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July 19, 2012 - Freedomain Radio - Stefan Molyneux

01:14:43

2170 Love's LIBOR's Lost - Stefan Molyneux Hosts the Peter Schiff Radio Show

Stefan Molyneux, host of Freedomain Radio, explains the LIBOR scandal, why the finance industry is so corrupt, and why you are in the stock market at all. Also, guest Bryan Caplan talks about why democracies make such bad choices, teh value of bricks and mortar education, and the economics of 'Jersey Shore' http://www.schiffradio.com

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	Peter Schiff Show.
	Good morning, everybody.
	I hope you're doing just fantastically.
	It's Sven Molyneux sitting in for the great, the one and only Peter Schiff, who I actually sat next to at dinner when we spoke at Freedom Fest.
	He had the big Motley Crue venue, and I had the tiny little Don McLean room, but I'd like to think that we were both there and talking, and that counts for me, so...
	We are going to take a big satellite Jupiter style view of the economy this morning because I've been quite fascinated by LIBOR. Yes, this morning we are going into LIBOR so we might need a brain epidural and we are going to see if we can unravel some of the Gordian knot lower intestine London subway map spaghetti monster we call LIBOR. Of course you've probably heard about it a lot in the news And like
	most things that we hear about in the news, you get a lot of surface frippery, but you're really not going to get any damp.
	But we're going deep this morning, baby.
	And so I'd like to start by talking about some of the causes.
	You know, the roots of current problems usually go back so many decades That it's really important to really drill back and try and find out why this is a problem overall.
	I mean, if you think of the scandals that have gone on in the financial world, I mean, just this decade, not even counting the booms and the bust, right?
	So the big tech boom, the big housing boom, the bust that followed, just looking at The scandals that have gone on.
	Tycho, Enron, the Bernie Madoff scandal.
	There have been so many of these.
	And they just seem to keep coming in waves.
	And at some point if you're in a boxing ring you have to realize that there's going to be another punch and you better start figuring out how to get out.
	So I'm going to make an argument this morning.
	I really of course want your feedback.
	I think it's a great show, of course.
	We've got people coming up.
	Brian Kaplan, author of The Myth of the Rational Voter, is coming up later to talk about some very fascinating stuff to do with public choice theory.
	Your calls, of course, absolutely essential, the bedrock of the show.
	But I would like to talk about the financial sector as a whole.
	I'm the philosophy guy.
	I am the philosophy guy, which means that I'm interested in details, but I'm only interested in details insofar as...
	They illuminate the bigger problems, the deeper issues, and I would argue fundamentally the moral issues.
	So let's have a look at the financial sector as a whole.
	We're gonna pull back, we're gonna go back to the 70s.
	So grow out your sideburns and flare out your pants to the point that you could jump off a high building and float down successfully and get collars on your neck so big that you could reasonably hang glide in a stiff wind.
	So let's look at some of this data.
	So starting in 1973.
	So from 1973 to 1985 the financial sector never earned More than 16% of domestic corporate profits.
	It was not small, it's big, but it was not the monster elephant man tumors that we see today.
	So by 1986, that figure had crept up to 19% of domestic corporate profits were earned by the financial sector.
	In the 1990s, it went back and forth between 21%, 30%, but it was higher than any time in the post-war period.
	But in our decade, my friends, it has gone over 40%, 41% to be precise.
	So this is a massive growth.
	This is a massive growth.
	It's almost triple.
	It's almost tripled in just a couple of decades.
	And that is very, very significant.
	That is a fundamental, title-C, monster-deep change in our economy.
	Financial sector has almost tripled in a couple of decades.
	Now, of course, when you get financial services, what do you get?
	Ah!
	You get booms, busts with government intervention.
	But you also get credit, massive amounts of it.
	So at the end of 2010, $52.6 trillion worth of credit was outstanding in the U.S. Now, in 1971, going back to the 70s, the ratio of total credit to GDP to gross domestic product was 150%.
	What is it now?
	Well, would we imagine that it's almost tripled?
	We would be correct in imagining that.
	So in 1971, credit to GDP was 150%.
	Now it is 354%.
	What does that mean?
	What that means, of course, is that credit has been growing much faster than the economy for the past four decades.
	In 1971, the debt of the financial sector was 12% of GDP. 12% of GDP. That was the total debt of the financial sector.
	2005, it was 100% of GDP. Again, we're just looking at this massive tumoresque style growth In the financial sector.
	It hit 100% of GDP. That's almost a tenfold increase in less than 40 years.
	It went to 121% of GDP. About 17 trillion dollars in 2008 and then of course with the great evisceration of the American economy that occurred in 2008, it is now back down to about 96% of GDP. Now, this is all very important stuff.
	And I know, you know, if you're in the market, if you follow stocks, if you follow bonds, if you go to bed with money theory and credit books underneath your pillow, it's really, really gripping and compelling to get into the details.
	This move, that move, this straight up, but let's look at the big picture.
	Because the big picture I would like to pose to you, and please, I'll look forward to your comments on this.
	The big picture question that I will pose to you this morning that I really want to hash out is why on earth are we all in the stock market to begin with?
	It's a very, very important question because most people think, well, yeah, I'm in the stock market to make some money, put away some coin for my retirement to live a life of ease and leisure and the deep swilling of coconut-scented margaritas.
	But it's a more fundamental question than that.
	Of course the stock market originally was designed and speculation has always been part of the stock market.
	Speculation is when you play the numbers rather than understand the companies or the business as a whole.
	But the stock market of course was originally brought into being in Holland in the 17th and 18th centuries.
	Because there were companies that needed capital they wanted to grow faster than pillaging their own profits because of course the profits in the corporate world in a free market a couple of points a couple of percentage points that's it you know three four five six percent at the most I mean any more profit than that draws other people into the marketplace who then grind down the profit back to its component atoms the question is why are we in the stock market the stock market is originally designed for companies who wanted knowledgeable investors to lend the money so that they could expand and grow Much faster and return greater profits than
	if they were just trying to pillage their own few percentage points.
	And so that's what people did.
	So people who wanted to invest in shipping, well, if you retired from shipping and you had a deep knowledge of shipping and you knew this company, you knew who was in charge of it and so on, then that's what you do.
	You lend these guys some money, you buy a share of the company, a couple of shares, a couple of hundred shares, a couple of thousand shares of the company, because you knew what was going on.
	You knew the business, you knew the people, you knew the opportunities and so that's what the stock market was originally for.
	That of course is not what the stock market has become.
	Now you've got computerized programs That grind tens of millions of sales based upon tiny fluctuations in price.
	Of course the computer programs and the time frame that they work in have almost nothing to do, or actually have nothing to do with any kind of deep knowledge of the stock market.
	So why are we all in this crazy drugged out roulette wheel, this boom, this bust?
	Why are we here at all?
	Very fundamental question.
	I think I've got a good answer.
	And it has to do with the violation of a basic moral rule.
	And we are going to get back to that moral rule and explode wide.
	Wide the reasons why you're in the stock market when we get back from the break.
	This is Devan Mullen for the Peter Schiff Show.
	You're now enrolling in the Peter Schiff School of Advanced Economics.
	Twice the education of a Harvard MBA. For one one hundred sixty-eight thousandth the cost.
	Ben Mullin, you're back from Peter Schiff and we are talking about the stock market from the big, monster, historical, philosophical, moral perspective.
	So I posed a question just before the break.
	I'd really like you to mull it over.
	Why, oh why, oh why, are you in the stock market at all?
	It's kind of stressful, isn't it?
	It's up and it's down.
	It's like riding a cork in a toilet that is currently flushing down with many of your savings to the sewers of statism.
	So why are we in the stock market at all?
	Fascinating question.
	I'm going to tell you what I think and I think it makes good sense.
	I think that we're in the stock market.
	There's an old story from George Orwell, who wrote a very gripping book.
	He's known for 1984 on Animal Farm, but I'd really recommend just reading everything you can get your hands on from that shaggy-haired genius.
	He wrote a book called Down and Out in Paris in London.
	And in it, he basically lived as a homeless guy and a dishwasher or plongeur in a variety of places and just tried what it was like to be a homeless guy.
	He was an empiricist when it came to the class system.
	And he fell in with some tramps in England, some, I guess, homeless people, vagabonds, whatever you want to call them.
	And he said, you know, there's lots of theories as to why these guys keep moving.
	You know, why don't they just settle down?
	Why don't they just go and live someplace and stay there, put down roots, you know, get a job or whatever?
	And he said, well, it's quite simple, the reason that They move is not any airy-fairy theories about they have a roaming nature, they're gypsy vagabonds, they have a restlessness, they are unrooted in the modern, post-modern, blah, blah, blah.
	He said the simple reason that they keep moving is because they get thrown in jail if they don't, because you're allowed to stay, you know, if you're not a local, you don't have a residence, you're allowed to stay for a day or two, and then the police will put you on the road out of town and saying don't look back.
	And so many times in society we get all these complex things, all these complex things that are going on in society.
	And we come up with all these theories.
	Greed drives the financial sector.
	Well, guess what?
	Greed has always driven the financial sector.
	Greed is nothing new in human nature, but when it takes on a terrifying, globally destructive new manifestation, then it's time to look for root causes.
	Greed has always been there.
	People have always wanted to make more money.
	People have always wanted to get something for nothing.
	That's nothing new.
	What has changed?
	The homeless people in George Orwell's story had to move because they would be thrown in jail if they didn't.
	So they kept moving.
	It was nothing complicated.
	They just didn't want to get a gun put to their necks and dragged off into a tiny cage.
	Why are you in the stock market?
	Why is your money in the stock market?
	I would argue I don't just mean like buying and selling shares, bonds, all of these financial instruments.
	The whole financial sector.
	I was going to say mess, but I think that finance has a perfectly valid role in a free society.
	It's very essential.
	In the mid-90s, I co-founded a software company and grew it to a pretty respectable size.
	We were swallowed up by a company that went public, so I've gone through this whole roller coaster with a front seat and many tears of joy and pain.
	But you're in the stock market, my friends.
	You're in these financial instruments.
	Because if you don't put your money there, it will be stolen from you.
	This is the violation of the moral rule that I'm talking about.
	Why are you in the stock market?
	You're in the stock market because you will be robbed blind if you're not.
	And there are two fundamental ways that you will be robbed blind in the stock market.
	Sorry, if you don't put your money in the stock market, there's two ways that you will be robbed blind and senseless.
	The first, of course, is inflation.
	Inflation, as great economists have said, is always and forever a monetary phenomenon.
	Which means that inflation means printing more money than the economy is producing, than the economy is growing.
	And that produces inflation in prices.
	Inflation is the effect of printing too much money.
	I'm sure we all know this.
	Inflation is the most insidious tax.
	Inflation hits the poor and those on fixed incomes the hardest.
	It is the most regressive tax imaginable and there's usually not one person in a thousand who can tell you anything about what's going on.
	So it is the silent killer.
	You know, there are some gases that will make your eyes sting and your lungs burn and you run out of whatever room they're in.
	There are other gases that overwhelm you gently and quietly and those are the most dangerous of all.
	Inflation is The silent tax.
	It is the hidden tax.
	And it is the tax where people blame the capitalists and the merchants and the sellers rather than the government.
	Not many people know what's going on.
	So you have to put your money into something that produces a return because if you put it under your pillow it will rot.
	between the coils it will rot your money will curl and burn if you don't do something with it so your money is forced into something some financial instrument just as a basic defensive and protective measure that's number one number two start again yes the 1970s you began to get these 401k plans in Canada they're called RRSP plans these are the plans where you hand your money over to the financial services gurus And
	the reason you do that is because if you don't, the government will take it from you by force.
	The government will take it from you by force.
	These are the two main...
	I mean, there's lots of other reasons.
	And look, there's people who like the stock market, who want to go in, and they love the excitement of it, and that's all fine and dandy.
	But I'm not talking about people like that.
	I'm talking about the vast majority of people who are in the stock market involuntarily.
	They're in the stock market not because they want to be there, not because they really understand it, not because they have deep knowledge and experience of a particular sector or know people who are going to make good coin.
	They're in there because their money will be stolen from them if they don't hand it over to the people running these financial instruments because the government will take it by force.
	If you don't hand it over.
	So I call this the supercharged stock market.
	You never want too much money in the stock market because when you get too much money in the stock market, I think, you get way too much speculation and way too little investment.
	Investment is when you know what's going on.
	You know the business, you know the people, you know the sector, you know the company, you've done due diligence, a deep analysis of the company as prospects, you've maybe even talked to the customers, whatever it is.
	That to me is investment.
	That's a beautiful and wonderful thing.
	When you're playing numbers, when you just throw your money in there because it's going to get taken.
	If you don't, well then you're just throwing your money in there and you have too much money in there to track it all.
	It's hard to invest well.
	If you have a billion dollars, it's the Bruce's Millions problem.
	Hard to invest well because you've got to put a lot of time and energy into investing well.
	A lot of deep knowledge is required.
	It's really a full-time job for like just even in one particular sector.
	People are throwing their money over the wall into the financial services industry because the muggers are coming who are going to take it from you by force so you might as well throw it over because I'm going to get almost nothing from it if the government takes it from me I might at least get something if I throw it over to the wall of the financial sector so I would argue the significant majority of people are in the stock market are in instruments,
	are buying bonds are exposed to all of these risks, these manipulations because it's Pay or be robbed.
	Pay or be robbed.
	Pay or be robbed.
	If we don't understand that, it's really hard to understand why there's all this corruption.
	We'll get back into that after the break.
	This is Stefan Molyneux for The Great Peter Schiff Radio Show.
	I will see you on the other side of the break.
	We now return to The Peter Schiff Show.
	Call in now.
	855-4SHIFT. That's 855-472-4433.
	The Peter Schiff Show.
	All right, everybody, we are back.
	Is it time for a cheesy joke?
	I believe I will bring this show to a new low by going, yes, indeed, that is the sound of us going into LIBOR. Okay, so let's look at LIBOR and relate it to some of this moralizing that I think is powerful and essential to understand what's going on in the world of finances and your fiscal future.
	LIBOR, of course, is the London interbank offered rate.
	Ooh, this is going to be gripping stuff for your next dinner party at Hugh Hefner's mansion.
	They will be all over you for this stuff.
	It is the most widely used interest rate in the world.
	There's estimates and it is really chilling to see just how widely spaced all of these estimates are.
	It's that There is an amount of money tied to LIBOR that varies in estimates from $350 trillion to $800 trillion.
	What do these numbers mean?
	Who knows?
	Let's say we just talk about $350 trillion, just the low end, $350 trillion tied to this LIBOR rate.
	350 trillion would pay for all US government spending for almost a century, for 96 years.
	Of course it wouldn't, because they'd just spend more, but at current rate of spending.
	So, how does this library thing work?
	Well, a panel of banks, they set a borrowing rate every single day, and they indicate what they would pay, you know, if they felt like it, to borrow dollars for a certain time frame, usually bank to bank.
	So the average of the estimates that these banks submit is fixed and then it determines what various companies and consumers all over the world are going to pay for their loans and get, of course, for the savings they have in the bank.
	It's a benchmark for financial instruments and basically it determines the flow of billions of dollars around the world every single year.
	So it's a strange system.
	I haven't actually been able to figure out.
	I did a fair amount of research on this and if you know, please let me know.
	But I haven't been able to figure out Why?
	This is the way it is.
	But let's have a look at what actually happens.
	So the banks all submit how much they say.
	They say it's an honor system.
	There's no proof.
	They don't actually have to show that they've had these loans, but they have to say how much they would pay for these loans.
	And then what happens is the top 25%, the bottom 25% are dropped off as outliers and the average of the 50% in the middle becomes the LIBOR rate.
	Now, of course, there's many, many LIBOR rates.
	There's actually about 150 of them, LIBOR rates.
	So people say, well, how much would I pay for a million dollars overnight?
	It's up to about a year and they're all in different currencies and so on.
	So it's all pretty trippy stuff.
	And so since it is an honor system and we never use the word honor system except as a prefix to something dishonorable that is about to occur.
	So at the heart of the controversy, what's going on?
	Well, some banks say that they artificially inflated or deflated their rates depending on what would be helpful to them in the moment.
	And so you sort of may ask, well, why would a bank deflate its rates?
	Well, very interesting.
	Of course, if the bank deflates its rates, then it will be able to lend for less money and so on.
	But it's also able to borrow for less money, so maybe that evens out.
	But one of the main reasons that banks deflate their rates is to make themselves look more creditworthy.
	See, these LIBOR rates are published, and the sources of them are published.
	And so if you're a bank that can borrow at 3%, and then some other bank...
	Can only borrow at 5% that signals to the market that that bank is in trouble, that that bank has risk factors, that that bank is low on cash flow, that it has exposed liabilities, that it's on the edge.
	And so, especially during the financial crisis, banks would submit lower rates to make themselves look better.
	But of course, during 2008, during the real depths of the financial crisis, This rate was plucked from an orifice that on general radio we dare not name.
	Because no banks weren't lending to anyone.
	So the LIBOR rate was based on estimates of economic activity that just wasn't occurring.
	So it was all complete nonsense.
	And Barclays of course has I think paid 450 million dollars.
	And, you know, even the language for this is unhelpful.
	It is confusing.
	There's no such thing as Barclays.
	There's a bunch of people.
	There's this legal fiction called a corporation which would never exist in a free market.
	I would never ever want to give my money to invest someone who had no personal stake in liability, whose personal assets were not exposed to any fraudulent activity whatsoever.
	Yeah, maybe these people will go to jail.
	It wouldn't hold your breath.
	Nothing's happened since the financial crash, except the banks got, what, about $700 billion of our children's money, our children's children's money, and so on and so on, until we're all owned by our Chinese overlords.
	But there are 20 banks that have been named in investigations or lawsuits that allege that LIBOR was raped.
	It's insider trading on a massive scale, total violation of trust, and if governments can prove that there was collusion between the banks to raise and lower the rates, well, then you have cartelization, you have monopoly focus, and you can end up with triple damages.
	It is just monstrous.
	So it seems unlikely that Barclay could have done much without the involvement of other banks to manipulate these rates.
	But see, they say, well, these outliers, you know, you kick off the top ones and you kick off the bottom 25% and take the average of the rewards remainder.
	Therefore, it's really hard to manipulate.
	But there's nonsense.
	Of course, it's not true at all.
	That's not true at all.
	You can set an artificially high rate, and then yours is going to be kicked out.
	And in fact, there are emails from the traders to Barclays, people saying, we want the rate, we want our rate to be kicked out so some lower rate falls into, right?
	So if people are submitting 5%, you submit 8%, yours get kicked off, someone else submitted 6%, the 6% goes into the 5% and raises the rate.
	So even if yours gets shaved off, it just means someone else's moves in and that is how it gets manipulated.
	And is the Justice Department going to do anything?
	Well, the Justice Department hasn't aggressively pursued any fraud cases from the 2008 market collapse.
	Ah, big banks!
	Seems to have more lawyers than accountants these days.
	They donate massive amounts of money to politicians.
	And remember, you know, It's important for Congress to focus on the real wrongdoers.
	Remember, Congress sent over 90 investigators and lawyers after Roger Clemens because they thought he might have lied to Congress about his use of performance enhancing drugs.
	So who's got time for epic multi-trillion dollar financial fraud when you've got to go after a guy with everything you've got because he might have been juicing and lied about it.
	That's the important stuff.
	Now, the other thing that happens, of course, is that You know, there's interest-bearing stuff and there's bonds, right?
	This is sort of the importance.
	So low interest rates usually mean higher bond prices and vice versa.
	And so governments like having high bond prices because it makes it easier to sell their bonds and prop up their finances for another election term.
	And so the governments aren't really going to pursue banks for lowering interest rates because, you know, I mean, there's a conflict of interest.
	And of course, if banks hold a lot of bonds, then if they drive their interest rates down, they push up their balance sheet.
	It makes it look like their assets are worth more.
	So the end result is that the bank's balance sheets look a lot healthier than they really are.
	So let's just take a quick look at the scope and size of this thing.
	It's huge.
	So let's just say, we'll take the low ball.
	$350 trillion has been affected by these LIBOR manipulations, these interest rate manipulations.
	And that's in derivative securities and debt pricing and so on.
	So, let's suppose that a claim, some class action claim, just results in a judgment of one basis point in damages.
	One basis point.
	Teeny, teeny, teeny, tiny little thing.
	One basis point on 350 trillion dollars.
	Well, that's actually quite a lot of money.
	That's 35 billion dollars.
	And that's not assuming that it's tripled as a result of collusion.
	So, 35 billion dollars, a hit on the bank at the very, very minimum.
	If this stuff goes through, if they can prove this stuff.
	Well, remember, now this is $35 billion, but that is the damage for only one year.
	Securities and Exchange Commission raised flags about this in 2008, but there's evidence, I have no idea whether it's true or not, but there seems to be evidence that this LIBOR fixing has been going on for decades.
	Decades!
	Now, let's go To another extreme.
	That's the very low extreme.
	35 billion dollars for one year.
	There are other estimates that says that the amount of money tied into LIBOR, the amount of transactions, financial instruments tied into LIBOR, 850 trillion dollars.
	Some claims say that the LIBOR rigging distortion went as high as 80 basis points.
	80 basis points.
	Multi-year scandal.
	This is just the numbers for one year.
	Okay, so the liability to the banks is quite large.
	The poor dears.
	And of course these are just estimates for US dollar, LIBOR, there are other currencies involved which would continue to go on.
	And this is all particularly egregious and annoying, of course, because the entire financial industry is getting these unbelievably preferential treatments from the government.
	$700 billion bailout in 2008.
	Or how about this?
	The entire financial industry has the right to borrow a near infinite amount of essentially free money from the Fed, from the Federal Reserve.
	And then they can turn around and loan it pretty much risk-free to the US government at 1.5% or more per year.
	That is, pocketing billions of dollars a year, that is pretty easy money.
	You know what they used to say about banking?
	It's the 3-6-3 rule.
	Banking is 3-6-3.
	You borrow at 3%, you lend at 6%, and then you go and play golf at 3 o'clock in the afternoon.
	Well, it's even easier than that now, my friends, because you can get free money at 0% interest, lend it to the government at 1.5% or more per year, and then you've got all the free money on the planet.
	And where does this swell?
	About half of all variable rates student loans are tied to this LIBOR. So out of all adjustable rate mortgages, 45% of prime loans and 80% of subprime loans are tied to LIBOR. State and local governments are way exposed to LIBOR when they use interest rate derivatives to control their credit exposure.
	Consumer loans are tied to the rate.
	Even what is calculated on the unpaid balance of your visa bill is tied to the rate.
	So it is everywhere.
	And it is very big.
	Very big.
	And the lawsuits are going to go on for a long time.
	And this is going to produce, I would argue, even more instability in the financial sector.
	And we will finish up this topic, get to your calls.
	Hopefully, please call in.
	I'm happy to chat with you.
	We will get back right after the break with more on how finance is eating our very soul.
	If knowledge is power, then the Peter Schiff Show is a uranium enriched 10,000 megawatt nuclear reactor.
	Stay plugged in.
	Stay brilliant.
	This is the Peter Schiff Show.
	Hello, ladies and gentlemen.
	It's Stefan Molyneux for Peter Schiff.
	I hope you're doing well.
	So let's just finish up.
	We're almost done in the long, hard baton death march of our swish and sway through this economic data.
	So we're just going to finish this up to the end of the hour.
	I would really love to get your thoughts on this.
	Have these financial scandals affected your investment decisions?
	What's your relationship to the market?
	Do you love it?
	Do you hate it?
	Are you ambivalent?
	I'd love to know.
	How it processes for you?
	When you pick up the paper and you read about this stuff, what do you think?
	Is there despair?
	Is it the end times?
	Are we expecting the four horsemen in business suits to be riding across the skyline, signaling the death and end of Western fascist capitalism?
	What is your experience with this?
	I really want to get your thoughts on all this, so please feel free to call in.
	To the show, because we've got, I think, two more segments before we have Brian Kaplan on to chat about his economic thoughts.
	Okay, so let's go back to some research.
	There's some research that's very, very interesting about the size of the financial sector.
	It's not been unnoticed, of course, in academic circles, that the financial sector has become, well, sort of like...
	Marlon Brando in his later years in that he appears to be something that Jupiter could comfortably orbit around.
	And so there's quite a bit of research that shows that there's a threshold.
	And if you go over this threshold, if you have too much finance, too much securities engineering, too many repackaged loans and all of this stuff, There's no longer a positive effect on growth.
	It's sort of like oil.
	Too little oil in your car and your engine will seize up.
	But if you drive into a vat of oil, your car will not do very well.
	You kind of need that Aristotelian mean when it comes to finance.
	So there's a point.
	There's a point in an economy.
	When you sell more synthetic credit default swap protection against an index of corporate investment grade bonds, which is the trade that just cost JP Morgan several billion dollars, it doesn't benefit the economy as a whole.
	So to put a number to it, when credit to the private sector reaches about 110% of the overall economy, you get not just diminishing returns, you get it's bad.
	Let me get really technical and say it's B.A.D., brothers and sisters.
	So, if you've got credit to the private sector reaching 110% of the overall economy, you get bad stuff.
	Right now, at least according to the World Bank, the U.S. is at 193%.
	193% of this measure.
	A little bit past the gate where things go wrong.
	Now, of course, in 2007 it was even higher, 214%.
	Where was it in 1982?
	Well, 92.2%.
	So, the other big question, and the question you don't see asked a lot, I'm sure on this show, by the great Peter Schiff, but why is this happening to all of these countries as a whole?
	Well, because to develop rich world Western economies, We're at 162% of this measure.
	Remember, over 110% things start to get kind of oogie.
	162%, well, you're leaning over a volcano with bulls charging up behind you.
	And this is not good.
	And other research shows despite all of this growth, this massive growth in the financial services industry, The industry hasn't become any better at all or any more efficient at doing what it's supposed to do, which is channel funds from savers to investors.
	I mean, that's the fundamental thing.
	What is the financial services sector supposed to do?
	In its essence, protect for retirement and so on, but how does it give you money back?
	Well, it's supposed to take money from people who are saving.
	It's supposed to give it to entrepreneurs and other business people to grow their companies and then claw back some and pay you for the money that you've lent.
	And it really hasn't become good at doing that.
	What it's become good at is giving money to governments, well not giving, lending money to governments, laundering money for governments, And it's become really good at creating really complicated, impenetrable, unfathomable financial instruments that regularly blow up.
	But of course they don't blow up and harm anybody who's created them.
	These guys are all retirees.
	The guy from Barclays was going to get, until public outcry, put the kibosh in that, was going to get over 30 million dollars as an exit package after he quit in disgrace over this Libra stuff.
	It really is.
	Quite astonishing and astounding just how bad the system is.
	So other research shows that there's, you know, there's very few people who will go out and strangle a homeless guy.
	Okay, let's get into the strangling homeless guys part of the show.
	Very few people who will perform those kinds of crimes.
	Very few people who will rob a bank, at least from the outside.
	Right?
	Get a gun, you can rob a bank.
	As the old saying goes, get a bank and you can rob the world and the future.
	But there's very few people who will go out and commit an explicit, gun-over-the-counter kind of crime.
	But there's a lot of people who will fudge a little bit.
	You know, maybe this meal I can put on the expense account, even though it wasn't particularly business.
	You know, at the end, you make those jokes, you say, how's business?
	Business is good.
	Hey, now we're going to expense this.
	A lot of people will do that kind of stuff.
	And studies have also shown very clearly that The further away the damage is from what you're doing, the more abstract and buried in the future and buried in concepts, the more abstract the damage is, the more people will tend to do bad things that result in that damage.
	That I think is quite understandable.
	And of course there's a horizontal aspect to corruption as well.
	It's that if everyone around you is making jokes about it and it's kind of in the open and if there's no particular repercussions, well, It's a whole lot easier to do if it kind of just becomes a joke.
	And in the past, I mean, I'm not sure there was ever a particularly golden age of banking.
	A lot of people tend to romanticize 19th century America, which had its pluses, obviously.
	Prices as a whole declined over the 19th century, a pretty stable currency.
	But, you know, slavery and war and all of the imperialism that has marked America since before it was founded were distorting a whole bunch of market forces.
	But, at least in the past, reputation was everything, right?
	That's what Alan Greenspan was talking about.
	Oh, reputation is everything.
	But, and this is the problem.
	This is the problem when you get too much profits.
	Remember earlier we were talking about how there's so much money being herded and forced and yipped, yapped from the sheepdogs of the state into these financial instruments.
	People don't want to be there.
	I'd rather have my money under my mattress than be exposed to what's going on there, but I can't put my money under my mattress.
	So, all of this money is getting forced in the stock market.
	That drives profits up to the point where people can make more than enough to retire on for three generations very quickly.
	That's why you want profits low.
	When profits are low, people work for long-term stability in the companies.
	They work for long-term value.
	When profits get too high, which is what happens when you force all of this money into the stock market, when profits get too high, people can swoop in, bungee in, make a killing, bungee back out, and they don't need to worry about long-term value.
	So, we're done with this topic, my friends.
	I really look forward to your calls.
	Please feel free to call into the show.
	And we will talk after the break.
	Coming up, the great economist Brian Kaplan will illuminate us with a shotgun of light to the forehead.
	I will be right back.
	33.
	I don't know when they decided that they wanted to make a virtue out of selfishness.
	Your money.
	Your stories.
	Your freedom.
	The Peter Schiff Show.
	Alright, we're back.
	And now it's time to poke a little bit of fun at the Obamatron.
	So there's been quite a lot of internet chatter about this recent speech that Obama gave about how businessmen or women are not responsible for the businesses that they create.
	You didn't make that!
	And there's quite a lot of memes out there that somebody's...
	You know, Obama's head comes in at a guy catching a ball.
	You didn't catch that!
	Or a kid who's just built a sandcastle.
	Obama comes and says, you didn't build that!
	And this is something that Elizabeth Warren has talked about as well.
	And it's sort of a new argument.
	It's a very old argument, but it's sort of a new argument that's coming out of the state these days as to why...
	We owe them everything.
	Everything.
	Our money, our time, our spleen, our unborn children, our obedience, our obsequence, and our endless praise.
	And the idea is something like this.
	We built roads and therefore you drove to work and therefore you owe us obedience and taxes until the end of time.
	Or we created a kind of network which then was commercialized by business in the mid-90s and therefore you owe us allegiance and obedience until the end of time.
	It is a very interesting idea.
	I don't know if we have that clip, if we can play it.
	I'll put it in the window here.
	You know, there are a lot of wealthy, successful Americans who agree with me because they want to give something back.
	They know they didn't...
	If you've been successful, you didn't get there on your own.
	You didn't get there on your own.
	I'm always struck by people who think, well, it must be because I was just so smart.
	There are a lot of smart people out there.
	It must be because I worked harder than everybody else.
	Let me tell you something.
	There are a whole bunch of hardworking people out there.
	Yeah, and so what?
	Of course there's lots of hard-working people.
	If you've ever gone to a karaoke night, and I'm afraid, I must confess, that I do have a slight weakness for drunken yowling.
	But yeah, there are a lot of hard-working singers out there who suck.
	There are a lot of people who write music who are really bad.
	A lot of people write books and the books are just not good.
	The hard work doesn't have anything to do with it in particular.
	I mean it's necessary but not sufficient.
	But there's this idea that society as a whole, as a collective, has given you all of these great things and therefore you owe obedience to society as a whole.
	Well, there's a bunch of stuff that's just completely offensive and wrong about that.
	Completely offensive and wrong about that.
	First of all, the government hasn't paid for the roads that it's built because otherwise there wouldn't be this monstrous national debt.
	So the idea that they've built these roads and therefore you owe them all of this stuff is ridiculous because almost nothing the government does is paid for.
	It's just stolen from the future and stolen from the poor in debt and inflation.
	That's number one.
	Number two, it's not the provision of services that is the problem.
	I'm very happy, right, so in Canada they built this road called the 407 that I used to take when I had a real job to go to work as a software executive and I paid my tolls and that was it.
	I mean, that was it.
	I could have gone to the public roads, I went to the private road because, you know, it was better on every level.
	And I paid them my bill and that was it.
	They didn't say, well, We built this road.
	Whether you use it or not, you owe us allegiance until the end of time.
	That is not a contract.
	That is enslavement.
	And so that's another aspect of it that I think is quite important.
	But it is not the provision of services that is the problem.
	I'm happy that there are roads.
	I think there are too many roads.
	I think there are too many public works.
	But the problem is not that the government builds roads.
	The problem Is that the government forces you to pay for the monopoly building of roads.
	It's a fundamental mistake that people make.
	If you argue against public schools, as I have for many years, if you argue against public schools, people think that you're arguing against education.
	Which is kind of like saying, well, I think that rape is morally abominable.
	And someone comes back and says, oh, so you're against lovemaking and for the continuation of the species.
	It's like, no.
	I'm not against interactions.
	I'm against force.
	In those interactions.
	I'm against violence.
	Roads are paid for through coercive taxation.
	Roads have a fundamental monopoly.
	Governments have a fundamental monopoly on those roads.
	Same thing with education in Canada.
	Same thing in healthcare.
	It's getting that way in the US. It goes on and on.
	The amount of monopoly power that the government has.
	That is the issue.
	You are forced to purchase government services.
	Not only are you forced to purchase those services, but often times it's illegal to even provide competition.
	And so that really is the issue.
	So if we can go to the next cut, we'll have a brief chat about that and then we'll hit our break.
	If you were successful, somebody along the line gave you some help.
	There was a great teacher somewhere in your life.
	Somebody helped to create this unbelievable American system that we had that allowed you to thrive.
	Somebody invested in roads and bridges.
	If you've got a business, you didn't build that.
	Somebody else made that happen.
	Somebody else made that happen.
	I mean, how mad is this?
	The idea that there's cooperation among human beings is...
	It's mad.
	It's like me saying, listen, Barack, listen, be Hussein Obama.
	You didn't make that speech, my friend, because you didn't invent every single word in that speech.
	You didn't invent grammar.
	You didn't invent punctuation.
	You didn't invent that microphone.
	You didn't build that building.
	You didn't sew all of those clothes yourself.
	You didn't give yourself that haircut.
	And you are not responsible for the DNA in your toenails.
	And therefore, You are not responsible.
	You didn't make that speech because there's an audience there and you wouldn't be giving that speech without the audience, therefore the audience made the speech.
	This is a kind of weird soupy Borg collectivism that because we rely on other people as part of a social and economic network of survival, that somehow we then owe everyone everything.
	Lawrence Reed's famous article, iPencils, and nobody knows how to make a pencil because the ingredients have to be mined and created and produced and so on.
	And nobody knows how to make a pencil.
	And so the idea that if you buy a pencil for, I don't know, what is it now, $9?
	Sorry.
	I just came from Vegas, so I assume it's something like that.
	It's got feathers on top and you can probably gamble with it.
	But because I don't know how to make a whole pencil when I buy a pencil for a couple of pennies, Then I am now beholden to everyone until the end of time.
	No.
	The voluntary transaction discharges the obligation.
	I did not invent the airplane.
	I give the airliner a certain amount of money and then I get even more money by force to the government in terms of taxes and then I take my plane, I get off my plane and we're done.
	There is no eternal obligation that occurs.
	And the idea that eternal obligation would occur in the realm of the free market is insane enough.
	But the idea that eternal obligation Would occur in the realm of a forced interaction like the ones we have with the state is even more deranged.
	And the last thing I'll say, the American system was not created.
	What happened was the American system in its origin was something where the people with guns actually got pushed back and stood aside for a couple of generations.
	It was not created.
	It was simply allowed to happen.
	Human beings trade in a state of freedom.
	We will be right back with the great Brian Kaplan.
	and stay tuned.
	You've heard of Karl Marx, right?
	Well now, meet his worst nightmare!
	This is The Peter Schiff Show!
	You know, there's so much that Obama says that is ridiculous and offensive to anybody with any sense of moral fiber.
	But there are some times when even he goes over the top and it is just an astounding feat to be able to say this stuff with a straight face.
	So listen to this.
	Sorry, I made a mistake.
	Brian's coming on the next segment.
	But listen to this little quote and let's just talk about how unbelievably offensive this is.
	The mistake Of my first couple of years was thinking that this job was just about getting the policy right.
	And that's important.
	But the nature of this office is Also to tell a story to the American people that gives them a sense of unity and purpose and optimism, especially during tough times.
	Okay, so I'm sorry, American people.
	I know that you want Your freedom.
	I know that you want to not be pushed around by regulation and taxation and debt quite so much.
	I know that you want good schools for your children, a secure retirement and maybe even just a little bit of job security as well.
	I know you want all of these things.
	You want stability in the economy.
	And you want to work.
	I'm sorry, we can't really provide these things to you, but what we can do is sit you down and tell you a nice little bedtime story.
	Because what you need is not money, what you need is not a job, what you need is not security, what you need is not freedom from the increasing tyranny of the modern state.
	You don't need any of that stuff.
	What you need is a story.
	That's all you need.
	A story.
	Now, fundamentally, a story is a lie.
	And this actually has a great and ignoble tradition in Western society all the way back to Plato.
	Plato believed that the masses needed a noble lie to keep them in line.
	So he divided these people into bronze, silver and gold.
	A philosopher king should rule everyone and they should create these stories, these mythologies to keep everyone in line.
	Stories are fundamentally lies.
	When someone says that I'm going to tell you a story, usually what they're doing is making something up.
	Otherwise it's called reporting or facts or statistics.
	Well, statistics of course can be another story.
	But all this is fundamental to fascism is to create a national mythology about the people.
	And I know this is not of course any kind of apt comparison but Hitler had a story about the German people and their desire for Lebensraum, for living room and the need to expand and the noble Germanic purpose and so on.
	And Mussolini had a story about the noble historical world purpose of the Italian people in the 1920s and 1930s.
	A story is a mythology that is a lie and that story and that mythology always involves you subjugating yourselves to the state.
	This is offensive on every conceivable level and you almost can't blame the guy.
	I mean he's so in the matrix in my opinion.
	I mean he wouldn't know which way is up even if he was following a bubble underwater.
	But the idea that what he needs to provide is more mythology.
	I mean, the man's all about myth.
	He listened to his speeches before the presidency.
	I mean, there was no factual basis to almost anything that he said.
	Almost everything that he said was a myth, even if it's his acceptance speech.
	I mean, this is all...
	Clinton brought this stuff to fruition way back in the day.
	I mean, politicians use this stuff all the time.
	We are building a bridge to the 21st century.
	What does that mean?
	You pull apart Obama's words and it really is just like candy floss.
	It tastes good in the moment, it evaporates in your mouth, and it rots your teeth.
	That is the fundamental issue with all of this stuff.
	Obama spends about 4% of his time on the economy.
	He spends about as much time on the economy every week as you spend walking your dog.
	Now, of course, in a way, that's That's good.
	I really don't want politicians to spend much time on things.
	But the problem is that the economy is in such a terrible state that you really do need somebody to actually work on it.
	But what can he work on?
	What can politicians work on, on the economy?
	What are the fundamental issues with the economy?
	The fundamental issues is unfunded liabilities, which estimates have ranged from 70 to over 100 trillion dollars, unfunded liabilities, future funding for Medicare, for Medicaid, in particular the pension schemes.
	I was chatting with a guy about his fight with public sector pensions recently and it's just, it's horrendous, absolutely horrendous.
	Public sector pensions are vastly underfunded.
	Estimates are less than 40% funded.
	Of course a lot of these guys are retiring.
	So you got unfunded liabilities and you have the over printing of money and you have hyper regulation and hyper controls of almost every sector of the economy.
	This is the reason why you can't get a job.
	You can't get a job because it's illegal for you to get a job or to make a job.
	Because almost everything you try to do is going to be against some law, is going to be against some regulations, somewhere, somehow.
	Or it's just too exhausting to try and figure it out.
	Or if you want to take a job for less than the government says that you're allowed to earn, then you simply can't get that job.
	If you're willing to forego paying into your retirement plan, say, look, I just need a job.
	I'm 25 years old.
	I've got time to save for my retirement.
	I'll be okay.
	Well, you're not allowed to do that either.
	If you want to start a job without the requisite licensing and inspections and what have you, Well, you'd be thrown in jail for doing that too.
	You don't have a job because it's illegal for you to have a job.
	If you want to go and start your own plumbing business, oh, sorry, you can't start a plumbing business.
	If you want to compete with some state service, oh, you can't go and do that.
	If you want to have a job without joining a union in many states, can't do that either.
	So what we need is freedom from coercion.
	What we need is freedom from interference.
	What we need is the right to negotiate and freely trade on our own behalf.
	And to take all the rewards and risks that comes with that.
	And all of the support and networking that comes with that.
	The community that comes with that.
	That's what we need as a society.
	But that's not what we're getting.
	We're getting more regulations.
	We're getting more taxes, more controls, more funny money.
	And what we get as a consolation prize for having the heart of our liberty ripped out of our chests is a fairy tale.
	Can you imagine?
	Lock some guy in your basement.
	He's desperate for freedom, to breathe free air, to walk.
	And you sit at the top of the stairs and he says, dear God, man, you've got to set me free.
	I'm dying down here.
	And you say, you know, I think I've misunderstood my mandate.
	What I have realized now is that as you are trapped in my basement, rotting away for lack of sun, I realize that you need a story as to why you're here.
	Now if you have a story as to why you're here, that will make everything just fine.
	That will make everything just perfect because now you have a lie, a mythology, a fabrication, a fairy tale to explain why you are the way you are.
	We are not collectively going through tough times.
	We are not collectively going through hardship.
	Hardship is being imposed through the initiation of force on the part of the government.
	Through peaceful people wishing to trade freely among themselves with no victims, forcibly interfered with by the guns, the power, the might, and the violence of the state.
	This is not a collective endeavor.
	There are people at the top who have all the guns in the world pointed at the rest of us.
	That is not a collective problem.
	To take an extreme example, the plantation owner sits down with his slaves and says, you know, we're all going through some hardship here.
	No.
	This is not a collective endeavor.
	There's a guy who forcibly encloses his slaves, who buys and sells them, and who strips them of their rights.
	Well, we're not slaves yet.
	We are not slaves yet.
	And we must reason our masters into putting down their weapons, into letting us be free to trade, to move.
	To create communities, to co-found charities, to help each other out in a voluntary way.
	That's what we need.
	We don't need candy floss stories to rot our minds.
	We will be right back after the break with the great Brian Kaplan.
	33.
	The Peter Schiff Show.
	Go.
	All right.
	We are back, ladies and gentlemen, for our final ride into the sunset of Radioland.
	We have the great Dr.
	Brian Kaplan on the line.
	Brian, are you there?
	I am right here.
	Oh, it's great to chat with you again.
	He was on my show, Free Domain Radio, a couple of months ago.
	How are you doing, my friend?
	I'm doing fantastic.
	Alright, so, I will bite at the very first question that has been suggested.
	Ben Bernanke and John Roberts, these two people would not seem to have much in common, but I believe that your argument is that they do have something in common, and what would that be?
	Yes, well, there are two guys who got to the top, and something that I said in my blog is that people who get to the top usually have to make a lot of compromises and try to get along with other people.
	And the idea that you've figured out what's really going on and are going to do it even if people don't like it is not the attitude that you need if you want to get to the top.
	By the way, Bernanke was my teacher at Princeton.
	Just to let you know.
	Well, I don't know if there's a libertarian hot shower and sandblaster long enough to get that moral stain off the skin.
	What was he like as a teacher, just out of curiosity?
	He was actually an excellent teacher.
	I think he should have stuck with what he was good at.
	Right, right, okay.
	Now, a book of yours that I would highly recommend is The Myth of the Rational Voter, Why Democracies Choose Bad Policies.
	And is it fairly safe to say that that's in the realm of public choice theory?
	Oh, yes.
	So, I wonder if you can just give us a brief overview before we get into the economic lessons of Jersey Shore, which I believe is that there's never too much gel for one human head.
	What is the general perception of why people vote and what is the reality of why people vote and what they vote for?
	It seems that, in fact, people don't really vote for self-interest.
	They generally try to figure out what's best for the country.
	Unfortunately, they're not actually very good at figuring out what that might be.
	They tend to rely upon Some ideas that sound good, but when you really think about them don't make a lot of sense.
	Basically, the kind of ideas that when you take an economics class your teacher will try to talk you out of are the ideas that most people take with them into the voting booth when they vote.
	And what are the sort of ideas that people mistake for a good policy?
	Well, there's a lot of examples.
	One that I talk about a lot in my book is what I call anti-foreign bias.
	People tend to be especially pessimistic about the economic effects of interacting with foreigners.
	So anytime they hear a foreigner lurking in the background somewhere, they think that somehow Americans are going to get ripped off.
	Of course, if you're in Mexico, they hear about trade policy with Americans, and they think Mexicans are going to get ripped off.
	Sort of a general feeling around the world that other countries are taking advantage of you somehow.
	And if politicians want to get elected, they need to pander that to those kinds of attitudes.
	Right, right.
	And I think it's probably fairly safe to say that voters also are susceptible to the argument or to policies which are going to benefit them in the short run.
	In other words, where the benefits are concentrated, but the costs are kind of diffused and abstract.
	Right.
	I mean, there's two senses of that.
	So, you know, the first one that you're suggesting is, do voters tend to focus on the immediate effects while ignoring long-wind effects?
	And I'd say that's definitely so.
	So, I mean, like, nobody wants to hear about In 20 or 30 years, we're going to have a fiscal crisis unless we get the budget closer to balance right now.
	People just don't like the idea, what do you mean we have to suffer right now for something that's going to happen decades from now?
	Maybe we can just go along as we are and everything will work out somehow.
	This is an issue that's very popular with voters all over the world.
	Politicians, when they are running for office, generally just want to say something like, let's spend more money on all the stuff that people love, let's lower taxes, and somehow the books are going to balance in the end.
	And voters generally are very susceptible to that.
	In fact, I think it's really that a politician who tries to give them a more realistic description of what their choices are just couldn't make it in politics.
	It's just too hard.
	I think also there's two areas where I see conflict and want to comment on those.
	The first, of course, is conflict of interest.
	So if you have a public sector union that is voting on Taxation or public sector projects.
	That's kind of a conflict of interest.
	I don't think that would be particularly allowed in the private sector.
	And the second, of course, is that we have huge amounts of policies that are devoted to children, education and health care and so on.
	But the children, of course, are young and don't get a say in that.
	And it seems that those sort of conflict of interest and policies that affect those who can't affect the policies, specifically children, though there are others, of course, undocumented workers and so on, Those are two other areas where I could see some challenges in more rational policies.
	What do you think?
	Well, it is true, of course, that people in public sector unions tend to favor bigger government, and especially on the stuff they're working on.
	What's striking, though, is that the public sector areas that are most successful are the ones where they're also really popular with the public.
	So if you take a look during any campaign season, politicians love to advertise that they're endorsed by teachers, by policemen, by firemen, by veterans.
	These are all groups that get a lot of money from the public, but they're also beloved groups.
	Also groups where people think, well, what they're doing is so wonderful, so if they endorse somebody, they must be good.
	And I think that's actually where the power of public sector unions largely comes from.
	It's not so much that the unions themselves are threatening, will strike, and will withhold education from your kids unless you do what we want, as they know the public is on their side.
	And so when, say, a teacher's union asks for more, it's not just that the school board is worrying about the teachers walking out.
	They're worried about public outrage.
	How can you treat these wonderful teachers so sharply?
	Because clearly, they wouldn't just be striking to get more money.
	It must be something else.
	So in a lot of what's going on in politics, people tend to think in terms of some corrupt self-interest wrecking the system.
	Whereas, I say, if you really look at the facts, The truth is that there's very broad public support for policies that are not a good idea, but to just blame them on the direct beneficiaries is a mistake.
	Yeah, I'm trying to think of the last politician who has touted that he is heavily supported and endorsed by the IRS. I think that is not something that you hear a huge amount about.
	That one is not going to fly so much.
	Not so much, not so much.
	Okay, so let's go to the...
	Sorry, go ahead.
	For the sake of the children.
	This is the kind of thing where it works because people love children.
	Children are so lovable.
	They're so cute.
	They're so wonderful.
	What kind of a monster wouldn't want to always spend more on them?
	Even though, of course, if you're a parent, you realize, I can't always spend more on my child.
	I can't give him everything he wants.
	He wants too much stuff.
	If I gave my kid everything he wanted, he would spend more than we have.
	And yet, as voters, when we think about children because we have so much affection for them, it's very hard Hard for voters to say no, even to spending that really isn't doing very much good.
	Yeah, I know.
	My daughter actually has a real fetish for gumballs, and we can't pass anything in the mall without spending at least $400 worth of gumballs.
	I actually think if we launch them into orbit, we could actually affect tides.
	We create a second moon entirely composed of gumballs, which I think would be pretty cool to look at, but I may be going off topic here.
	Okay, so let's talk a little bit about the economic lessons of Jersey Shore.
	Oh, right.
	So, I mean, there's probably many...
	Any fans of the show who are listening to you right now?
	It's a very popular show.
	But at the same time, I don't think many people would say that the stars of the show are wonderful or admirable people.
	They don't seem to be especially talented in any normal sense of the word talented, and yet they're very successful.
	And what I wrote on my blog is, what exactly do you think about this fact?
	If you think that markets work well, then what in the world is going on here?
	I say, look, the truth is, markets give people what they want.
	They don't give people things that are necessarily fantastic things to get.
	They don't necessarily reward merit.
	Although, if you step back, I also say that it generally is true.
	More often than not, markets do single out people who have talents and reward them compared to those who don't.
	But there are exceptions, and unfortunately, that is the way the world works.
	Yeah, I must confess to having watched, just out of curiosity, an episode of Keeping Up with the Kardashians.
	And I just found it, I did find it quite fascinating, just because they're not like any people that I know.
	I felt almost like an anthropologist.
	Oh, I need to take notes about how these strange species interact with each other.
	It's a world full of vanity and money and hysteria and some pretty, I think, really unpleasant human interactions.
	It's possible.
	Yeah, and, you know, I think we're all programmed to look at pretty people.
	So, you know, I think that's all fine.
	But it is interesting, yeah, because I did also watch an episode of Jersey Shore.
	I tried to sort of dip my toe into every cultural pool that I can find.
	And I did find it quite fascinating.
	It's a different world.
	I think it is a different world for most people.
	I think we can be quite happy about that in many ways.
	And people who are willing to truly and at least fairly openly be themselves warts and all are quite fascinating because what I get a sense from these reality shows is that you get to see people in a sense really as they are.
	It's not like somebody in a job interview or somebody putting themselves up for public consumption.
	There is a kind of Bold, not always pleasant honesty, if not necessarily virtue.
	There's a lot of honesty in that.
	I think that's quite fascinating.
	We get a lot of social faces in front of people, and I think seeing people as they are can be quite interesting.
	Yeah, I mean, I think we do learn something from these shows, although, I mean, I think that actually, first of all, of course, people who just live more scandalous lives and more entertaining for people to watch, they tend to get selected to be put on TV. But also, I think it's very naive to imagine the producers of the show aren't When the camera's turned off, telling people, we're kind of bored here.
	Let's make something happen.
	Scream a little bit more.
	Can you change this around?
	I always put reality TV in quotes because it's a produced show like anything else, and if it's boring, then the people making it aren't going to say, my ethics as a producer don't allow me to intervene.
	It's not like a nature documentary or something.
	Yeah, and I think also, I mean, just from a scientific standpoint, it's always quite fascinating to see just how much bacteria you can get into one hot tub.
	That's not, you know, that primordial soup.
	I really was expecting a lungfish to come out with them after they were all in that hot tub.
	Listen, Brian, we've got a break coming up.
	If you can hang on after the break, I would love to pick your brain about online education and also whether you think there might be an education boom at the moment.
	This is Stefan Molyneux for The Peter Schiff Show.
	We will be right back.
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	Alright, we're back for our last segment, my friends.
	We have Dr.
	Brian Kaplan on the line.
	And one of the things that's happening in libertarian education, Tom Woods has set up his sort of online educational academy focusing on economics and particularly, of course, Austrian economics.
	And there's lots of other...
	educational aspects to libertarianism that are quite popular and so Brian I was just wondering if you could talk about how you see universities being able to compete because the cost of course is enormous and ever increasing I would argue largely as a result of government subsidies to education but with student debt I think student loan debt is topping a trillion dollars at the moment and significant percentages of graduates even in particular technical fields can't find any work How do you think the role or
	the balance is going to be achieved between the academy and the Internet?
	Well, I think the Internet is where people are going to be entertained.
	And if you actually want to learn about something, the Internet is a fantastic place.
	But I'm afraid that regular old brick-and-mortar universities are where you're going to go and get the credentials that will get you a job.
	Well, could it not be the case that you could, I mean of course a lot of the courses are offered online and so on, that you don't have to do the brick and mortar thing because if it's largely, you know, consuming information, making arguments and showing that you know the information, that could be done fairly digitally.
	So are you arguing that it's the physical presence that's important or the degree granting capacity?
	Really what I'm arguing is that a lot of the reason why employers pay more for people with degrees isn't because of what you actually learn in school.
	It's because you're willing to jump through all those hoops and you don't drop out.
	You do the work, you finish, you shut up, you learn what you're supposed to, and you get through.
	A lot of people go and study subjects where they will never use what they learned in college or even high school again on their job, but still employers care.
	This is the fact.
	Now, in a book that I'm working on called The Case Against Education, I try to explore why exactly is this.
	My story is that really what's going on is that people are just trying to show their stuff.
	They're trying to show off to give employers that they're good.
	And the big problem you have with things like online education is What are the first people who try to escape from the regular university system?
	Now, they may be very creative and interesting people.
	I know a lot of people like this.
	They're interesting people.
	But at the same time, they're also people who are trying to avoid a lot of pain and suffering.
	They're trying to skip out of having to pay their dues.
	And employers, when they see a person like this, they naturally wonder, well, why didn't you just go and do it the normal way?
	Why are you trying to take the easy way out?
	My basic story is that online education suffers from something economists call adverse selection.
	The people who are most eager to jump ship from regular universities often will have some personal issues, which make them not very employable, which is why online degrees still aren't very respected by employers.
	Well, I'm afraid that I must agree with you there.
	As a guy who ran the technical arm of a software company with a full-fledged master's degree in history, I think that I must tell you.
	Actually, as an employer, as a hirer, I probably hired about a hundred people, looked at thousands of resumes.
	And I was not necessarily adverse to somebody who hadn't finished their education.
	But the question of course is why?
	Certainly somebody who starts education and doesn't finish it is suspect because they haven't followed through.
	I was actually less concerned about people who never went to college than people who started and then stopped.
	I think for that very reason of continuity and finishing what you start and all that kind of stuff.
	Right.
	I mean of course there's variation employers and there are niches for a lot of different strategies.
	But here's the thing.
	Actually, it seems that there's a potential payoff even just trying college.
	Even people with just one year of college seem to get a noticeable premium over people who only finish high school.
	It seems like a lot of what's going on here is there's a big difference between people who don't even try to go to college and people who at least have the ambition to make an attempt.
	It looks like actually the people with the ambition to make the attempt are a bit better than the people who don't even try in the first place, who just want to play video games.
	Right now of course I think the economics argument or the economic argument would be that if there wasn't something that was genuinely predictable about going to college or trying to go to college in terms of economic success in the marketplace that it would be selected out right in other words that if If it didn't mean that much economically in a very practical sense, then people would just start putting those people aside who'd gone to college.
	So are there any studies that show the long-term economic value of going to college?
	In other words, that it's supported by genuine performance in the marketplace, that people prefer college grads?
	Right.
	Well, I mean, it's definitely true, for example, that people with more education score higher in terms of objective job performance if you measure it that way.
	So there definitely is work along those lines.
	The main question to keep in mind is, is the reason why people who go to college turn out to be better workers is because college transformed them, or is college just stamping them?
	The analogy that I make in my book is between someone who creates great works of art and someone who simply appraises art.
	I say college and even high school and so on is a lot more like appraising great art than it is like creating great art.
	You aren't really turning the students from lumps of clay into beautiful sculptures.
	Instead, you're just there to scrutinize them and then at the end put a little sticker on them saying, you know, grade A student, grade B student, and so on.
	Right, so it's not that college makes you smart.
	It's the smart people go to college?
	Yeah, there's a lot of that.
	And it's not just smart.
	It's also work ethic.
	And a lot of it is, I think, conformity, just willingness to submit to social expectations.
	You know, in American society, If you are a reasonably ambitious young person, then we expect you to go to college.
	Why wouldn't you go to college?
	It's almost like you're wearing a shirt in a restaurant.
	If you don't do it, why not?
	What's wrong with you?
	You don't understand?
	This is what's expected of you?
	You are just trying to defy us and show us that you're not going to follow the rules?
	In many ways, I'm a defiant person.
	I have a lot of friends like this.
	And yet, if I were going to hire someone, someone shows up in an interview without a shirt, Or says, I didn't feel like going to college.
	I think it's a waste of time.
	That's where you say, hmm, well, maybe it is a waste of time, but the fact that you wouldn't go makes me nervous about hiring you.
	It seems like you have some kind of problem with authority.
	Well, I think that the pluses and minuses of that certainly in, as you and I know, even more than me of course, because you have a PhD, but there is a submission to a structure, a submission to a hierarchy in these situations in college and, you know, I want people who think for themselves and who are independent, but I also want people who know how to respect legitimate authority, you know, like helpful and useful and legitimate authority and people who Don't go to college.
	Yeah, I mean, they do show that they can't fit themselves into a structure.
	And I think that's fine for entrepreneurs, right?
	So, you know, my sort of argument has been, if you don't want to go to college, then the best thing to be is an entrepreneur.
	But if that's not the case...
	If you've got the right stuff, of course, most people who try to become entrepreneurs fail because they are...
	I mean, sort of the old saying of if you want to learn how to lead, learn how to follow first.
	I think there's a lot of truth to that for entrepreneurs.
	First, you need to know how to...
	You know, be part of the business, how to work with other people, and then eventually you may know enough that you can actually start yourself.
	People sort of want to skip through all of the usual steps to go straight to the top, but every now and then they're just a miracle and they can do it.
	But most people like that just have a whole lot of issues that hold them back from succeeding.
	Yeah, and of course, it's not like if you become an entrepreneur, you're your own boss.
	All you now are subjected to your customers and to your employees and your co-workers and so on.
	Anyway, thank you so much, Brian.
	I'm sorry we have to cut this short.
	It's always a real pleasure to chat to bcaplan.com.
	This is Stefan Molyneux for Peter Schiff.
	It was a real pleasure and an honor to be back.
	And if you like the show when I'm doing it, please be sure to let him know.
	This is Stefan Molyneux from Freedomain Radio.

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