Nov. 25, 2015 - Freedomain Radio - Stefan Molyneux
01:16:04
3137 The Failure of Capitalism? | Paul Craig Roberts Debates Stefan Molyneux
Who is responsible for the current economic situation in the United States of America? Was the housing crash and banking sector meltdown the result of deregulation and the dangers of free market capitalism? Is government regulation and interference in the market to blame for all these problems? Stefan Molyneux and Dr. Paul Craig Roberts debate these issues and more in a discussion about Dr. Roberts’ recent book “The Failure of Free Market Capitalism.”Dr. Paul Craig Roberts was Assistant Secretary of the Treasury for Economic Policy under Ronald Regan and is a former associate editor of the Wall Street Journal. Dr. Roberts is the author of "The Failure of Laissez Faire Capitalism" which you can order at: http://www.fdrurl.com/FailureCapitalismFreedomain Radio is 100% funded by viewers like you. Please support the show by signing up for a monthly subscription or making a one time donation at: http://www.fdrurl.com/donate
And we're going to actually have, I guess you could call it a kind of debate.
Dr.
Paul Craig Roberts was the Assistant Secretary of the Treasury for Economic Policy under the Ronald Reagan administration.
Appointed by the Gipper himself and is the author of many books.
The most recent or one of the ones that we're going to talk about today is the failure of laissez-faire capitalism.
Now, for those who don't speak French or Bastiat, laissez-faire capitalism refers to a famous exchange when the French king was saying to all the merchants, what can I do to help you become richer and to trade?
and they said, laissez-nous faire, leave us alone, stop interfering with our property rights, stop interfering with our contracts, stop imposing regulations, stop imposing endless bureaucratic rules, stop creating this horrible maze which we have to run through to get from supplier to customer and so on.
So laissez-faire capitalism is the argument that ideally there should be like what's called a night watchman state, a state that protects property rights and enforces contracts and opposes violence, the initiation of force.
I just wanted to mention there's a huge amount that I love about the book.
Well, there's a scientific statement.
I loved it.
Where Dr.
Roberts and I certainly agree is how he characterizes the degeneration of the United States into what could charitably be described as a warmongering police state.
I think we...
Fully agree on that and we also fully agree on the decimation of the middle class and particularly the latter to the middle class that used to be available to the lower classes through manufacturing and other trades that have vanished to a large degree at the rate of 50,000 jobs a month for the last decade or so which is unbelievable the degree to which these jobs have vanished.
It's basically anything that can be moved has been moved overseas and this has created a giant hole In the center of the economy and the future of the American experiment.
And so where I think we're going to diverge is the diagnosis and particularly the cure.
But of course, thank you so much, Dr.
Roberts.
I hope I've characterized things fairly well so far.
Sure, that's fine.
Okay.
So do you want to just run through the basic argument of the book and then we can see where any disagreements may arise?
Well, Stephan, I think what I'd better do the way you set it up is to point out what it means in the title, failure of laissez-faire capitalism, because it's easy to show this.
There are two main justifications for capitalism, laissez-faire or otherwise.
One is that it ensures efficient Using resources, because capitalism shuts down loss-making enterprises.
And a loss-making enterprise is one that's not using resources efficiently.
So one of the claims for capitalism is that it protects valuable resources from being used in less valuable ways.
And yet what we see is the consequence of deregulation.
of the financial sector is banks.
They're too big to fail.
They simply can't be allowed to fail because the deregulation allows them to become so monolithic that if even one of them fails, the belief is it takes down the entire economy.
If all of the Five or six big banks fail and it's like a nuclear Armageddon or something.
And so here we see the failure of laissez-faire and deregulating the banking system because now the banks are bailed out and they're kept alive even though they failed.
And they're kept alive at a horrendous cost.
First, we had TARP, the, what was it, $750 billion, was it, bailout from the taxpayer.
And, of course, that was nowhere near enough.
$750 billion was not enough, so the Federal Reserve had to bail them out by expanding its balance sheet from $800 or $900 billion to $4.5 trillion.
So, in order to bail out the banks, the supply of dollars had to be enormously increased.
This, of course, brings pressure on the dollar, and so then they have to rig The dollar, by having the Japanese central bank do quantitative easing, by having the European central bank do quantitative easing so that everyone is printing money to match the dollars that were printed so the dollar doesn't collapse in value.
And so this sort of deregulation, see, now has spread its problems to the other two major currencies in the world.
They've had to rig the gold market and the silver market, because if the gold silver price rise, even though the dollar is not falling with regard to the exchange rate of the yen or the euro, it's another indication something's wrong.
How come the dollar's losing value relative to bullion?
And so they have to use the bullion banks, the agents of the Fed, In the futures market, in the gold and silver futures market, to artificially increase the supply of gold and silver by printing paper contracts that represent claims to gold but are never settled in gold, always settled in cash.
So they can dump huge quantities of paper representing claims on gold into the futures market, uncovered shorts, naked shorts, drive down the price, set off the stock, loss orders of the hedge funds, step back in, cover their shorts, and everything is settled in cash.
So everything is rigged.
And of course the Fed then has to rig the bond market.
And it ridges the bond market by buying bonds until the interest rates are zero or negative in real terms.
And, of course, it can't allow any significant stock market correction.
So when stocks start to go down, they have to step in and buy S&P futures.
So it's very easy to show that the consequence of deregulating the banking system Is all financial markets are rigged.
The currencies are rigged.
And we now have banks that are so large that they can't be allowed to fail.
And so we see the complete breakdown of capitalism.
It cannot close down loss-making entities.
Where else do we see the failure?
We see it in the confusion of jobs offshoring with free trade.
All the neoliberal economists, oh, this is free trade.
They don't know the first thing about free trade.
It has nothing to do with free trade.
When you move jobs offshore, this is not free trade.
A lot of libertarians fall into this because they think there should be no restraints on capital.
A libertarian thinks that what free trade is, is that all the restraints are on labor unions.
None are on capital.
And so we have seen the move offshore of the bulk of the middle class jobs.
And this has dismantled the loudness of weapon mobility, and therefore there's no longer any mobility in society to speak of.
But also, look, it has destroyed the justification for profits.
Because the justification for profit is it's a sign that social welfare is being maximized.
Yet, how is social welfare maximized when the consequence is to ship offshore all the middle-class jobs?
And stop the ladders of upping mobility.
So this is not maximizing social welfare.
And so the second major justification for capitalism has also failed.
So it's these two failures that the title in the book refers to.
They are unambiguous.
They're not debatable.
We know both of these are facts.
And so here we see caution.
This is Carson about laissez-faire.
You see, the people who were speaking to the French king, they were saying, look, we want the power, not you.
Why should you have the power?
We'll have the power.
And that's really what laissez-faire means.
It means that activity moves from the public sector or the government into private hands.
And this is the great failure of libertarians.
They think that if power is in the public sector, always evil and bad, but if it's in the private sector, always good and wonderful.
But of course, what do we know about the exercise of power, whether it's public or private?
And what do we know about power in our political system?
Where is it really?
It's not in the public sector.
It's in the military security complex.
It's in Wall Street.
It's in the Israel lobby.
It's in the extractive industries, mining.
Logging.
Oil.
It's in agribusiness.
Monsanto.
So these are the people who buy the elections.
Their campaign contributions control the government.
The government is their agent.
And so the notion that somehow, oh, if we can just move all the power out of the public sector and put it in the private sector, we would have freedom.
That is absolutely not true.
And so there has to be a balance.
Some things have to be regulated to prevent the failures of capitalism.
Well, just to reiterate on your last pint, Dr.
Roberts, we looked up a little bit of data.
So there's a place called the Sunlight Foundation, which sounds like a very happy place to work.
And they pointed out that between 2007 and 2012, the 200 of America's most politically active corporations spent $5.8 billion on federal lobbying and campaign contributions.
$5.8 billion, I don't know what's under your couch, but that seems like quite a lot of money to me.
However, this investment of $5.8 billion gave them a return on investment, $4.4 trillion in federal business and support.
In other words, for every dollar that they spent buying politicians, corporations got $741 in return.
That's 74,000% return on investment.
I think it's even more than Bernie Madoff offered in his most coke-addled days.
Goldman Sachs, $38 million on lobbying, $229 billion in federal business and support.
Bank of America, $45 million lobbying, $476 billion.
See, the M's and the B's are really important here.
They rhyme, but they're not the same.
JPMorgan Chase, $52 million buying politicians, got back $504 billion.
Lockheed Martin, 93 million in buying politicians, gets $204 billion.
And this doesn't even count preferential legislation and tariffs that serve these particular people.
Now, the challenge, I think, which we can talk about is that, to me, does not spell laissez-faire.
Let's say for capitalism is supposed to be the separation of state and economics so that the government doesn't have the power to pick winners in the market.
And so the degree to which the corporations can bribe and buy and influence public policy and the amount of money they can get in return, that would seem to me to exclude these corporations from capitalism.
The category of laissez-faire, dog-eat-dog, free-market capitalism, survive by your wits.
This is basically just bribery and the pillaging of the public purse through political influence.
Well, actually, Stephen, the corporations are the product of deregulation.
That's why the banks are too big to fail.
They were deregulated.
I can remember when I was in the Treasury, there was no such thing as national branch banking.
And what we have now essentially is, isn't it true that something like five of the big banks control 80 or 90 percent of all deposits?
That this is monopoly concentration and it's the product of deregulation.
So as long as the argument From the neoliberals and even the libertarians is that we have to deregulate in order to be free.
When you deregulate, you create monopolies.
One of the most surprising things that happened was when they busted up AT&T. Now AT&T was a regulated public monopoly.
Everybody got really good service.
It was busted up on the argument that, oh, we have to have competition.
And so what do we have?
We don't have competition.
We now have a huge number of small monopolies.
Both places where I have, where I live, where I have homes, there is a monopoly over the communication.
The prices they charge are outrageous.
Just outrageous prices.
Not only that, the service they give is deplorable, but nothing can be done about it because there's no way for a competitor to enter, and they're not regulated anymore because, oh, it's private.
Not only that, we see that Wall Street forces them to convert everything into the bottom line, into profits, so they don't do any maintenance.
They don't do any upgrading, no research, no development.
Remember the Bell Labs that AT&T had.
This was an enormous amount of research.
This has all disappeared too.
So what we have to understand is that there's no way that you can only control public power.
And there's no way that you can say, if we control public power, then there'll only be good private power.
That's not the case.
Well, so, no, finish your thought.
Sorry.
That's okay.
You can go ahead.
This is going to be a real wind sprint through some brief highlights of economic history, but I was just sort of thinking about 20th to 21st century, dip a little bit into the 19th century.
But way back in the day, banking in the 19th century, this is obviously a simplification, but there were very strong elements of this.
If the bank went bankrupt, the bank director was the first person to lose his house because he would be the number one person whose assets would be reclaimed.
This was before the government got heavily involved in banking.
This was before the corporate shield that has been created, which I think is one of these great evils of government regulation that has created this legal shield that protects directors from corporate malfeasance and particularly from losses.
When the corporation does well, you pull money out of the corporation.
When the corporation loses money, nobody can go after your own personal assets.
And I think that's Basically like giving a bunch of criminals an infinite supply of hand puppets that go to jail when they do something wrong.
It simply is going to encourage that kind of criminality.
And I think that, you know, in the free market, if you have a choice, let's say there's two banks on the streets, Bank A and Bank B. Now in Bank A, if the bank goes bankrupt, all of the directors immediately are the first people to lose their homes, lose their savings, lose their assets and all that.
Or Bank B, they're protected from any kind of malfeasance.
They can pull as much money as they want out.
No one can go after them and the government will bail them out if they go bankrupt.
I'm pretty sure, I don't want to speak for everyone, that's sort of the free market reality, but I'm pretty sure that I and most people would choose to do banking in Bank A, where the directors would be personally, legally, fiscally responsible should the bank go belly up.
And in Bank B, which is the current system, I don't think people have that choice to go with Bank A because Bank B is a standard.
And I don't really think that that could be considered part of the free market because it is something that executives and directors longed for and lobbied for to get this corporate shield to protect their personal assets from liability.
Stephen, if you're a director, your personal assets are at risk.
You have to tell you, the firm usually takes out directors' instruments.
But if it's a bad enough malfeasance, and they say it's fraud, then they don't have to cover it.
So it's not true that directors aren't at risk.
But this kind of example you gave, this is the sort of thing libertarians always use.
I've heard them all my life, you know.
I mean, actually, I used to be a fellow of the Cato Institute, a big libertarian in Washington.
There's a huge difference between the idealistic ideology of libertarians and reality.
And the reason things are the way they are is because not the government wanted it that way, but the private bankers wanted it that way.
And the private bankers put it that way, just like the private bankers created the Federal Reserve to bail them out.
If you want to look at the failure of economics, it goes back.
What were the classical economists trying to do?
They were trying to shift all taxation to economic rent.
Economic rent is a term that means A profit above a normal profit.
Henry George, whom I think you are a follower or at least appreciate, Henry George made the point clear that the largest source of rent is land.
And by rent he doesn't mean just what you pay the landlord to live there.
He means some special profit to a land site because of its location.
For example, suppose a street is laid out such that one side is always in the sun, the other is in the shade.
So what happens?
Well, on cold days, people like to walk in the sun, so that side of the street gets more traffic.
And so what happens?
They have higher rents than the same store across the street.
And the difference in that is economic rent.
Or suppose you're on the Gulf of Mexico.
And your gulf front, that is, your property is right there on the beach.
And then the row behind you is gulf view.
They can see the gulf, but they're not on it.
And then the next row is gulf access.
They can walk down to it.
And then the next row, the next row, the next row.
Well, there are differences in the value of the land based on the location.
So the difference between the gulf front and the gulf view Well, the Gulf front lot will cost more.
And the difference between the cost of that lot on the Gulf front and the cost of the lot in this Gulf view is economic rent.
So having tried to explain that, also economic rent is monopoly profit.
So all of the local communication companies are earning economic rents because they're all monopolies.
And that's the result of breaking up, which was regular.
Well, the classical economists wanted to base taxation on taxing rents, because what the banking system does, it takes those rents and capitalizes them into debt instruments that result in interest payments to the banks.
But what happened?
The banks bought off the economists.
And the classical economists lost the argument.
They said, we mustn't be taxing things like labor, production.
No, we want to tax these economic grants that have no justification, no cost of production.
That's where you tax, and this way you have the low cost of production.
You become world competitive because you don't tax labor, you don't tax output.
Well, those economists were the classical economists.
They lost.
And we have now the neoliberals.
And the libertarians, they're the same.
The libertarians have forgotten.
They don't know anything about this economic rent thing.
And they're out of the game.
And so we now, we have a system in order to maximize the ability of the financial system to financialize the economy.
All the taxes fall on production, nothing on rents.
This is the generalized failure of economics.
You can flush the whole thing.
It's useless.
It's wrong.
It's worthless.
It results in terrible decisions.
In fact, it's resulting in the complete destruction of the American economy.
While we sit here, the economy is dying.
And there's no corrective action can be taken because economists cannot think about it.
In a way that would allow a correction.
And so, you know, just for me to make the point that jobs offshoring is not free trade, you can't believe it.
Oh, of course it is.
Oh, no, no, hang on, hang on.
You try to talk, I went up to the Von Mises Institute a few years ago to explain to them about free trade.
They couldn't understand it.
They had no concept for it.
Oh, freedom, that just means a capitalist can do whatever he wants.
And I, listen, I mean, I would not want to be put...
He can set up the Federal Reserve to bail him out.
You see, here's what free market means to people.
It means a freedom of capital to roll you up.
That's what it means to them.
And if you try to interfere with, oh, you're a central planner.
It's such a simplistic, non-think way.
You know, I'm all for liberty, but what we have to understand is that power is in the private sector, and actually there's more power there, because that's where the money is, to buy the politicians.
And if you look at the government, they don't enforce laws that go against the powerful.
What happened to the banks for all the fraud that produced the collapse?
Nothing.
A few minor fines.
And we can say, well, if the government wasn't so big, it doesn't matter how big the government is.
It just would make the private sector even more powerful.
So just think how much trouble kings had re-centralizing authority from the nobles.
So I think that what we have to do is not get into libertarian ideology, which It's beautiful, but it's false.
And we have to understand that we have to constrain all sources of power as best we can.
There has to be countervailing powers.
That's the reason for labor unions.
They have to be there to countervail the power of capital.
And when you get rid of the labor unions, which we've done, what happens?
We can see.
So, the whole question is, there's always got to be checks and balances.
More checks, more balances.
Power here to block that power, to balance that power, so that nobody can run away with the whole game.
Well, the banks have run away, the financial sector has run away with the game.
And now what they're doing, let me make this point, because this is very important.
We now have this Trans-Pacific and this Transatlantic Partnership business.
What does this do?
This, in effect, makes the corporations the government, because it makes corporations immune to the sovereign laws of the countries in which they do business, because it defines anything that interferes With the profits of a corporation as a restraint on trade.
So, for example, if France signs up on this transatlantic partnership, it means that all of their laws against GMO products are overturned.
Because Monsanto can say, you can't enforce these, we'll fine you.
You'll not only be sued, but our tribunal will impose a fine on the French nation.
So we now see where presidents, prime ministers, legislatures, courts, they're redundant, they're pointless, because these partnerships give all the power to the corporations, to the international corporate, global corporations.
So this is sort of the final step in which there isn't any government except that of the corporations.
Now, the idea that the US economy has gone through some significant period of deregulation, of course, the big one that you mention in the book is Glass-Steagall, which we can get into.
I think there's a lot of empirical data that would push back against that, right?
No, there's not, actually.
Well, let me make the case, and then you can rebut.
Okay.
So the estimates of the costs of government regulations, you can get them all over the place, ranging from $300 billion a year to over $2 trillion a year.
Strong argument to be made, growth of federal regulations over the past six decades is Cut U.S. economic growth by an average of two percentage points a year.
In other words, right now, average household income in the U.S. $53,000.
If regulation had stayed similar to the post-Second World War period, which wasn't exactly a Mad Max, anarchy, eat your children wasteland, median household income in the U.S. would be $330,000 a year instead of $53,000.
Just in one presidential year, January 21st, 2014 to 2015, 2,400 new federal regulations.
That is, of course, quite a lot.
The number of rules that are coming out Over the last few decades, almost 82,000 new regulations.
It's a new regulation every two hours and nine minutes.
This is not exactly laissez-faire, under-regulated or unregulated.
The Code of Federal Regulations, this is just as of 2010.
It's grown by more than 42,000 pages in the last 20 years.
Most recent print edition has 174,545 pages.
I agree with this.
I know all this.
The trouble with these studies is they talk about the cost of regulation, but they don't look at the cost of not regulating.
So they don't have the other side of this to see what the net effect is.
Because the cost of not regulating As we've already agreed, in the case of the bank's bailout, is horrendous.
But how would you categorize a bailout as a regulation?
A bailout removes the moral hazard that the free market is supposed to embody.
The bailout was made necessary by the absence of the regulation.
And so what you have to do when you take the costs that you gave, first of all, those studies were done by Louie Turner.
And they have incentive to find that.
But let's say they're all true.
But what they don't do, they don't say, okay, here's the cost of Glass-Steagall.
Ah, we got rid of it.
See, look at the gain.
Ah, but you have to look at the other side of that, which is, okay, this was the cost of Glass-Steagall, but now this was the cost of getting rid of it.
Four and a half trillion dollars plus 750 billion dollars.
So we're talking about, you know, five hundred and two hundred and five hundred, five trillion, two hundred and fifty billion dollars.
That was the cost of getting a class student.
So what was the cost of it?
It wasn't that much.
So there was a net gain from regulating the bikes.
So where is your right about all this regulation?
And you have to look at what happens when you don't regulate.
Like for example, we mentioned already all the local communications monopolies.
The prices are horrendous everywhere.
There would be nothing like that if this was a regulated AT&T. And so that is what you have to take into account.
And plus, let me point out, I learned this when I was in the government.
Most of the regulations don't affect big guys.
They're petty little things.
The things that really affect them don't get enforced anymore.
For example, who runs the environmental protection agencies?
They're run by executives of mining, logging, oil, energy, mining, and they're toothless.
Who runs the FDA? Monsanto, Dow Chemicals.
Who runs the university physics departments?
They all work for the military.
They're all dependent on government grants.
The whole thing is so loaded With private influence.
The public essentially has no voice.
You may have seen a while ago the report on the studies, I think they were done at Princeton, and they looked at public policy and they concluded that the American voter had zero input into the governance of the country.
Well, who's governing it?
The corporations.
And we can say, well, they couldn't use the government if it didn't exist.
Well, they wouldn't need to because they would exist.
They would still be running the country.
Even 50 years ago, when I was doing my graduate studies, the only An example of pure competition my professors could point to was small scale farming and it was already disappearing.
It was already becoming corporate farming, large massive businesses.
So the notion of free markets, they're just not there.
They don't comprise enough of the economy to matter.
Where are they?
Try to think of a free market.
There's not any of any consequence.
Well, and I'm sure you've heard the libertarian argument that the creation of the Federal Reserve in 1913 took control of the money supply, the creation of money, and as a consequence of the need to control interest rates, control or at least influence over the interest rates, into the hands of the government.
And when you lose, when the citizenry loses control...
Not into the government, into the bankers.
Look, do you know who the directors of the New York Fed are?
They're the CEOs of Goldman Sachs, JPMorgan Chase, Citibank.
Do you know who the treasury secretaries are?
They're the former executives of Goldman Sachs, JPMorgan Chase.
Do you know who the regulatory agency directors are?
They're all former executives from the big banks.
The Federal Reserve was not created by the government, it was created by the bankers.
And actually they pull the wool over people's eyes.
And so this is not really a central bank.
This is a private bank.
And it's not really a bank like Andrew Jackson had.
But if I were to, in a free market environment, just to imagine for a moment, if I were to say I'm going to create a bank that has the power to create its own currency out of thin air, I wouldn't end up with any customers because everybody knows I'd be photocopying monopoly money without any real value.
So there is an enforcement mechanism.
That's what all banks do.
They create money by making loans.
Well, no.
Some banks, at least in the past, when they were restrained by gold or some other fixed commodity, the banks had to, well, they couldn't really engage in that kind of fractional reserve banking to that same degree.
Stephen, I don't think we've ever had 100% reserve banking.
We've always had fractional reserve.
That's the way it originated.
That's the way banking originated with goldsmiths.
And I remember once talking to Milton Friedman, and he said, well, if we could have 100% reserve banking, we wouldn't need a gold standard.
You know, banks create money when they make loans and it's better If the Treasury creates the money, then the Federal Reserve, because then the Treasury doesn't need to sell bonds.
It just finances the deficit by printing the money.
But instead, what we do now, we let the Federal Reserve print the money to buy the bonds that the Treasury and the taxpayers then have to pay interest on.
So again, it's for the bankers.
It's not for the government.
You know, before they had the Federal Reserve, the Treasury printed the money.
But are you saying that the government does not benefit from having an entity that can create money out of thin air through which it can then bribe the constituents with imaginary money?
The government gets huge benefits out of central banks in terms of being able to create or use created money to buy the votes of the population.
I can't think of the government as sort of this innocent little flower that is being preyed upon by this evil bank.
We're not talking about anybody being innocent.
Nobody is innocent.
Not even you and I. It's not about innocence.
We're talking about how prior to the Federal Reserve in the United States, the Treasury created the money.
And if you have the money creating power in the Treasury, you don't have to sell bonds and no one has to pay interest.
The way the government would finance the deficit is just print the money.
But the way we finance it, when you have the Federal Reserve or some independent privatized central bank, is they print the money.
You print bonds.
You sell the bonds.
They buy the bonds.
And then the taxpayer has to pay interest to the holders of the bonds.
So it's a scheme for enriching the financial sector.
That's what a central bank is.
Oh, I completely agree with all of that.
And so whether, you know, to say it benefits the government, it benefits the bankers.
And it benefits them in other ways because they can use it for bailouts.
They can leverage debt beyond the wildest imagination.
They can engage in the most rampant fraud.
And the Federal Reserve has to come to their rescue.
But I think that certainly it did take an act of Congress to create the Federal Reserve.
It's not exactly a free market institution.
And just running through a couple of things in the 20th century, I mean, the big ultimate government program which we certainly equally oppose is wars, of course, particularly imperialistic wars.
World War I, not a free market event.
The Treaty of Versailles, which wrecked the economy of Germany and certainly disrupted the economy of England, not a free market event.
The Federal Reserve massively overprinting money, driving a stock market boom in the 20s, not a free market event.
It's contraction of the money supply by a third in the late 20s, not a free market event.
The fact that it was only 2% of depositors' money that was lost during the bank crisis in the 1930s, which, of course, was partly because governments were restricting banks from diversifying and opening up extra branches.
This brings in the Federal Deposit Insurance Corporation, which guarantees bank loans.
And the moment you start, the bailouts have been going on, as you know, for close to 100 years.
The implicit bailout is the FDIC, which guarantees, I think, up to a quarter million dollars of particular bank accounts.
That's not a free market environment.
So when I'm looking at sort of the 20th century, what leads up to something like Glass-Steagall or the repeal?
In 1998, there was a big company that went bankrupt and it was bailed out, you know, in the 80s.
Hundreds of bankers went, let me finish up, hundreds of bankers went to jail.
In the 80s, over the savings and loan crisis in Iceland, even recently, they've sent a bunch of bankers to jail.
Of course, nobody's been prosecuted here.
And with Glass-Steagall, I think that there's a mixed case about this.
I mean, the companies that had the most problems with going bankrupt, Bear Stearns, Lehman Brothers, Merrill Lynch, AIG, Fannie Mae, Freddie Mac, none of these came under Glass-Steagall.
And the fact that a lot of these toxic mortgages were brought up around the world, they weren't restricted by Glass-Steagall.
I think that you can find one regulation that was repealed and everybody tries to pin the resulting crisis on one regulation.
There are good arguments against that.
Sorry, go ahead.
Stephen, Glass-Steagall separated commercial from investment banking.
When you end that separation, that's where the trouble comes.
Because then, investment banks can use the deposits.
To cover their messes.
Now, all those things you said, this is not a free market thing.
They were all private decisions made by private entities.
You're kind of caught up in this free market.
What is a free market?
Wait, are you saying that the Treaty of Versailles was made up by private entities?
Wars.
They're made up by private entities.
The bankers love wars.
They get rich off of wars.
They love them.
The military...
The industrialists love wars.
They get rich off of them.
All of these things don't happen because the government says, oh, the government...
Private interests bring these things.
Or, you know, the bankers say, hey, you know, we can get into this war somehow.
We'll end up with control of the banking system.
Over there, because we're the ones that won't be damaged and yet we'll prevail.
You know, the whole thing is always coming from the private sector.
It's not the government who says, oh, let's have a nice war so we can have some more power.
You know, wars bring down governments often.
I mean, think what happened to the Tsar in World War I. See, the Tsar said, oh, you know, not the Tsar, but his government, oh, we can take Constantinople, we can get the Black Sea, we can get the warm water port out to the Mediterranean.
And the French said, oh, we could get a war going, we can get back, I think, what would they have?
The Alsace-Loranians.
And so, you know, but there are interests there that produce this.
The government is not Sitting there independently.
In fact, there's the same people.
You've heard of the revolving door.
The same people.
They go in and out.
I mean, where did Geithner come from?
The New York Fed.
He came into the Treasury.
Where did Paulson come from?
Reuben, Lew, the current one.
They all came from the big banks, right?
They come in, they go back.
They come in, they go back.
It's the same people.
They're doing the same thing.
And so to try to differentiate this as a free market event or not a free market event, that's not possible.
You just can't.
You can't do that.
Well, I think you can make...
Go ahead.
Go ahead.
You know, what you could say is that government was in the way of a Federal Reserve System.
Because the people did not want a central bank.
They were opposed to it.
You know, Andrew Jackson had one and they said, that's it, we don't want it anymore.
There was a whole Jeffersonian tradition that if you have a central bank, the farmers get taken to the cleaners.
Nobody wanted one and so the government couldn't get one.
And so the bankers had to go down to Jekyll Island and conspire and work out a plot And get it in.
And they got it in with a lot of deception.
They had to use deception.
And so government was in the way of the central bank.
It didn't cause it.
It didn't bring it in.
The bankers did.
They wanted it.
I think we have to understand that to try to say this is free market and this is government or all these things aren't free market.
Of course they're not, but they are private activities done by private individuals pursuing monopoly profits, rents, privileged positions, They want to be covered by other people's wealth and assets and income streams, and that's what happens.
So do we have a situation where it's the government?
See, in Ayn Rand's view, the government is abusing the private sector and is taking advantage of the private sector, and everybody had to just quit working and go away until it fell apart.
And she does, it's a great story she tells.
But another way of looking at it is that the private sector is the one that's in control.
Try to come up with an agency, a regulatory agency that's not captured.
See, you know, George Stigler, it must have been 50 years ago, said, Regulation will fail because the private interest will capture it.
So, you know, he was free market.
You don't get any more free market than George Stiglitz at the University of Chicago.
And he even said, it's a free market.
The private interest will capture the regulatory agencies and the regulatory agencies will serve the private interest.
This is exactly what happens.
They can't protect the environment.
I mean, it has to be something really, really outrageous to get blocked.
And so I think that we have to look at it totally different.
You know, I think the libertarians have failed because they've been ideological and they get lost in words.
And a word has a real meaning to them, like free market.
But if you sit down and you start analyzing, you try to find out what the hell is it actually.
There's no such thing.
Well, certainly less and less of it.
I mean, of course, in the 19th century, federal government was just a couple of percentage points.
Now, if you count in regulatory activity, it's over 34% of the economy.
So there certainly has been a vast expansion of the public sector at the expense of the private sector over the last hundred years.
And the big question, and I agree with you, of course, if Okay, hang on.
You've got to let me make a point or two before you interrupt, but go ahead.
It's not that I'm arguing against your points.
I'm just saying they're not really what's relevant.
I accept most of your points.
In the 19th century, people could still move in the West.
There was an abundance of free resources, and people just moved out and they were self-sufficient.
Now, once all those resources are used up, the situation is radically different.
You know, there were articles written a half a century or more ago by economists who explained our development and the fact that you had a great abundance of natural resources and a huge shortage of labor, so anybody could get rich, or if not rich, at least make their living.
They didn't need any capital because it was free.
It was there.
They just went and occupied it.
And this has really been the story of the development of the United States until the 20th century.
We had plenty of resources and people just went and took them and set up shop.
And so we have to think about things historically in that context.
I know this I'm not in favor of government power or anybody's power.
But power is going to exist because things are complicated and populations are dense and they're not homogeneous anymore and there are all kinds of conflicting values and behavior patterns and cultural patterns And so these things are going to exist,
but what we have to be sure we don't do is to remove all the constraints on one side and not the other.
Well, I completely agree with that.
Of course, the people who make bad economic decisions should themselves be personally liable.
If I go to a casino and I bet the farm, well, I get to lose the farm, if that's the way it works.
So I agree with you.
We shouldn't just release people from the loss motive and still provide them with the profit motive.
That inflames greed to truly hysterical levels.
But I think, for me, the question of power between public and private entities does get diluted along a really clear, at least for me, clear moral line, right?
There's the initiation of force and then there's just having lots of money and being able to buy stuff and influence people's economic actions through that.
Now, of course, as the government has grown in size and power, its enforcement capacity has grown.
And what What corporations or private entities are doing, as you know, as we talked about at the beginning, is they're trying to hook into the existing enforcement mechanism to leverage economic power in their own favor.
Like if you're some sweater manufacturer, you can't go around the country banning the imports of foreign sweaters.
It's going to cost you untold reasons.
You've got to hire a bunch of private armies and like it's not going to work.
But when you have a custom system that's set up in an existing statist society then if you can influence a politician the politician can throw a giant switch and put all of this socialized cost of the enforcement mechanism to work for you as an individual corporation and my concern is that the degree to which government gains the power to initiate the use of force to alter economic transactions That's the degree to which corporations are,
through greed, through desire, and through the inevitable logic of maximizing profits, going to get sucked into and then control the machinery of the state at the expense of the people, at the expense of the future, at the expense of We're good to
The degree to which the government shoulders its way through the use of force, through a socialized regulatory enforcement mechanism, the degree to which it can create money out of thin air through the Federal Reserve Bank, the degree to which it can manipulate interest rates.
These are just giant levers of power enforced by coercion that all capitalists have to, if they're responsible, swarm to attempt to control.
And I don't see any way that you can talk people out of that.
My concern, of course, is that if we can reduce the degree to which government can influence economic decisions, we move influence away from the state and its coercive mechanisms more towards individual choices of free market actors.
The only limitation to power that I know of is a decentralization of influence.
And right now, with this giant black hole of coercion at the center of society that's ever-growing, We have a continued increase in the amount to which force can be applied against voluntary economic transactions.
That is creating a giant black hole that's sucking everybody's ethics in to detonate, you know, in the future of fascism, if that makes any sense.
Well, Stephan, let me try one more time.
It's about the fourth time.
The difference between us here is that you think the government is the origin of this growth of power.
But it's not.
It's the private interests that are the origin.
Why does the government want to tariff?
Doesn't give a damn if it has a tariff or not.
It's the private manufacturers that wanted tariffs.
Today, they don't want them because they produce offshore.
Try to get a tariff in now.
Suppose the government says, oh, we've got to stop the jobs offshoring because our people aren't employed.
Everybody's going to be on the welfare rolls.
Let's pass a tariff.
Do you think the government would be able to?
Absolutely not.
The corporations say, oh, no, you don't.
That's our stuff you're talking about putting the tariff on.
We hear about all this Chinese stuff.
That's stuff made by the American offshore firms or made for them that they sell here.
So before they could offshore their production, yeah we want tariff production.
It was very difficult to get tariffs reduced.
But once they're offshore, oh, no tariffs, buddy.
Absolutely none.
Look, you know, it was the private interest, the empire interest of the private sector that caused the so-called Civil War.
Of course, it wasn't a Civil War.
Civil War is when two sides fight for control of the government.
The South wasn't fighting to control the government in Washington.
They just said, goodbye, we're leaving.
We don't want to be economically exploited by the northern capitalists.
And the northern capitalists say, well you're going to be.
We need to exploit you, we want the money.
And not only that, we don't want another country down there that might compete with us for the western lands.
We haven't grabbed them all yet and we've got to go out and murder all the Indians and take it away and we don't want you out there helping the Indians and maybe getting some of it yourself.
Well, this was not a government-originating war.
This was a war originated by the Empire Capitalists.
Go read The Great Libertarian, Thomas DiLorenzo.
It had nothing to do with slavery, all these things people make up for justifications for the crimes.
So I think the difference between you and I is you think that it's the government who goes out and originates It's the private sector that originates those things, because there are the people out there wanting the profits.
And only the government and its coercive power can deliver those profits.
Where the originating of it doesn't really matter fundamentally.
If the power is there to maximize your profits through buying politicians, that's what you're going to do.
It's the fact that the government has this power.
Look, the people who are in charge of corporations, they are...
No, the government doesn't...
No, this is power that the private sector originates in the government in order To prevail over people and maximize its rents.
So it's not the government who says, oh, we'll go do this.
Why are they doing it?
They're doing it because of the capitalists.
So that's what we want.
You do it.
You do this.
Let's talk about the war of Northern aggression.
Who was it in the Civil War who enforced the draft?
The which?
Who was it in the Civil War who enforced the draft?
Well, you bought your way out in the North.
If you're in the North, you could buy your way out.
No, but it was the government that enforced the draft.
And without that enforcing of the draft, without the conscription of either men directly or the materials of their labor in terms of taxation, it is the government that enforces these actions.
And then the capitalists will, of course, exploit that.
But without that government power, the capitalists can't do it.
You don't have a draft until...
The capitalists have taken the war.
But who enforces that draft?
It is the government.
Well, but they've already got the government doing what they want.
To try to say it's the government's fault?
I didn't say fault.
The simple question is who enforces the draft?
It is the state and its police that enforces the draft.
The prison industrial complex, whatever you want to call it.
It is the government that finally points a gun at someone and forces them to do something.
Yeah, capitalists will exploit that power if it exists, but they can't properly do it if it doesn't.
They bring it to the government.
They say, we want this.
We want to make this happen.
Do this.
Do this.
The notion that the government is the source of evil Or the originator is what I challenge you on.
This comes from the private sector.
It's the private sector that says we want tariffs.
It's not the government.
But is it the private sector that enforces the tariffs and pays for the cost of that?
It doesn't matter.
Of course it matters.
It doesn't matter.
You can't say that the act itself is not important, but some administrative feature of it is.
No, but you can say that if a tariff is only possible because the government has the way to socialize the cost of it and enforce it in a universal geographical area, if a tariff is only possible because the government enforces it, then that is the main thing you need to focus on in terms of whether or not it actually happens.
The solution is to have no government.
That gets you nowhere.
Well, that's not much of an argument saying that gets you nowhere, right?
But it doesn't get you anywhere.
If we say, okay, the solution is no government, then you would just have it enforced.
Look, how did the capitalists enforce the ability to break strikes?
They used private police.
They used the Pinkertons.
They would—so if a union tried—the mines, say the union organizes the mines, the captives brought in Pinkerton, the private police, busted them up, shot them, murdered them, There wasn't any government involved in it.
The government only got involved once the labor unions were so strong they could produce massive uprisings.
Then the capitalists would have the government send the army out because the Pinkerton force would be overwhelmed.
But most of the violence against labor organizers was done by the capitalists with private police, the Pinkertons.
And did they break no laws in that prosecution?
Nothing happened to them.
Did they break laws?
Killing people is generally against law, but nothing happened to the capitalists for doing this.
They didn't go to jail, neither did the Pinkertons.
In fact, you know, private police were used in the West to stop train robberies and things.
But this was the railroads in We're not going to have people robbing us.
It wasn't any government involved.
It was railroads hiring Pinkertons.
I mean, it wasn't Butch Cassidy and Sundance Kid.
They were hunted down by Pinkerton detectives, right?
So don't ever get into this.
It's all right not to like government.
I don't like it either.
But I'm just trying to say the trouble with libertarians, as much as I admire their love of liberty, And agree with it.
And as much as I dislike any kind of power that's out of balance.
Most all of the terrible things that happen originate from private interests.
They're after something.
They want resources, they want more profits, they want rents, they won't be able to collect excess profits, monopoly profits, and they then will create government in a way that they can reach their goal.
And so we can say, yes, the government shouldn't allow itself to be used this way, yet we see we can't do anything about it.
The Supreme Court itself ruled in that notorious ruling a couple years ago that private enterprise has the right to purchase the government.
If private companies want to buy the government, it's free speech.
So there you see the capitalists even own the Supreme Court.
To say it's a free speech right to let vested private interests purchase the government and turn it to its purpose.
This is what's happened here.
It's not, oh, the government has taken over.
The private interests have taken over.
They made the government big.
The government didn't create the Federal Reserve.
The private bankers created it.
They run it.
They own it.
It answers to them.
I was in the Treasury.
Paul Walker didn't answer to us.
We couldn't even get him to cooperate with our program.
And I, look, I mean, you and I are on the same side of the aisle as far as all of that goes.
And I think we both made our cases.
We'll let the audience go from here.
But I wonder if I could just borrow you for a few more minutes.
There is...
The arguments that you make in the book, which I was like...
Literally, Tom Cruise-style jumping up and down on my chair in terms of like, yes, yes, you know, shout this from a barbaric yacht from a mountaintop with a megaphone and God himself behind you thundering your words up, is the degree to which you have made the case.
You've introduced me to a great phrase the first time we talked called, prostitutes.
And of course, you've had your experience as a journalist.
The two things, sorry, okay, two things.
One is the degree to which people are unaware of I think?
Journalism has sort of fundamentally changed from its initial goal of bringing the truth to the public, speaking truth to power, defying the expansion of state power.
So I don't think people really get the big picture of the degree to which, you know, those like Caesar-style leaves are on top of presidents' heads these days and how far the press has fallen.
I think its trust is down in the single digits for the American population.
These two things, if I can give you a bully pulpit to get that out, I'm sure you could do a better job than I can because you studied it for longer and your passion in these subjects is really fantastic.
So I wonder if you can just give us, you know, your round-the-corners run on these two big issues.
I'll do that.
In fact, you did an excellent job.
Again, we see in the case of the journalists what happened.
It was concentration.
Under the Clinton administration, six firms were allowed to take over ownership of 90% of the media, of the print and broadcast media.
Now, what was the American tradition had always been a diverse and independent media.
There were thousands of media organizations.
Now, 90% are in six big companies.
So here again, we said this is concentration.
You know, this could not have happened in the Reagan administration.
But by Clinton, it happened.
So again, somehow, the big corporations managed to pull this off.
This was not something the government decided they wanted to do.
It was something they did to serve the people who pulled the strings.
The president's powers.
This goes back to the frustration of Republicans, for example, at the time of Nixon.
The Republicans had this theory that they had a lock on the presidency, but they couldn't get the Congress.
And so they could never get their agenda in.
They could win the White House, but the president was always blocked by the House and the Senate.
And so the Republicans came up with this theory about the powers of the presidency.
What's the word they use, the term they use?
Maybe it'll come to me as I go on.
The unitary, the unitary presidency, the unitary powers.
The president has powers that are not subject to constraints from the legislature or the courts.
Unitary powers of the—and this is a made-up thing.
It's not in the Constitution.
The Constitution absolutely denies any such thing.
These are co-equal branches.
They're all subject to one another.
But the Republicans frustrated.
They have this collection of lawyers called the Federalist Society.
The Federalist Society came up with this notion of the unitary powers of the presidency.
That there are some powers he has that are over and above and not subject to constraint by the Congress or the judiciary.
And they have used this to accumulate powers in the office, such as these executive orders, national security directives.
What they do, they use some kind of a war situation or threat of war situation to say, oh, as the commander-in-chief, he has to be able to deal with war, and so he has to have these powers to deal with war.
This is how they got in all the stuff under Bush, how they got in the Patriot Act, how they got in the indebted detention, and all of these strictly illegal unconstitutional things.
They used, oh, the threat, the external threat.
And so what they have done, they have, the Republicans created this sort of thing in order to pursue agendas that they could not get through a check and balances form of government.
Now, of course, the neoconservative saw this and they used it for their ideology of American world hegemony.
So they said, oh look, we can use this as long as we can control the White House, the president, which they could do because of Cheney.
I mean, Bush was in a match with Cheney.
So they said, okay, we'll use this and we'll get our agenda again.
And our agenda pleases the oil companies, it pleases the military security complex, it pleases Wall Street.
And so we have private interests behind our agenda because it also serves their agenda.
And that's where all of this burst, this new burst in Caesar-type powers for the office of the president in the 21st century came from.
That's exactly how it happened.
It goes back to the Republican frustrations, to the Federal Society, the creation of the unitary powers of the president.
There was a guy I used to know him.
He wrote a book about this some years ago when I was still in Washington.
And then we see the neocons, the notion, oh, the Soviet collapse is no constraint.
This is what the banks want.
This is what the military security complex wants, the oil companies.
Everybody's with us.
We want it.
It's our ideology.
And that's how that happened.
And it works as long as it serves the private interests and the neocons are in these important policy positions.
For example, who is Obama's national security advisor?
Susan Rice, a neocon.
Who's his ambassador to the United Nations?
Samantha Power, a neocon.
Who runs the Eurasian part of the State Department?
Victoria Newlands, another neocon.
So they're all there.
But it would be a mistake to say all that power is Obama's.
It's not.
If he tried to use it in ways that these interest groups, these other people didn't go along with, he would find out he didn't have that power.
The president can use it only because it goes along with the agendas of all these others.
And that's what you have to keep in mind.
We can't say, oh, now Obama's so powerful.
He's powerful only for that reason.
The power can only be used To serve the interests that have created him for him.
If he tries to use it against them, just like that.
You surf with the wave, right?
You have to surf with the wave.
And no matter how good a surfer is, he can't go against the wave.
Remember, the Roman emperors became the captains of the Praetorian Guard.
So first they had to have their own bodyguard.
Then they were the captains.
Then the bodyguard started choosing the emperor.
So, the notion of power, it's very bearable.
And presidents can be assassinated too.
Remember what happened to John F. Kennedy.
And people who challenged the establishment can be assassinated.
Martin Luther King.
I remember George Wallace, the Alabama governor, who was doing so well in the northern primaries.
They get shot down.
Some people who oppose the Clintons seem to have come to rather fileterious ends, packed in their own suitcases and vanished in their offices.
And this continual foreign policy is something that obviously we could do a whole show about, but I try to get people to sort of zoom back and look at the big picture of what is promised versus what is delivered.
Of course, the whole post-9-11 promise was, you know, we're going to go and end radicalism in the Middle East, bring peace and stability to the region.
Not only has that done the exact opposite of working, but the contagion of radicalism and incompatible cultures is now spilling across into Europe.
And so not only have they failed to heal a fractured and wounded and to a large degree through Western imperialism destroyed or undermined set of countries in the Middle East.
Not only they failed to bring any kind of peace to that, but they've it's like they've hit a sort of a virus with a bomb spreading it further into into Western culture and civilizations.
You can even say they wouldn't do that because now they've got lots of reasons for military security complex.
If you create terror where there's not any, then you have a police state at home.
And notice, Stephan, how quickly the Department of Homeland Security shifted its attention from Muslim terrorists to domestic extremists.
And by extremists, they mean people who like animals, and people who oppose war, and people who...
I mean, what they call extremists would not be what you and I would call extremists.
An anti-war protester, yeah.
Yeah, yeah.
Or a critic.
It's becoming where a whistleblower.
You know, whistleblowers are protected under federal law, but they aren't.
They're protected under Russian law, apparently, these days.
Or if they hide in an Ecuadorian embassy, they're protected, but they're not protected by American laws.
That's right.
And, of course, Julian Assange is in a dangerous situation because we're trying to overthrow the Ecuadorian government.
If we succeed and stick our guy in, he'll yank this out.
The guy's going to have to go live in the sewers or something.
I don't know.
So listen, I really appreciate the conversation.
I really want to make sure that people...
You've got great books.
And I put this blanket recommendation out.
I've not dipped into a book of yours and not come out enlightened.
The writing is good.
The research is good.
The information is fantastic.
The passion is there.
And I don't mean by that it includes the logic or anything, but...
So check out paulcraigroberts.com is where you go.
He writes, of course, you write a lot of articles and books and so on.
And you've got lots and lots of interviews, some of which are on this very channel out there, which I appreciate the work that you're doing to bring people to the understanding of the sort of quasi bread and circuses, late Roman Empire reality of where we are degenerating to.
And I really strongly urge people to go out and consume your material.
It's very enlightening and very powerful.
And I thank you for creating and producing it.
Well, I appreciate the chance to have a conversation with you.
It's always a pleasure.
You're a very fun guy to talk to and I think that To recapitulate, the only difference is I think all the problems, or most of them, come out of the private sector and not from the government.
The government is simply a creation of the private interest, and they form it to serve their purposes.
And so this is a great fault in libertarian logic, and they need to address that, because the libertarians are those who are most Committed to liberty.
And so they've got to be sure they understand where the biggest threat to liberty is coming from.
It's very easy to say, oh, it's the government.
But as I've tried to make clear, that's not really the case.
And I think you've made a very strong case, and I'm sure that people will walk away, hopefully, and continue to turn these ideas over in their mind.
