Episode 84

A Conversation with Brian P. Simpson on Why Markets Don't Fail

Published on: 17th May, 2024

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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Transcript
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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About the Podcast

The Secular Foxhole
Separation of Religion and State
As a freethinker, are you looking through binoculars out at the world in the safety of a foxhole? Get fuel for your soul and intellectual ammunition by listening to The Secular Foxhole podcast, in order to fight for the separation of religion and state.

Blair chose this name (The Secular Foxhole) to dispute the myth that there are no atheists in foxholes, but also as a place to share ideas and defend Free Speech. The co-hosts both advocate the separation of Church and State, but also Economics and State. In short, Liberalism, Individualism, and Capitalism.
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About your hosts

Blair Schofield

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I'm a 'lapsed' blogger who turned his blog into a podcast. Now the task is to keep both up to date! My co-host Martin Lindeskog and I have already celebrated our one year anniversary, with the podcast.

Martin Lindeskog

Profile picture for Martin Lindeskog
Creator, ✍🏻 Tea Book Sketches. Indie Biz Philosopher ⚛️ & New Media 📲 Advisor, TeaParty.Media. Blogger since 2002 and podcaster🎙since 2006. First podcast: EGO NetCast. Latest podcast: High Five for Hemp. Support 💲My Work and 🗽 Freedom of Expression: https://bio.link/lyceum