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April 20, 2016 - Freedomain Radio - Stefan Molyneux
57:46
3265 Why Economic Collapse Will Happen | Peter Schiff and Stefan Molyneux
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Hi, everybody.
Stefan Molyneux from Free Domain Radio.
I hope you're doing well.
Back with Peter Schiff, an economist, financial broker, dealer, author, frequent guest on national news, the host of the Peter Schiff Show podcast, CEO of Euro Pacific Capital, and chairman of Schiff Gold.
You can find his info at schiffgold.com, schiffradio.com, and europac.com.
We're going to put all those links in the low bar.
Welcome, Peter.
How are you doing?
Oh, thanks for having me on your program once again, Stefan.
Always a pleasure.
Always a pleasure.
All right.
So, the Dow is doing well, popped over 18,000.
Jobs are being created left, right, and center.
Okay, there's that little job of the pesky national debt, but as I've seen from all of the Democrat debates, I find if you just don't mention it, it just doesn't exist.
Aren't the people who have been preaching this doom and gloom, I mean, look at the numbers.
Everything's looking great.
Yes, look at the numbers.
The numbers tell a very different story from the Rosie scenario that they're trying to spin.
Yes, we are creating jobs, but we're creating part time jobs that pay very little to replace the higher paying full time jobs that we destroy.
But nobody talks about that.
Look, Intel just announced yesterday they're laying off what, 12000 people, 11 percent of their workforce.
These are good jobs.
What are these displaced Intel workers going to do?
I mean, if they get two or three jobs tending bar and waiting tables, you know, that's going to count as job creation because you lose one good job and you replace it with two or three lousy jobs.
That is the secret behind the job creation.
It is really destruction.
And I've said this before, that is why Donald Trump is getting so much support And that is why a guy like Bernie Sanders can rise from obscurity and almost be tied in the national polls with Hillary Clinton, who is a household word who nobody else even wanted to run against because it was a sure thing that she would be coronated.
Yet this New York Jew, you know, an avowed socialist can get all this support.
Why?
Because the economy is a disaster.
That's why.
And if it wasn't for the minorities, who apparently, you know, don't even know about Bernie Sanders, so they're just voting for Hillary Clinton.
But if you just look at, you know, the middle class white vote, overwhelmingly, you know, certainly male going to Bernie Sanders.
Why?
Because the jobs aren't there.
This is not a 4.9% or 5% unemployment economy.
This is still a recession.
The recession has never really ended.
It's just a fantasy.
Yes, on Wall Street the recession ended, but, you know, the economy is not Wall Street.
Well, and of course the Dow is up and apparently the business of American corporations has turned from producing goods and services that are affordable and appreciated by the consumer to going into massive debt to buy back their own stock.
Boy, what a great business model.
I mean, how can that possibly work?
Well, it works if you happen to own the stock that's getting bought back, right?
And you can sell it at a profit.
But yes, we want businesses investing in capital to increase labor productivity so that workers can earn more real money and that prices in real terms can come down and so consumers can enjoy higher living standards.
None of that is happening.
This has just been a bubble.
And the problem is air has been coming out of it.
That's why we've relapsed back into recession.
And meanwhile, yes, the stock market is going up, but not as fast as the price of silver, not as fast as the price of gold.
So in real terms, the stock market is actually going down faster now than it was last year.
I mean, look at silver, exploded yesterday to a new high for the year, above 17.
It's up again today.
Gold continues to rise now.
So in real terms, the U.S. stock market is going down.
And in fact, the dollar is now declining.
It's been declining all year against pretty much all the currencies in the world.
So it's just an illusion that the market is going up.
Well, what we got here is Standard& Poor's 500 earnings are down over 18% this year from their peak in late 2014.
And projections are corporate earnings are going to be down 8.5% for the first quarter of 2016 compared to a year ago.
And this is not good news.
No, and it's going to get worse.
And, you know, by the way, oil prices are now going up and gasoline prices have been on the rise at the pump.
And this is going to be a problem for consumers.
Everybody thinks that, oh, you know, the consumer didn't benefit from cheap gas like everybody thought.
Yes, he did.
He did benefit.
It's just that you couldn't see it because he was suffering from rising health care costs, So there are other problems.
The fact that he got a reprieve with cheap gas helped take some of the sting out of, you know, your rent hikes or your higher insurance premiums.
But now that gas prices are rising, too, along with everything else.
And by the way, the Fed can't even acknowledge the increased inflation because they can't raise interest rates.
So they have to pretend that the inflation doesn't exist.
But the consumer can't pretend he has to pay those higher prices.
So that means corporate earnings are going to be under even more pressure as more of somebody's diminished paychecks goes to necessities like energy.
There's less left over for consumer discretionary purchases, and that's where a lot of corporations earn their revenue.
Well, and there's this terrible thing that happens and it really is the story of the last half century in the West, this constant cannibalizing of the future in order to buy votes in the here and now.
Of course, when interest rates are low and inflation is high, everybody takes their money out and uses it to buy things, especially, of course, when prices are rising relative to income.
And that means there's very little money left in the banks, which is available to entrepreneurs for the capital equipment that increases worker productivity in the next generation.
Yeah, you know, everybody thinks low interest rates are good.
Donald Trump even came out and said that he thinks that the Fed is doing a good job by keeping interest rates low and he feels if they raise rates, everything is going to collapse, which is true.
But that does not mean we should keep rates low because the problem that we have and Trump talks all the time about the fact that, you know, we've lost all these manufacturing jobs, Well, why is that?
It's not because we have bad negotiators.
It's because we have regulations and taxes that destroy savings and investment.
And so if we want those jobs back, we need more savings and investment.
And the way you get more savings when you don't have enough savings is higher interest rates.
Higher interest rates encourage all the things that we need to have real economic growth.
And to have higher paying jobs.
So if you have a shortage of savings and a lack of capital, low interest rates are bad.
The market needs to bring interest rates up so that we can attract capital and savings again.
Now, yes, will it be more difficult for somebody to go borrow money to buy a television set or to buy a new car or to buy a house?
Yes.
But we don't want people borrowing money to buy those things when we need more production and more jobs.
We want entrepreneurs borrowing money to expand and buy plant equipment and to modernize and update and to make their workers more productive.
Well, we can't have both.
It's one or the other.
And so if we need more legitimate capital investment, then we need less buying for consumption.
And the way you do that is with higher interest rates.
Because higher interest rates will take consumer debt out of the equation, but it will allow businesses to invest because they can generate a profit.
So if interest rates go up, And you can afford to pay maybe 8% or 10% because you can invest in equipment that will return a 15% or 20% return.
But right now, none of that savings is even there because there's no money at banks.
Instead, you get the money from the Federal Reserve and the consumer just spends it.
It's weird to me.
People are always saying, well, if we raise interest rates, there'll be these negative repercussions.
It's like, yeah.
And if you're an alcoholic and you stop drinking, you're going to get the shakes.
But the solution to that is not to just keep drinking.
Yeah, absolutely.
And the crazy part about it is we've been on this stimulus high for years and everybody was under the delusion that the Fed could take away the stimulus and we'd all stay high.
And you even have...
Fed governors admitting that the Fed, you know, basically doped the economy up with heroin and cocaine, and now all they're giving us is Ritalin, you know, because they're still giving us some stimulus, but it's not as much.
You know, and if you're a coke addict or a heroin addict and you come to your pusher and he says, look, I'm a little low on heroin, but you take some Ritalin, it's not going to do the trick, right?
It's not enough.
And so people expected that we could get by without the stimulus.
We can't.
Now, the reality is, yes, what the Fed should do is let interest rates go up, stop artificially suppressing them, and let this entire phony economy collapse.
Because it has to collapse.
Because until it does, we're never going to build a legitimate recovery that's going to produce the rising living standards and higher wages that everybody wants.
Well, but of course, that's the economic argument and the free market argument, the Austrian school argument.
The political argument is like, well, if I'm in power, if I'm sort of the president or a governor, even somebody has control over these issues, I guess the president doesn't directly.
But if I were able to achieve that, well, the economy would go to hell, but the benefits wouldn't accrue until long after I'm voted out of office.
So that is, I think, one of the reasons why it keeps going in such a short-term time frame.
Well, you know, not necessarily.
I mean, if you get four years for a president, I bet if we bit the bullet right away, by the end of the first term, we could be well on the way to a good recovery.
I mean, the free market is efficient.
It cleans house very quickly.
So, yes, we can get a lot of short-term pain, kind of like, you know, the Band-Aid.
You know, do you want to peel it off slowly or just rip it off?
You know, and if we just rip off that Band-Aid, yes, it's going to hurt for a while, six months, a year, maybe two years.
But then we're going to start to see real recovery.
And so it's possible that somebody could get reelected if he does the right thing early in his term.
But you know what?
We need a president who doesn't care about getting reelected, that just wants to do the right thing.
And, you know, who knows?
You know, maybe if we elect Trump, maybe he will do the right thing.
Maybe he'll abandon some of the stuff he's talking about, and maybe he'll do the right thing.
I don't know.
I think it's easier to get the average electorate to believe that he's just going to negotiate better trade deals than to talk about all the complexities of hyper-regulation and fiat currency and currency manipulation and so on.
He's also promising to spend a lot of money on defense.
I was listening to his victory speech in New York and he's like, we're going to build this country up, this defense up.
Nobody's going to mess with us.
I'm thinking like, who's messing with us?
I mean, we have plenty of defense.
We've got plenty of fighter planes and aircraft carriers.
We need more factories.
That's what we need.
We don't need a bigger military.
The military is big enough, yet Donald Trump is making all these crazy promises that it's impossible to keep.
But you know what?
Unfortunately, they get votes.
But the question is, you know, if we do elect Trump, you know, will he put his country ahead of his second term and forget about what he said to get elected and do what's needed to be done once elected?
I mean, Ted Cruz talks about a lot of the things that need to be done, too.
But for some reason, it doesn't generate, I think, you know, the kind of support that Trump's getting.
Now, the view of US corporations looks fairly grim.
Average rating on US corporate debt has now fallen to BB. For those who don't know, that's bad, bad.
It's lower than it was at any time during the last financial crisis.
Moving 12-month sum, Moody's credit rating downgrades of U.S. companies from 32 in March 2015 to 48, up to 61 in March.
It nearly doubled in one year.
The outlook for U.S. corporations, who are involved in a desperate self-medicating buyback of their own shares, is not looking too pretty.
And can you imagine what those credit ratings would be downgraded to if the Fed let interest rates go up?
Because at this point, corporations are so levered up from an orgy of share buybacks that if interest rates went up, I mean, many of these big companies would go bankrupt.
They simply couldn't even service their debt in that environment.
And what about the underfunded pensions of those companies that still have pensions?
If interest rates went up, that would collapse their pensions and those pension obligations would skyrocket.
So the only reason that the ratings are still as high as they are is because the Fed is still practically at zero.
So if we ever have to get Right, right.
Now, we've talked a little bit about the fact that you sort of need capital equipment.
You need to invest in increasing worker productivity.
That's one option.
Of course, the other option is simply to use the power of the state to raise minimum wages to, what is it, $15 is being phased in in a bunch of different states.
So I feel sometimes we may just be overcomplicating things by saying that you need all these complex business skills and market research skills and customer satisfaction skills to When you can just point a gun at math and make it magically work.
So perhaps we can talk a little about that.
That doesn't work.
See, all that does is it forces employers to find ways of getting around hiring people.
So if you say to an employee, the government says, look, if you're going to hire unskilled workers, you have to pay them $15 an hour.
What that means is employers have to say, okay, well, I guess I can't hire unskilled workers or I can only hire a few, but I have to find other sources to get done what I need to do.
And so what do businesses do?
They raise prices or they adopt models where you have self-serve, where people do things themselves.
You serve yourself, like a self-serve gas station.
What happened when the government put a minimum wage?
Well, they didn't start paying gas pumpers higher wages.
They eliminated gas pumpers.
The job doesn't exist anymore.
You pump your own gas.
And they used a combination of self-service and technology.
And so what is going to happen now?
Because the government is saying, no, you can't pay that guy $7.25.
You've got to pay him $15.
Well, I can't pay him $15, so I'm not going to hire him.
I'm going to do the next best thing.
So I'm going to use a machine, I'm going to outsource, I'm going to have my customers do things themselves that were done by others, and I'm going to raise my prices.
And so now there's going to be a new level of employment, but you cannot legislate higher wages.
Wages have to come from productivity.
And if the worker doesn't have the productivity, he's not going to earn the wage.
And so businesses are going to find a way around.
Now sometimes, yes, there are some times you will get a few people who will get overpaid as a result of the increase in the minimum wage, but that is more than offset by all the people who get zero wage.
Because they've been legislated permanently out of work.
And those that do keep their jobs still have to pay higher prices.
Because the people who are most impacted by the higher prices that result from an increase in minimum wage are the minimum wage workers themselves.
It doesn't matter to Warren Buffett what happens to the price of a hamburger.
He couldn't care less.
But if you're working for minimum wage and the price of a hamburger goes up, that takes a lot of that wage hike away from you.
Well, and the really frustrating thing about it, too, is it's really hard to solve down the road.
Let's say Trump gets in or some more free market guy gets in and says, okay, we're getting rid of the minimum wage.
Well, the automation isn't going to be dismantled, right?
It's already in place.
And so the demand for lower skilled workers is not going to go up proportionately to how it goes down when the minimum wage is raised.
So that is a permanent reduction.
Well, certainly the longer the higher minimum wage is in place, because once a lot of these restaurants, you know, decide to automate and they make the upfront capital investment to buy all the equipment, even if you get rid of the minimum wage, well, the equipment's already there.
And so the investment's already been made.
See, what's going to happen now is you're going to have people in California and New York who are going to make decisions today about whether or not I should...
I spend all this money today to buy this equipment to replace my workers.
And the cost-benefit analysis is affected by what you believe the cost of those workers is going to be over the next five or ten years.
And since it's now going to be much higher, that makes the decision to invest up front in the machines.
You know, more favorable to the machines.
And so once I've committed to that and bought all that equipment, now it's there.
If they reduce the minimum wage in the future, it might not matter because I've already spent all the money automating.
So this is a very dangerous path that states like California and New York are going down.
And it's not dangerous, you know, for the businesses.
It's for the workers.
This is the sad irony of this is that the people who are hurt the most by the $15 minimum wage are the people who are currently employed at $8, $9, $10 an hour who are going to lose those jobs and be unemployed at $15 an hour.
What good is a $15 an hour minimum wage if you don't have a job?
Well, and what's even more tragic is they're going to blame the free market for not producing the jobs that they want.
That seems almost like there's such a fantasy that all business owners are like Scrooge McDuck sitting on these mountains of money, just not sharing it out of meanness and callousness.
You know, these monocle-wearing monopoly capitalists just sitting on all these mountains of money and why don't they just scoop some out?
But there is, you know, businesses operate on razor-thin margins.
You know, I've run a business.
You run a business.
I mean, you're not making 50% profit than just hoarding it all yourself because if you were, somebody else would move in and undercut your prices.
Businesses operate on a couple of percentage points, and there is not a big vat of money that they can just scoop out and hand out if they feel like it.
And in fact, you know, the legislators know this.
I mean, Jerry Brown said when he signed the bill, he didn't even think it made sense economically, but politically he had to do it.
And the fact that the $15 an hour minimum wage doesn't take effect immediately, that shows you that they know that it has harmful effects.
If it was so good, why wait four or five years to do it right now?
And in fact, California in the bill said that if the economy weakens, if we go into a recession, if unemployment goes up, they can suspend the increases.
Well, wait a minute.
If the increases are good for the economy, wouldn't it be better in a recession now?
If it's going to help the economy, then if the economy slips into recession, wouldn't you want to accelerate the rate hikes if they're really helpful?
The fact that they said they can call it off if the economy is in trouble shows you that they understand that it's bad for the economy.
Yet they're doing it anyway because the voters are dumb enough to want it.
But what we need is elected officials who have enough integrity not to give the voters what they want when they know what the voters want is bad.
Well, you know, it's the platonic idea that you have wise legislators who are willing to accept unpopularity for the cause of educating voters, and I do think that the politicians know better, but they are, of course, playing to the masses who, just like these squawking birds, baby birds that want all this government largesse, coughed up to them, and nobody's really pushing back, at least on the political side.
No, and in fact, you know, people pander to it.
I mean, again, that's where Bernie Sanders gets all his support.
And I hear him talking all the time about, we want more voter participation.
We want more people to vote.
Yes, because he knows the more unimportant people vote, right, the more votes he's going to get, right?
I don't want people who don't even understand the issues voting.
I want fewer people voting because that means that the people who do vote are likely going to be more educated and understanding than if we just force everybody to vote.
I mean, Bernie Sanders would like little kids to vote.
Sure, because they'll vote for Bernie Sanders.
He wants more and more people to vote.
I want fewer people to vote.
And another one of these lies that's floating around at the moment is that, you know, because in the past people with college education made more money, If we put more people into college, they're all going to come out making more money.
You know, like if you just put short people on a basketball team, boing!
You know, up they go in height.
I wonder if you can help people break that down a little bit.
Yes, well, that is very bad logic.
You know, it's not the college degree that is really responsible for people earning more money.
It's just that harder-working, smarter, more ambitious people used to be the ones that went to college.
And then when they went to college, they also majored in things and studied things that helped them earn more money.
But today, it's not just the best and brightest to go to college.
It's everybody that graduates high school practically goes to college, even if they had a D average.
And of course, a lot of people going to college major in Chicano studies or women's studies or African-American studies or sociology or anthropology or all kinds of things.
And these jobs don't do anything to you.
They're not computer science.
They're not engineering.
I mean, you know, or people that went to college so they can be a doctor.
Yes, doctors earn a lot of money and doctors go to college.
But just because you go to college, if you're not going to be a doctor, it doesn't mean you're going to earn the kind of money that a doctor earns.
Now we've got everybody going to college, and now if you actually want to differentiate yourself from the masses, you need to get a master's or a PhD, because a college degree today doesn't even have the marketable value of a high school diploma.
You know, 40 or 50 years ago.
A high school diploma used to mean something because not everybody graduated.
Now everybody graduates.
They won't let you fail.
You know, no child left behind.
So we leave everybody behind because people have worthless degrees.
You know, I think now the best and brightest are recognizing that a college degree is not worth the cost of getting it.
And so the smarter, more ambitious kids might be skipping college altogether and going into the workforce.
The problem is there's not as much opportunity in the workforce as there would be if the government wasn't spending all this money and regulating and taxing.
The real beneficiaries of putting everybody into college are the schools, are the administrators, are the teachers' unions.
This is who benefits, right?
Because they have more customers.
But they're not even really customers because they have to be there.
And the parents don't even have a choice of where to send their kids.
If you live in a certain community and that's your zip code, then you have to send your kid to that failing government school unless you can also afford to pay for a private school at the same time you're being taxed to pay for a public school.
And the public education costs a fortune and it's lousy.
Well, and I remember going from sort of undergraduate to graduate school.
It was like breaking through the clouds.
Ah, here are the smart people.
Here is sunlight.
I can see.
Because what happens is when more and more people go to college, the curriculum has to be dumbed down because you have less intelligent people in college.
So even the really smart people aren't getting even close to the kind of quality education that they had in the past, which helped produce better outcomes.
Yeah, even when I went to college, and I went to UC Berkeley in the early 80s, and even then I remember a lot of freshmen were taking remedial math and remedial English.
I mean, remedial.
I mean, why are they there?
How do they get out of high school if they can barely do math or read?
Yet here they are at UC Berkeley.
And so it's ridiculous.
If you need remedial education when you start college, you shouldn't be starting college.
If you couldn't master that stuff, In high school, then don't go to college.
You are wasting your time.
There are other things that you can do.
You know, I've got a kid that comes here, you know, a plumber, to do work in my house.
I mean, you know how much plumbers make?
And you don't have to go to college to be a plumber, right?
And there's nothing wrong with being a plumber, right?
I mean, so, you know, if you don't have the aptitude for math, you know, or whatever, you know, what do you go to college?
Learn a trade.
And you can earn a lot of money if you learn some valuable skills that people need, because people always need plumbers and all sorts of trades that people...
And in fact, at one point in America, if you were a plumber, you could support a wife and four kids on the income of a plumber.
Well, that is something you mentioned in a recent interview that I don't mean to have you retread old material, but...
It is hard for people growing up sort of in the modern world to remember or to realize what it was like prior to, you know, the great society of the 60s and so on, what it was like in the 50s and so on, how much you could survive and thrive on one person's salary during a baby boom.
Yeah, and not even a salary of a white-collar worker.
A blue collar worker could afford to support a wife who didn't have a job outside the home, who didn't earn anything.
Yet he was able to do it.
And remember, too, people would get married if you were a plumber.
Maybe you were 25 and you got married because you've been working since you were 15 or 16 years old.
You didn't go to college and you've been working and you built up some savings.
You learned some skills.
I mean, a 25 year old can't get married today.
I mean, if he went to college, he's broke.
You know, he's got a lousy degree and he's buried under a pile of debt.
He's living with his parents.
I mean, he's not a very he's not a real prize for somebody to want to marry.
Meanwhile, you know, women don't even want to even get married now because if the guy can't support him, what's the point?
They're just going to go and get a job themselves.
And, you know, they've got college debt, too.
So this is a different world that the government has created.
They've gotten everybody into college, and now everybody is broke.
Nobody learns how to do anything.
They waste all their youth in college.
What do they do?
They party, they get drunk, and they get these liberal arts degrees.
And now the women and the men, they both have these degrees.
They graduate 23, 24.
Some of these kids take five or six years now.
There's so many kids in college that you can't even get the courses you need for your major.
And so, and of course, people don't, my dad went to college, you know, he worked when he had a spring break, that meant, oh, okay, I got a job, I work, right?
He worked during his spring break, he worked over the summer, that's what, that's how we paid for college.
Now they don't, you know, you know, you people take a vacation, nobody works, they just go into debt.
And then they graduate.
And so you have these young people graduating.
They're broke.
What are they going to do?
And even if they get jobs, a lot of their income is going to taxes and to pay off their loans.
Whereas back in the past, you had no loans and you had no taxes.
That's something that people, I think, who are relatively comfortably well off, have a tough time seeing just how broke the average income.
I mean, the average American has like a couple hundred bucks if they're lucky in the bank account.
They have very few liquidable assets.
And they're just like one slip and fall or medical bill away from some complete disaster.
And I think that the precariousness of Americans is something that, again, the more comfortable classes have a tough time understanding.
And that's why they're splitting right and left, I think, with Trump and Sanders.
They feel very, very precarious.
It's a stressful existence being in the lower class or the middle classes in America these days.
Before the government got involved with all these programs, the average American had savings.
He had money in the bank.
If he lost his job, it wasn't the end of the world.
He had enough money.
He didn't even need necessarily unemployment benefits because you saved.
People didn't spend everything they earned.
They saved money.
They put it in the bank.
Their savings earned interest.
So you didn't have to necessarily go to work to earn money.
Your money was earning money for you because you had interest.
So people didn't live paycheck to paycheck.
The middle class didn't live paycheck to paycheck.
They had savings and they saved for their retirement.
Now, no, I mean, if you lose your job, if you don't have unemployment, you've got nothing.
And now you're signing up for food stamps or other types of government assistance because the government has created a society where people have no financial assets whatsoever.
The average American probably has a negative net worth.
His liabilities, whether it's a car loan or a student loan or credit card debt, exceed his assets.
The average American is broke, right?
In supposedly the richest country in the world, the average citizen of this country probably has a lower net worth than most people in the rest of the world, even poorer countries, because they have positive net worths.
They don't have all the debt that Americans have, and they've got some savings.
We have a bunch of debt and no savings.
Oh, and that's not even counting the national debt and the unfunded liabilities.
Well, of course, if you do that, then we're the poorest people in the history of the world, right?
If you look at all the money that we owe.
Now, of course, the way out of that is that we're not going to pay it.
But the problem is our creditors haven't figured this out yet.
They still think we're good for it.
They still think all these broke Americans can actually pay their pro rata share of the national debt.
I mean, it's not even close.
Well, and here's the thing, you know, this supposedly sovereign country of America now seems to be quailing before the Saudi Arabians' threat, the Saudi Arabian government threat to dump $750 billion worth of their assets onto the market.
And therefore, you know, some potential justice for the 9-11 victims might not manifest.
I mean, where the hell is the sovereignty?
But of course, the reality is that you're never more enslaved in a sense, at least in the modern world, you're never more enslaved than when you're in debt.
Oh, yeah.
And, you know, they call the tune and we dance to it.
I think what's funny about it is when you look at the reporting of this, this so-called threat, everybody thinks, wow, you know, it's going to hurt the Saudis because they're going to have to sell their precious treasuries.
Like, you know, it's really doing them any good to hold on to these things.
I mean, they'd be much better off selling these treasuries.
The problem is who's going to buy them?
Because nobody really wants them.
The Federal Reserve is going to have to buy them.
So they're going to have to print a bunch of money to do that, which means the dollar is going to sell off even more, which means the cost of living is going to go up even more.
But I don't think Obama wants to even risk something like that happening before he gets out of office.
So that's why he's going to oppose this.
And I think even the leadership in the House, nobody wants this bill to go through.
But the problem is the politics, because it's bad politics to be against it.
Everybody wants to stand with the victims of 9-11.
Who wants to stand with the Saudis?
But the reality is, we owe them like a trillion dollars.
And they're helping to keep this House of Cards economy from collapsing.
So we've got to kiss their you-know-what.
But we've got to figure out a way to save face.
But there's no way we can pass that bill.
Recently, of course, there has been a giant massive data dump, well, not to the world, but through a consortium of journalists called the Panama Papers.
There seems to be quite a lot of villagers gathering with their pitchforks and brands looking to chase down the ogre of offshore companies and apparently people who are evading taxes and so on.
It seems kind of a misnomer in that most people want to pay less taxes if they can do so legally, and these seem to be legal vehicles by which taxes can be reduced.
But it does seem to be it's another one of these, well, the rich are getting away, so let's have government regulate things more and let's go get those rich.
And that always ends up, it's like watching someone step on a rake, you know, kind of boom, up it goes in their face.
Because every time we ask the government to regulate more, the rich capture the government regulatory process, the financial wizards capture the regulatory process, and it ends up benefiting the rich more.
Yeah, well, first of all, you know, nobody should be surprised that politicians are hypocrites, you know, because people are like, oh, look, here are these leaders.
They're, you know, they're trying to evade the higher taxes that they're imposing.
Of course.
I mean, of course they are trying to do that.
I mean, just because they're advocating for something for other people.
Doesn't mean they believe in it for themselves.
Look, Warren Buffett keeps saying that he wants people to pay higher taxes.
Well, there's nothing stopping him from paying higher taxes himself.
Just write a check.
The government will accept it.
But if you look at the way Berkshire Hathaway runs, I mean, Berkshire Hathaway does whatever he can to avoid taxes.
So does Warren Buffett.
Warren Buffett doesn't pay himself a salary.
Why?
He doesn't want to pay the taxes.
What does he do?
He takes stock dividends because it's preferential treatment.
So everybody tries to do what they can to minimize their taxes.
Look, Bernie Sanders, he finally released his tax returns.
And lo and behold, he uses all sorts of deductions and he pays a lower tax.
Why doesn't he just ignore those deductions?
Why doesn't he just pay a higher tax?
Because he doesn't want to.
Nobody wants to.
But, you know, here's the thing about tax havens.
People are saying, oh, these tax havens, this is terrible because, you know, people are evading these taxes.
Yeah, it's a good thing.
Because you know what?
If it wasn't for tax havens, taxes would be even higher for the rest of us.
Because one of the things that keeps governments honest to some extent is they know if they raise taxes too high, more people will use offshore tax havens to escape them.
So it's some kind of protection.
Even if you don't use them yourself, the fact that they're there.
You know, what governments want to do is make it harder for people to avoid the taxes so it's easier for them to raise the level of taxation.
So we need tax havens.
And by the way, Globally, the United States is considered the world's biggest tax haven.
So it might not be a great place to earn money if you're an American and you live here, but it's pretty good if you happen to be an Asian or European or Latin American.
A lot of those people use the United States to avoid taxes.
So we really shouldn't be Throwing stones, given the size of the glass house that we live in.
But we are, you know, making it harder.
But I like all these tax havens to be there.
And I think I wish more countries would lower their taxes and be a tax haven.
I mean, look at what's happening in the states, right?
Just big articles now about David Tepper, who just left New Jersey for Florida.
And, you know, can you imagine how much higher the state taxes would be if you couldn't leave?
What if whatever state you were in, you could never leave?
Even if you moved out of state, the state that you left could still tax you.
Can you imagine how much higher they would be?
The fact that we have some competition among the states keeps some kind of lid.
I mean, Connecticut.
See, Connecticut had been losing.
So many millionaires were leaving Connecticut that all of a sudden now, Now they're in a budget hole again, but now for the first time in years since I've lived in this state, instead of raising taxes, they're cutting some spending.
They're laying off some government workers.
Why?
Because they've reached a point where too many people are leaving.
The General Electric is leaving.
They're going to another state.
They're leaving Fairfield County, Connecticut.
So the politicians, even though they want to raise taxes, they're worried about more people leaving the state.
That's what we want globally.
We want politicians worried that the frogs are going to jump out of the water before we boil them to death.
Well, the other thing, too, is that let's say that the government was able to capture frogs All of this money.
Well, what they would do is they would use it as collateral through which to borrow a huge amount of money.
And so if the rich are paying taxes, that is going to catastrophically add, if they're paying even more in tax, it's going to catastrophically add to the growth of the national debt.
It's just collateral to borrow.
It's not like they spend it directly.
Well, absolutely.
People act as if the government simply got this revenue that it's not getting in taxes, that we'd all be better off.
We'd be worse off.
I would rather have that money not go through the government.
Stay in the private sector.
Let the people who earned it invest that money or spend that money.
Why siphon it through Washington, D.C.? That's not going to benefit us.
And sometimes politicians say, well, you know, if all the people who are avoiding their taxes just paid more, well, then you could pay less.
No, because it's not like the deficits would go away.
If the government collected more taxes, they'd just spend even more.
They never live within their means.
No matter how much they collect, they're gonna spend more.
It's not like the budget would be balanced if they only had more revenue.
No, if they had more revenue, they'd spend even more than that.
The deficits would probably be just as big, if not bigger.
More drug to the drug addict does not equal less drug taking by the drug addict.
It just means more.
And the other thing too, which has struck my mind about this whole Panama Papers thing as well, is it's a legal tax protest.
The rich people are saying the tax system is unfair and unjust.
Look, if taxes were 5% or 6% in total, like the way that they used to be in the past...
Nobody would bother with all of this mess.
It would be too expensive to hire the accountants and too risky to move the money around.
The 3% of French millionaires are leaving Paris and I think a couple of percentage of people in Chicago are leaving.
Nobody wants to pick up and move unless they have to.
Moving is like unless there's a tsunami or a glacier coming into your household.
Nobody wants to do it.
So it's a form of legal tax protest, like a sit-in.
And so what's wrong with a form of legal tax protest where the rich people are saying, this is unfair and unjust, and I'm willing to take these steps to avoid this unjust system?
Yeah, look, it's much easier to do business locally, to run all your affairs locally, and if the tax rates were low enough, then people would pay them rather than run their businesses offshore.
But when you get up to confiscatory levels of taxation, you know, you operate a business in the United States Let's say if I'm operating a business from Connecticut, I'm going to pay about a 50% tax on the marginal income from that business.
Once you get up to the top tax bracket, if you open up a business and you're paying the corporate tax or the high top-end personal tax or the state tax, it's about 50%.
That is a very, very powerful incentive to operate businesses outside the United States.
And that's why I've chosen to do that.
And I have businesses that are fully functional, fully operating outside the United States, no U.S. taxable income, totally legal.
But the businesses take place outside the United States.
And if I'm operating a business where there's no tax and I have to make a big investment, it's easier for me to grow my business because I don't have to cut the profit in half.
I can reinvest all my earnings in growing that business, which is what I do because I don't want to bring the earnings back to the United States because then I would have to pay taxes on them.
But if I leave the earnings offshore and use the earnings to grow the business, then I'm not paying any taxes on those earnings.
But my business can grow a lot more without having to cut the government in for half the profits and none of the reinvestment.
They don't help you with the capital cost, but they'll take the profits.
But all this stuff that's happening is because of government.
And the liberals want to act, hey, let's just tax the rich.
Let's just tax the rich.
Well, what if the rich don't want to be taxed?
What if they do something to protect their wealth?
Just anybody.
Look, if you are, you know, walking through a bad neighborhood and, you know, maybe you're going to put, you know, your money in your shoe.
Because if you get mugged, you don't want, you know, people are going to do things to protect themselves.
Everybody.
Nobody wants their money stolen from them.
And most people, you know, if the government steals it at gunpoint, it's still theft, right?
And so people will try to do what they can to protect what they own, to protect what they've worked for.
Look, the average guy who's making $50,000 a year, if someone who was only making $10,000 a year wanted to soak him because he was rich relative to them and wanted to pass the tax, they'd want to avoid that too, right?
You know, it's just everybody just assumes that It's the other guy who's dishonorable, and they're honorable, but if the shoe was on the other foot, they would act exactly the same way.
Well, and when tax rates get really high, people stop spending that money.
Like, I knew someone years ago, he made a certain amount of money.
In Canada, when you get over a certain amount, you're taxed at insane rates.
And so he just didn't spend the money.
He's like, well, I could do my backyard, I could, you know, expand my house, but I'm not going to because there's just no, I can't possibly do it.
Think of all the jobs that aren't created because of all of that.
Well, you know, the higher you make the tax rate, the cheaper you make leisure, right?
And people don't get the trade-off because let's say you're wealthy.
You can continue to work or you can enjoy more free time.
Well, if the tax rate is zero, right, then if you don't work and you don't earn money, The cost of your vacation is 100% of the money that you gave up.
But if taxes are 50%, and if I don't earn, let's say, that extra million dollars, well, my vacation didn't cost me a million.
My vacation cost me $500,000, because I only would have earned $500,000.
But you take the tax rate up to 80%, and now that vacation only costs you $200,000.
Because even if you would have earned a million, you only would have kept $200,000.
So depending on, you know, somebody might say, well, you know, 200,000 might be a lot of money, but not if the guy's got 10 or 20 million.
He might decide, you know what, I'd rather have the vacation than the extra 200.
He might rather have the extra 800 if taxes were 20%.
So the higher you make taxes, the more wealthy people will choose leisure over work.
And the thing is, if I'm going to choose leisure over work, if I'm not going to work, maybe I don't need my employees anymore because I'm no longer running my business.
I decide it's not worth it anymore.
I'm just going to retire because after taxes, there's not enough money left over.
I might as well just go fishing.
And so the higher you make that tax, the less work there is and the less people who are going to be benefiting from that.
People aren't going to get jobs or there's a lot less economic activity when you're just sitting there fishing versus running a business.
Well, it'll be interesting.
We'll see if we can put the graph in at the end of the presentation, which is tax rates versus number of golf courses, because that might actually kind of trend similarly up.
Well, let's turn a little bit to healthcare.
Of course, people just finished their taxes and there are a lot of healthcare insurers who are getting out of the Obamacare markets and where choice is dwindling and of course the premiums are going up, which means more endless subsidies and so on.
And it's having an effect on the jobs market.
What do you think is the prognosis going forward for this giant leviathan of cluster fracking, God knows, eye-gouging economic disaster escape?
Well, the prognosis is not good.
In fact, it's terminal, if we're going to look at it from that perspective.
And all of this is predictable.
I'm sure you talked about, I talked about what was going to happen if we went down this road, and everything that I warned, it's all happening.
You know, this is what happens when government comes in.
In fact, we already saw this when government came into the market initially with Medicare and Medicaid.
I mean, the government took a great healthcare system that we had that was affordable and widely available.
Nobody was lacking for healthcare in the United States.
Poor people got healthcare for free if they were really poor.
The middle class purchased healthcare.
It was inexpensive and widely available.
Nobody worried about the rising cost of health insurance.
All that changed when government got involved and the costs started to rise.
And the response to that was not to recognize that government caused the problem and to get government out so that the free market can once again rein in costs.
Instead, we went, you know, further in.
We got government even more involved.
And what's happened is the predictable result, which is costs are going up even faster.
So this is just a complete disaster, you know, for everybody involved.
And ultimately, it's going to be such a big disaster that we might go all in, Bernie Sanders-style, with just some kind of single-payer, universal, socialized medical plan, which, again, is the worst possible solution.
And Americans don't even remember.
Most Americans are too old to know.
And, of course, I don't remember.
I just have heard stories, you know, my dad used to tell me, who is no longer alive either, about how inexpensive...
Look, my dad grew up in the Depression.
And my father, my grandfather was a carpenter, didn't go to college, didn't even go to high school, right?
And he just was a carpenter.
But my father had seven sisters, and his mother never worked, I mean, outside the house.
And they had help.
And they had, like everybody else, you know, they had a housekeeper.
They didn't have a live-in housekeeper.
Somebody came and helped out his mom.
But my father said, look, whenever he got sick, his mother just called the doctor, and there he came.
He showed up.
And I think that my grandfather was a member of a lodge, some type of, you know, club, and part of the membership of the lodge was a doctor, you know, and he came to the house.
And if he got sick, you know, he called up, and there was the doctor and took care of him, and it was easy.
You know, nobody worried about it.
And sometimes my dad would say, you know, the doctors would come, and if he couldn't pay him, he'd say, okay, well, when you can pay me, pay me.
You know, because there was no red tape, there was no insurance, there was no malpractice.
It was much easier to be a doctor.
And the thing is, given all of the advancements that we've had in medicine, and of course we'd have even more advancements, if we didn't have the FDA, slowing down the process of innovation, could you imagine all the drugs that would have been invented had the government not created all these roadblocks?
Had it not been so expensive to actually develop a new drug?
I can only imagine how inexpensive healthcare would be.
I mean, healthcare is now this huge cost in our GDP. And in fact, it is one of the main reasons that GDP is going up, because we're spending so much money on healthcare.
But this is not a good thing.
Nobody wants to spend more money on healthcare.
The ideal amount to spend on healthcare is zero because you're healthy.
You don't need it.
People want to be healthy.
They don't want to spend a bunch of money on doctors and insurance.
So the fact that doctors and insurance are more expensive and we're spending more money on it is not a good thing.
What would be a good thing if our life expectancy was going up?
But it's not.
We're not benefiting from all this healthcare spending.
Well there are a number of bureaucrats who are, which generally is where the money tends to accumulate.
The way forward, you know, my sort of argument has been for years, and I think it's similar to yours, which is that we just need to let people voluntarily interact with each other without coercion, without compulsion.
And everyone thinks that's going to be a disaster.
You know, like there's this feeling like we've got the free market, like this rabbit dog, and we've got it, but if we let go, it's going to, you know, tear our faces off and stuff.
And that's because people don't know history and they don't know theory in general.
So let's say that you got your libertarian wand out and you could pick a couple of things that you would want to see changed the most and the fastest.
Where would you start waving?
Well, there's just so much to do.
I mean, there's just so much to undo, rather.
It's not about things that we need done.
It's just things that we need undone because the government is just in the way.
Of our progress, right?
It's all the laws and regulations that we need to get rid of.
And you're right.
Look, I trust people to make the right choices for themselves because nobody has a better interest in the outcome of a decision than the person making it.
Why are you going to trust somebody in Washington to make decisions?
I want people making their own decisions for themselves because I have confidence that when it comes to your own personal decision, like if somebody offers you a job, if you decide to accept that job because it's the best job that you can find and you've looked around and someone's offering you a job, And you decide, then obviously I trust your instinct to take that job, other than some bureaucrat thousands of miles away telling you, no, that job's not good enough, you can't have it.
Or, I'm sorry, you don't have enough vacation days, or you don't have family and medical leave, so we don't want you to take that job.
No, let people make decisions for themselves and for their families without government interfering.
It's interesting that all these liberals think that people are smart enough to vote for their leaders, but they're too dumb to make everyday decisions.
It's more likely the reverse.
It's more likely that when they're voting, they're going to make the wrong decision.
Because they might not understand complex economic things, but they understand their own life.
They can make a decision on what's best for them.
I don't want people making decisions about what's best for me.
See, that's the problem with democracy.
People want to make decisions for other people.
I don't want that.
I want everybody making their own decisions for themselves.
Because I trust the average guy to make the right decision when it comes to his own life.
But I don't trust him to make a decision about how I run my life.
Because he's not me.
And obviously, if you say to somebody, hey, how about voting to steal money from Peter?
Oh, okay, fine.
I'll vote for that.
I don't want that.
I don't want people voting to steal my property any more than I want people stealing it physically without the aid of a ballot box.
Well, there's more you can do to prevent private criminals than public criminals, because at least you can call up the government to save you from private criminals.
But who do you call when the government turns around?
If you try to protect yourself from governing criminals, you're the criminal, and now you go to jail.
Right, right.
Now, another thing too, and there's tons of examples, there are always these disaster scenarios when people talk about reducing the size and power of government and letting people have their own money, make their own.
There's always these disasters that you can come up with and people endlessly do.
But there are equally thousands of examples throughout history where government shrinks and it's actually a lot easier and better than people think.
You know, what comes to mind is Canada cut its spending savagely in the 90s when it was starting to spend like 34 percent of its tax base was going just on interest payments.
They closed down entire government departments, cut welfare.
And, you know, the sun rose the next morning.
The birds were singing and people just reorganized their lives differently.
In the U.S., recently there have been significant programs that say, well, we're going to cut back on food stamps or eliminate food stamps.
If you're able to work and you're not working, you don't get food stamps.
Food stamp participation has dropped savagely, hugely, enormously.
And the next day the sun rises and the birds are singing and people go on with their lives.
These disaster scenarios are the real problem, not the actual going on.
Look at the example of New Zealand in the 80s under Roger Douglas.
We invest a lot of money in New Zealand.
I own a lot of companies.
I have a lot of my own money in New Zealand companies.
It's one of the countries that I'd like to invest in.
But, you know, they were more socialist than we are now.
I mean, Bernie Sanders would have loved the New Zealand of the 1970s.
It had all the things that he thinks that we need.
And it drove the country into bankruptcy.
And they were really, I mean, they were really at the end of the rope.
And then they adopted massive free market reforms.
And lo and behold, the country thrived.
They paid off debt.
They're much more prosperous today than they were under all those socialist policies that they no longer have.
So nobody wants to talk about that when they want to talk about, oh, look at the socialism in Scandinavia.
Yes, the socialism in Scandinavia has hurt Scandinavia.
But a better example is a country like New Zealand, Which no longer has all those programs.
They had them all.
It was a workers' paradise.
And they went broke.
But now the workers are much more prosperous without all those government programs, with the free market.
The free market is what leads to prosperity, not government laws and taxes and subsidies.
It is grimly depressing when you read about history, the degree to which this lesson kind of needs to be learned over and over again.
This fantasy that somehow this central coercive agency is going to coordinate us all like a conductor with an orchestra to produce the beautiful music of harmony and prosperity.
And every time it turns into this hellish freak show of corruption and special interest, vote grabbing and political falsehoods and debt and crisis and endless crisis.
And then, you know, suddenly when you're backed up against the corner, people like reach for the free market and it's like, woo, we're back.
And then it starts to grow again, this government programs.
Yeah, you know, I made that point in my book, The Real Crash, that, you know, in most disciplines, right, whether it's science or, you know, mathematics, you know, Every generation builds on what was learned by prior generations.
We don't start from scratch.
We don't have to reinvent the wheel every generation.
We always add to the technology of our ancestors.
We don't have to start from scratch.
When it comes to understanding of economics, We always go back to zero.
We act as if none of the experiences that took place over the last thousands of years, none of those lessons have been learned.
We don't build on that knowledge.
We repeat all the mistakes over and over and over again.
I mean, imagine if we did the same thing in all walks of life.
I mean, we'd still be living in caves.
So fortunately, we don't make these mistakes in all aspects.
But unfortunately, when it comes to understanding economics, the average person knows no more about economics.
Not even the average person.
The average economist knows no more about economics than they did 500 or 1,000 years ago.
Clearly, that's not the case with the average physicist, right?
Right.
And, you know, medicine, we don't sort of say, hey, let's try leeches again.
And, hey, let's reopen the debate on slavery.
I mean, we make progress in other areas.
But with this one, there's a real slippery – because, of course, politicians love to give away things for free to buy votes, and that requires that they keep people far away from economic principles.
And, of course, government schools are little – Well, not little, giant pockets of communism indoctrinating the young and therefore they can't say, well, you know, the free market is a really, really great place to be because then, you know, the first bright kid in the front row says, then why are we here?
And of course, there's not any particular answer to that.
So I think it's not that people can't accumulate the knowledge.
It's kind of scrubbed out of the brains of the young by self-interested government-based institutions every single generation.
Yeah, and that's like, you know, I know my son had to, we talked about the minimum wage earlier.
My older son is 13, and he had to write an argumentative essay, and there were various topics that he could pick, and so he chose the minimum wage.
And the question was, should the minimum wage be raised, right?
It wasn't that, should it be abolished?
It was, you know, should it stay where it is or should it be raised?
And so he went to his teacher and he said, I'm going to pick the minimum wage.
And she said, OK, you know, of course, you're obviously going to argue that it should be raised.
And so she was going to give him some points.
And then she said, well, no, actually, I'm not.
But she was just assuming that he was going to argue that it needed to be raised because that was her opinion.
But these teachers, they teach their opinions.
As if they were fact.
Obviously, my son has got a little bit of an advantage over the typical 13-year-old because he listens to my podcasts, so he knows.
But the average guy, they think the teacher is smart.
You're 12 years old and you've got a 25, 30-year-old teacher.
You assume your teacher knows more than you do.
That's a bad assumption.
In many cases, they know less.
Well, I mean, the idea that you live in a society that's going to put indoctrinated idiots in charge of pretending to educate the young, that's a pretty chilling thought because it goes way beyond the school into your society as a whole and its respect for the young and its capacity to survive teaching young people critical thinking skills.
You know, whenever you have a rotten, terrible infrastructure of propaganda that's really at the heart of a society – Critical thinking skills becomes the complete enemy, and so you don't want to think about your society as a whole.
If it can't teach you how to think, what's it hiding?
You know, I remember this story.
I think I was in, like, fifth grade or sixth grade.
I forget.
And I remember I was in a lunchroom, and I bet money.
There was a kid, and I had been reading this book about the solar system.
And so I was talking to this kid, and we talked about the planets, and I said, you know, Jupiter has the most gravity.
And he said, no, Earth has the most gravity.
And I said, no, it's Jupiter.
Jupiter has the most gravity.
And we made a bet, and we decided to let the science teacher answer the question, because I was saying it was Jupiter, and he was saying it was Earth.
So we asked the science teacher, and the science teacher said Earth.
So this tells you how little, you know, I mean, it's all, okay, I must have been wrong.
Of the planets.
He said the Earth, just because it's closer and it feels more, like, I don't feel Jupiter's gravity, pull it off.
Wait, there it is in my earlobe, pulling away, as usual.
Wow.
But, I mean, but if the science teacher doesn't know that gravity is a function of mass, I mean, and this is the science teacher.
It wasn't that we asked, you know, the English teacher, we asked the science teacher, and the science teacher didn't know.
So, look, the teachers, all the teachers have to know is more than you do, theoretically.
Or they have the teacher's edition to the textbook.
They don't actually know anything because they have a textbook with all the answers.
It's like calling Alex Trebek the winner of Jeopardy.
It's right there, right on the podium.
All right.
Well, thanks a lot, Peter.
It's always a great pleasure to chat, and I strongly urge people to check out Peter's work.
It's a great podcast and his websites again.
Just to remind people, shiftgold.com, shiftradio.com, and europac, E-U-R-O-P-A-C, europac.com.
Always a great pleasure.
Keep on fighting the good fight.
Congratulations on the new addition to your family, and we'll talk again soon.
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