Government Intervention and Economic Inequality

Hello and welcome to another episode of the Minor Issues Podcast. I'm Mark Thornton at the Misesus Institute and actually I'm going to be in Albuquerque this weekend on August 15th uh for the institute's conference on gold and silver on the anniversary of the day 55 years ago when Nixon took us off of the gold standard. Uh should be a great event. Stay tuned for updates and video presentations. Uh in today's episode, I'm going to be replaying my lecture from Misesus University 2026 on government intervention and economic inequality. Now, I've done many different lectures on inequality. Uh and there's various subsectors of that topic. And this year's topic is going to be on the impact of government intervention in general on economic inequality throughout the economy. And just as a thumbnail sketch and to encourage you to watch this uh lecture, you know, there are like 30 million government interventions in the US economy alone. And they have a general tendency by intervening in the economy to create advantages for certain uh owners of capital goods of certain capital goods and of specific labor that's re that's related to uh the industry that's getting the favors from government. Now those interventions simultaneously by creating privilege and monopoly power for some, they displace uh some workers uh from those industries and those workers have to then therefore go out into the economy and compete for jobs that there are not as well suited for uh not as well paid for um and so on. So that you know certain groups are getting an advantage economically and others are getting an economic disadvantage. And with that Rothbartian insight you can apply it to everything that the government does practically and get a great understanding of how uh some people are greatly benefiting from the state's intervention in the economy and while the majority of us are being hurt. So, I encourage you to uh watch that episode. And on side B today, I'm going to be showing a very recent interview uh from the David Lynn Show. Uh David has a large number of subscribers that are interested in financial and economic topics. Uh this is my first appearance on the David Lynn show and uh it went wonderful and uh we talked about a lot of uh topical subjects uh including the economic effects of tariffs and even you know what's going on with the refund policies uh where the government has to give back money to the uh companies and then companies are or are not uh sharing those refunds with their customers. So that was one of the uh topics that we discovered uh discussed. We also looked at the Fed's position in the economy currently in terms of its interest rate policy and interest rate trends uh in the marketplace and uh that really set the stage for the opening topic which was the business cycle and the current state of the economy and David wanted to know uh more about the skyscraper curse and uh where we are in that cycle and how close are we to the uh popping of the economic bubble uh in the economy that could potentially lead to an economic crash in the economy and then of course all of the secondary effects uh that we expect to see. So, uh, very interesting, uh, wonderful meeting David and, uh, he has a great show and so I encourage you when you have the time to watch the lecture, think about it and also watch the episode on side B on the David Lynn program. Well, thanks again for watching the Minor Issues podcast. Thanks for sharing and subscribing and um and uh otherwise promoting the podcast with your friends, family and social media contacts. Uh it's very important uh to spread the word out there about the good work of the Misesus Institute and the value really of Austrian economic theory for understanding the world we live in. I think you're going to find this a very um applied lecture and an actionable lecture and something that does apply to you. So, thank you for being here. Thank you for watching at home on the virtual meets university and most especially I want to thank the donors that make this event and events like it possible and have been making it possible now for 40 years. Um it's uh our flagship program and it's uh helped students along the way to uh find their careers and to um better their own personal um outlook um in on to their future and uh really enabled them to inform themselves better about the world that they live in. uh and that is more true today than ever before. So, thank you uh for being here. Thank you uh to the Misesus Institute and its donors and supporters uh for all of us being here today. Now the topic of inequality is of course one of the most important and vexing uh problems of society and civilization. Um, as I spoke yesterday in my lecture on the precursors to Austrian economics, the original thinkers in the original advanced society like Greece, uh, their moral philosophers were concerned about moral issues and they delved into understanding the economy in order to become better informed about all those moral issues. and inequality, especially as we're going to be talking about it today, um is one of those issues. Now, in the past, um I've been lecturing on inequality for several years now, and each lecture is different. So, you'll find different material as you go back into the archives. Uh some of those lectures concentrated on inequality, basic inequality. The fact that the as the world exists today, everything out in there in the physical world is very unequal. um you know in terms of the land and the uh mountains and the valleys and the water and the soil types and the weather and all that is certainly in unequal but also people we ourselves are very unequal in all of the attributes that we bring to the picture physically and mentally, intellectually, skill-wise and so forth. you know, are we young, dumb, and unskilled, or are we old, grumpy, and unhealthy? Um, are we better at things in in certain areas um and less well prepared um and trained in other areas. So, there's that basic inequality. And we go through all of the uh basic differences, the hardcore differences uh of how that creates different comparative advantages and how the market economy with exchange with the division of labor with specialization of labor, how that benefits us as an individual striving to get our comparative advantage and to improve our comparative advantage. uh but how that helps society, how that makes us more prosperous and of course you've seen that in other lectures here today. So I'm going to skip that very important part. Um I've also done lectures that concentrate on the statistical aspects of economic inequality where we're talking about income and wealth and other measures of economic well-being. and how um those measures genie coefficients income distribution you know the top 1% the top 20% versus everybody else and so on Dell took a deep dive into those statistics and how primarily ways in which all of that can be be misleading so our friends on the left most notably um Thomas is famous now for writing in several books uh slanting all of the economic statistics to make it seem like the world is owned by one person and everybody else is starving. But also just general journalists who also pick and choose statistics that mislead us as to the state of economic inequality. And I've spent a lot of a great deal of time on this book, The Myth of American Inequality, which tries to find a balance and a more correct perspective statistically about income distribution as it stands in the United States. I actually helped in terms of the research and reviewing the manuscript of the chapters in this book. Um, and it's very worthwhile. I would highly recommend anybody who wants to become uh get an indepth um be in-depth informed about the topics and the issues uh because they relate to everything including economic policy and macro policy um a lot of the issues that professor Dagner dealt with in terms of the family um you know all sorts of issues but today I'm going to be concentrating ating in on uh the topic of government intervention and economic inequality. Uh and most notably here I want to draw our attention to the rise of democratic socialism in the United States. of course, uh, Senator Bernie Sanders, Democratic, uh, socialist in the US Senate, AOC, congressional seat, uh, very powerful and influential in the House of Representatives, and then more recently a series of well, Mayor Mandami in New York City and then victories in the um, council seats in New York uh, in local races. is um in um Washington DC, the congressional seat um in Denver, Colorado, uh and elsewhere around the country. So there's a rise there's a tick up in support for democratic socialism which is part of the sort of democrat party coalition which consists of you know the uh the hardcore middle of the road Democrats which are shrinking um and then the progressive Democrats who are the left democrats and even further to the left of that is the democrat socialist who usually want to invoke uh much more extensive rules and regulations but also outright takeovers of institutions by the government from the private sector. Uh Dr. Bill Anderson um who's here this week uh just published an article on Mises Wire about that sort of uh thing. And um so the democrat socialists are the fringe aspect of the democratic coalition. Uh they're not widely liked by other democrats because uh you know the of the spectre of communism and and all of that. So they like to downplay the fringe parties just like the right and the Republicans like to downplay the fringe and get rid of fringe uh members of the of the Republican party. So but the truth is is that if you do uh scratch a Democratic socialist, you're going to find a communist trying to itch that scratch. uh they are basically uh the first step as far as they're cons concerned strategically towards dictatorship. Um so it doesn't really matter what they say or what their party platform is at the time. they ultimately do want to seek complete control over things. And that's essentially what FA Hayek's very influential best-selling book, The Road to Surfom, was all about is once you open the door, once you let these people uh into the political process, they may have or state limited goals in the economy, but ultimately they want to control the commanding heights of an economy, the commanding industries of an economy, and they'll just do a stepbystep process. process putting forth various ideas hoping that they'll pass and become integrated in society and uh and grow the power base. And of course, what Hayek shows is that this growth of the government sector is ultimately going to take away your decision making capacity over where you live, how you live, what you consume, where you work, and so on and so forth. uh ultimately it pushes in that direction and uh and results in uh dictatorial powers, decision-making powers of the central authority over the individual. So that's ultimately um you know where we're going and what we're seeing with these victories. Um we're seeing this with the policies uh which is very informative as to where this is coming from. Okay. Why is democratic socialism rising up and what policies do they want? Well, they want to take over uh various things you know occupy Wall Street. They want to take over and basically have wealth taxes on Wall Street and you know do all sorts of things there. Control everything. They're also focused on health care and health insurance. Of course, you know, previous generations, including myself, are have voted for increasing health benefits, regulations, restrictions, and controls and have driven up the cost of health care enormously uh in America. And the same is true with higher education. We voted consistently for all sorts of subsidies, all sorts of grants, research money, student loans, uh student scholarships from the state, all sorts of things. And of course, all of these subsidies uh basically have only served to increase the cost of higher education slowly but surely over time. I mean, you think of subsidies as making things cheaper, but ultimately on an industry-wide basis, all of these subsidies raise the costs uh because you're adding less capable resources and you're straining the existing resources. So, the cost of adding students drives up the overall cost and the overall price. You see parts of that uh coming to flower uh in professor uh Peter Klein's lecture on higher education in crisis. It's in crisis for a lot of reasons but underneath it all it's the bloating of government money uh increasing the cost and decreasing the effectiveness of higher education. So, not only is higher education costlier than ever in any calculation you want to try to um uh put to paper, but the effectiveness, the quality of the output is also falling. So, the democratic socialists are focusing in on the right areas and their own personal audience. uh who are they trying to attract to Democrat socialism is largely, you know, people from, you might say, the middle class, collegebound, people with above average highQ, uh younger people, uh younger people who are facing the spectre of what old part generations like myself have put on the agenda, which is uh in terms of the United States here, Um, you can try to apply it to your own country, but um, the United States is $40 trillion in debt. That's money my generation has spent on itself and expects future generations to pay for. Um, Social Security, uh, which is now running Red Inc., Those are benefits that my generation and previous generations we've voted for increased benefits um over time from the 60s7s 80s and 90s and to the present day more and more benefits paying the same amount. Uh and we've drained the social security trust fund and the the prospects of the future is that there's going to be more retirees and fewer workers. So the older generations are expecting the younger generations to pay for their benefits. Um so this applies and it makes sense um as to where this movement is coming from. So, um, Mayor Mami, um, reacted to a quote from FA Hayek, who foresaw all of this, of course, in 1944 with the book, The Road to Surfom. Hayek said, "If socialists understood economics, they wouldn't be socialist." Now, Hayek is referring specifically to the economics of a socialist economy in the fact that it doesn't work. It can't work either in its pure form or in any kind of hybrid form. So, Hayek was referring to the economics of the issue. And recently, Mayor Mandami reacted to that with a challenge saying, "If these past months, where democrat socialists have won elections have shown us anything is it is that socialists not only understand economics just as well as the capitalists who came before, but that we can solve their years of mismanagement through an embrace of our principles." Now, a lot of people have commented on that particular statement by the mayor. Um, and I'm going to try to explain it, and I have, of course, the correct perspective. Um, of course, I'm the teacher, right? So, what he's talking about is that Democrat socialists have it has nothing to do with economics. It has nothing to do with management. It has something very specific to do with politics that they put through forth a policy agenda, a party platform that appeals and wins among the young voters in large urban areas. That's what they've done very correctly and I would concur with that. You know, these problems that I just described are real. Young people aren't dumb and they're reacting to that saying, "Yeah, the older generation has somehow screwed things up. They have somehow taken away a big chunk of the American dream moving forward. And so I'm going to try something different. Somebody who's going to fix higher education, somebody's going to fix uh health care in the United States, and somebody who's going to fix retirement in the United States." Um and also of course the capitalists uh my older fogy generations uh we have screwed things up with uh social security which is an obvious irrational policy and should have never been adopted in the first place and the national debt which is an anathema to the principles of the American Revolution um and nationalized health care or our version of it with Medicare, Medicaid, government insurance and so forth. Uh the capitalists uh have indeed screwed things up in the United States. So that's the general perspective that I want to um illustrate and then also provide some Austrian economic analysis uh for why that is the case. uh why Hayek is right and why Mami is right. If you interpret some of the words like economics and management and capitalist um they're they're not the pure definition by any stretch of the imagination. So the Austrian analysis of government intervention, I'm going to try to keep this as simple and straightforward as possible. Um the first thing is and you've already seen this in so many different ways in so many of the previous lectures here this week is that government intervention of any type of any form no matter where it occurs in the economy. if it's a local zoning regulation um or a requirement for how many band-aids a hospital has to to have on hand. Uh or if it's the Federal Reserve, all of those interventions make us artificially poorer than we otherwise would be. So there is, you know, that's what we've seen so far is there's a general depressing effect on economic activity. Uh it hurts our ability to achieve our comparative advantage. It hurts our ability uh to divide labor and to specialize in the production of various uh goods and services. Um it distor it distorts land util utilization and capital utilization. It hinders uh entrepreneurship. Um all sorts of things that ultimately make us poor. Uh but it's very difficult to see all of that in action. Especially with small rules and regulations. Uh it's hard to see the effect. Um, and even with big interventions like adopting social security in the 1930s, well, you're not going to see the negative effects in any way from a policy like that uh for many many years to come. Okay. One of the things that you all you've already also seen is that government intervention does not achieve its ends. Okay. So if you look at the um the sort of publicin interested reasons why government is uh gets involved in various things. There's always some sort of public interest that's meant to be served. uh you know, the local zoning rules um are designed to give us green space and breathable air and you know, a better looking neighborhood and, you know, all sorts of things. um it doesn't actually achieve those ends anymore than adopting the Federal Reserve Act during the progressive era uh made the value of our money more stable or stabilized the economy uh or provided uh well it did provide an elastic currency but not in the way they were talking about. And as a matter of fact, of course, the value of currency in the United States is now been depreciated by about 99%. Um, and the business cycle since the adoption of the Federal Reserve has been more unstable than it used to be. So if you look long and hard enough and study it analytically sufficiently, what you're going to find is that government interventions ultimately do not achieve their publicspirited ends as they promote those interventions. Now what we're going to concentrate here today is on government intervention causing economic inequality. So not just reducing the e size of the economic pie or not just reducing the potential for economic growth or not you know you could look at it in terms of stying uh progress or improvements in the standard of living. But actually in this case it's how the pie gets cut up. Who's getting bigger slices of the pie? who's getting smaller slices of the pie. Um, in terms of that analogy of the economy being an apple pie, um, you know, we definitely want to know if it's getting bigger or smaller, but we also want to know most importantly, is are the slices changing in size over time? Now, as an individual, uh, we expect our slice to change over time. We expect um our our ability to eat pie to improve as we go from college into the workforce and as we go from lowpaying jobs to highpaying jobs. Uh so obviously on an individual level our pie size, our piece of the pie is going to change, but we're going to be looking at it in terms of categories um in the economy of and how that's changing. And of course, the fact that one, two, and three um are giving us negative results means that there's often calls for even more intervention. They never they never couch it like, okay, these interventions didn't work. Um, therefore, we need to get rid of them. It's these interventions didn't work, so we need even more of it. So, government intervention, there's a lot to this topic. Rothbard provides us with a topology topology where he breaks down and categorizes all the types of government intervention. That's worthy of further further study uh on your part. Uh we're not going to really go into that um topology very much, but it's important to know that it exists um and that it's very helpful. Uh we are going to talk a little bit about just the number of interventions in the economy in the United States. Uh because we have a variety of different levels of intervention. We have the local level uh where governments on the local level have all sorts of control over education. They have control over land use. Uh they control the local police department, fire, zoning laws, uh health codes, um just a variety of different levels just on the local level alone. And then of course at the state level, there's all sorts of bureaucracies, uh the legislature making rules and laws, uh the bureaucracies making rules and guidances. And then the federal level, there's enormous federal level uh inducing all sorts of restrictions uh into our economy. So um yeah and then we have even international uh rulemaking body and law makingaking body especially uh in the area of environmental uh controls and restrictions. So, um, the number of federal rules and restrictions, not counting taxes, exceeds more than 1 million. State level regulations alone, and again, this does not uh include rules, but just regulations is over 7 million. State level licensing requirements. If you added up all of the licensing requirements of all the different specific professions by the states, it would be 2700 different professional licenses uh with tens of thousands of individual specific unique barriers to entry into professions. There's of course also the state tax structures on income, corporate sales, excise etc. Local zoning requirements exceed 10 million distinct interventions in the economy. At the local level, there are also all kinds of business uh rules, regulations, and requirements, including a bunch of health rules and requirements and uncounted millions of micro interventions. At the local level, there are over 19,000 local sales tax jurisdiction. And uh I couldn't even count those up. I asked AI and uh AI did not want to give me a number. They said, "No, we can't we can't actually do that." I thought, "Wow, I stumped AI." Um so that was an accomplishment. It eventually prodded it uh over and over again and it eventually gave me an estimate of over 20 million different government regulations up to an estimated 30 million government regulations. So, I was happy with that and also happy that AI uh offered me a something I'm going to quote to you. Uh and it says this is the consensus of economists. Quote, the cumulative burden is not just the sum of its parts. It forms a dense quote regulatory thicket unquote that acts as a major barrier to entry for new startups while established corporations with large legal departments are much better equipped to navigate them. Okay, that's exactly what I was looking for. Uh and that's exactly what I want to get into here today. Now the um uh the the main Austrian analysis here in terms of income inequality is beyond all of what I've said so far is that Austrians in particular Murray Rothbard in his man economy and state uh and elsewhere where would talk about the difference between specific factors and general factors. General factors of production apply to all factors of production. So land uh you know you would be thinking about just average land out there that could be used for housing or businesses or farmland or whatever. um land that is not centrally located like uh what professor Angelhart was talking about, not in that central business district where we kind of know where it's going to go. It's specific to um highrises and businesses and so forth. So general average land is a general factor. Unskilled labor is a general economic factor. It refers to people with low general levels of skill, people who are capable of getting jobs in a variety of different industries and businesses and job descriptions. So that refers to a lot of people basically. Um, you know, I'm well, I'm probably not capable anymore, but at one time I could do a lot of different things pretty easily. uh you know from working in a pharmacy to working on construction, working in farming. I mean I've done all sorts of food service I've done all sorts of things. Uh but as a PhD economy economist that's a specific that's specific labor whereas all those other jobs are are related to labor as a general factor. Savings is also savings uh or capital that can be go anywhere. So you might want to think in terms of just your personal individual saving uh that you hold in a bank. That money could go into stocks. It could go um you know in into various investments. It could be used by the bank to make mortgages. So that savings uh of the average person is a general factor. Um and then with firms and entrepreneurs, we're looking at potential entrepreneurs like mom and pop, uh startups, like small and new firms. Uh firms that are the engine of job creation in an economy. So when you think of companies, the biggest corporations generally reach a peak and then they experience job loss over time. Whereas new companies who come in generally add jobs for many years uh before they peak out and level off. So small companies, mom and pops, small firms are a place of job creation. Now instead of that general factors, let's look at specific factors. So with land, we would like to focus in on land that is particularly adept at one and only one or maybe one or two different things. So in the United States, we have tons of land, but um land for growing cane sugar is actually in very limited supply. So it's only going to be in places like southern Louisiana and southern Florida that you can grow sugar cane for the production of sugar. Same is true with the central business district. uh that land is very limited and very specific uh labor, specific labor. We're talking about highly skilled uh very experienced uh people in advanced professions like doctors in contrast to orderlys. uh with capital goods uh you know specific factors would be like a robot who puts tires on an automobile on an assembly line. So that's the only job it does. That's the only job it can do. Whereas a hammer can be used in by a variety of different people for a variety of different applications. And uh then specific entrepreneurs are people already in the business. They're already incumbents. They have high-tech equipment. They have specialist workers. They're not the mom and pops. So what happens in government interventions and why do some people win and some people lose? A lot of it comes down to are they specific workers and and factors or are they general workers and factors. So if we look at a particular supply and demand situation in a free market economy with specific factors we're going to see supply and demand in price and with general factors we're going to see supply and demand in price. With an intervention it almost always decreases the supply or increases the demand for those specific factors. So if we put a um prohibition on importing sugar, if we put a um a price floor on sugar um or if we license uh and limit it the number of sugar producers, of course, that's going to increase the price of sugar and it's going to increase um the demand for land, the limited amount of specific land in the United States that can be used for sugar production. So that particular industry, those specific resources are going to get higher prices, higher price of the land, higher profits for the owner, higher um wage rates for the workers possibly and uh and higher returns to the people who make mechanical sugar planters and mechanical sugar harvesters. So you can see that in this case and really in all other cases uh it's going to have the effect of helping specific uh labor and other factors of production. They're going to benefit from government intervention, but it's also going to displace um others from the productive uh from from that from that area, from that industry, from that the production of that product. it's going to release uh resources uh from that industry and those resources can no longer get what they used to be used to get in sugar production in the free market. They're being essentially dumped into the economy as general factors of production. So they're going to have to find new jobs, new applications in other industries where there's no government intervention. So as you shift the supply of resources out of the benefited industry and you force them into unprotected, unintered markets, they're going to have to compete with existing land, labor, capital, and so forth. So, as you're forcing people out of protected industries, uh, privileged industries or subsidized industries, you're going to force them into as general non-specific resources and you're going to make them compete in industries which already had established prices. And so everybody over there where there's no intervention is going to get lower wages, lower returns on capital, lower returns on land, and uh lower opportunities for entrepreneurship. So that's the general effect of government intervention. Um and then you know we can see this uh in some of the examples that we've seen so far. Uh in terms of health care for example, health care is an industry that faces so many interventions uh that it's completely difficult to count. But doctors have privileges, licensing requirements that keeps out competitors. Now nurses have interventions which keep people out from competing uh as nurses. Hospitals have um land uh have uh use requirements where if you want to set up a new hospital in an area, you have to get the permission of an existing hospital in order to compete. Pharmaceutical companies have patents on their drugs. So the prices of those things are higher. Uh machines, health uh mechanical devices and healthcare also have patents. and uh and so their prices are much higher as well. So you're just driving up uh the prices and the costs of everything in healthcare. And uh we're not going to look at the specific people who are released, but it's very easy to imagine that if everything is getting more expensive and higher wages, higher prices and so forth, that the ability to purchase health care services has gone completely beyond the average person's ability to pay for them. And the prices of these things, especially the insurance prices, have skyrocketed out of control. So you have a small groups of people, doctors, uh, hospitals, pharmaceutical companies who get great benefits from all these government interventions. They're not necessarily happy people, but they have economic benefits. But the rest of us um face incredibly high prices or incredibly high insurance rates and insurance rates is one of the things that the democratic socialists are complaining about and what they want to fix uh for us. So uh and then of course if you do include government insurance whether it's private taxinduced comprehensive insurance or Medicaid Medicare uh governmentf funded health care for employees for military for veterans and so forth. Um you know what does that do? Well, it has a tendency um in terms of a moral hazard that people on comprehensive health insurance tend not to take care of their health very well. They tend to not work on the margins of things that would maintain their health where they wouldn't need uh health insurance. And uh so that Americans not only pay more for health care than anybody else in the world, but they also have the worst health of anybody else in the world. you know, and one of those results that rises to the surface is the problem of obesity in the United States, uh, and the high rates of obesity and the high rates of other maladies that are associated with obesity like heart disease um, and uh, diabetes um problems with uh, various internal organs um high blood pressure u and the list really goes on and on. So uh the the overall combination of all the various subsidies, all the various protections and government insurance and payments uh that make people less interested in their care in comparison to a free market situation where individuals would have to pay prices. Now, of course, they would be much lower prices in a free market, but they would have to pay prices that we would fully expect, as pretty much everybody does, that people take better care of their health. So, this kind of thing explains a lot. I was hoping to spend a lot of time on the K-shaped economy and how the Federal Reserve has really um uh engineered the problem of inequality at the macro level. So, Professor Dgner already did that. I'd be happy to address that question more on Saturday on the podcast. I've talked about it on my podcast and a lot of the interviews that I've done on other people's podcast, but today we've been focusing and on the microeconomic effects of all of the various government interventions in the economy. Thank you so much for your attention. Markets are breaking new all-time highs everywhere you look. Today on August 4th, the S&P 500 and the Dow Jones both hit all-time highs today. Palanteer jumped 17% in Caterpillar went up 12% on the back of what's expected to be a 77% jump in capex spending in the AI sector. Guidance is giving us $725 billion of spending this year in 2026. Now on the other hand, the 30-year Treasury yield is 5.2% today after 27 straight sessions above 5%. The US national debt is currently at $40 trillion and tariffs are the highest since 1969. Our next guest, Mark Thornton, is saying that above 5% and we're reaching danger levels in the economy. Dr. Thornton is the senior fellow at the Lewick Vonis Institute and he studies patterns that repeat every time an economic boom reverses. He's written many books. Among them are two relevant books to today's conversation. tariffs, blockades, and inflation in two 2004 and the skyscraper curse and how Austrian economists predicted every major crisis of the last century in 2018. His recent work focuses on how cheap credit funds the biggest national projects at the very top of a boom cycle. So, are we at that top now? Mark, welcome to the show. Good to see you. It's >> great to be great to be here with you, David. >> I want to examine your skyscraper index. tell us what it is, how it works. I've we put together a list of um skyscrapers and their completion dates and what has followed. So, uh the Singer building at Metlife Tower in New York completed 18 1908 to 1909 during which time there was a panic of 1907 economic crisis. The Chrysler building done completed 1931 that was during the Great Depression. World Trade Center and Sears Towers in Chicago 1974. Right after that, stagflation in the 70s. Patrononus Twin Towers in Koala Lumpur, Malaysia 1998. That was in the middle of the 1998 Asian financial crisis. And the Burj Khalifa completed in 2010. Uh followed the 2008 global financial crisis. So, not an exact um correlation here as to what follows uh whether or not it leads or coincides with the financial crisis, but there does seem to be a pattern. Can you just outline the economic theory? Yeah, it's a pattern that's recognized by Austrian economists, but it's really perplexing to anybody else. But basically, when a new record setting skyscraper reaches a record- setting height in terms of livable space, it coincides with the onset of a global economic crisis. And that seems crazy, I know, but basically within the Austrian theory, we pay attention to things like technology, capital and financial structures, and most importantly, the impact of artificially low interest rates on investment and stock markets. And so all of these periods were periods in which there were substantial periods beforehand of very low interest rates. uh where the economy was in a growth pattern and then ultimately a bubble pattern and that's when the skyscrapers were initiated where they were built and they coincide roughly reaching that record height and the onset of a global economic crisis about the same time. And so for us, it's an illustration of this holistic Austrian theory because we think that these artificially low interest rates specifically do alter the capital structure and financial books of firms throughout the economy. And that they these ultra low interest rates also induce uh the new technology into the economy faster than it all would normally. So you get a lot of high techch innovations and in building a world record setting skyscraper you have to come up with all sorts of brand new technologies from the ground up. everything that you do to design uh build um all the machinery, the elevators and escalators, the the water systems, the sewer systems in these buildings, they all have to be brand new devices in order to achieve those record setting heights. And so we see it as a great illustration of our business cycle theory which pays attention to the capital structure of firms in the economy and also the role of technology and advanced technology. And those are two weak spots in mainstream economic thinking where they have a tough time dealing with technological innovation and changing capital structures within firms and within the economy. But they all they think it's all important. They just don't um handle it very well in terms of what causes abnormal changes. Perhaps maybe another way to look at it is skyscrapers uh are financed with not just equity but debt. And so liquidity has to be available to construction companies and developers alike. And that liquidity is usually available during a time of a boom when uh perhaps there's easy monetary policy. And of course it takes many years in some cases even a decade to complete the skyscraper. And so by the time it's actually done, perhaps then the economic expansion is over and we're now looking at a period of monetary contraction. Perhaps that makes sense as well. What do you think? >> Yes. Yes, that makes perfect sense. It's um you know the real estate market uh drives the fact that you know land becomes more expensive and you need to build taller in order to make buildings profitable. So the lower interest rates also, you know, force up the price of land, particularly in business center districts. And when the price of land goes up, you inevitably see buildings have to be built ever higher in order to make them pay off. Now nowadays, right now, um, you know, with the data centers, you notice that instead of trying to build skyscrapers to house these data centers, they're putting them out in very rural areas so that they don't have to build higher. But usually in business, especially with skyscrapers, you want them in the downtown business district. Yeah. And so it works with te uh capital, it works with in banking and all that. It works with technology and it works with what we all really know about the real estate market in general. The AI data centers uh are an aberration to a certain extent from that tripartide causal factors. One thing I've noticed after interviewing so many investors, economists, and market analysts over the years is that experts rarely ask themselves what should I buy in the very beginning of the investment making decision process. In fact, they actually begin the process with a different question altogether, which is why would I own it? Before they allocate capital to any asset, they want to understand the role it plays in a portfolio, the trade-offs, and whether it aligns with their long-term goals. And I think that's a pretty thoughtful approach. So, if you've been hearing more discussions about physical gold and silver and you're wondering whether or not they fit into a long-term financial plan that's right for you, well, it's worth taking the time to understand how they work before making any investment decisions. And that's why I partner with Augusta. Today's sponsor, Augusta Precious Metals, has an experienced education team that offers personalized one-on-one educational web conferences, where they'll explain the different ways people own physical gold and silver, including how purchasing precious metals is different from owning a gold IRA. They'll help answer your questions and help you understand your options better. Whether you ultimately decide precious metals are right for you is entirely your decision. So, if you'd like to learn more, visit lintrustgold.com link in the description down below or scan the QR code here or text lin to 35052 to request Augusta's free guide. Remember, the best investment decisions don't come until you start to understand why you should own something. Well, right now, we don't Another equivalent to the modern-day skyscraper is the AI data center. >> And I'll just show you this article. These aren't skyscrapers per se, but they require a huge amount of capital expenditure. Google, Microsoft, Meta, and Amazon capex spending to hit 725 billion in 2026, up 77% from last year. The headline reads, "Analyst says bare thesis is quote unquote garbage." All right. Um, I'd like you to maybe put this into context for us as to uh whether or not we can apply the same analysis to AI data centers and capex in the tech space and whether or not a bare thesis formulated around this is quote unquote garbage. >> Yeah, absolutely. See, and when you go to AI data centers, you're not really worried about the technology of constructing buildings anymore because data centers are not location dependent. They can obviously be built anywhere, but there's of course the technology component is what's inside uh the data center. So uh it doesn't really stray too far from the Austrian theory. It does uh stray a little far from the skyscraper index. uh but it's all very much um in line with the general um Austrian theory and uh so we have seen this cluster of building of data centers um and we're going to eventually see a cluster of entrepreneurial errors when these data centers are not profitable uh you know going forward and you know for a variety of reasons This is the most irrational uh process I think um I've ever seen. It's not it it makes it clear to me. I don't really know. I don't study data centers, but it seems clear to me that the reason from the data centers must not be um solely or um for business productivity. It must be for some other uh reason that these things are being built because it it's not it's not really for business uh productivity. It must be some uh government angle uh there. So um and of course uh you know uh booms and bubbles uh we recognize that data centers and artificial intelligence are basically a good thing even if they've come too far too fast uh for current circumstances. They're going to be fine. They're going to be you know they're going to be useful to us. They're useful to me right now. um that's not the point. It's a matter of timing and capital structure and business modeling that makes sense and the fact that it doesn't make sense when the central banks make credit freely uh available just like you know in the tech bubble you know the you know all the software that was being created all the computing power that was put together um and and all of that um you know that was something that was good and productive and outlasted the crash in technology stocks. Uh so we're not saying that, you know, artificial intelligence and data centers are inherently bad or inherently inefficient. We're saying that it's related to the speculative behavior um of an economic bubble that is created by the Fed uh with below market interest rates and that if we had marketdetermined interest rates that things like booms and busts and bubbles in the stock market and elsewhere in the economy like housing would not take place. Yesterday, uh, 25 states sued the Trump administration over new tariffs. They've argued the administration used section 301 to recreate tariffs the Supreme Court already struck down back in February. So, I'll just pull this news up here and I'll leave it on the screen here. Um, according to the CNBC report, uh, a coalition of 25 Democratic le states sued the Trump administration on Monday over tariffs of 10 to 12.5%. Uh the complaint filed in the US Court of International Trade challenges tariffs of 10 or 12.5% of most imported goods from the affected economies which together account for 99.4% of US imports. Is this just a political act? Is this theater or is this the end of Trump's tariffs? What do you think is happening? >> Well, it's definitely a political act. Tariffs are a political act of hostility towards our friends and the repeal and refunds are actually a clear sign that it's domestic consumers. You know, Americans were actually paying the cost of those tariffs. As much as President Trump and others protested and saying no, the foreigners have to pay the whole thing and they are hurt by the tariffs, but it's American consumers that actually have to pay them. And right now, it's part of a political theater. Um, it's part of revenue dependency that the Trump administration has adopted uh from this tariff monies that they where they want to keep it going. They want to say uh to their political supporters uh the special interest groups that support them that they're still at it in terms of trying to provide special directed economic protection for American companies. But do you think that the sup the Supreme Court ruling the Supreme Court ruling that struck down Trump's tariffs is that the beginning of the end of more tariffs to come? Well, I certainly hope it's the end of it. Um, obviously this is going to play out uh politically and judiciously um in the courts, but I think that Americans have firmly said that they do not like these high tariffs. Uh they know that they're paying for it. The refunds make that rather obvious even though they're not going to be getting the money largely from uh the tariff re rebates. um and you know the consumer sentiment sentiment um results and the opinion polling regarding the American government and President Trump, those all went down significantly with the tariffs as did the stock market. So everything about this, the stock market and the wealthy uh the average consumer and the average voter all said no. And of course, because it's a very politically connected uh policy uh directed at a few special interest groups, President Trump wants to continue that. They he wants to continue that as part of his political platform. Uh but I think the writing is on the wall and the politics of it is even further underlined by the fact that the states who are suing President Trump over the new round of tariffs are almost all Democratun states rather than Republicans. So, it's obviously something that the political classes are doing and enjoying uh and giving out friends to their favor favors to their friends. Uh and it's something that hurts the average American and it hurts our friends overseas. an a political act of hostility that is causing antagonism with our friends and relatives overseas. um and former friends, you know, America was for the longest time a very admired place and uh President Trump in his tariff uh implementation uh was a big setback to the way um foreigners view America and American politics. >> Well, the refunds are happening now. Amazon says it got $600 million. Uh, I believe Apple also got some money. A Seattle class action lawsuit though says that consumers who paid the higher prices are now owed it instead. Online it's being called a corporate windfall. In this article, it does say that Amazon promises to pay back some of its um uh refunds to consumers. Now, do you think that this essentially is a correct reading that this is a corporate windfall? And if so, can we expect margins to um expand in earnings to reflect this windfall next quarter? Well, they may have already reflected those windfalls um and that may actually reverse a little bit, but um you know, a lot of things sold through Amazon, especially the bigger ticket items, uh the the tariffs for those imports were paid uh by Amazon sellers. And so Amazon doesn't get that money. It does get money where it's clearly defined that Amazon as a corporation imported those goods from overseas and sold them directly to American consumers. So the American branch of Amazon is is going to get the biggest um check from the government. Uh but of course it's very difficult to and it's going to be time consuming and wasteful of course uh for Amazon to try to figure out how to um disperse all of that refund money to its consumers. Now it's my understanding uh that it's going to be able to accomplish a great deal of that in terms of identifying the people who are ultimately owed the money. But it just shows you the uh the complexity of international trade and the paperwork that's involved is quite substantial. Now I know Amazon has got very welldeveloped policies for creating refunds and very strict processes of what qualifies for refunds and that sort of thing. So, I do expect a lot of Amazon customers uh to be notified uh by Amazon of the status of their account and to receive uh refund checks when the goods that they were buying were actually imported by Amazon itself rather than Amazon sellers. What do you think are the biggest risks facing markets today if not for tariffs which were you know a big concern last year? >> Well, I think there's massive amounts of uh risk facing the American economy and the American consumer, American households. Uh there's a whole classification of risk uh around the business cycle. I think we're at sort of the end stage of a very long and vast bubble in the stock market which has been enhanced by below market interest rates and now basically interest rates are in real terms adjusted for inflation near zero. So we're seeing uh over the last quarter or so a big blowoff top uh in stocks. So I think there's that risk. I think there's risk of course associated with the war in the Persian Gulf um regarding uh a lot of commodities that go into a lot of basic industry in particular uh diesel fuel and jet fuel. Uh diesel fuel that makes it possible to transport parts and raw materials around the economy. Uh and then to have the goods uh the final goods shipped around the economy as well as all the farm production uh and transportation uh in the economy. Um that's all going to be adversely affected by what are already high prices for diesel which I expect to go much higher uh because of the um bottlenecks caused uh by the war in the Persian Gulf area. So, and then of course there's underlying all of that which I don't think most people or even analysts realize, but we have a structural energy problem around the globe where we've deemphasized fossil fuel and nuclear power for several decades and we've uh incentivized um you know non-traditional fuel sources. Uh so that we've decommissioned nuclear power, we've decommissioned um uh coal fired electric uh power plants, and we've really put the screws to uh oil and natural gas exploration. And as a result, uh what we look at right now has been a relatively low and stable price of oil. uh setting aside the Persian Gulf War. Uh but what we're actually seeing beneath the surface literally is that a lot of the older oil and natural gas fields um uh their output is falling rather dramatically and that fall in output is expected to to continue and there really hasn't been a lot of investment uh in the United States or the world economy in fossil fuels in commodities of various sorts and in um uh in in many many things like refinerying uh of oil and natural gas and and other related uh products that we use. And so uh those three areas I think are unrecognized but substantial risks going forward um in the American and of course therefore the world economy. Mark, your 2004 book called Tariffs, Blockades, and Inflation examined how tariffs impacted the economy in the Civil War era of the 1860s. Can so can we draw any parallels today to the 1860s and whether or not we're seeing a repeat of what happened to the economy in the Civil War era? >> Well, I think exactly. I mean Ludwig van Misesus the namesake of the institute and Austrian economics in general with respect to tariffs and protection policy we first and foremost see it as a policy of hostility and antagonism uh where you're essentially attacking um other states or other countries uh politically and economically rather than just militarily. Uh and in the case of the American states, the northern Republicans implemented uh very high tariffs on imported European manufacturing goods in order to to protect their special interest friends in northern manufacturing. And uh the Republicans wanted to finance some of their pet projects. And this was all to be paid by southern uh farming and agriculture um as a result of these tariffs. Uh and so that was an obvious and direct hostility. Uh and it led to secession on the part of several southern states and ultimately you know Lincoln wanted to enforce the the revenue collection in southern ports and war broke out and so and the same thing happened in World War I. uh protectionism uh sort of thing uh led to hostilities, hostility and then military confrontation. And I think in this case we have a small snapshot where uh President Trump and tariffs and protectionism uh created not only the hostility with all of our friends and enemies um around the world, but it also created a sort of attitude um on the part of the United States, a kind of economic um Napoleon complex where we could do anything we wanted to. Um, and we saw, you know, the uh invasion of Venezuela and threats against Greenland and threats against Cuba. Um and then this these actions uh against Iran and and so uh we often see these um historical parallels where the same political mindset and the same political policies lead us into a situation such as military confrontation where certainly the voters but even the politicians lose control of their destiny. they get caught in this escalation process where they don't have any good choices and certainly uh the US and President Trump have no good choices except to concede defeat and withdraw and that's highly unlikely of course um and as a consequence we've lost our control our will over our own destiny and we've put the uh the future of the world economy and even the current state of the world economy because the the um the situation in the Persian Gulf is hurting not just Americans and it I expect it to the pain to increase significantly uh but also you know people around the world in Asia and China and India and Turkey and you know just all over the world people are being hurt people are being laid off uh businesses being curtailed because the fuel is not there farmers uh are having to go without diesel fuel and without fertilizer. So where there's a looming agricultural crisis uh in the next couple of crop rotations. So um you know these things spiral out of control and one of the biggest uh causes of that spiraling out of control is uh the tariff issue which seems so easy and straightforward and where the politicians can say the foreigners are going to suffer the foreigners are going to pay but ultimately everybody pays the price. >> Tell us more about this looming agricultural crisis. I mean, can't farmers get their fertilizers from somewhere else? >> Yes. I mean, there's uh here in the United States, there are domestic sources. Uh you know, some of it's produced through natural gas. Uh refinering, uh some of it's mined in terms of phosphates and and so on. And some fertilizers are still, you know, pretty uh well abundant. But of course, fertilizer is something you need in a balanced format. Um, and the price really hasn't gone up all that much uh so far, but the supplies of them uh have have dwindled greatly. And uh uh farmers in third world countries and second world countries are very sensitive uh to changes in price and and also they just may not be available in certain markets. So they have less fertilizer going into uh the previous planting season. Uh probably the same thing for the next planting season and so forth. And now they're also facing um you know the the higher price of diesel fuel which is used in all transportation by truck uh and it's used in all far farm machinery. Uh so farmers um are really feeling the pinch. Um and I think that's going to be particularly true in uh third world, second world, Asian economies uh all those groups um who were caught off guard by this whole thing and don't really have a lot of alternative sources of supply. I mean India and some of the Asian economies and some of the East um African economies were wholly dependent upon uh Middle Eastern fuels, chemicals, fertilizers, etc. Uh but of course the problems are going to be worldwide. It's going to affect everybody. Uh diesel fuel could be in short supply. We could not only face higher prices for diesel fuel, higher ticket prices, lower profits for the airlines, but there may be just complete shortages where routes have to be cancelled, flights have to be delayed and so on. So, it's very very complex. I mean, uh, I did one episode of my own podcast, um, where I looked at the refining process of, uh, natural gas in, uh, Persian Gulf refineries. And because they have so much energy, they have a comparative advantage in producing a lot of byproducts uh, right there in the Persian Gulf, which isn't happening right now. And one of those things is sulfuric acid. And sulfuric acid is not much of a home product anymore, but it's used in a lot of industries. And it's used in the mining industry uh for the refining and uh processing of a lot of important metals uh like copper for example. And copper is in tight supply. It's at an all-time high price right now. And it's in very high demand by AI and data centers and uh now in the Chinese uh even in the Chinese solar panel industry they're switching from silver to copper um they're in the process of doing that because of the high cost and now they're finding out copper is also yeah high price. So there's a lot of very complex things going on that you can't expect the average person on the street to be familiar with. uh but they will of course be familiar when they face higher higher prices and shortages uh of these products including food on the grocery store ch uh stores in the United States um as these crops uh in coming uh crop years are uh diminished worldwide. >> Going back to tariffs, how likely just based on historical precedence, how likely will tariffs lead to a hot war? Well, I think that they, you know, have contributed to it, um, in this case, um, you know, because it's, it certainly encouraged, uh, President Trump's attitude towards f foreign policy. I mean, it was, you know, tariffs, tariffs, tariffs. He kind of got slapped back initially uh and then he went on this uh spree of belligerance towards foreign economies. Um and in particular of course this is a lot of it's targeting uh the uh oil in the oil industry and uh people who supplied uh China with with oil production like Venezuela. Um and so you know we're also I haven't mentioned it yet but a lot of these things um are threatening uh China. you know, the going into Venezuela, taking control of their oil industry was a direct threat to the Communist uh party in China and the Chinese economy. And uh going into Iran, which was also a friend of China and a major uh supplier of its crude oil, uh which it refined into a a bunch of B byproducts as well as gasoline and and so forth. So, um you know, these this process can pan out for a long time. But even if we could solve the Persian Gulf problem and get things working again, we've already been slapping people in the face. And you know when you slap people in the face the sting does go away but we remember those things and we don't forget those things and they matter uh greatly towards future decisionmaking. So if we wanted a more peaceful world, a more cooperative world, a more prosperous world, um we've done something that's harmed our potential for achieving all of those goals. um in the policies that we've seen in 2025 and 2026. >> Dr. Thornton, can we talk about the Federal Reserve? Now, you've commented on other media that uh the nomination of Wars is not great for precious metals. What are you implying here? That he's possibly more hawkish than the markets expect and that interest rates are rising with near certainty here. I think that he would be more dovish if he could get away with it. But right now, the Fed is caught between Iraq and the hard place in that, you know, the 30 the interest rate on the 30-year government bond is very, very high. It's broken through 5%. Uh the interest rate on the 10-year government bond is up at a very high level compared to the last several years. Um and they're very worried about that those interest rates because of its impact on capital expenditures in the United States and the stock market. And of course, you can, you know, the American people will blindly follow anybody that gets the stock market going ever higher. And they know that, and that's why they say the things that they do and do the things that they do. And uh but the problem is if the Fed cuts the shortterm interest rate right now that that's only going to put increased pressure uh upward pressure on the longer term rates because of the price inflation that's already in the system. As I mentioned in my opening opening remarks, the real interest rate in the American economy and indeed in the world economy uh because this is a general central bank problem right now. If you adjust the actual rates for the rates of inflation, the real component of interest rates, the amount of return after inflation is very very small. that helps the stock market because people can like AI companies can borrow zillions and zillions of dollars uh because they they think that they can repay these loans uh with depreciated dollars and the federal government, you know, hopes it's going to be able to repay uh make payments on the national debt in depreciated dollars. But going back to gold, I think it's pretty clear even though I was and most observers were thinking that the precious metal market was in for a very steep correction um sometime in January as the market just went hyperbolic. Um, but you notice that at almost the exact moment that President Trump announced the appointment of Kevin Walsh, who was the most considered the most hawkish of all four of his nominees that he was considering. um that that sent the market for precious metals tumbling uh almost to the lowest level since uh the end of January. And then the market for precious metals eventually started to recover and then it collapsed again when Trump launched the attack um on Iran killing their holy spiritual leader and the leadership of uh the political process in Iran. So I think the fact that those two events which were politically determined in the United States um it's rather obvious that they were trying to uh take our um eyes away from things like inflation and uh devaluing dollar and things of that nature by changing the news cycle, changing the information that's fed into artificial articial intelligence and into mainstream journalism. Uh with those two political acts appointing Kevin Walsh as the chairman of the Fed and launching a devastating attack um on spiritual leader of Iran and the political leadership of Iran. uh those events are all completely tied together and I think we're only now sort of uh bottoming out with respect to the implications of those two acts. >> How high can the long end of the curve go before the Fed is forced to raise rates or intervene in some sense? Well, I think they're going to try to use financial repression and uh that means the Fed is going to come in that would mean if if that's true, if my guess is true, that would mean an expansion of quantitative easing. And that means where the Fed directly purchases government bonds from the market to suppress interest rates. And specifically, I think they would be making purchases from the long end of the curve in terms of 10-year and 30-year government bonds and anything uh in between there as well. um to suppress the longer term interest rate um because I I don't think a cut in the short term, the federal funds rate would have the desired effect. I mean, they'd like to see that lower too as well, >> but I don't think that that would have a desired effect because it would signal to investors that the value of the dollar is going to fall faster than it otherwise would have been falling. And that's going to put upward pressure on the long uh end of the yield curve, those 30-year government bonds, uh which the they're they're really not issuing many of those longer term notes. They're trying to re restrict the supply of those instruments so as to keep a lid um on the prices and a lid on those interest rates. So, uh I think it's a very very difficult path that uh Kevin Walsh is is um walking and I think it's going to be generally a policy of financial repression which I just described and I think also he's going to try to get to the target rate of inflation which they haven't done in over five years by simply redefining the statistics. uh that's been the last refuge of uh central bankers that when they they can't actually make markets behave the way they really want then they just change the information that's being put out in this case statistics uh they'll just rememeasure consumer prices so it appears that they're closer to the 2% target and of course Americans don't want a 2% target. They want a 0% target. Uh and they're very very upset about the fact that we're at four or four and a half% right now and that Americans have been experiencing over 5% increases in consumer prices over the last five years that are registering that in public opinion polls against the government and also consumer sentiment. sentiment that um you just went through recently um on your show uh you know where the you know we've come off of the bottom in terms of consumer sentiment uh but we're still at very very low levels and uh it's uh you know it's a it's a trip wire right now that if things don't improve um that's going to deteriorate and if things actually deteriorate in terms of price inflation in the economy, uh consumer sentiment and many of the other uh measures of the economy could turn sharply negative. >> I think you were referring to yield curve control, buying uh bonds to control the long end of the curve from going up further. The last time the US did that was during World War II to stop bond uh yields from becoming too expensive. Why do you think the government hasn't really done that since uh 70 years ago? >> Well, I mean, in World War II, uh they could get away with it because patriotism was running very very high. um you know, sneak attack and and all the horror stories and so on and so forth uh that the Americans the American people were working under uh made them very patriotic and they were committed to the cause and all the rest. But, you know, it it wasn't to their benefit uh to have the interest rates on those government bonds very low and not really even covering the cost of price inflation that was being generated by the Fed. And of course, that even got worse after the war when they had to unleash the program and price inflation worsened still further. Um and you know those those government bonds that people were buying patriotically turned out to be poor investments and uh and so you know it's not a policy that in retrospect is very welll liked and in fact in the short run people don't even know what's happening. um you know, they're they're only paying attention to the market rate of interest, not the uh after um inflation rate of interest. And right now, Americans have a huge amount of money uh in cash savings. Uh and so, you know, they're there's a lot of cash out there that the government is using and American business is using right now. And that's where uh you know it's highly likely where our central bank and central banks around the world will see as a uh potential source to dig out um a sneaky concealed form of revenue or financing I guess is the best way to put it. Um, and so it's not a it's not a very well-liked policy, but it's a it's really an act of wartime desperation. And I think the American government has put the American economy in a backed us into a situation of desperation with the national debt and the interest that is acrewing and has to be paid on the debt and of course the ongoing $2 trillion of deficits and the massive amount of federal spending. I mean there has been no cut back in government spending through all the massive increases uh that we've seen repeatedly year after year and uh and of course that's another thing the politicians don't want to do. They seem that no one is even talking about that uh you know in a normal government under normal conditions you know cutting budgets is a regular thing. yet is certainly in in the United States it's a regular thing at local governments and state governments that have to balance their budget but it's not even being discussed currently in Washington DC by our national representatives the Austria business cycle theory is one of the school's defining ideas states that are artificially low interest rates can create malinvestments in uh unsustainable boom cycles tell us about whether or not that's actually being realized in real life today after nearly a decade of zero interest rate policies from the Federal Reserve in the 2010s. >> Yeah, I mean it's been going on a long time. Uh the Austrian business cycle theory gives us a great explanation for the business cycle. It gives us a great description of the the contours of a business cycle, but it doesn't help Austrian economists uh really define or predict magnitudes or timing of these events. So we we come up short with respect to that. So, for example, I've been saying that the American economy is ripe for an economic crash uh for several years now. Um, but not that it was going to crash a month from now or a year from now, but that it was ripe for an economic crash because of the male investments that have taken place. And what um we cannot also control is the fact that the Fed can come in and requequify the economy. Uh I was predicting an economic crash related to the skyscraper curse in 2020. >> Um and well it didn't happen. We went into recession. COVID appeared mysteriously in the world economy and central banks including the Federal Reserve injected trillions of dollars and trillions of dollars in spending and we blasted right through that whole phase. Um and then a couple years later, you know, the economy was weakening, the consumer was weakening. It looked like a recession for sure. Um and but behind the scenes uh the Fed was uh transferring uh $2.5 trillion uh in from the repo holdings that it possessed back into the economy. And so most people didn't know that or they didn't recognize that. I didn't know that initially until I went digging and found that $2.5 trillion dollars. It's a ma it's hard to imagine you know that I found 2002.5 trillion dollars on somebody's books but that's what was happening and keeping that market alive and then of course we were expecting the same thing to happen in 2025 but at the end of 2025 the Fed announced it was going to renew quantitative easing of $40 billion a month in order to provide liquidity to the private equity and private credit. I had been talking about uh private equity and private credit um on my podcast um as a likely candidate for the next black swan event. Uh and then the Fed comes to the rescue. Uh eventually we get higher prices, but the Fed of course will bail out the economy as long as it's able to. uh and eventually it's going to run into a brick wall, but it does have a long leash. Uh in this case, 16 years of a boom. Uh and we don't know when that leash is going to run out and and market tolerance for this kind of behavior is going to come to an end. That's why, you know, the long interest rates um and the value of the dollar uh why those things ultimately matter because they're measurements against all investments and it's very difficult to rig uh the value of the US dollar and the interest rate on long-term government bonds which is a proxy for the cost of capital in markets stock markets and in business markets. market. So um you know again Austrian economist we we have almost no tools available to us to predict exact timing uh or exact magnitudes that you know so many people want to hear including ourselves. Uh but at least we know what's coming and we can understand the process. uh and that's very good uh assistance for things like long-term investment uh planning and um also uh the longer term outlook for the stability of the American society and its political system. >> How would you evaluate the Fed's ability to make policy based on data today? In other words, do you support what the Fed is doing and uh how they're reacting to economic data? So, Friedrich Hayek once argued as part of his core thesis that it's difficult for any one central authority to gather all and aggregate all economic data available because economic data by nature is decentralized. It's always moving. It's tacit. And so he calls this the knowledge problem. Can you just explain what the knowledge problem is and whether or not the Federal Reserve is approaching this in your opinion the right way? Well, that's another thing about Austrian economics and that quote from Hayek actually uh brings that out very clearly is that we have you know in some sense we have sympath sympathy uh for the central planners and you know the central bank is just a particular kind of central planner and that all socialists whether they're Soviet um or uh Chinese communists or whoever wherever they are. Uh they don't really know uh they don't have market input uh data that's coming to them that they can accurately gauge and magically make the right decision as to how many shoes to produce or what colors of shoes to produce or what kind of souls the shoe should have. they have no feedback mechanism for answering the questions which actually determine human happiness and satisfaction. Uh that's why um you know Mises was right a 100 years ago that we don't want society run on the basis of central planning uh and a socialist rule uh over the economy because all the regulatory bodies in the United States and especially uh the Federal Reserve is just that they're a bureaucratic planning operation. ation that is trying to price control uh its way into controlling the American economy. It's just not feasible. Uh it's just not uh likely to happen. Now, of course, occasionally things seem to work out okay, but they would work out much better uh in terms of the productivity uh long-term capital investment uh entrepreneurial uncertainty. If we had a monetary system based on a commodity money like gold which was independent completely independent of any kind of bureaucratic decisionmaking and so very often questions come up uh you know in economics about well what's the you know the true rate of interest or the the natural rate of interest and you know and then a thousand economists will go try to estimate what the natural rate of interest is and you can't get to it because only the market can really determine these things and you know and that's why we have sympathy for the fact that central planners just like at the Fed are constantly making mistakes uh both small mistakes which are not really brought to people's attention very often as well as the larger looming mistakes uh that the Fed has faced in the past and is guilty of in the past and which it's facing right now. I would say the Fed is very much in a catch 22 uh position, a very highly constrained position. Sometimes things are easy for the Fed, sometimes things are hard for the Fed. I think conditions right now are extremely hard for the Fed and that they do not have many good options. If you look ahead at what the Fed is doing now, what can we expect from inflation uh as a result of the Fed's current monetary policy and ultimately our standard of living, which is to say real wages? Can our wages catch up with inflation as a result of what the Federal Reserve is doing right now? >> Well, in theory and in history, that's the problem. A major problem with uh inflation is that you know the people who get the money first they're the big benefits benefactors and then when they start spending the money other people benefit but prices go up and it's really the working class uh that really never get that money in their pockets. Uh they just get the higher prices. So wage rates typically uh on a macro level only increase at the end of the inflationary process. So I'm not optimistic with respect to price inflation. I think it's going to be high. I actually think it's going to be higher. I think it's going to be led by some of the uh products that I've featured including uh diesel fuel and uh jet uh fuel uh chemicals and so forth um and higher agricultural price prices. So, you know, the central bank always wants to ex exclude food and energy and I think those are the two categories that we could see the most significant increases going forward. Other prices in terms of assets uh I expect less growth. I expect um the prices of stocks uh to not go up much at all. I mean, if you if you compute them on the basis of a 10-year moving average, uh the net expected return in stocks over the next 10 years is zero or negative. I expect the return on bonds, both corporate and government, to be adjusting for inflation to be zero or negative over the next several years. And I only think um and real estate is the same way because of all the investment in there. Uh the expected returns are are going to be low and I think we could see a lot of price decreases in stocks, bonds uh and land prices uh in particular. I think land prices are going to go back into the closet uh where there you're not going to see many uh much in the way of transactions uh for land. Um and so you know some prices are going to go down but the consumer basket prices are likely to head higher. >> Okay. Thank you very much Mark. Appreciate your appreciate your time and uh analysis today. Where can we learn more from your work? Uh David, it's been a great pleasure. And I'm at the Misesus Institute. You can find us at mises.org. And if you go to our homepage, there'll be a link at the top of the screen where you can pick up a free copy every month of one of our books. And this month's uh book is by Murray Rothbart, our first vice president for academic affairs. It's called The Case for a 100% Gold Dollar. And you get a copy or maybe multiple copies uh of that book uh for free just by writing us using the link at the top of our homepage. >> All right. Appreciate your time. Put the link down. We'll put the link down in the description down below so you can follow Mark's work there. Thank you very much, Mark, for joining the show and I look forward to speaking with you again soon. Take care for now. >> Thank you, David.