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Dec. 31, 2008 - Rush Limbaugh Program
36:20
December 31, 2008, Wednesday, Hour #2
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Welcome to today's edition of the Rush 24-7 podcast.
Thank you very much, Johnny Donovan.
And Johnny Donovan is telling the truth about your host.
We want to get back to business.
I'm going to make a slight detour.
I'm not going according to how I promise, but like women, I reserve the right to change my mind, too.
By the way, there's a nice little piece in Bloomberg, and it's written by a lady, Carolyn Baum.
I think that's how I pronounce the name, B-A-U-M.
And it's titled, Capitalism is the Worst System Except for the Rest.
And it starts off by saying the year 2008 will be remembered as the one that exposed the fatal flaws in free market capitalism, sending it to an untimely death.
Then she asks, or will it?
Sounds kind of doubting, but she gets some quotations from people that we all know.
One is Arianna Huffington.
She wrote that laissez-faire capitalism is a monumental failure in practice and should be as dead as Soviet communism.
Daniel Shore said he pronounced the death of a doctrine referring to free markets or laissez-faire capitalism.
And then let's say there are a couple other people.
But then again, there's this fellow, Paul Cassrill.
He's the chief economist at Northern Trust Company in Chicago.
He says, before you declare free markets as a failure, you have to establish that they exist.
Now, you hear a lot of people saying that this economic crisis or this financial crisis that we're in represents a failure of capitalism or deregulation, too much deregulation in free market capitalism.
Well, there's an interesting article by a research fellow named David Henderson.
He's a research fellow at Stanford's Hoover Institution.
And he writes in a magazine, Are We Ailing From Too Much Deregulation?
It's in the Cato Institute policy report last December.
And there's something in Washington called the Federal Register, and it lists new regulations, which are a proxy for the kind of regulation that we have in our economy.
And it says that between 1977 and 1980, those were the Carter years, the pages, the new pages in the Federal Register averaged 72,844 pages.
During the Reagan years, the average fell to 54,000 pages.
During the Bush I years, they rose to 59,000.
During the Clinton administration, it rose to 71,000.
And during the Bush administration, it set a record of 75,000 pages.
Does this sound like there's been deregulation?
Let me go on.
Employees in government regulatory agencies grew from 146,000 people in 1980 to 238,000 in 2007.
That's a 63% increase.
In the area of banking and finance, regulatory spending between 1980 and 2007 almost tripled, rising from $725 million to $2.07 billion.
Now, so the question I'm asking you is, what are we to make of congressmen and news media people who tell us that the financial meltdown is a result of free markets and financial deregulation?
What are we to make of those people?
Now, what are we to make of people who produce something that is untoward and then try to fix it?
What I have in mind is how many of you, if you saw a building on fire, how many of you would call the arsonists who set it afire to help you put it out?
That's exactly what we're doing with Congress.
We're saying, Congress, help us with this mess.
Well, Congress created the mess or the government in general.
Let me talk about the housing crisis for just a few minutes.
You've probably heard it before.
A good part, there are two essential causes of the housing crisis.
One was during the Greenspan years, the money supply rose dramatically.
Greenspan slashed the federal funds rate from 6.25 to under 2%.
And it almost went to below 1%.
Now, what that does, that raises the money supply and it lowers the interest rate.
This artificially held the interest rate low.
So what is an interest rate?
Well, interest rate serves as a signal.
It's really a price.
And it tells people whether to invest or not.
And so low interest rates give people incentive to invest.
And so what we found, people are investing in housing.
That is, we created many, many more houses than we really needed.
That is, it's an estimate that we have about 1 million more homes, condos, and housing units than we need.
And they're sitting vacant.
So if we produce more than we need, what do you think is going to happen to price of housing?
They're going to tumble.
Once you have a bubble, it's going to burst.
Okay, so that's part of it, in a nutshell.
The other part of it was government's efforts to create affordable housing.
That is, they used the Community Reinvestment Act that was written in 1977 under the Carter administration and then given real teeth during the Clinton administration that it intimidated banks and other financial institutions to make loans that they otherwise would not have made.
And so after a while, these people just couldn't make these loans, but we got all kinds of guarantees from congressmen.
Barney Frank said that people always pay their mortgages.
Harry Reid said, well, we just need this to create affordable housing.
Maxine Waters and all these bums in Washington did this kind of stuff.
Now, what you people are saying, by the way, just as an aside, you're saying we want the people who helped create affordable housing that created this mess, we now want them to create affordable health care.
That's insane.
They're going to do the same thing to health care that they did to the housing market, that they did to the automobile market.
And you're asking for more.
You're letting these politicians, you know what, if I were, I'm surprised that a politician start who would talk about let's have government-controlled health care.
I'm surprised that he's not tarred and feathered.
I mean, if the American people had any sense of history.
And one final thing before we take a little break here.
The government is giving General Motors, the GMAC, they've given them about $6 billion so that General Motors can sell, here it is right here, so that General Motors can cut barriers to car loans.
That is, they're going to lower the credit requirements for people to be able to get a car loan in order to buy a car.
That's the same thing they did with the housing market.
That's the same thing that explains this current mess.
They said, well, look, bankers and finance companies, lend to people who have poor credit rating.
Now they're saying to the automobile, lend to people who have poor credit rating.
These people are lunatics, and you American people are buying this.
You're letting them off the hook.
You ought to rebel.
We'll be back with your calls after this.
Walter E. Williams, pushing back the frontiers of ignorance.
Before we go to phone calls, let me just ask you, I was talking about, you know, a lot of this financial mess is being blamed on the free market.
Let me just ask you, do you imagine, let's say you're a president of a bank.
You're a greedy capitalist.
Now, would you lend somebody money for, let's say, to buy a $200,000, would you give them a $200,000 mortgage?
The person wouldn't show any evidence of a job, had no down payment, and was making what they call liar loans.
Under the free market, that person would not have gotten a loan.
But if you have something like the Community Reinvestment Act intimidating you, saying, look, Mr. President of the bank, you're not going to be able to open a branch bank.
You're not going to be able to merge unless you show us that you've made loans to irresponsible people.
They don't call them irresponsible, but to lower-income people.
Then you would have incentive to do so.
And then if you had some kind of guarantee or some kind of implied guarantee that Freddie Mac or Fannie Mae would bail you out, well, then, yes, you would say, well, look, I'm going to make this high-risk loan because it's going to pay me 10% rate of interest.
And if it goes to fault, I'll be bailed out by Fannie Mae and Freddie Mac.
Actually, bailed out by the American taxpayer.
Yes, you would.
You would make this kind of a loan.
Now, the Congress and the White House, they're not finished with the taxpayers yet.
Because as I said back in April or March, once a bailout parade begins, it has its own momentum.
The parade just gets bigger and bigger.
Just last week, I think 36 presidents of colleges, there's a Wall Street article.
It's called Shovel Ready on Campus.
And on December 17th in the Wall Street Journal, presidents of 36 state universities have called for bailouts.
They don't call it a bailout.
They said a federal infusion of capital.
I am very sure that if they have not done so already, that state governors and city mayors are going to send on Washington for bailouts.
You know, California is in the hole for $15 billion.
Florida, I think, $5 billion.
And things are so bad in Michigan that the governor is shutting down prisons.
She's already shut down one prison.
And I'd be leaving Michigan if I were you.
Because if they let these criminals loose, they're going to be all over you people in Michigan.
Anyway, that's just part of the story.
But let's go to the phones to Ron in Canton, Connecticut.
Welcome to the show, Ron.
Professor Williams.
Yes.
You know, perhaps we should have stuck to a proposal from a radical leftist named Adam Smith for economic liberalism.
And he was a radical leftist, and we did get off track.
He's a radical liberal.
Well, you're right.
He's a radical liberal.
A liberal in the European sense of the term.
But he was to the left, you know.
I mean, he preceded Karl Marx.
And, you know, had Thomas Jefferson had his way, our Constitution would have been, and that loose federation he wanted would have been practically a statement of the Quaker Confession.
The desire for America not to be proud, not to go marching around the world.
He was an economic liberal.
He wanted a strong agrarian base.
Of course, he didn't understand our need for a good banking system, but he offered that quietness is happiness.
Contentment and pomp are incompatible, which was one of his objections to strong government, a Quaker objection.
That the silence of historians is the surest record of the happiness of a people.
These were statements of liberalism, of Enlightenment liberalism.
And Adam Smith was a leftist, and he wanted us to develop our economy horizontally with aggressive capital.
Well, I don't know.
He wanted us to be laissez-faire.
He wanted government hands-off.
He did.
He did.
But he wanted capital.
But capital, wealth was a responsibility.
Capital had to put it at risk.
They had to put capital at risk.
They had to stay entrepreneurial.
You couldn't have combinations, conglomerates.
Tie that in with us today.
Well, we went off.
You know where we went off track?
Partly, of course, we went off track after the Civil War when those entrepreneurial capitalists did what they were supposed to, and then they formed trusts and combinations and so forth.
Teddy Roosevelt was working in the right direction.
He was working in the right direction agriculturally.
He wasn't about leaving the land as it was.
He put aside some of his land.
I know.
We can't change history.
Can you bring it up to today?
The New Deal really blew it in, and the progressives went off track when they tried to save those old industries, which we were going to do with the auto companies.
Now, it's stupid.
Yeah, right.
If GM, Ford, and Crystal go broke, we still have cars.
Yeah, I mean, Frank Reins or Lorenzo was doing the right thing, stripping down an airline, getting rid of the waste, recapitalizing it, getting it efficient.
Ronald Reagan and JFK wanted to get those entrepreneurial enterprises going, but he couldn't do it.
We have a little problem with that Bretton Woods agreement that he should have pulled out of before we started doing things.
Well, I don't know.
You have some good points.
Let's go now to James in San Diego.
Welcome.
Hi, Professor Williams.
I just want to begin by echoing what a lot of others have said.
It is an honor and a privilege to speak with you, sir.
You are not only brilliant and courageous, but also absolutely right.
That's a heck of a combination.
Yes, it is.
And that's why I'm honored to speak with you.
You know, a lot of people.
I was just out your way.
My daughter and I, we had Thanksgiving at Hotel Del Carnado.
Wonderful place.
Beautiful place, yeah.
Wow.
Well, you know, a lot of people who are otherwise sensible about bailouts, like auto company bailouts and so forth, make an exception when it comes to the banking system.
And people who would give good free market arguments as to why we can't bail out other companies, universities included, and cities and all the other hands that are going out for bailouts now, make an exception with regard to the banking and finance system.
They seem to think that somehow it's special and that we couldn't let Citibank fail.
It just seems to me that for all the same reasons, for all the moral hazard reasons and for all the economic health reasons that we oppose the other bailouts, we should oppose banking.
Let me run this by you.
Now, I share your vision on bailouts.
I don't think anybody should be bailed out.
But however, when it comes to banks, there's this question I'd ask you.
That is, if there's a run on banks, then banks that are doing a perfectly good job, they will suffer once a run on banks begins.
So if you find these great big investment banks and these other banks going down the tubes, and if it has a possibility of creating a run on banks, what do you do?
Well, it just seems to me that we need a gold standard and a government.
Oh, no, no, no, no.
Wait, wait a minute.
You're going.
Look, forget the gold standard.
I agree that there should be a gold standard, but we don't have a gold standard.
What do you do now?
Today.
Well, the problem is government intervention in the banking system in the first place.
As you point out logically, it does not make much sense to continue doing the same thing that got you into the problem.
I agree 100%.
But I'm saying that given instantaneously before we can get government out of bank and before we get the gold standard back, what do we do today to prevent a run on banks?
Well, it seems to me that that's another theoretical possibility.
I'm not sure that letting Citibank fall would have caused a run on all banks.
I think it may have caused, it may not.
I mean, it seems to me to be the kind of slippery slope argument they make.
You're right.
You're right.
But still, there's a non-zero probability that things will just go down the tubes if one huge bank fails and there's a run on many other banks.
But I have to let you go.
A very, very good call.
We'll be back after the breaks, and you can call us by calling 800-282-2882.
We're back.
Walter Williams is filling in for a rush, and you can be on with us by calling 800-282-2882.
I'm getting back to James's comments.
He was asking that why would you bail out a bank and wouldn't bail out General Motors or what accounts for the inconsistency?
And it was my position.
I said that, well, I'm against bailouts in general, but there is maybe a special case or some, or you might have to give it second thoughts when you talk about the finance industry, let's say so far as banks.
Because if a huge bank is allowed to fail and several other banks fail, there may indeed be a run on banks.
Now, the point he was making, well, look, we need to get government out of the banking industry.
We need to go back to the gold standard.
I agree.
But I'm asked the question, you have all these people descending at the bank window wanting their money back.
What do you do now?
What do you do today?
Yes, in the meantime, what we want to begin to think about is to make these changes that James mentioned, but we have to take actions today.
And I'm not quite sure.
Matter of fact, I'm not a scholar at all in money and banking, but I'm not quite sure what needs to be done to get government out of the banking industry.
I know one thing for sure is that we need to somehow get gold back into backing our currency.
But maybe short of that, what I've suggested in a previous column, and it's not in the book, I just wrote it about a month or two ago.
I said that one of my suggestions was that we ought to get rid of legal tender laws and then get rid of all taxes on gold, silver, and platinum and allow people, if we did get rid of taxes on gold, silver, and platinum, it would enable people to write contracts in gold and silver.
I mean, for example, I could hire Kit Carson and say, well, I'll pay you a year.
Your salary will be 100 ounces of gold.
And so the government could inflate the currency all that he wanted.
And so we just didn't deal in dollars and we would not be injured or the contract would not be invalidated by currency inflation.
But let's go to the phones.
Let's go back to the phones and talk to Bill.
Welcome, Bill, to the show from Port Ritchie, Florida.
Dr. Williams, it does my heart good to have this opportunity to wish you and yours a happy and healthy new year.
Well, thank you.
It's a joy to listen to you.
I need your clarity.
Two weeks ago, I was listening to this character out of Austin, Texas.
His name is Frank Beck, and he put forth this assertion that the government's printing of all of this money, crashing the dollar, is a good thing.
And his idea was: if you make the dollar worth less, you rise people's home equity, so they would go from an upside-down position into an equity position.
And, you know, I'm just a truck driver with a GED, and I've been scratching my head.
How does that work?
Is that even a possibility?
Well, that's inflating the currency.
For example, what would you think if I say, well, maybe we all ought to do that?
Just print more currency.
That is, you print money to pay your bills, and I print money to pay my bills, and so everything, your price will be rising.
Well, Doctor, what his assertion was is we could clean up the mortgage catastrophe by making people not so upside down.
Well, all you do is hide it.
And yeah, and my first thought, I looked down at my kitchen table to see what was in the glass that I was drinking from.
And then I thought, well, what about that 800-pound gorilla in the room, which is the national debt?
How does this printing of money make that gorilla lose any weight?
Well, look, here's what happens.
You have to understand this.
The beneficiaries of inflation are people who are debtors.
What inflation does, it redistributes income from creditors to debtors.
That is, people who have lent money, that is creditors, they will lose at the expense of debtors because each dollar that they're paying back is worth less.
And you see who has the interest in creating inflation, that's government, because government is the largest debtor.
And what inflation does, it reduces the value of every single dollar out there, and in a sense, it repudiates the debt of government.
And this is what governments do.
And we're going to eventually do that too.
That is, the central bank in almost every country is a villain.
It is involved in stealing from the people by its power to inflate the currency.
Yeah, right now, for example, in Zimbabwe, the inflation rate is 80 billion percent per year.
That is, prices double every 16 hours in Zimbabwe.
And it's caused by government printing currency.
That is, they have, I have some Zimbabwe dollars where I think there are eight zeros after it, you know, and all that would buy me would be a can of soda at the most.
That's amazing.
And this scares me because this thought process is really afoot.
In fact, this Frank Beck was published in Forbes saying that printing all these dollars and crashing the dollar was a good thing.
And I'm just a dummy truck driver with.
Well, don't say that.
I mean, I think that there's a lot of common sense among people who are non-scholars.
So what he's saying is the $10 bill in my wallet by reducing it to $6 makes me better off.
And do you believe that?
No, sir, I do not.
And matter of fact, I've suggested in the past, I've suggested to people that if they're ever arrested, if they're ever arrested and in front of a judge charged with counterfeiting, just tell the judge that you are engaging in monetary policy.
We'll be back with your calls after this.
We're back.
Walter Williams filling in for a rush.
And you can be on with us by calling 800-282-2882.
Hey, folks, you know, there's another song and dance that we're sold to, and people try to explain things through greed.
We're having this mess because of greed.
Or, going back earlier this year, they were blaming the high gas lien prices on greed.
That is, the corporate executives or the CEOs were greedy.
That's what explained the high gasoline prices.
Now, a gas lien is at least 50% less than it was.
And how do we explain that?
Oh, I guess they were going to say that, well, the corporate, the CEOs of the oil companies, they stopped being greedy.
That is, maybe they read the Bible and said that it is difficult for a rich man to get into heaven as a camel going through it.
I have a need on this side not to be greedy anymore.
I doubt whether greed explains very much.
Greed alone explains very much in this world.
And you shouldn't fall for politicians and people on 6 o'clock news telling you, oh, well, it's because of greed.
Greed alone doesn't do anything.
For example, I was telling people, I was mentioning this about a month or two ago, I would love to have many things that I can't afford.
You know, I go to bed greedy, I dream greedy dreams, and I wake up greedy, but this happened, hasn't helped me at all to get a gray big jet that I would love doing.
So don't fall for the greedy stuff because mankind has been greedy ever since the Garden of Eden.
And what kind of economic policy are you going to enact to end greed?
Tell me, I don't know.
It doesn't make sense.
Well, let's go back to the phones and let's go to Lennon in Indiana.
Where is that in Indiana, Lennon?
I am on my way home.
Oh, you're on a cell phone.
Okay.
Yes, sir.
I'm driving home from Fort Campbell, Kentucky.
Oh, okay, great.
Yeah, there's a bunch of Marines.
I think it's the 101st airborne guys coming back home.
Yes, sir.
I was with that group.
I just came back home in November from my second tour in Iraq.
Oh, very good.
Very good.
Very good.
Thanks for helping us out.
Well, thank you, sir, for your support.
It's nice to hear that every once in a while.
Okay.
What's your question?
Well, actually, sir, I was just hoping for a little quick history lesson, a little bit of clarification.
It seems to me that years back when the unions first started out in this country, they were a small conglomerate of workers just getting together and saying, you know, hey, we're all selling our soul to the company store.
Let's go and say that we're all going to go strike if they don't give us, you know, $2 an hour instead of 25 cents an hour.
And, you know, if I'm wrong, correct me there.
But I think the big point is, how did it get from that to the corporate killer organization that it is today, like with the case of GM,
you have the United Auto Workers Union who is almost putting GM under under demands of like pension after the people retire and full retirement health care for their workers who put in 20 years,
but those workers may live another 40 years after they retire, and it's just putting GM under when they're making the same amounts of sales and figures as somebody like Toyota who doesn't have a union.
Well, I think a large part of the problem came with the government support of unions.
See, the basic strength of unions doesn't come in their power to strike.
The basic power of unions comes in their ability to either, through government or through violence, prevent the employer from hiring other workers in their place.
And we saw this during the Reagan administration with the air traffic controller strike.
The air traffic controller strike was a failure because they could not prevent the FAA from hiring other workers in their place.
But the power of unions to prevent the employer from hiring other workers in their place, it comes from government.
That is, government will allow unions to engage in all kinds of violence and intimidation and things that they would not allow you and I to engage in.
We would go to jail for doing some of the things that the government tolerates the unions doing.
Right.
And so I think, now, don't get me wrong.
I'm not a pone 1920s or, yeah.
Don't get me wrong.
I'm not anti-union because I believe in freedom of association.
Exactly.
I mean, it seemed to me that when a union was a close, a loose conglomeration of people when it first started, I wouldn't have any problem with that.
But then it seemed to me that unions became self-serving and it was more important to be in a union than to work somewhere, or you had to be like an electrician's union.
You had to be unionized.
Well, that's right.
And see, that's not a freedom of association.
That's not a freedom of association.
But once again, thanks a lot for your call.
But keep in mind, folks, that freedom of association means freedom not to associate if you do not desire to associate.
Let's go to Can we take another call?
Yeah, let's go to Bob in Fort Myers.
Welcome to show, Bob.
Yeah, hi, Dr. Williams.
Hi.
I sat in your Economics 101 class 40 years ago at Temple.
So hello again.
Hi.
I'm an admirer.
I have your book, your new book.
And the question I have has to do with non-normative and normative statements that you make in the Economics for Citizens section.
Yeah.
And he made the statement that as an example, sentences with is versus sentences with ought.
A sentence with is objective.
A sentence with ought is a matter of opinion.
I'll use some simple examples.
But I'd like to ask you, if I made the statement, man ought to be free, would you have to say that was in your opinion because there weren't facts of reality that support it?
Yes, yes, I would.
I would say that's a normative statement.
What Bob is commenting on, it's in my book I talk about the, I have these lectures on economics.
And I make out that, I point out that you should be able to tell the difference between normative statements and positive statements.
Normative statements, with a normative statement, there are no facts to which one can appeal to resolve a disagreement.
With positive statements, there are.
And I'll give you some examples of that when we come back on the break.
We're back, and we were just talking to Bob, and we were talking about the kind of a really important thing that one has to make clear, and I make it clear at the beginning of each semester with a new group of students, that is to know the distinction between normative statements or subjective statements and positive statements.
Now, let me give you an example of a positive statement.
Scientists cannot split the atom.
That is a positive statement.
Why?
Because if there's any disagreement about that statement, there are facts to which we can appeal to resolve any disagreement.
In the case of saying scientists cannot split the atom, we'll just go out to Stanford's linear accelerator and watch them split it all day, and we resolve the disagreement.
On the other hand, if you say scientists should not split the atom or they ought not split the atom, well, that argument can go on forever and ever because there are no facts to which we can appeal to resolve any disagreement.
You say scientists should not split the atom.
I say scientists should split the atom.
We'll just argue forever.
Now, when I tell my students, I say, look, I'm not asking you to purge your vocabulary of normative statements because normative statements are very good to trick people into doing what you want them to do.
But in the process of tricking others, you need not trick yourself.
And so you should always make a distinction.
Now, Bob was referring to the 10 lessons or the 10 lectures I have in the back of my newly released book.
And the title is Liberty versus the Tyranny of Socialism, colon, controversial essays.
And if you know me, I write controversially.
And it has a wonderful picture of me.
And you can get it by Amazon.com or either going to my website, walterewilliams.com, and clicking on it.
And you'll find out how.
And I told the publisher to keep the prices cheap.
I think it's like $15.
Because I'm really a pamphleteer like Thomas Paine.
And I want to get the word of liberty out.
And I'll pursue that agenda in the next hour.
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