Jan. 28, 2015 - Freedomain Radio - Stefan Molyneux
53:06
2896 The Decline of Greece. There Will Be No Economic Recovery.
A discussion about the rise to power of the far-left Syriza party in Greece as a result of the recent elections - and the impact that it will have for all of Europe and the world! What is the truth about the austerity which Greece was under? What does their future look like?Veronique de Rugy is a senior research fellow at the Mercatus Center at George Mason University. Her primary research interests include the US economy, the federal budget, homeland security, taxation, tax competition, and financial privacy.
Back again, we have the great Veronique de Rougie, Senior Research Fellow at the Mercatus Center at George Mason University.
Primary research interests include the U.S. economy, the federal budget, homeland security, taxation, tax competition, and financial privacy.
So if you are stuck at a dull dinner party, Veronique is the person you most want to be sitting next to.
Thanks so much for taking the time today.
Thanks for having me.
So Marxists enter the world stage of politics again.
I feel like this is the 20th century once more, but with, I guess, fewer dead Romanovs.
So what are your thoughts on some of the criticisms that the radical socialists who've gotten into power in Greece have about where Greece has been going over the last five years?
Well, I mean, where do I start?
At first, I guess I'd like to say that, you know, the Marxists are coming back, but the Communists have never left, right?
I mean, Greece has had a Communist Party, and so does France.
They still have a Communist Party named Communist Party, which It blows my mind, personally.
But they're back, and they're more...
They're really...
It's kind of amusing, especially if you're not, you know, living in Greece, because what's fascinating about the agenda and the demands is pretty much kind of like, well, you know, we...
We're in financial trouble.
We don't like the cost that you are trying to get or the price you're trying to get from us in exchange of giving us billions and billions and billions of dollars or euros or wiping up some of our debt.
And as a result, we're just going to bully you, right?
Into basically wiping up some of that debt without demanding anything from us, because otherwise we'll leave the euro.
And I understand that things have been hard in Greece.
I mean, certainly the IMF and the European Union, led by the German mostly, and also the IMF and the European Central Bank, the Troika, as they call this whole I've been demanding a lot of austerity.
And it's basically kind of like, it's been tough in Greece, but the result has been, you know, just not less debt, not less deficit, no economic growth.
In fact, lower economic growth and more unemployment.
And that's because they've mostly done the wrong thing.
Okay, so what's the wrong things that they've done and what, in your view, would be the right things that they could have done or should do now?
So when we talk about austerity, the reason why there's a lot of confusion is what economists talk about usually is fiscal adjustment packages implemented with the goal of reducing the debt-to-GDP ratio, right?
And there are different ways to do this, right?
You can reduce your government spending.
You can increase your taxes, or you can do a mix of both.
So economists have actually looked at the kind of packages, fiscal adjustments, that actually lead to the best, the more debt-to-GDP ratio.
And what they found is that packages that are made mostly of spending cuts In particular, packages that restructure things like entitlement and government pay and things like this, with just maybe a small allowance for tax increases, are the most likely to lead to debt-to-GDP ratio reduction.
Well, the Greeks, they haven't done this because the reason that they've been spending so much, which are like caving to interest groups and the fact that it's very easy to spend other people's money, right?
Those interests are still there and very, very active.
And as a result, and we see this in the data too, politicians tend to actually do the wrong type of adjustment.
And one that's mostly based on tax increases.
And the Greece, to their credit, have cut some spending, but they've also increased taxes a fair amount.
And it never works.
It never works.
Well, I think it would stand to reason from a sort of amoral political public choice theory standpoint that if you're raising taxes on a wide group of people, they're not concentrated economic self-interest groups.
Whereas, of course, if you cut spending on pensions or union benefits or anything, then you have a very concentrated political force that is going to oppose you.
So I think it's the old diffuse costs versus very concentrated benefits or the reverse, in this case, that would drive politicians along that road.
To simplify, I mean, you're entirely right.
I mean, the interest group dynamic that you describe is correct, right?
But the way, if you want to kind of forget about all the stuff I said about fiscal adjustment and you want to remember actually what kind of fiscal adjustment actually work, think about one thing.
What we need, what the data shows is actually very conducive to reducing debt-to-GDP ratio is to impose public sector austerity.
What doesn't work It's to impose private sector austerity.
That leads to tanking the economy further.
And by the way, a mix of both, which is what President Obama wanted, it's called the balanced approach, right?
It's kind of like, I'll cut two dollars of spending for a dollar increase in taxes.
That balanced approach also doesn't work.
So it really just has to be reining back public sector spending and hopefully, of course, liberalizing some domestic policies.
You know, the great bugaboos of the Marxist deregulation and privatization, which apparently means selling off wonderful public utilities to evil monocled capitalists so that they can feed the poor into their furnaces.
But I think that approach is something that ideologically is opposed by so many Economists, and let me just, tiny, tiny rant here, because this really bothers me about Europe and the sort of future of freedom as a whole, which is, when it comes to smoking, you know, there's nobody left who says, yeah, you know, suck down a couple of cigarettes and you'll be really enhancing your lung health.
Everybody knows and it's all very clear.
I think that the Greeks, like most people in the world, like you and I, would be willing to make sacrifices if they genuinely understood that they were necessary, and they genuinely understood that the benefits would be good in the long run.
I mean, people do that.
They quit smoking, they die, they go through, they save when they're...
Well, they scrimp when they're in debt and so on.
But the problem, I think, is that there really is a giant phalanx of economists, headed by one P. Krugman, who seem to tell the Greeks that none of this is necessary, that it's all exploitive, that they don't have to tighten their belts.
And I think that creates a huge amount of resentment if somebody tells you that you're going through austerity for nothing other than the profit of foreign banks.
That's very different than saying, you know, take what you want, And pay for it.
You know, whoever pays the piper calls the tune.
And that, in this case, would be those who lend.
I totally agree.
And you know what?
Here's the thing I do not understand.
The IMF, which has a lot of problems and is responsible for imposing a lot of bad policies on other countries in the name of giving these countries their money, is actually Published a lot of papers that talks about the right type of fiscal adjustments.
So they know.
And what I don't understand is they went ahead and said, let's do austerity without any guidance, without any explanation about what actually works and what doesn't work, which to me is very strange.
And it's possible because there's a complete disconnect between the economists, their And the rest of the crew.
But you're right that economists are completely responsible in this for the lack of explaining properly.
And one of the things about Krugman that to me has always been fascinating is, as a Keynesian, He should have been the first one railing against the way austerity was conducted in Europe.
Because even for Keynesians, when your economy is in recession, raising taxes is a terrible idea, right?
They want to spend more money.
So they, unlike, you know, what the data say, they don't want to cut spending, but they want to spend more money.
But they say you either need to cut taxes or certainly abstain from it.
And the data was very clear all along that they were mostly raising taxes.
And you didn't hear anything from them.
In fact, it took a lot of in-your-face, you know, Pointing to him and the people who follow him closely that he was admitting this big part for him to start acknowledging the tax aspect.
But, I mean, I agree with you.
I will just add something.
The real problem in countries like Europe, and to some extent the US, we're getting there, is that there is a moment where people have been so used To depend on government handouts.
That they actually, you can explain everything you want to them.
All they will see is what you're going to take away.
And they will have a very hard time, you know, seeing the benefit.
And it is true that a lot of the government spending, the cuts, will be hurtful for some.
To me, it's not a reason not to do it.
Well, of course.
I mean, and this is what is frustrating about trying to get people to think rationally about economics and, you know, the ethics and morality of stealing from the unborn and so on, is that people are willing, groups are willing to make enormous sacrifices for the sake of the cause that they believe in.
Sorry?
Stealing from the border, that's right.
That's right.
But, I mean, if you think of war, I mean, in the 20th century, not that long ago, I mean, people were willing to go and fight and die by the millions for a cause that they believed in.
I don't know exactly what's happened to the European character since then.
I'm not saying that the wars were always a great idea.
In fact, generally they weren't.
But the The reality is that people were willing to make sacrifices.
They were willing to accept wartime rationing.
They were willing to accept being forced to buy liberty bonds in order to fund the war.
They were willing to accept high taxation.
They were willing to accept their sons going off to war and the sons were willing to go.
That's our capacity.
For human sacrifice.
But then it's like, a 10% reduction in my crazy huge pension.
Ah!
Riots in the streets.
Like, there is some disconnect.
People think that it's being imposed on them, not by any choices that they made as the voting population, particularly in the first decade when, I mean, they went hog-wild with spending.
They think it's being imposed on them in a way that weakens any kind of resolve and just simply seems to turn them into a bunch of entitled whiners.
Well, there's that.
But it goes in Greece.
They've gone a step further.
They've gone wild on this.
They just elected someone who thinks that Greece is entitled to be forgiven for all the debt it has accumulated, so it could actually get some breathing room, so it can spend more money.
And you're kind of like, which planet?
Does anyone who pause for a second and say, I'm going to go to my bank and I'm going to say, I do realize I've been spending like a maniac.
I haven't been paying my mortgage, but I really think that I demand Basically, you cut my mortgage in half.
You forgive half of the money I owe you because, see, I want to continue shopping.
That's what I do best.
When you think about the demands, it's just kind of crazy.
And I think that they're misplaying their card this time around because it's worked so far.
The threat That everyone was caving to was Greece exiting the Union, Bankran, that would spread throughout Europe and lead to a collapse.
Today, that threat doesn't exist anymore.
There hasn't been much of a contagion.
Actually, I think that they have restructured a lot of their debt, so they can probably handle it well.
And I think, to be honest, the Greek people does not quite understand what is in their future once they exit the Union because they've been nung by this massive amount of money for years that they've been receiving.
Yeah, I mean, it's definitely a drug, for sure.
And you don't go to the dentist if you're on heroin, because it's like, hey, it doesn't hurt that much at all.
Well, actually, maybe that's an idea.
Maybe we should start going to the dentist.
Let me ask you about a theory that I think is quite interesting, which is, I don't know where you stand on the issue of the gold standard, but I know that a lot of libertarians favor a return to the gold standard.
I'm a little bit more because I'm a propeller head.
I'm a little bit more on some sort of cryptocurrency as the limit of monetary expansion.
Neither here nor there.
Some sort of limit on monetary expansion.
What is really fascinating to me is that this euro could be argued is a weird kind of gold standard because it forbids countries from individually deflating their currency in order to get out of Fiscal profligacy.
And that I think is really interesting because normally Greece would have been able to devalue the drachma and all that and just give people toilet paper instead of payments for their debts.
But they don't have that option anymore.
And in Spain, I mean, two governments in a row have put measures in place to attempt to put their fiscal house in order.
I think by taking away the capacity to print money, I think there is a kind of weird limitation, because this stuff seems to be happening a lot faster than it used to in the past.
Is that way off base, or what do you think of that?
No, no, I think you're completely right.
I was against the euro for a lot of reasons, I'm sure that we share.
But now, I mean, it is true that first, the system's in place, and it would really rock the boat pretty significantly to leave the system.
And it is true that the way it's worked, in a sense, it's tied the hands of individual countries to use monetary policy as a way to be irresponsible.
But, there is a but.
Since 2008 and 9 and 10 and 11, we've seen actually the European Central Bank Doing things that were completely against his charter.
So, for instance, technically, I mean, the Greek government has defaulted on its debt, right?
I mean, technically it has.
And by the previous standard, it should be out already, right?
And that's been allowed.
And then there's been a lot of allowances like this.
And what I'm afraid of is actually that they're loosening those rules And you're going to start more discretion, and hence less constraints.
And then, you know, go back to the kind of the moral hazard that it creates when you know that there may be rules, but those rules can be broken.
And so I think they're on the wrong path.
Even though what you said about the European Union and the Euro Union was actually acting at first as a way to tie government's pants.
Well, and of course the original idea behind the European Central Bank was by treaty it's prohibited from monetizing the debt of the members.
You can't just go and buy their debt.
However, of course, as you know, all rules are made to be circumvented in bureaucracies, It's been interpreted that this doesn't include lending euros to the national central banks, you know, and then taking back the debt as collateral.
It's just a backdoor to circumvent this limitation.
And so if they didn't, in fact, have any capacity to bail out member countries, then it would be closer to a de facto gold standard.
But this circumvention is completely ridiculous.
This Marxist guy who's part of one of the economic advisers to the new ruling party He wants to exchange the Greek bonds with something that won't pay any interest for perpetuity, and he calculates it can be paid back after about 58 years.
And this, of course, I mean, this would be an out-and-out bailout.
And the European Central Bank just...
And do you think that there's any relationship as to why they started loosening the money purses and started creating more money now?
Do you think that they know that they're going to have to do this stuff?
Well, I think...
I actually think that until now everything they've done is to avoid Any country exiting.
That was their biggest fear, the one that they were willing to compromise everything they believed in and they had set their regime on for.
I mean, it's the fear of a Greek exit that would then trigger maybe a Portugal exit and Spain.
I guess Spain is more difficult to envision, but who knows?
I mean, they have a left-wing party that also is starting to say, you know, we don't want to do austerity anymore.
Now I have a feeling that they're going to be I'm less willing to do it for these countries, for these reasons, but I'm afraid that the loosening of the rules, it will be kind of like at the discretion of the European Central Bank and Germany.
You see what I mean?
And the thing that's interesting, the reason why I actually think that we may be seeing Germany and the European Central Bank and the EU put their foot down and say, no way, we're not negotiating with you.
You're going to continue doing what we want, even if it's not necessarily the best thing to do.
It's because of all these other countries are also looking at what's happening in Greece.
Of course, all the people, all the countries, and there are many of them, who've put themselves in a position where they're in a fiscally unsustainable position, who've accumulated tons of debt, and who do not like the consequences of having to cut spending and do a bunch of things that they don't want to do, right?
They're going to be looking at how much Greece can get away with.
And if the German caves to Greece now, they know that the next country may not even be Portugal, it may actually be Spain.
Right?
So that may be the right incentive for them to say, no, we're not caving, especially as I said, because the risk of a contagion is just much more tamed.
It won't be easy.
I mean, there will be pain no matter what happens.
Well, I think if, I mean, the pattern would be seen pretty clearly throughout the EU, which is that if you can get Marxists into power, it's a successful shakedown.
And that will drive people to get more Marxists into power.
I mean, that's going to be a huge jetpack behind their political ambitions.
And it will be, again, it will make austerity seem like a sort of self-punishing flagellation rather than a rational response to overspending.
Yes, I agree.
But again, I'd like to insist on this.
The problem is the way Europe, for the most part, has done austerity is not very productive.
And just inflicting pain for the sake of inflicting pain without actually achieving the kind of long-term results that we wish we would achieve is not...
That great.
The problem, I think, fundamentally, is the Europeans are pretty confused about what's happened.
They have conceived of this system of massive intra-country redistribution, and now they're surprised that it's going as bad as it's going.
And I think it's, again, the battle of ideas.
This is why it's so fundamental, right?
It's because they...
I think they were wrong in the first place.
I mean, they've taken a lot of steps that are pretty misguided and now they're just facing, you know, They're just facing the consequences of just years and years of irresponsibility.
It's going to be interesting to watch.
And I also think that...
I think people expect that it's the end for Greece.
I don't think that there are a lot of people who actually...
Three years ago, people were like, yeah, no, no.
It's going to work.
We can't conceive of Greece getting out.
I think now...
People know that Greece is going to have to default on its debt, I mean, in a pretty visible way.
And it's just hard to imagine Greece staying.
I just don't see in which world Greece is staying in Europe, but I mean, I've been wrong before.
Well, I mean, it comes down to whether or not, I would imagine it comes down to whether the European Central Bank is going to be willing to bail them out.
And if they are, then they'll stagger on for another little while.
You know, like the bartender gives the drunk more drinks and then it will crash out.
Yeah, but it will.
I mean, because of the reason why they want debt forgiveness, right?
It's not so that they can restructure Fully, or that they can actually shrink the size of government and put their people back to work.
This is not the reason why.
The reason why they want their debt forgiven is because they want to spend more money.
They want to do more of the same thing that put them in the situation in the first place.
Right?
None of what they want to do is actually going to lead to a vibrant Greek economy.
So, sure, maybe It will work for a month or two or three or four or a year or two, but we'll be back in the same place fairly quickly.
What I wanted to ask you is your talk about cryptocurrency.
I was actually wondering when were People who are investing in Europe are going to actually start using currency like Bitcoin as a way to edge against what's going on in Europe.
Well, I mean, that's a challenge because, of course, there are a lot of investors who only see Bitcoin when it turns out people haven't locked their bank vaults but left them open and people have wandered in and taken Bitcoin.
So where there are security issues, then there creates a sort of fear, uncertainty and doubt cloud around Bitcoin.
And of course, what's happening right now, you know, to go into the wildly macro sphere, I think, is that people are just bouncing around between currencies.
You know, I mean, it's like, oh, the euro's down, the dollar is up.
It's like, can't they all just go down and something else take its place?
I mean, gold obviously does well in these kinds of situations.
But I think it's just it's a revolving door.
You know, it's like, well, oh, this currency isn't doing that well.
I'm going to go invest in this currency.
I would say right now, I mean...
If I have money, and I don't know where to put it, and gold is still very, very expensive, right?
Government bonds doesn't seem to be like a place where I wouldn't necessarily want to put my money, at least all of it.
Bitcoins are, I mean, it's cheap.
I mean, I would, you know, and now it's Coinbase that, you know, has announced that it was going to actually give us the kind of safety The Bitcoin world wasn't actually quite demanding.
I've been pimping Bitcoin since they were five cents a piece.
So I think that it's a good thing for people to look into.
So I just really wanted to also point out, just to the listeners, to this and the watchers, that I think what Veronique is saying is austerity is too wide a term.
So if I'm very much overweight, And I say, I'm going to cut out a third of my calories.
And what I cut out is protein and milk and stuff that's actually good for me, fiber.
But I keep all my junk food.
Well, it's true that I've cut my calories by a third, but I'm going to end up with a very different health outcome than if somebody decides to cut sugar, fat, whatever crap that they're eating, junk food.
And so I think using austerity is a bad idea.
Like I think of Germany and Sweden, right?
They moved towards rough budget balances between 2009 and 2011 in the middle of the crash.
And growth rate, 2010 GDP I got here for 2010 and 2011, 3.6% for Germany and 4.9%.
For Sweden.
So they did go through austerity, but ended up with significant growth.
And I think that's because in your parlance, they did the right kind of austerity.
They didn't cut junk food from their diet, not proteins.
They did public sector austerity, not private sector austerity.
Yeah.
And this is why, I mean, I've been fighting this word austerity because it just leaves so much confusion.
It's like not all austerity is good.
There are a lot of ways to go about trying to reduce your debt to GDP ratio.
Not all of them work.
And it is true that the debate about austerity, right, well among economists, even on both sides of the aisle, because you read the IMF papers, they agree with the non-lefty economists.
They agree that the best way to reduce debt-to-GDP ratio is to mostly cut spending.
Where the debate remains is, what is the impact of cutting spending in the short run?
I tend to think, who cares?
Because in the long run, there is a complete consensus, again, across the aisle, that it is a good thing for growth.
It is a good thing for debt-to-GDP ratio.
It's a good thing all around.
The question is, so if you cut Spending in the short run, is the economy going to grow a little, a lot, or not?
Is the economy going to shrink or collapse?
And that's where actually the debate really is, and we tend to confuse all this, as if there's no consensus on all these other issues.
And there, I can tell you what the data says.
What is the impact of cutting spending in the short run?
It's kind of like, well, it depends.
There are cases, and you touched on this, where actually cutting spending and implementing fiscal adjustment packages that are successfully reducing the debt, which means heavily loaded in tax cuts and fiscal restructuring, lead to growth only if there are It's done alongside labor market reforms, free trade reforms.
And there's a question whether that is possible right now, because a lot of the things we see is that the country that managed to really grow in the short term when they've done spending cuts are the ones that also had an export boom.
It's hard to actually really export well when all the other countries are not doing that great.
That being said, even when it doesn't grow the economy in the short run, right, the impact of the slowdown is mild and short-lived.
And more importantly, all the other fiscal adjustment packages are a disaster for growth in the short term.
Yeah, I mean, every now and then I put on the hat of infinite power and sort of imagine what I would do in the realm of Greece.
You know, I'm sure you know Murray Rothbard's argument that says that government bonds are not just debts because, I mean, it's not like the European Central Bank Bankers dug into their own pockets and sold off their own cars to lend money to Greece.
It was all just made up money.
So the outflow of money from Greece to a central bank is not a free market phenomenon.
So it's not like you've gone to a car dealership and got a car.
So there's sort of that argument.
To default on those debts would be to make sure nobody ever lent to you again.
Which, you know, I would consider a good way of tying future administrations to sort of sound fiscal policy.
But the other thing, too, is that as you talked about sort of labor market reforms, we tend to think of the two levers, you know, like taxes and spending.
But I would say cut taxes, cut spending, but most importantly, focus on deregulation, which I know is something that makes leftists immediately think that you're turning into some I think that deregulation,
I know a lot of it is controlled in Brussels, but there is some local capacity I think cut taxes, cut spending, and deregulate.
To me, that would be the easiest way to grow your way out of the problem.
I agree with you.
Sound labor market, meaning freeing the labor market against all the regulation, is actually proven to be an important policy when you cut spending.
Because you want to All the things that actually keep them from not working, but you also want to actually, for them to be able to actually go and get a job and find a job, and that doesn't happen if there's so many barriers.
And Greece, again, is worse than all the other countries, but think about a country like France.
It has been, for years and years and years, that unemployment among youth has been around 25%.
It's not a new phenomenon.
25%!
I mean, the overall population is usually around 10%, and it's gone down a little bit, and now it's back up.
But 10%, it's bad enough.
But for young people, it's 25%.
And there are also dramatic consequences of actually being unemployed at the beginning of your career because the growth impact, the wage impact, The growth of expectancy for your lifetime happens, 70% happens in the first 10 years of your career.
So if you're unemployed, if you're not in the labor market at all, like we're seeing a lot of that in the US. People who haven't even, kids who haven't worked, they're fresh out of college and they're like immediately unemployed.
I mean, the consequences for their future earning is actually quite dramatic.
Well, I mean, I think there's always been a huge challenge because so much human capital Gets developed simply through being in a workforce.
I mean, I got my first job when I was 11 and been working pretty continually ever since.
So by the time I got out of college, I mean, I had a work ethic.
I knew how to please customers, how to navigate office politics, how to work with bosses.
These are all things you can't really learn in school.
You just have to go out and be exposed to them in the workforce.
There is, of course, the reality as well.
I think this just came out in the U.S. that the unemployment benefits have tapered out for significant sections of the population.
And wouldn't you know it, they just went out and got jobs.
And so there is that aspect as well.
I think most people would rather work than sit at home watching soaps all day.
But the barriers to entry for most people, I mean, I think it's in the US, a third of people need some sort of government licensing or permission or something like that to even get a job.
I mean, if you're in Greece, What does it take to open a restaurant?
What if you want to cut people's hair in your own home?
What if you want to start a street-sweeping business?
I imagine that the barriers are enormous, and that really bleeds the motivation for people to get control of their own lives.
If you can't find a job, make a job.
But if you can't even do that, then I think your spine really deflates.
You're totally right.
Occupational licensing in the U.S. has actually increased quite dramatically.
It's like about a third of, I think, 30% of all This is for things like hair braiding.
Or even driving a cab.
Or like watching kids.
Things that you do when you babysit when you're 14 or 12.
And then if you want to make that your job, you have to have some sort of license.
And then these are barriers to entry.
This is a way to protect the people who are already in the market because it keeps wages artificially high.
But think about how I mean, I don't want to say evil or stupid.
Let's use the word misguided and you can put whatever you want.
So after Economist, you're going to go with Diplomat, right?
That's going to be your next gig?
I mean, think about Detroit.
I read these stories in Ibiza and Hit and Run.
They did these series after Detroit had to declare bankruptcy.
What was the local government doing?
Well, they were actually cracking down on all the local businesses, you know, the pop-up businesses that people would actually, all the unemployed people would start like thinking of something to do and start like selling sandwiches from their houses or starting mowing people's lawn or starting actually fixing.
The local government would go and make it a priority to crack down On that economic activity in a city that is completely economically depressed with a government who's failed miserably to the point that it has to go bankrupt.
And you just like, you think, what is going on in people's mind?
Oh, yeah, it's brutal.
I mean, wherever there are what are called ghettos, there should be this fantastic opportunity for businesses to swoop up and grab and scoop up some cheap labor.
But the amount of barriers between these people, I mean, this is a whole other maybe conversation.
We have another time about the sort of broken window policing.
It's a lot safer for cops to go and harass people selling sandwiches than it is for them to go after people with guns.
It's a lot easier for them to go after people who are spray painting or who threw a rock through a window rather than go after a big time criminal.
So what I think is called the sort of broken window theory of policing is basically just a way, which I can completely understand, of cops wanting to get home at night in one piece.
But I think there's some theory about how it really helps cultures and societies and neighborhoods.
I think it basically just helps the police stay safe.
Has them avoid the negative consequences of things like the drug war where you have like what's going in an Argentina where they're just shooting people the drug lords are just shooting people but I know that's a it's a bit of a tangent But yeah, it should be it should be that wherever there are lots of unemployed people There should be amazing opportunities for people to go in and scoop them up at cut rate because as you point out I mean youth unemployment is not just for now it has a way of permanently depressing people's wages in aggregate not for everyone and And it's the same thing,
of course, if you're born in the middle or you come to your economic life after college in the middle of a recession, your wages in aggregate remain permanently low.
And if you've had a couple of years of underemployment or unemployment, it's rough for your career as a whole, which means that down the road there's going to be less taxes, less growth to pay for all of the entitlement spending that everybody dreams of.
I agree.
No objection from me.
I think that any place where unemployment is above 4% should make any lawmakers, whether it's local government, state government, city government, whatever, make it their job to lift all the possible labor barriers that exist.
All of them.
And not just, by the way, by giving tax credits so a company would come into your state and compete unfairly with your local businesses.
I really mean just dismantle the whole system that prevents people from working.
Just let them work.
Yeah, people think it's maybe hazardous to have an unlicensed hair braider around, but if the only other choice, that hair braider who can't get a job because of the licensing, is to go into crime, I'll take my chances with a bad weave.
Even I with my locks flowing would take my chances with a bad weed rather than a criminal.
I'm actually pretty radical on this.
I'm against all licensing laws and even for doctors.
I mean, they're not a guarantee of anything.
They only jack up the prices of medicine.
And I'm just, you know, of course, my parents were doctors are like, what?
And I'm like, yep.
Oh no, I think, I mean, because the idea that licensing is a necessary, that can only occur Through the state, of course, everybody wants safe doctors, so there would be independent people who would say, yes, they've passed their tests, like the Better Business Bureau, you call them up and say, does this person cheat or whatever?
So there's lots of reputation management systems.
I mean, online, you can go and rate people who are doctors.
I would give that much more credence than the fact that they passed some artificial exam 20 years ago.
And of course, a lot of doctoring can't be measured.
an exam or by licensing, you know, your intuition, your bedside manner and all these kinds of things that could work in your favor.
So, no, I'm very much one for anybody can hang out whatever shingle they want and let the free market take its course.
And of course, particularly with the Internet now, you can get information about people so quickly that to be a fraudster is something that it would just be incomprehensible to sustain.
So but this is what governments do.
And this is the thing that drives me nuts, particularly about Obama, although they all do this, is that when there's a problem in the economy, he generally can only think of stimulating demand, you know, Free college!
You know, just stimulate demand, force people to buy healthcare insurance, stimulate demand, and that you do at the point of a gun legally.
But the idea of dealing with a problem in the marketplace by increasing supply, in other words, lowering restrictions, lowering barriers to entry, eliminating licensing, that is a reduction in government power and is never something that they gravitate towards.
Nor can they conceive that there's a lot of things that they cannot see.
So, for instance, here at Mercatus, my colleagues work a lot on permissionless innovation.
The fact that I mean, we need, again, to tear down all the walls that actually require entrepreneurs, businesses who want to serve their customer to have to ask permission to the government at any level for putting something on the market.
Whatever it is, whether it's drug, whatever devices, whether it's health-related or food-related.
It's pretty stunning the power that the government wants to have on every aspect of our lives and really the cost that it has in destroying A lot of very positive things that we could have.
And it boils down to thinking that we consumers, we people, aren't either smart enough or responsible enough or aware enough that we can actually protect ourselves or know better what is for us.
But more importantly, it's this belief or inability to comprehend the fact that there is a lot of things that could be, the world could be going in a direction That you can never conceive.
And if you regulate before it ever happens, you kill that possibility.
Yeah, and I mean it's always struck me as ironic that Politicians who are in charge of heavily licensed fields, you know, law and medicine and so on, engineering, they can pass all these kinds of laws.
You don't actually need a license to be a politician.
I mean, I think you might need a brain scan to look for signs of sociopathy.
That's perhaps another story.
But these guys who are in charge of everything, they don't require any licensing for themselves.
And of course, if you look at, I mean, I was a software entrepreneur for like 15 years.
And I didn't have a license of any kind.
I just loved to code and did it ever since I was in my early teens.
And if you look at where the real innovation is going in the world, it is always in the areas where licensure is either nonexistent or kept in.
At a minimum, which is why there's no podcasting license, and we get 100 million downloads of this show over time.
So that's something that's hard for people to understand.
They think that you need this security of government making sure that everyone's safe, but all it does is raise the cost of everything, and in the long run, lower the quality.
Yeah, and making us unsafe.
This is why kind of like one of the big push that we're making here is actually argue for permissionless innovation in healthcare here at Mercatus.
And just basically want to freeze the supply side of healthcare from the group of government and interest groups, right?
Because doctors and hospitals and pharmaceutical companies, they don't quite like this, right?
Like Bill Gates said, he was less afraid of the big company than he was of a guy building something in his garage.
Right?
Well, isn't in the States, don't you, even open any kind of clinic and stuff, don't you need to approve a certificate of need and show the government that there's demand?
I mean, how insane is that?
I mean, that just makes it hang up a shingle and see who comes by.
That's how the market's supposed to work.
And more interestingly, the people who are actually going to decide whether you've made your case effectively are actually your competitors, who, of course, have an incentive to say, no, no, we don't need another hospital, we don't need another doctor, we don't need another.
The thing is, like, you know, the problem, and again, that's taking us way far from Greece, but I think it relates to all of these problems of the labor market and the government intervening and where they're just really, really oppressing our ability to grow and to produce just amazing things and at lower costs and higher quality is when you...
There are a lot of the, again, economists...
And a lot of the, even the free market advocates, have been very wrongheaded in the way we fight for what we think we want, and in healthcare in particular.
When you think that the whole debate over healthcare reform in the last 25 years has been about how to provide Health insurance for all, right?
It's been, again, on the demand side.
I mean, Obama isn't the only one.
Free market economists have spent their whole lives, the healthcare guys, in actually trying to think about how we can, you know, the demand for healthcare insurance.
How can we meet this for free or whatever?
Health insurance is not healthcare.
It's not, right?
And it's astonishing to me that this is the conversation we've been having for 20 years instead of thinking outside of the box and just actually say, hey, how do we actually get the type of innovation that we got in the technology world applied to healthcare?
And when you use this concept of permissionless innovation, you can apply to labor, permissionless labor.
Why should we have to ask for permission to do anything, to work, to start a business?
Let's fight for permissionless everything, right?
Well, of course, and that's the beauty of these kinds of conversations, Veronique.
Of course, you and I are able to have conversations.
I don't have a broadcast license.
You don't have a studio that requires union labor.
I mean, this is what the power of the Internet has done, of course, is it takes out the middleman.
And where the middleman is...
The middleman always reaches for the state to keep customer and service provider apart so that he can wedge himself in and charge rent-seeking behavior, right?
So the fact that you and I can have a conversation like this and then hundreds of thousands of people can listen to it or watch it It's an incredible example of just how the government is, in many ways, despite being intrusive economically, is from a cultural and information sharing standpoint becoming increasingly irrelevant.
I don't even find that I have to step around the government.
I have to find ways.
I just, as far as my show goes and so on, I pay my taxes and all that, but it's not there.
I mean, I don't have to get permission to call you up and say, let's have a conversation about freedom and the Euro and whatever.
So it is, in a weird way, there's this whole world that's growing up that's able to communicate and share ideas and spread very, very important concepts with no...
the government's not even there.
I think actually it is spreading to other area.
Again, you know, the Food and Drug Administration has been a gigantic cause of restraining innovation and requiring licensing in a lot of And one of the things that you see is now there are a lot of people who are starting to experiment with their own body,
with their own health kind of wearable We're not too far for actually living in a world where It's not so much that the FDA rules and regulations are trying to apply 1910 regulations to today's innovators.
They actually won't be even able to reach all that's happening.
And hopefully we'll be free in a lot of ways to do a lot of what we want with our bodies.
And I hope Unfortunately, I mean, with labor, it's harder because a lot of the labor exchange requires to be in a place where the government can go and constrain this.
But who knows?
I mean, there may be actually a lot of ways that the labor market is going to develop away from the place where the government can reach us.
Well, we can only hope so.
And I think that talking about direct political action as a solution, I think, is not going to be too helpful.
I think that the public choice principles and drivers Are so overpowering that it would be trying to found a system of economics that expected people to act against their own interests or not respond to incentives or imagining that economics could deal with a world of infinite resources and supply.
I just would not be realistic.
But I do think that this stepping aside And taking a different path, you know, you still pay them off because jail isn't fun, but there's a lot that you can do outside of that.
Now, I mean, I could chat all day, but I just wanted to be respectful of your time.
Do you have anything cool coming down the pipeline?
Any projects or websites that you'd like to share to the listenership?
I blog at the Daily Beast.
I have a column at the Daily Beast now.
So I just put out something that actually shows how incredibly narrow-minded Obama is when it comes to free trade.
He really doesn't quite understand that the greatness of trade isn't so much export, especially when their export is propped up by government, but it's actually import.
And again, just get out of the way and let us buy wherever we want from wherever we want.
But the big thing that I'm working on, and I'm still having a hard time wrapping my head around it, is I'm trying to catalog all the cronyism in healthcare.
And that's a gigantic project, and I'm still trying to figure out.
But for anyone listening, if you...
If you have example of cronyism, meaning this unhealthy marriage between private companies and the government in healthcare, send them my way.
Because I don't think I'm going to be talking in details about everything that will explain why this is unhealthy and what are the consequences for us consumers of healthcare.
But I think what I'm trying to do now is just to document all of them.
And then maybe people can write individual papers on all of them and we can try to You know, move things along.
Yeah, I think you're going to need a bigger wall just looking over your shoulder there.
If you're going to map that out, this is going to be like the bloodline of the Plantagenets plus everyone else in Europe.
So, fascinating.
Okay, well, we'll put links, of course, to your column below.
And thanks, as always, for a delightful conversation.
And, of course, thanks for all the work that you're doing to get the good word out about free markets, personal responsibility, all that good stuff.
