiences a high growth rate and Michigan experiences high unemployment and manufacturing decline nobody talks about that as a threat but in Europe we see that the troubles in Greece and Ireland and now Spain and Portugal are being talked about as a threat to the euro why because they're trying to create something that a country would would would create in a situation where you have sovereign states and so you can't have a common currency and then have each government go off on its own little tangent because they'll they'll end up in situations where that common currency is threatened because of what someone did in Greece or Spain yeah so do you consider the euro untenable over the longer term I don't know but look what people people can always change their policies and personally I never thought it was such a great idea what would you have done instead just permit but what they've done for centuries all right have how are cleara that's it all right segment 5 theory lots of questioners want to know whether you share congressman Ron Paul's skepticism of the Fed and I'm going to quote you this isn't in basic economics but a recent column quote for most of the history of this country there was no Federal Reserve System there you go that dirty trick of bringing in history there was no Federal Reserve System which was established in 1914 to prevent bank failures but bank failures in the 1930s exceeded anything ever seen before the Fed was established close quote if you could if we could make you dictator would you abolish the Fed yes you would yes I mean both for the reasons I just gave the history there's no you know the Fed represented wonderful hopes but but we've had so many programs that represented wonderful hopes that ended in disaster I own doubt that someone who was sufficiently scholarly could come up with examples of where the Federal Reserve made things better but the question is overall what was exposed to was supposed to not only prevent bank failures it was supposed to prevent huge changes in the money supply but in potato great deflations right great is deflation in American history occurred under the Federal Reserve System you know there was a crisis in 1907 JP Morgan the original JP Morgan called the other banks into a room supposedly lock the doors and said we've got to do something oh we're going to all collapse and they did something and they didn't all collapse but but the but people the progressives were or shocked that one man could come in and take command of the situation and especially someone who wasn't even the government right so but so what would you do you'd move us back to the gold standard or you'd legs issue their own currencies the way they did up through the Civil War say you could I could I could they weren't doing any of those things as the time the Federal Reserve was created we were on the gold standard though but it whether we're on or off the gold standard there's that's another whole set of arguments there's no evidence that I can see that over this vast period of time that the Federal Reserve has existed the things on the whole have been better the great post-world War two our inflation was fed by the Fed by the Federal Reserve doing exactly what they're planning to do now namely buying up the bonds issued by the Treasury ah but don't you have I have to say I wasn't expecting your answer to run in this direction so I don't have questions follow up questions preparator you may actually have I may actually have to think here in real time but don't we have the example of that period from 83 through a couple years ago that 25 years of economic expansion we had only two downturns they were both very shallow and very brief and what you had was Paul Volcker who Carter appointed but Reagan gave the freedom actually to wring inflation out of the currency did that by the mid 80s the economy takes off Alan Greenspan does a reasonably good job and then at the end there's too much money in the maybe five years of getting it wrong so what volka did was undo the harm that previous Federal Reserve's had done including Arthur burns yeah unfortunately who was my key shouldn't one my much-admired right right so but what would you replace it with how would the currency who would how would the currency run we we would replace it we go replace it with what what existed when it was created which was the gold gold standard well it may be the gold standard but maybe not but I but there's no evidence that I need what would you replace it things always bother me you know I need to when someone removes the cancer what do you replace it with okay all right all right closing few questions here that didn't really seem to fit into but just but they struck me as good questions from JJM director on twitter some claim the bailouts worked we have the banks recovering now you mean banks have never recovered before all right thank you very much Michael lots of questions on Keynesianism michael abite of ricochet what explains the allure of Keynesian economics excuse me we've already said that this effort to stimulate the economy Obama's first two years that was essentially Keynesianism so just to tie that in with to what we've discussed earlier what explains the allure of Keynesian economics despite its lackluster empirical record or we're here we have a fellow called Jack ray of our Facebook page does the Keynesian school have any credibility left close quote well there are ideas of Keynes that that still exist Milton Friedman said sets us that as much as he said there's there's that in a sense for all Keynesian is now and in another sense nobody's Akane to you meaning that no one buys the whole Keynesian package anymore but there are particular insights that and ways of thinking of analyzing that came out of Keynes that people of different schools of thought will use when they feel like it so Keynes was Keynes provided us with technical with tools yes rather than a prescription he provided us with both it's just that the prescriptions haven't turned out as well as the tool all right we began the program I began the program by asking why does the United States have the highest GDP per capita of any major country and what I'd like to ask final question basic economics you've said that some of the debates taking place today are frustrating to you because they took place in the 20s and the 30s and you just feel as though the country isn't making progress is there within basic economics has the discipline made enough progress and will the political realm respond to progress in the discipline enough that and here I come finally to the final question you feel confident that 25 years from now in 30 years from now the United States will still have the highest per capita GDP of any major country I think the answer to those questions would be yes no and and no and with an addition that fortunately I'm at the age where I don't I don't worry about what's going to happen to 25 years well okay but you have children though I usually give me the are you optimistic no you're not it's not that the problem is not that the profession hasn't reached a level that their depth of understanding I think if the average citizen understood economics as well as it was understood by economists 200 years ago most of the nonsense is done in Washington would be impossible politically so it economists have very little influence in that sense the people in Washington decide what they want to do when they find an economist who will will go along with it but Tom the Tea Party just arose out of nowhere we just had a tidal wave in which the Republicans won 61 new seats in the House of Representatives they have a majority of 49 seats which is the biggest majority the GOP has had in decades nobody supposes it was because they were Republicans right it's because of anger at the nonsense doesn't that give you some glimmer yes yes yes because if if the if Obama had retained the power that he had had before the election I think I would have been more than pessimistic I would have just been despairing all right dr. Thomas all the non despairing dr. Thomas soul author of the fourth edition of basic economics which I have already bought for my college aged student at home thank you very much thank you I'm Peter Robinson for uncommon knowledge and the Hoover Institution thanks for joining us
Info
Channel: HooverInstitution
Views: 528,955
Rating: 4.8725529 out of 5
Keywords: HooverInstitutionUK, Economics, financial crisis, housing crisis, mortgages, low-income housing, banks, lending, bad credit, debt, stimulus, health care, trade imbalances
Id: bOMksnSaAJ4
Channel Id: undefined
Length: 33min 31sec (2011 seconds)
Published: Thu Jan 06 2011
Reddit Comments

Is this post IDW related? Upvote this comment for yes, downvote for no.

I am a bot, and this action was performed automatically. Please contact the moderators of this subreddit if you have any questions or concerns.

πŸ‘οΈŽ︎ 1 πŸ‘€οΈŽ︎ u/AutoModerator πŸ“…οΈŽ︎ May 05 2019 πŸ—«︎ replies

Care to steelman whatever economic point he’s arguing against? I have not watched the video

πŸ‘οΈŽ︎ 4 πŸ‘€οΈŽ︎ u/OursIsTheRepost πŸ“…οΈŽ︎ May 05 2019 πŸ—«︎ replies

I love his old-school New York accent ("coicumstances"). You almost never hear it anymore.

Oh yeah his economics and politics are pretty good too.

πŸ‘οΈŽ︎ 7 πŸ‘€οΈŽ︎ u/UnexpectedLizard πŸ“…οΈŽ︎ May 05 2019 πŸ—«︎ replies
Related Videos
Note
Please note that this website is currently a work in progress! Lots of interesting data and statistics to come.