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A Conversation with Brian P. Simpson on Why Markets Don't Fail
Episode 84 • 17th May 2024 • The Secular Foxhole • Blair Schofield and Martin Lindeskog
00:00:00 01:09:55

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We welcome back Brian Simpson to talk about his 2005 book, Markets Don't Fail. Tune in for a lively discussion covering several topics found in most/all economic textbooks, and why those books are misleading, at best, and outright false, at worst. In essence, we prove that, Markets Don't Fail.

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Show notes with links to articles, blog posts, products and services:

Episode 84 (69 minutes) was recorded at 2200 Central European Time, on May 10, 2024, with Ringr app. Martin did the editing and post-production with the podcast maker, Alitu. The transcript is generated by Alitu.

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Transcripts

Blair:

Well, good afternoon, ladies and gentlemen.

Blair:

Welcome to another episode of the secular Foxhole podcast.

Blair:

Today we have a returning guest.

Blair:

Brian Simpson is a economics professor at

Blair:

National University.

Blair:

Is that correct, Brian?

Brian:

Correct.

Blair:

Now, is that.

Blair:

Let me ask you this.

Blair:

Is that affiliated with the Navy or Air force, or is that just a.

Brian:

No, it's a private, not for profit university based in San Diego.

Brian:

But we have employees and faculty around the US, and it's mainly online.

Brian:

But we do have classes, offer classes in the San Diego.

Blair:

For some reason.

Blair:

I thought it was affiliated with one of the

Blair:

military, but that's okay.

Blair:

And Brian is a returning guest, because the

Blair:

last time he was here, we discussed his book, the Declaration and Constitution for free

Blair:

society.

Blair:

And today we're going to discuss an earlier

Blair:

book of his called markets don't fail, and which I wholeheartedly agree with, or even

Blair:

more.

Martin:

Yeah, positive.

Martin:

And Martin, here, Markus, are always right.

Martin:

Right.

Brian:

Yeah, they succeed.

Brian:

Yeah, that's true.

Blair:

That's true.

Blair:

They do succeed.

Blair:

Shall I go ahead and continue, Martin, or do you want to.

Martin:

Yes, please.

Martin:

Please do that.

Blair:

All right.

Blair:

So, Brian, what topics do you cover in markets

Blair:

don't fail?

Brian:

Sure. Yeah. Now, the book focuses on topics that are covered in most contemporary

Brian:

economics, what they call principles, textbooks.

Brian:

In virtually all, or at least most of those types of books, there's typically at least one

Brian:

chapter that addresses topics concerning market failure.

Brian:

And it's from these topics that come the chapter titles of that book and the topics

Brian:

that I focus on.

Brian:

So, you can see the topics in the chapter

Brian:

titles, but it covers monopoly, the antitrust laws and predatory pricing, externalities, or

Brian:

externality theory, the regulation of safety and quality of products and working

Brian:

conditions.

Brian:

It also covers environmentalism, economic

Brian:

inequality, so called public goods, goods, and asymmetric information.

Brian:

So, those are the main chapters focusing on the alleged failures of the market that I show

Brian:

and felt.

Brian:

What?

Brian:

The market doesn't fail.

Brian:

But then there's a chapter on the first

Brian:

chapters on capitalism, socialism, and the mixed economy, where I compare and contrast

Brian:

those political and economic systems.

Brian:

So there's a total of nine chapters.

Blair:

I see.

Blair:

I see.

Blair:

And what is your central message of the book?

Brian:

Yeah, the central message of this theme is, in one sense, contained right in the

Brian:

title.

Brian:

The free market does not fail, but succeeds

Brian:

both morally and economically, because the rights of individuals are protected to create

Brian:

a free market.

Brian:

And this makes possible the production of an

Brian:

abundance of wealth and the flourishing of human life.

Brian:

So.

Blair:

Okay. Okay.

Brian:

Book really provides a compelling economic, moral, and even an epistemological

Brian:

defense of the market by showing why the typical market failure argument is false and

Brian:

how, in fact, free markets succeed.

Blair:

What is the proper definition of capitalism?

Blair:

And why do you think it's so misunderstood today, especially in our universities?

Brian:

Yeah, I mean, it is misunderstood, not only misunderstood, but I'd say it's really

Brian:

hated by actively university professors, and university professors are to a great extent

Brian:

advocates of socialism and communism and at least generally the welfare state, especially

Brian:

in the US.

Brian:

I'm more familiar with that.

Brian:

But I think that's true virtually around the world.

Brian:

And I think it's misunderstood and hated because of the wide acceptance of the altruist

Brian:

code of morality and collectivism within the universities.

Brian:

And really the general abandonment of reason in the universities and the culture.

Brian:

I mean, the latter in terms of abandoning reason, is seen in the acceptance of

Brian:

subjectivist ideas, skepticism, the belief that we can't be certain of anything, that

Brian:

reality is basically whatever you want it to be.

Brian:

And postmodern philosophy as well, which embraces the idea that there is no objective

Brian:

reality and no objective means to understand the world.

Brian:

And this leads to really a growing tribalism, which we're seeing in the form of, well, in

Brian:

the US.

Brian:

Again, I'm more familiar with, but as so

Brian:

called identity politics, which basically translates to racism and nationalism and

Brian:

sexism and various other forms of collectivism, where people associate with a

Brian:

group that they feel like they belong to, and usually with the abandonment of reason, it's

Brian:

usually a more concrete bound, perceptual level association like race or nationality,

Brian:

where you're born or the color of your skin, with racism and so forth.

Brian:

And I think we see evidence of all this in the lashing out against Israel and the support of

Brian:

Hamas and palestinian terrorists.

Brian:

That's a part of the hatred of capitalism and

Brian:

the abandonment of reason and the rejection of western values like individualism and

Brian:

individual rights, and the embracement of primitive values, mysticism and tribalism.

Brian:

And really a primitive form of collectivism.

Brian:

Altruism is incompatible with capitalism.

Brian:

Altruism says it's a virtue to sacrifice yourself to others.

Brian:

Capitalism protects the rights of the individual so that you can pursue your own

Brian:

happiness.

Brian:

Say really, egoism, rational egoism, is

Brian:

consistent with that.

Brian:

Your life belongs to you.

Brian:

You have the right moral rights, and it is moral to act in your self interest, to pursue

Brian:

your own happiness.

Brian:

And capitalism enables that to happen.

Brian:

You don't have to live for any group like the race or the gender, like collectivism

Brian:

dictates.

Brian:

So I think those ideas, collectivism,

Brian:

altruism, and really mystical ideas, the abandonment of reason are rampant on college

Brian:

campuses.

Brian:

And that's why the hatred of Kathy and

Brian:

complete misunderstanding with regard to Brian.

Blair:

Go ahead.

Martin:

Yeah, I have some here, some thoughts about last time you were here, episode 51 and

Martin:

the book you wrote then and what you have learned from that, but also for this book now

Martin:

that we are talking about and also your, you could say second book and you mentioned there

Martin:

about the anti.

Brian:

Yeah.

Martin:

What's going on in Middle east and so on.

Martin:

It's interesting that I have found that it's a think tank, free market think tank and for

Martin:

freedom of expression in Lebanon.

Martin:

So it's interesting what could happen there if

Martin:

they will see the light and it will be a free market.

Martin:

So some thoughts about writing these books and also what's going on right now, for example,

Martin:

in Argentina.

Martin:

Have I read your book and books?

Brian:

Well, I guess I can focus first on Argentina.

Brian:

I don't think they've read my book.

Brian:

I don't know if Javier Millay has read it or

Brian:

not.

Brian:

I know Sim Ayn Rand and he's read a lot of

Brian:

Ludwig von Mises and Milton Friedman as well.

Blair:

Lift.

Brian:

And Friedman philosophically has problems, but he does have some good economic

Brian:

ideas.

Brian:

But what I see going on in Argentina, yeah, I

Brian:

think it's a good thing.

Brian:

I mean, Javier Millay, he advocates and is

Brian:

implementing many free market economic policies, such as radically cutting government

Brian:

agencies.

Brian:

I read the Ministry of culture, he's cut, and

Brian:

the state news services, he's cut and he's cutting, radically cutting government spending

Brian:

as well, which the government, the argentine central bank, creates a lot of money, inflates

Brian:

the money supply massively, and that's why prices have been going up so radically, I

Brian:

think somewhere in the order of maybe 300% a year or so.

Brian:

And he wants to dollarize.

Brian:

He hasn't done that yet.

Brian:

I don't know if he'll be able to do that.

Brian:

So he wants the official currency to be the US

Brian:

dollar, which I think would be extremely beneficial economically and be much more free

Brian:

market oriented.

Brian:

Even though the US dollar is a fiat currency

Brian:

compared to what Argentina has, it would be much better.

Brian:

And he wants to eliminate the central bank there in Argentina, which would be beneficial.

Brian:

Those are the sources.

Brian:

And the government's desire basically to

Brian:

provide lots of subsidies are the sources of the massive increase in the money supply.

Brian:

He's eliminated rent controls too, and many government subsidies, like fuel subsidies.

Brian:

So he's made some big changes, and even though they've resulted in short term economic pain,

Brian:

he has explained that in the long run things will get better.

Brian:

So he understands how these benefits work themselves out.

Brian:

You might not get the benefits immediately.

Brian:

Some benefits.

Brian:

I think the rate of increase in prices is starting to come down.

Brian:

So prices are still going up fairly rapidly from what I've read.

Brian:

But the rate of increase has decreased, which is a good sign.

Brian:

Interest rates have fallen, rents have actually fallen and the rental supply of

Brian:

housing has risen.

Brian:

I've read that the Argentine, and I've seen

Brian:

the argentine peso has actually appreciating.

Brian:

So he allowed it to devalue at first in the

Brian:

market because it was overly valued, but now it's actually appreciating.

Brian:

And the government has achieved its first quarterly budget surplus in 15 years.

Brian:

So he's moving them in a good direction.

Brian:

I mean, I don't agree with some of his more

Brian:

fundamental ideas like he is an anarcho capitalist.

Brian:

Anarchy in my view is incompatible with capitalism.

Brian:

But if he's not focusing on that, I mean, they have too much government to pare back, I

Brian:

think.

Brian:

So what he's doing I think is good in terms of

Brian:

reducing the size and scope and power of government.

Brian:

He opposes a woman's right to obtain an abortion, which unfortunately that fundamental

Brian:

right he opposes.

Brian:

But given the context of Argentina and the

Brian:

benefit to Argentinians and also just being able to see how these free market reforms will

Brian:

benefit Argentine, if he's able to implement significantly more of them, that will be

Brian:

beneficial for capitalism and of course for Argentina as well in the world in general.

Blair:

Agreed. Agreed.

Blair:

I think just as a broad overview, I think it's

Blair:

he and the people who voted for him against what the entrenched bureaucracy and of course

Blair:

the, the universities there.

Brian:

Right.

Blair:

So it's, it's sort of a, maybe it, hopefully it won't be a pitched battle.

Brian:

Well, but yeah, he's faced a lot of opposition, but he's able to, he's been able

Brian:

to get some things done in terms of reducing spending and departments and things of that

Brian:

nature.

Brian:

So I can talk now about my books because,

Brian:

Martin, you'd asked about what I learned from my books and really from, from all the books.

Brian:

So there's, markets don't fail, that's the first one.

Brian:

And then money banking in the business cycle that was a two volume book that's actually

Brian:

divided into two standalone books and then a declaration and constitution for a free

Brian:

society.

Brian:

One thing I learned early on, and I've applied

Brian:

that in all the books, is really to provide the clearest case for the ideas your trying to

Brian:

refute or address.

Brian:

And so I go to the sources that most clearly

Brian:

describe those ideas and I use a lot of examples and quotations from those sources.

Brian:

Sort of let people speak.

Brian:

Let the people who advocate those ideas or who

Brian:

most clearly express those ideas speak and present those ideas as much as possible,

Brian:

because that ultimately makes it easier for a writer and readers understand those ideas.

Brian:

And it makes it easier, I think, for me as a writer, to refute them, you know, like when

Brian:

you're addressing ideas concerning market failure.

Blair:

So, okay, that's good.

Blair:

That's great.

Blair:

Let me say, culturally, it seems like every economic calamity is blamed on both capitalism

Blair:

and or the lack of regulation.

Blair:

I consider this false.

Blair:

And do you also think it's false? Yes, because I think certainly the financial

Blair:

sector is the most regulated sector on the planet.

Brian:

Yeah. And that as an economist, that's one of the first areas of the economy my mind

Brian:

goes to.

Brian:

And that's what money banking in the business

Brian:

cycle focused on.

Brian:

The business cycle and recessions and

Brian:

depressions.

Brian:

And in fact, I say at the beginning of that

Brian:

book that it's really an extension of markets don't fail because it's claimed by many

Brian:

economists that recessions and depressions are a failure of the market.

Brian:

And so we need government interference in the form of a central bank or regulations of the

Brian:

banking system, or so called fiscal policy, which is taxing and spending policy by the

Brian:

government to manipulate what's happening and manipulate conditions in the economy.

Brian:

So it's claimed that markets fail when you need this government interference.

Brian:

And that was a long topic.

Brian:

I would have included it in markets don't

Brian:

fail, but it, you know, it required a book in and of itself to address, because it's just

Brian:

really not true that the market creates recessions and depressions.

Brian:

I mean, I wouldn't say you could completely eliminate recessions and depressions or the

Brian:

business cycle if we had a complete free market in the monetary and banking system.

Brian:

But we could certainly make, certainly lessen the amplitudes of the swings in the economy

Brian:

and make the business cycle on recessions and depressions much less significant if we move

Brian:

to a free market in money and banking.

Blair:

I was about to say even those, if they happened, they would be much shorter in

Blair:

duration because the mechanism is there to correction.

Blair:

It's already there.

Brian:

Right.

Brian:

And people could act very quickly.

Brian:

There wouldn't be sort of the perverse incentives created by government interference

Brian:

where, for instance, when you bail out financially troubled financial institutions,

Brian:

you perpetuate problems that exist in the economy as opposed to sort of eliminating

Brian:

those defunct companies or companies that aren't well run and allow people basically to

Brian:

get on with their lives.

Brian:

From there.

Blair:

So that to me, that's like, I'm not going to call it crony capitalism.

Blair:

I call it crony socialism.

Brian:

Right.

Brian:

I use the term crony collectivism.

Brian:

Yeah, crony capitalism is a contradiction in terms.

Brian:

Crony collectivism or crony socialism, that's a redundancy.

Brian:

But in today's, you know, intellectually corrupt environment, philosophically, you need

Brian:

those redundancy, like Ayn Rand mentioned, with individual rights.

Brian:

Well, rights themselves are only retained by the individual, but you have to use individual

Brian:

rights because of problems philosophically in our culture.

Blair:

Yes, let's take some chapter titles and go through some of those.

Blair:

What do you say now? Of course, Google now is under the antitrust

Blair:

boot.

Blair:

What do you think of antitrust laws?

Brian:

Well, antitrust laws, I mean, they create monopolies, they don't create more

Brian:

competition.

Brian:

The antitrust laws, they were created, so

Brian:

started out being created in the US, and other countries and areas of the globe have created

Brian:

them as well.

Brian:

European Union now has antitrust, various

Brian:

antitrust laws as well.

Brian:

They were a reaction, though, in the 19th

Brian:

century in the US, in part a reaction to companies growing, large corporations

Brian:

especially.

Brian:

And there was fear that this would create

Brian:

monopolies, according to one view of what a monopoly is, where you have a large seller

Brian:

that dominates an industry, and what the antitrust laws, though, end up doing is

Brian:

restricting competition.

Brian:

They prevent firms from entering or dominating

Brian:

an industry.

Brian:

And even if it's based on voluntary trade, my

Brian:

view with regard to monopoly says that, well, if you achieve your dominant position, if you

Brian:

dominate the market, but it's based on voluntary trade and your own superior

Brian:

productive ability, that's not monopoly, that's a part of competition and that's

Brian:

beneficial.

Brian:

And we see that the benefits of large, very

Brian:

competitive companies like Walmart or Google or Meta or whatever it might be, they have to

Brian:

be really competitive, develop good products or keep prices low, or some combination of

Brian:

that, and we all benefit that from that.

Brian:

That's a part of competition.

Brian:

So the antitrust laws, though, were a reaction to that.

Brian:

For instance, one of the laws, the FTC act, declared unfair methods of competition in

Brian:

commerce illegal.

Brian:

Unfair.

Brian:

It's not even defined really what's unfair.

Brian:

So some people might consider it unfair if a

Brian:

company opens up and drives you out of business through their own superior productive

Brian:

ability.

Brian:

That's not unfair, though.

Brian:

That's a part of competition.

Brian:

That's a part of production and voluntary

Brian:

trade.

Brian:

And so if the antitrust laws are used to

Brian:

restrict those kinds of companies, to restrict a Google or a Walmart or a Microsoft, or an

Brian:

IBM.

Brian:

At one time, it was used to restrict their

Brian:

competitiveness.

Brian:

They're actually creating monopoly by

Brian:

restricting competition, because monopoly in its essence, is a restriction of competition,

Brian:

and competition is basically production and voluntary trade.

Brian:

And when the laws are used to restrict superior competitors, they're restricting that

Brian:

production and voluntary trade, and that's what they're used largely to do, to restrict

Brian:

superior competitors.

Brian:

I read one time, I think I mentioned this in

Brian:

markets don't fail, that about 95% of antitrust cases are instigated, really by

Brian:

competitors or companies that can't handle the competition.

Brian:

Like for instance, with regard to the Microsoft case, they were initiated by, or at

Brian:

least instigated by some microsystems, which made it compete system, and Netscape, which

Brian:

had a competing web browser at the time.

Brian:

So now the government's usually prosecuting

Brian:

them, but the instigator, the ones running to the government for protection, are usually the

Brian:

ones that can't handle the competition.

Brian:

So they actually restrict competition.

Brian:

They initiate physical force.

Brian:

The sound view of monopoly to me is where we

Brian:

understand monopoly as the government initiating physical force to reserve a market

Brian:

or a portion of a market to one or more sellers.

Brian:

And that's what the antitrust laws do.

Blair:

Well, that's pretty thorough.

Blair:

Thank you.

Blair:

Brian.

Blair:

What does your book say about the regulation

Blair:

of safety, quality and working conditions? I mean, of course, under Biden, I think the

Blair:

labor unions are growing, and I've never been a real fan of labor unions, but maybe at one

Blair:

time, maybe at one time they had a. But I think I don't see it today.

Brian:

Yeah. And the problem I think always has been with labor unions is that they try to

Brian:

use force to achieve their ends within the market.

Brian:

So now we have in the US what's known as the National Labor Relations act, which restricts

Brian:

the ability of employers to hire outside of unions.

Brian:

It can force employers to hire union workers if a majority of workers vote to unionize in a

Brian:

work location.

Brian:

So the law in a free market, as an employer,

Brian:

if I don't want to hire union workers, and workers are just trying to agitate for a

Brian:

union, I can fire them if I want to.

Brian:

I could choose, obviously, also to deal with a

Brian:

union if I wanted to, but I could fire them.

Brian:

And you can't do that today in the US due to

Brian:

the National Labor Relations act.

Brian:

But even before the National Labor Relations

Brian:

act that was passed in the 1930s, the unions used to use the mob to use force against

Brian:

employers to try to get their way.

Brian:

So they've always used force, and that's the

Brian:

real problem I have with labor unions.

Brian:

Labor unions as such, they, they could exist

Brian:

in a free market.

Brian:

People could try, employees could try to

Brian:

unionize.

Brian:

But again, like I say, employers could fire

Brian:

the union workers if they want to.

Brian:

So there won't be this power on the part of

Brian:

unions to violate the rights of employers and non union workers as well, and initiate

Brian:

physical force.

Brian:

And that ties into regulation because that's a

Brian:

form of regulation, that National Labor Relations act, which ultimately raises costs

Brian:

to businesses because that's what it does.

Brian:

It gives unions artificial powers to negotiate

Brian:

higher wages.

Brian:

They can get higher wages for their members.

Brian:

Ultimately, that means lower wages for non union workers and higher prices, though, for

Brian:

people who are buying the goods that union workers produce.

Brian:

So it means higher costs, higher and higher prices.

Brian:

So a lower standard of living overall.

Brian:

And that's what regulation in general does.

Brian:

We don't need regulation to improve safety and the quality of products.

Brian:

I mean, that's what competition does.

Brian:

Competition sets the standards.

Brian:

And we see just all the unbelievable new products and the improvements of products like

Brian:

the iPhone, for instance, and smartphone technology in general, and computer technology

Brian:

in general.

Brian:

We didn't need regulation to improve that or

Brian:

create it.

Brian:

And regulation generally is the government

Brian:

using the initiation of physical force to achieve some end that, that politicians and

Brian:

government bureaucrats want to achieve.

Brian:

So it involves imposing requirements or

Brian:

standards that people might not want to accept.

Brian:

So regulation generally raises costs and makes it harder to produce.

Brian:

A prime example of that is in the US, the Food and Drug Administration.

Brian:

So it regulates pharmaceutical drugs, among other things, and it makes it much more costly

Brian:

to produce those drugs.

Brian:

It takes much more time than it otherwise

Brian:

would, I believe, like eight to ten years to develop a drug that you can bring to the

Brian:

market and far more money to develop those drugs.

Brian:

So you end up with a lot of drugs that are just never developed because it's just too

Brian:

expensive and the companies just don't want to spend the money.

Brian:

It's a very difficult business developing drugs.

Brian:

They often start, I've heard, with maybe 2000 chemical elements and compounds which they

Brian:

start testing.

Brian:

And then as they go through testing those

Brian:

chemicals and then perhaps testing on animals and clinical trials and so forth, they might

Brian:

whittle that down to one drug that cures some disease or helps with regard to some disease

Brian:

and of course is safe, so it's very expensive.

Brian:

And the FDA regulating safety and

Brian:

effectiveness of drugs just makes it much more expensive.

Brian:

So I've seen estimates that the FDA kills more people than it saves because of its

Brian:

regulation, because it makes things so costly.

Brian:

It keeps many drugs off the market that could

Brian:

be beneficial to people but never come to the market or are delayed in coming to the market.

Brian:

So a lot of people die or are harmed due to that.

Brian:

I think the COVID pandemic is a great example of that.

Brian:

In the US, they had mapped the DNA in early January of 2020, and we didn't have a vaccine,

Brian:

at least in the US till November of 2020.

Brian:

But they could have used that DNA knowledge

Brian:

probably to have a vaccine maybe in May of 2020.

Brian:

And so you had about a half a year where people, you couldn't generally get a hold of a

Brian:

vaccine and.

Brian:

But could have many people died, of course,

Brian:

during that time.

Brian:

And they could have been saved.

Brian:

To me, with regard to pharmaceuticals, you should be able to use them.

Brian:

You want to do that in consultation with a doctor.

Brian:

But it might be worth the risk to some people if they haven't been fully tested, to use some

Brian:

drugs and try them out if they're in a very high risk category or something for the

Brian:

disease.

Blair:

Yeah.

Martin:

And Brian, where you have your latest blog post that you talked about, you had a

Martin:

presentation regarding trade and immigration, and I could see that coming from, as an

Martin:

American in spirit, but in Sweden, regarding the, the swedish version of FDA and also with

Martin:

different supplements and also different drugs and nootropics and other things like that.

Martin:

So that getting complicated.

Martin:

And you have that, like in North America, you

Martin:

have some drugs could be legal in Canada and Mexico, but it's not okay to use them in

Martin:

America and vice versa.

Martin:

And also the prices are very regulated, so

Martin:

it's no competition between.

Brian:

Right, right.

Brian:

Yeah. I mean, it seems like a lot of drugs

Brian:

often are on markets outside the US before in the US.

Brian:

I don't know if that's generally true, but it's true with some drugs that I've heard of

Brian:

and I think could be due to the very strict requirements of the FDA.

Brian:

And that's not a beneficial thing in my view, because it's killing people.

Brian:

On net.

Brian:

More people are killed than saved.

Brian:

More people are harmed than then benefit from the FDA.

Brian:

And so on net, it's basically killing people.

Brian:

That's not beneficial at all.

Brian:

And markets like Canada, I know, yeah.

Brian:

They have a lot of price controls on their

Brian:

drugs and medicine in general.

Brian:

And so you have a lot more shortages as a

Brian:

result of that, of those drugs.

Brian:

But sometimes I've heard of people in the US

Brian:

buying drugs in kindling, but I don't know how easy that is to do, to take advantage of, of

Brian:

those lower prices.

Brian:

But I mean, the higher prices in the US are

Brian:

also due to the government's provision of healthcare.

Brian:

And that drives up demand and prices for healthcare, pharmaceuticals.

Blair:

You're right.

Blair:

Government interference.

Blair:

And the medicine is all but wiped out.

Blair:

Health care.

Brian:

Right.

Brian:

Yeah, coming worse and worse, that's for sure.

Blair:

All right, here's one of Martin and my favorite topics.

Blair:

What does the book say about environmentalism?

Brian:

Well, yeah, that's a big subject, too, as well.

Blair:

Yes, it is.

Blair:

Yes.

Brian:

So, you know, environmentalism, people, environmentalists, they basically want to

Brian:

sacrifice people to nature.

Brian:

They believe nature has intrinsic value, value

Brian:

in and of itself, apart from the value that it represents to human beings in terms of taking

Brian:

resources from nature and using those resources to produce products.

Brian:

Like using oil to produce gasoline.

Brian:

No, they want to preserve nature, preserve raw

Brian:

nature, basically, the animals, the plants, the rocks and the dirt.

Brian:

That's what they want to preserve.

Brian:

That implementing that would be in a

Brian:

consistent fashion, but it would be completely disastrous.

Brian:

I think it would lead to.

Brian:

If we had consistently environmentalist based

Brian:

government, it would lead to misery, poverty and mass murder on a scale that would make

Brian:

socialists and communists look like friends of humanity.

Brian:

But along the way here, we have a lot of regulations in our mixed economy here and

Brian:

mixed economies around the world, a lot of regulations that make it harder to produce.

Brian:

You get lots of lawsuits based on laws that exist.

Brian:

We have the Environmental Protection Agency at the federal level in the US and based on laws

Brian:

that, of course, the Congress has passed, but enforced by the EPA, and lawsuits that

Brian:

environmental activists will engage in.

Brian:

It becomes much more costly to produce goods

Brian:

to, for instance, build housing in certain areas because you'll face a myriad of lawsuits

Brian:

from environmental groups that try to restrict that.

Brian:

So in California, where I am, you have a California coastal commission which regulates

Brian:

building on the coastline.

Brian:

And it's just much more difficult to build on

Brian:

the coastline and much more expensive.

Brian:

But even if you go inland from the coast, it's

Brian:

much more difficult to build, especially when you get into less populated area, because

Brian:

they'll declare it'd be declared conservation areas.

Brian:

And so if it's any kind of an area that, where there hasn't been a lot of building, that

Brian:

environmentalists will often sue to make it harder to build in those areas.

Brian:

And, of course, the production of oil, drilling for oil is very difficult as a result

Brian:

of environmental regulations and lawsuits.

Brian:

So it harms our ability to predict, it lowers

Brian:

our standard of living as a result.

Brian:

This is all driven by that belief that nature

Brian:

has intrinsic value and the human being should be sacrificed to nature, but it's just not

Brian:

true.

Brian:

Nature has no intrinsic value.

Brian:

Nature derives its value from our ability to acquire resources from nature and produce

Brian:

goods that benefit our lives.

Brian:

And this morality of sacrifice I mentioned,

Brian:

it's a destructive code of morality.

Brian:

And I discussed that in detail in markets

Brian:

don't fail.

Brian:

If you act on altruism, the belief that self

Brian:

sacrifice is a virtue, if you act on it consistently, your own death would be the

Brian:

result.

Brian:

And to the degree that you act on it, though,

Brian:

it's going to undermine your ability to live, because it's about sacrificing to others.

Brian:

And if everybody acted on that consistently, we'd all basically destroy our own ability to

Brian:

survive and flourish.

Brian:

So it's far worse, I think, than even

Brian:

socialism.

Brian:

Because at least with socialism, there's a

Brian:

superficial appearance that people are at least sacrificing to other people.

Brian:

So it's a superficial appearance of helping, benefiting other people.

Brian:

But with environmentalism, human beings have taken it, been taken out of the picture

Brian:

altogether and sacrificing to nature.

Brian:

So that's particularly harmful and

Brian:

destructive.

Blair:

Yet it's egoism that is portrayed as walking past, drowning children with your

Blair:

nose.

Brian:

In the air.

Blair:

Instead of altruism, frankly, you can't live consistently altruistic.

Blair:

You have to.

Brian:

Yes.

Blair:

Anyway, let's go back to your book.

Blair:

What did you mean by, quote, the politics and

Blair:

economics of externalities? I'm not even familiar with that term, frankly.

Brian:

Externalities, externalities.

Brian:

Yeah. That's a chapter in the book, and it's a

Brian:

prominent theory in economics.

Brian:

So, yeah, before I can really talk about the

Brian:

politics and economics of externalities, it might help to understand what an externality

Brian:

is.

Blair:

Sure, please.

Blair:

Yeah.

Brian:

The basic idea, though, of the politics and economics is though, looking at the

Brian:

economic implications of externalities, and then how laws based on externality theory

Brian:

would be implemented through the government.

Brian:

But an externality, there are two types of

Brian:

externalities.

Brian:

There's what are known as positive and

Brian:

negative externalities.

Brian:

A positive externality is a benefit you

Brian:

receive from others that you don't pay for.

Brian:

So an example would be immunization creates an

Brian:

external effect.

Brian:

If a lot of people around you are immunized

Brian:

from some infectious disease, even if you don't receive the immunization, you're gonna

Brian:

benefit from that, because since everybody else will be less likely to get the disease,

Brian:

that means you'll be less likely to get the disease.

Brian:

So it's that positive effect from the actions of others.

Brian:

And the claim is that because of externalities, you get too few of these kinds

Brian:

of goods provided, like immunization.

Brian:

Also, you could think of like a lighthouse as

Brian:

considered to have positive externalities.

Brian:

Even if you don't pay for it, you can still

Brian:

use it.

Brian:

If you own a ship or a well manicured lawn and

Brian:

garden, you can walk by it and enjoy the beauty without having to pay for it.

Brian:

So too few of these are claimed to be provided.

Brian:

So the claim is that you need the government to subsidize the provision of these goods or

Brian:

provide them itself.

Brian:

So that's positive externalities.

Brian:

Negative externalities are a cost imposed on you by others that you're not compensated for.

Brian:

So pollution, say, from the use of the internal combustion engine or steel mills, or

Brian:

whatever it might be, that's said to create a negative externality of cost on you.

Brian:

And it's claimed too many of these types of goods are provided because the cost, the

Brian:

external cost, is said not to be accounted for.

Brian:

So the claim is by economists that you need a tax, the government, tax the activity, or just

Brian:

restrict its production.

Brian:

The claim is.

Brian:

And so you have these two types of externalities.

Brian:

The fact is, though, with regard to the economic implications, if we had to compensate

Brian:

everybody who created a positive externality and make everyone who creates a negative

Brian:

externality pay, it would lead to economic stagnation.

Brian:

We would all, for instance, have to be compensating those who come up with new

Brian:

products that are not patentable, or that you can't copyright, such as, say, the idea of

Brian:

buying goods on layaway or frequent flyer miles, or the first one to come up with the

Brian:

idea of a drive through at a fast food restaurant.

Brian:

You can't patent or copyright these types of products, but it's created a positive external

Brian:

effect.

Brian:

They do, in the sense that others can use

Brian:

those ideas, and they weren't the first one to think of them.

Brian:

So they receive a benefit for which they don't compensate the original creator of it.

Brian:

And it would just lead to a proliferation of cross payments, really, between people.

Brian:

And another example of a negative externality is the idea of the original Henry Ford, for

Brian:

instance.

Brian:

He would, according to the externality theory,

Brian:

have to compensate buggy producers and horse breeders, because he drove a lot of them out

Brian:

of business.

Brian:

People voluntarily purchased his product

Brian:

instead.

Brian:

And he made automobiles affordable for most of

Brian:

the population.

Brian:

So people were giving up their uses of horses

Brian:

and buggies, and a lot of them were driven out of business.

Brian:

So that's allegedly a negative externality.

Brian:

And again, it would just lead to stagnation,

Brian:

lead to economic regression, in fact, where we'd go backwards in terms of our standard of

Brian:

living for all these payments.

Brian:

That would have to be made.

Brian:

The only ones that might flourish are lawyers and accountants for keeping track of who owes

Brian:

what and suing people to exact payment.

Brian:

But really, with regard to externalities, the

Brian:

thing that needs to be focused on or understood is that only things that violate

Brian:

only negative externalities, that violate individual rights are the ones that people

Brian:

should be compensated for.

Brian:

And you need well defined and protected

Brian:

property rights for that, and a legal system to implement that.

Brian:

So, for instance, say a case of a rancher's cow, a strain onto a farmer's land and eating

Brian:

some of the farmer's crop.

Brian:

Well, you know, if you have a proper legal

Brian:

system that protects rights, the farmer can sue the rancher in a court to get an

Brian:

injunction imposed on the rancher.

Brian:

Or there might be voluntary agreements that

Brian:

arise.

Brian:

Maybe the rancher pays the farmer or something

Brian:

like that.

Blair:

Yes, exactly.

Blair:

I was about to say they could probably sell it

Blair:

between themselves.

Blair:

If it's just like one small incident.

Brian:

Yeah, if it's a small incident, larger incidents might be a little bit more

Brian:

difficult.

Brian:

But the focus, yeah, the focus should be on

Brian:

protecting rights, not worrying about every single external effect we have on others,

Brian:

because there's been a proliferation.

Brian:

And environmentalists use this quite to

Brian:

justify government interference, the creation of CO2, allegedly causing global warming and

Brian:

the alleged destruction that's supposed to come from that.

Brian:

They claim that's an external effect and externality of capitalism, or noise pollution

Brian:

or pollution in general, they talk about.

Brian:

But generally status, it's a very, the concept

Brian:

of externality is very status.

Brian:

Collectivist education is said to create a

Brian:

positive externality.

Brian:

So the government should provide that because

Brian:

it benefits people who don't get educated.

Brian:

If you go to get educated and you gain

Brian:

knowledge and are more productive as a result, you're going to benefit others.

Brian:

And so the claim is, well, the government should provide it then, or subsidize it.

Brian:

So there's a lot of forms of government interference that are rationalized based on

Brian:

externality theory, but they're, and just quickly on the positive side there with

Brian:

positive external effects.

Brian:

Individuals should pay others only for

Brian:

benefits that they voluntarily contract to receive from others.

Brian:

If the government has to force people through subsidies to increase the supply, that

Brian:

violates rights.

Brian:

And it's not beneficial either.

Brian:

To the extent that, you know, if people are not willing to pay voluntarily for these

Brian:

goods, then they shouldn't be provided and they're not underprovided.

Brian:

And forcing people to pay for what they don't want, that violates individual rights and

Brian:

decreases satisfaction and well being in the economy.

Brian:

And there's a lot more I could say in the book, I talk about how the concept externality

Brian:

is invalid because it lumps together these things, violating rights and protecting

Brian:

rights.

Brian:

But the only consideration in this context

Brian:

that should exist is whether or not individual rights have been violated.

Brian:

And the government should only act when rights have been violated.

Brian:

We shouldn't be looking at just whether there's an external effect.

Brian:

If that were the case, we'd also have to.

Brian:

I use an example and.

Brian:

Well, what about the external effects of plastic surgery?

Brian:

So should men be forced to subsidize plastic surgeons to do more breast enlargement

Brian:

operations? Positive effect from that.

Brian:

You know, it's just, it would be crazy, the absurdity, because it's an in.

Blair:

All right, well, I think in one of your last chapters or one of your closing chapters,

Blair:

and here's another term I'm not familiar with, what is asymmetric information and what does

Blair:

that mean?

Brian:

Yeah, asymmetric information.

Brian:

So that's, that's a topic that focuses on how

Brian:

people having different information can change their behavior.

Brian:

And it's really something that exists in the division of labor, by the nature of a division

Brian:

of labor.

Brian:

And economists will claim that we should get

Brian:

rid of asymmetric information, or at least limit asymmetric information.

Brian:

And implicitly, that's really an argument against having the division of waiver would be

Brian:

disastrous.

Brian:

But asymmetric information, it exists when

Brian:

either the buyer or the seller in a market exchange has some information that the other

Brian:

person in the transaction does not have.

Brian:

And it leads allegedly to a couple of

Brian:

problems, which, you know, it's claimed to lead to these problems, but it doesn't in most

Brian:

contexts, or some things can be done to mitigate the situation.

Brian:

So it leads to what's called adverse selection.

Brian:

When, when the parties on one side of the market who have information not known to

Brian:

others, they do what is called self select in a way that adversely affects the parties on

Brian:

the other side.

Brian:

And so there was an article called the market

Brian:

for lemons written by an economist, George Akerlof.

Brian:

And he actually won a Nobel prize for his work in this area.

Brian:

And it just, it's not a sound argument at all.

Brian:

And unfortunately, it shows the problems, the

Brian:

economic profession.

Brian:

I think he should have been laughed out of the

Brian:

economics profession, but instead he was given a Nobel prize.

Brian:

But he says that the markets for used cars would break down because of this self

Brian:

selection and this asymmetric information.

Brian:

The idea is that, well, as a buyer of a used

Brian:

car, you don't know about the quality of the cars in the market.

Brian:

So you're not going to offer as much money because of that uncertainty.

Brian:

But what happens is the claim is that that leads to sellers of the best cars to withdraw

Brian:

their cars because they're not going to get the money they think is necessary to

Brian:

compensate them.

Brian:

But that leaves more lemons or low quality

Brian:

cars in the market.

Brian:

And so that means that the buyers would offer

Brian:

even less, which again, leads to the sellers of the better cars to withdraw theirs from the

Brian:

market.

Brian:

You see where this is going.

Brian:

You'll have nothing but so called lemons or low quality cars on the market.

Brian:

And the market would allegedly break down.

Brian:

And of course we don't.

Martin:

Or you make a lemonade stand off ultra.

Brian:

Yeah, yeah, you can make that.

Brian:

That's what would happen in the market.

Brian:

Yeah, but that's not what this argument says.

Brian:

And, you know, we don't see used car markets

Brian:

break down.

Brian:

So, you know, this is a theory that just, it

Brian:

doesn't agree with the facts and it's not based on the facts of reality at all.

Brian:

There are all kinds of ways and methods you can use to determine the quality of the car.

Brian:

You're trying to buy a used car in terms of, you know, there's, well, you can drive it, you

Brian:

can even take it to a mechanic and have them inspect it.

Brian:

Or, you know, you might just look at the brand name.

Brian:

If it's a high quality type of automobile, then, you know, they tend to be higher

Brian:

quality.

Brian:

You might look at the service records.

Brian:

You know, that's, people often keep the service records for their vehicles just in

Brian:

case they want to sell it as a used car.

Brian:

And you can say, yeah, yeah, I've been doing

Brian:

regular maintenance and so forth.

Brian:

It's an argument that some economists make,

Brian:

but it's not a good argument at all.

Brian:

It also has said this asymmetric information

Brian:

is said to lead to what's called the more moral hazard problem, where one party to a

Brian:

transaction changes his behavior in a way that's hidden from or costly to the other

Brian:

party.

Brian:

So an example would be like, if you get health

Brian:

insurance, the claim is, okay.

Brian:

Now I'm not going to take care of myself as

Brian:

much because I don't have to pay for my health care.

Brian:

And again, or if you get insurance to protect your home from fire damage, oh, so I'm not

Brian:

going to be as careful about whether with the use of fire or my electrical system in my home

Brian:

because I have insurance.

Brian:

And the thing that people would act like this,

Brian:

it just makes no sense at all.

Brian:

I mean, whether you have insurance or not,

Brian:

nobody wants to go to the doctor.

Brian:

Nobody wants to get sick, nobody wants to have

Brian:

a broken leg.

Brian:

So you're still going to be careful.

Brian:

And, of course, insurance companies have ways to get you to be more careful, though.

Brian:

They will charge deductibles so that you have to pay for the first amount, maybe the first

Brian:

$1,000 in expenses or $500 in expenses, or they'll have copayments or make you pay a

Brian:

percentage, or they won't charge you at all for preventative care quite often.

Brian:

So that gives you a little incentive to do the things to prevent you from needing more

Brian:

extensive health care services.

Brian:

But it's just absurd to think that people

Brian:

would act.

Brian:

Businesses have strong incentives to get you

Brian:

to.

Brian:

To figure out what you want as a buyer and to

Brian:

get you to ways that they'd like you to act.

Brian:

So. And information, you know, because this

Brian:

asymmetric information does exist.

Brian:

Producers have specialized knowledge in the

Brian:

division of labor that consumers don't have.

Brian:

They use all kinds of means to try to show you

Brian:

that they're doing a good job through warranties and guarantees and brand name

Brian:

recognition.

Brian:

So you build a good product and a good

Brian:

reputation.

Brian:

And, you know, I know when I buy, say, a

Brian:

Toyota automobile, going to last for a long time, because they've lasted a long time for

Brian:

many decades.

Brian:

So there are all kinds of ways to provide

Brian:

information, and it's in your incentive, if you want to make more money, to provide the

Brian:

information that consumers want, because that will help get them to buy more of your

Brian:

products.

Brian:

So we wouldn't want to eliminate the

Brian:

asymmetric information.

Brian:

And the profit motive provides a strong

Brian:

incentive for people to provide or obtain information because we won't want to eliminate

Brian:

it because it would mean getting rid of the division of labor, which would be horrible for

Brian:

our standard of labor.

Blair:

Brian, great.

Blair:

I do have one final question about your book,

Blair:

and then I'd like to ask you your view or your opinion on some famous or infamous economists.

Brian:

Sure.

Blair:

All right.

Blair:

What do you hope the reader will gain from

Blair:

reading your book?

Brian:

Yeah, from reading my book.

Blair:

Yeah. Marcus, don't fail.

Blair:

Yes.

Brian:

Or any of your books reading.

Brian:

Marcus, don't fail.

Brian:

Well, focus on Marcus.

Brian:

Don't fail.

Brian:

Yes.

Brian:

Yeah.

Brian:

I think the main thing would be gaining a better understanding of economics because

Brian:

these are fallacies that exist in terms of claims that markets fail because the markets

Brian:

allegedly won't create better products and working conditions or will lead to monopolies.

Brian:

So these are all fallacies that are out there and in the mainstream, because these are a

Brian:

part of, like I say, at least one chapter in every contemporary economics book will have a

Brian:

discussion on these topics.

Brian:

And so understanding the benefits of the free

Brian:

market and understanding that not only is the free market beneficial from an economic

Brian:

standpoint, that it leads to a greater ability to produce wealth and a higher standard of

Brian:

living, but that it's morally right that it protects, or the rights of the individuals

Brian:

need to be protected to establish a free market.

Brian:

And that's a fundamental requirement of human life.

Brian:

And there's an integration between, and economics and morality and political

Brian:

philosophy here.

Brian:

What is beneficial morally in terms of egoism

Brian:

and acting in your rational self interest? When laws are implemented to protect

Brian:

individual rights, which is what is needed, that leads to beneficial economic results.

Brian:

It protects the freedom to produce and further your life and well being.

Brian:

And the opposite is true as well.

Brian:

There's an integration here between altruism,

Brian:

collectivism, or government interference, and the economic disaster that results from that,

Brian:

a much lower standard of living.

Brian:

So if you believe self sacrifice is a virtue

Brian:

and you implement laws based on that, that sacrifice the individual, the end result would

Brian:

be a socialist society, and that sacrifices people on a massive scale.

Brian:

It leads to misery, poverty and death on a massive scale, and mass murder.

Brian:

So it's no accident that you get those effects if you understand the fundamental moral issues

Brian:

at hand.

Blair:

Very good, sir.

Blair:

Very good.

Blair:

All right, let's talk about some economists that have.

Blair:

What do you think? Or who was John Maynard Keynes?

Blair:

And why are his economic ideas? Why do they seem sacrosanct or be beyond

Blair:

question today?

Brian:

Right.

Brian:

Yeah, he was a very influential 20th century

Brian:

economist, died in the mid 20th century.

Brian:

And his ideas were popular.

Brian:

They rose in popularity quite a bit during and after the Great Depression, and they're still

Brian:

extremely popular today.

Brian:

So with regard to the Great Depression, it's

Brian:

believed by many economists that his policies helped pull countries out of the Great

Brian:

Depression.

Brian:

And some even believed he saved countries from

Brian:

becoming much more socialist in the wake of the Great Depression.

Brian:

But really, I think people like him because on the surface, and many people do because he's,

Brian:

and many economists, because on the surface at least, he's not an advocate of outright

Brian:

socialism, but greater government interference in the economy.

Brian:

So he calls for greater government spending in the economy.

Brian:

He believed that, that recessions and depressions were an inherent feature of

Brian:

capitalism, and he thought that you needed more government spending to maybe not

Brian:

eliminate, but at least lessen the effects of the business cycle and recessions and

Brian:

depression.

Brian:

So he wanted more spending and government

Brian:

spending and more government controls in the economy to mitigate the effects of the

Brian:

business cycle.

Brian:

I mean, I think during the time of the Great

Brian:

Depression, so that was in the 1930s, I think many economists were not happy or

Brian:

uncomfortable with the prevailing economic views before keynes, which tended to be more

Brian:

of the classical economics, which were more free market oriented.

Brian:

So classical economists like Adam Smith or Frederick Bastiat or Jean Baptiste say tended

Brian:

to be more of an advocate of the free market, and they were uncomfortable with that.

Brian:

I think the growing tide of collectivism and Marxism was convincing people that they didn't

Brian:

like at least the free market.

Brian:

So they were uncomfortable with that, but they

Brian:

didn't like outright marxist socialism.

Brian:

And so keynes opened up the so called middle

Brian:

of the road, the mixed economy.

Brian:

He wanted more government interference, not

Brian:

complete socialism.

Brian:

But if you read his most famous work, the

Brian:

general Theory of employment, interest and money, if you read the last chapter of that

Brian:

book, he advocates pretty strongly for maybe not complete socialism, but leans fairly close

Brian:

to socialism.

Brian:

I would say he advocated for what he calls the

Brian:

euthanasia of the rent year, basically getting rid of financiers.

Brian:

He wanted a comprehensive socialization of investment, which basically means the

Brian:

government taking over investment.

Brian:

He didn't like stock markets, although he

Brian:

didn't make actually a lot of money in the stock market.

Brian:

He thought they fostered too much short term investment.

Brian:

He liked long term investment.

Brian:

So he wanted more government intervention to

Brian:

lessen the effects of stock markets, which, of course, would be disastrous.

Brian:

I mean, short term investment is extremely important to keep markets liquid, and that's

Brian:

important to give an incentive for more.

Brian:

For more capital to come into those markets

Brian:

and for businesses to be able to raise capital.

Brian:

So that would be detrimental to our standard of living.

Brian:

So that mixed economy, I would say, leaning towards socialism.

Brian:

I think that's what people like.

Brian:

And it wasn't outright socialism.

Brian:

That's what they liked during the Great Depression and that time period going up to

Brian:

world War two.

Brian:

And I think they still like it today.

Brian:

Many economists, I think the majority of economists, Keynesians and those who don't

Brian:

claim to be keynesian, they embrace many keynesian ideas because, for instance, fiscal

Brian:

policy, using taxes and government spending to manipulate what's happening in the economy,

Brian:

that's basically a keynesian type of policy.

Brian:

And most economists, even those who might

Brian:

consider themselves advocates of significant aspects of the free market, will embrace

Brian:

fiscal policy.

Blair:

So let's go to the austrian school.

Blair:

What do you think of Karl Menger and Ludwig

Blair:

von Mises? I mean, obviously unknown.

Blair:

All but unknown today.

Brian:

Yeah. Yeah. Outside of the small circles.

Brian:

Yeah.

Brian:

Great economist Carl Menger, the founder of

Brian:

the austrian school, was one of the three economists that independently identified the

Brian:

law of diminishing original utility.

Brian:

I would more appropriately call it the law.

Brian:

The law diminishing marginal value, which focuses on how prices are determined in the

Brian:

market.

Brian:

He discovered that independently.

Brian:

The other economists were Leon Valras, I think it was a french economist, and William Stanley

Brian:

Jevons was an english economist.

Brian:

They all independently discovered it around

Brian:

the late 1860s, 1870s and initiated what's known as the marginal revolution.

Brian:

But that certainly was an important discovery.

Brian:

But, yeah.

Brian:

His founder of the austrian school, he was an advocate of more limited government.

Brian:

And he was an aristotelian as well.

Brian:

If you read his book, Principles of Economics,

Brian:

the first chapter, the first sentence of the first chapter says something like, all things

Brian:

are subject to the law of cause and effect.

Brian:

I remember reading that book for the first

Brian:

time.

Brian:

That's the first sentence in the first

Brian:

chapter.

Brian:

And they're like, wow, this is going to be a

Brian:

good book.

Blair:

All right.

Brian:

Yeah.

Martin:

I listened to a cassette course on western economics with Karl Menger as one of

Martin:

them.

Brian:

So. Yeah, yeah, yeah.

Brian:

He was the founder of the school.

Brian:

And Ludwig vamises is the.

Brian:

Well, I would say in terms of developing the

Brian:

economic ideas, he was best there.

Brian:

He's probably not the most famous austrian

Brian:

economist.

Brian:

Friedrich von Hayek would be the most.

Brian:

He won the Nobel Prize.

Brian:

He wasn't as consistent of an advocate of the

Brian:

free market, of capitalism.

Brian:

Friedrich Hayek wasn't.

Brian:

But Ludwig Vamises was a very consistent advocate of the free market and developed

Brian:

through.

Brian:

He's got an enormous amount of writings,

Brian:

through his writings developed a lot of important economic truths and certainly

Brian:

deserved a Nobel prize in economics.

Brian:

Even more so, I'd say, than Hayek.

Blair:

Okay. And you mentioned basiat and Jean peptide.

Blair:

I'm starting to read more of say's work.

Blair:

Again, all but unknown.

Brian:

Right? Yeah. And unfortunately, a lot of it has to do

Brian:

with economists just ignoring the older economist, classical economists like say or

Brian:

bastiat with Amesa's.

Brian:

They reject him mainly because he's an

Brian:

advocate of the free market, I think.

Brian:

And austrian economics is, you know,

Brian:

considered a very small minority within economics, the economics profession.

Brian:

But say, yeah, a great economist as well, consistently advocated for the free market,

Brian:

but he created say's law, which is a very important economic truth.

Brian:

The idea that supply constitutes its own demand.

Brian:

And basically what that says is that it doesn't say whatever.

Brian:

It does not say whatever you bring to the market, whatever the supply of goods you bring

Brian:

to the market people will buy it.

Brian:

It doesn't focus on the individual level.

Brian:

So if you try to sell a bikini in Alaska in the middle of winter, that's not going to

Brian:

create demand for your product.

Brian:

But what it does say is that in order to have

Brian:

more real aggregate demand, so demand at the level of the economy as a whole, you need more

Brian:

supply.

Brian:

That's the important truth that he identified.

Brian:

And so, yeah, certainly a very, very good economist and Frederick Bastiat as well.

Brian:

So both, he's a french classical economist.

Brian:

He was an advocate of the free market and

Brian:

wrote economic sophisms.

Brian:

Was an important essay showing the benefits of

Brian:

free trade and the fallacies of the people embraced during his time when they tried to

Brian:

argue against free trade.

Brian:

And so he's known for that.

Brian:

But he's also known for an essay that he wrote on what he called the seen and the unseen and

Brian:

known also, he referred to it as the broken window fallacy, the idea that destruction can

Brian:

stimulate an economy.

Brian:

He said, well, you have to look at what is

Brian:

seen and unseen.

Brian:

So if somebody breaks a store owner's window,

Brian:

people see the glassmaker coming, replacing the window and so forth.

Brian:

And they say, see, it stimulated the economy because there's more work for the glassmaker.

Brian:

But what they don't see is they don't see perhaps the tailor, the suit maker, who has

Brian:

less work.

Brian:

So he's twiddling his fingers in his shop,

Brian:

because now the store owner who had his window broken, he was going to buy a new suit, but

Brian:

now he had to pay for this broken window, and he doesn't have the money any longer to

Brian:

purchase the new suit.

Brian:

So there's no, you know, destruction, he said.

Brian:

And I can't remember, I can't quote him, but destruction, he said, doesn't create

Brian:

prosperity.

Brian:

It doesn't stimulate the economy.

Brian:

You may create more business for one group or one person, like the glassmaker in the

Brian:

economy, but you reduce business and demand for other products, like with regard to

Brian:

detailer or the soup maker.

Brian:

And that's an important truth to identify.

Brian:

It's an important method of thinking because I would say many economic fallacies are embraced

Brian:

by people who don't understand this broken window fallacy.

Brian:

And that's why with virtually every economics class I teach, I start out with talking about

Brian:

that broken window fallacy.

Brian:

I use Henry Hazlitt's presentation in this

Brian:

book, Economics in one lesson.

Brian:

But he got it from Bastiat.

Blair:

I see.

Blair:

I forgot to mention Hazlitt in my notes to

Blair:

you.

Brian:

Yeah, he's a great.

Brian:

There are a lot of economists.

Brian:

Yeah, we could talk about.

Blair:

Yeah, he has wrote a refuted Keynes.

Blair:

I forget the name of that book, but.

Brian:

Yeah, I can't remember the name of that book.

Brian:

I did read that extensively.

Brian:

He has almost a line by line refugee, right?

Brian:

Yes, very comprehensive.

Blair:

Finally, I want to ask you about someone you may know personally, George

Blair:

Riesman.

Brian:

Yes, I do know him personally and I have him to thank for gaining an interest and

Brian:

I can, and becoming an economist.

Brian:

And he is a great economist and certainly

Brian:

deserves a Nobel prize in economics.

Brian:

Although unfortunately I know he will never

Brian:

win one.

Brian:

But yeah, certainly he has identified and

Brian:

developed many important economic truths in his book capitalism, a treatise on economics.

Brian:

And he's got some other writings to essays and some other short books though that he's helped

Brian:

me just in an unbelievable fashion, understand economics, but just some of the truths that he

Brian:

has identified.

Brian:

For instance, his identification of what he

Brian:

calls the primacy of prophets doctrine, and his critique that he provided of what's known

Brian:

as the primacy of wages doctrine.

Brian:

So this is an idea that Adam Smith first wrote

Brian:

about.

Brian:

The claim is that wages are the original and

Brian:

primary form of income in a primitive society, what would be called a pre capitalist society.

Brian:

And Marx latched onto that and used that, in part at least, to claim that's an

Brian:

identification of how capitalists exploit workers.

Brian:

Because wages were the primary and original form of income, and profits are taken from

Brian:

wages.

Brian:

And so that's one way that capitalists

Brian:

allegedly exploit workers.

Brian:

And Reisman identified that.

Brian:

No, it's not true.

Brian:

Weight or profits are the primary and original

Brian:

form of income.

Brian:

Because before capitalism, before there's any

Brian:

capital, there's no costs in the economy.

Brian:

There's just people appropriating things from

Brian:

nature and selling them.

Brian:

And what they receive is all revenue.

Brian:

And because there's no cost, the revenue equals the profits.

Brian:

So all the income they receive is profits.

Brian:

And so it's not the case that wages are the

Brian:

primary and original form of income.

Brian:

And.

Brian:

And profits are not deducted from wages.

Brian:

In fact, it's the other way around when a

Brian:

business owner or somebody starts to become a capitalist and they start to hire workers.

Brian:

Now wages are deducted from what was all profits originally.

Brian:

And so to me that's just from an economic standpoint, that's an extremely important

Brian:

identification.

Brian:

His net consumption, net investment theory of

Brian:

profits, which shows that the profits at the aggregate level come from the consumption of

Brian:

capitalists.

Brian:

Because that's the only spending that really,

Brian:

or one of the few forms of spending that doesn't show up as a cost to businesses.

Brian:

And so he's not saying that, well, we need more consumption to have a higher standard of

Brian:

living.

Brian:

He's just identifying the accounting at the

Brian:

aggregate level, the level of the economy as a whole, of where profits come from.

Brian:

And that's just it enables one to have a much better understanding at the aggregate level of

Brian:

what's happening in the economy, obviously, at the individual level.

Brian:

He even discusses this in detail in relation to this net consumption, net investment theory

Brian:

of profits.

Brian:

That it's producing good products, working

Brian:

hard, building a good business.

Brian:

That's what generates profits for the

Brian:

individual business.

Brian:

But in terms of the accounting at the level of

Brian:

the economy as a whole, it's consumption on the part of capitalists through, say,

Brian:

dividends or withdrawals from their business.

Brian:

And that ties into his.

Brian:

I'll just discuss one that there's so many I could discuss.

Brian:

But one last important identification.

Brian:

His aristotelian system of aggregate economic

Brian:

accounting, which he calls the gross national revenue view of accounting, which is compared

Brian:

to what he calls the heraclesian view of aggregate economic accounting, which is what's

Brian:

widely accepted today.

Brian:

The gross domestic product view of economic

Brian:

accounting.

Brian:

He shows the problems with the gross domestic

Brian:

view of economic accounting.

Brian:

And puts forward his own gross national

Brian:

revenue, or what could be called gross domestic revenue view of keeping track of

Brian:

spending in the economy.

Brian:

And it relates to his theory of profits.

Brian:

He's had many, many ideas that were original with him, or some were original with others.

Brian:

But he developed them in a much more comprehensive and cogent fashion that, yeah, I

Brian:

owe him for my career in economics.

Brian:

Really.

Blair:

William, thats wonderful.

Blair:

Thats wonderful, Brian.

Blair:

My final question is hopefully a very simple one.

Blair:

Is the stock market a casino?

Brian:

It most definitely is not a casino.

Brian:

It's not about gambling.

Brian:

It's not about.

Brian:

I mean, there is certain risk involved,

Brian:

obviously, but gambling or a casino is just about transferring money.

Brian:

Usually transferring money to the house.

Brian:

Because the odds are in the house.

Brian:

They need to make money as a business.

Brian:

They need to be, you know, earn money for

Brian:

their owners or shareholders.

Brian:

But the gambling part itself is just

Brian:

transferring money in that sense.

Brian:

With a casino, the money you lose is kind of

Brian:

like paying for the pleasure of the experience of gambling and the possibility of maybe

Brian:

winning.

Brian:

But the stock market, it's about raising

Brian:

capital.

Brian:

So equity capital specifically, which is

Brian:

extremely important for businesses.

Brian:

Without stock markets, it would be much harder

Brian:

to raise capital.

Brian:

So it's about producing wealth ultimately.

Brian:

And it makes it possible for businesses to gain access to capital in a far less expensive

Brian:

fashion.

Brian:

Far easier fashion, and that increases the

Brian:

ability to produce wealth.

Brian:

So businesses can make ipos initial public

Brian:

offerings in the market, and that's how they raise the capital from shareholders.

Brian:

Then they can use that capital to produce.

Brian:

And then, of course, most of the trading takes

Brian:

place in what is known as the secondary market in the stock market.

Brian:

So it's not the businesses issuing ipos, but it's people who already own the stock buying

Brian:

and selling the stock from each other or selling it to each other.

Brian:

And that, of course, is extremely important to create liquidity in the market.

Brian:

And it makes it possible for more funds to be invested in the market, because you need that

Brian:

liquidity.

Brian:

If you're, say, a retiree and there was no

Brian:

stock market, but you own shares in some company, well, it might be difficult to sell

Brian:

those shares now with a very liquid stock market.

Brian:

If you're a retiree, you might need money to spend.

Brian:

You can easily sell those shares and then live off that money.

Brian:

So a very liquid and that short term investing that McCain's hated is extremely important to

Brian:

creating that liquidity, and it brings far more capital to the market than otherwise

Brian:

would exist.

Brian:

And it just dramatically increases the

Brian:

productive capability.

Brian:

It dramatically increases the capital

Brian:

intensity of our economy, which is extremely important for production and our standard of

Brian:

living.

Martin:

And as an endnote there, here we are, traders in matter and spirit.

Martin:

And if you get some insight for this conversation and great knowledge of Brian

Martin:

Simpson here, and also if you think maybe this watch and listen to this 1 hour plus minutes

Martin:

of conversation, if maybe that's worth similar to go have a night out at the casino, you

Martin:

know, that you could support us in going to the support page here on captivate hosting,

Martin:

and you could send donation.

Martin:

And also from last time you were here some

Martin:

years ago, Brian, I think, looked at the stats, and it was like 185 downloads or

Martin:

individuals that could have been listened to that podcast and earned value from that.

Martin:

And then we talked about Fountain app, and we gave away, thanks to a fountain app, 50,000

Martin:

satoshis.

Martin:

And thanks, Brian, that you have signed up for

Martin:

account on Truefans FM.

Martin:

So we could give you a split tier when we

Martin:

published the episode.

Martin:

So when people streaming Satoshis, listening

Martin:

to the podcast, or sending a digital telegram with a booster and a note, you could get the

Martin:

split of it, and then we could continue with this work with this podcast and create more

Martin:

supply of, you know, episodes from the Foxhole, the secular Foxhole.

Martin:

So thanks again, Brian.

Brian:

Thank you.

Blair:

All right, ladies and gentlemen, we've been having a great discussion with Brian

Blair:

Simpson.

Blair:

Author of Markets Don't Fail and economics

Blair:

professor at national university.

Blair:

Brian, thanks for manning the foxhole with us.

Brian:

Thank you.

Brian:

It's a pleasure.

Martin:

Thank you very much.

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