Speaker 1: A lot of the foals of woe.
Speaker 2: And an individual loss.
Speaker 1: This is the show, all right, everybody, welcome to your
Speaker 1: one book show on this Monday, July fourteenth. Have an
Speaker 1: exciting interview for you today. I'm really looking forward to this.
Speaker 1: We're be talking to Nobot Michelle, who is at the
Speaker 1: is the vice president and director of the Cato Institute
Speaker 1: Center for Monitoring Financial Alternatives. I think I first met you,
Speaker 1: I don't know, on a bus at montpello In, you
Speaker 1: at the Cato institutent you at Heritage in those days.
Speaker 2: I think it was a plane, but it could be
Speaker 2: a plane. It could have been of us.
Speaker 1: But yeah, something like that. I think Mont Parlamin was related,
Speaker 1: something like that. But but this is great, I mean,
Speaker 1: following following your work for years. You know, I'm interested
Speaker 1: in finance and and you've you've written a lot of
Speaker 1: really really important stuff on financial regulations over the last
Speaker 1: long time. Yeah.
Speaker 2: I don't know about how important it's been, but it's
Speaker 2: been a lot of years.
Speaker 1: No, it's important. I don't know how, let's let's put
Speaker 1: it this way, how much impact it's had, sadly, but
Speaker 1: but yes, it's it's important. Uh, And it should have
Speaker 1: a lot more impact. So you've got a new book
Speaker 1: out and it's uh, Marching capitalism. Yeah, why do I
Speaker 1: have the wrong book?
Speaker 2: Up? Can you buy you?
Speaker 1: It's got financing Opportunity.
Speaker 2: That's the other one.
Speaker 1: Okay, I didn't I didn't realize you had that one
Speaker 1: as well. All right, So to books financing opportunities. The
Speaker 1: financial markets have fueled American prosperity for more than two centuries. Okay,
Speaker 1: that one I have to get. I've got the other
Speaker 1: one already. I need to get this because I love
Speaker 1: this topic. That'd be great. I'll just download it on
Speaker 1: Kindle because you know, the fewer books I have, the
Speaker 1: better in terms of bookshelf space. But the other one
Speaker 1: is rushing capitalism, how populist policies are threatening the American dream,
Speaker 1: which is very very relevant right now, and we're constantly
Speaker 1: discussing it on our show. I had Scott Lindsey him
Speaker 1: on the show last week. So this is this is
Speaker 1: the whole Trump administration, MAGA populism left and right really
Speaker 1: is a big issue. So tell us what motivated you
Speaker 1: to write this book? Because you have been doing mostly
Speaker 1: financed stuff, So so why why this?
Speaker 2: Yeah, it's a little bit of a change for me. Yeah. Uh.
Speaker 2: I Actually the motivation for this actually started when I
Speaker 2: was still at Heritage, you know. I at some point
Speaker 2: I went from being just research fellow to being put
Speaker 2: in charge of our center for Data analysis over there, Okay,
Speaker 2: data for data. So I was sort of in charge
Speaker 2: of the empirical economics piece, and we started getting asked
Speaker 2: to defend or to discuss this idea about income stagnation.
Speaker 2: And that was the first time. This is way before Trump. Yeah,
Speaker 2: and I started thinking, well, what stagnation?
Speaker 1: What well this and this was a story that came
Speaker 1: out of the left, because I remember debating this during
Speaker 1: the financial crisis. People would say, economy, you know, people
Speaker 1: are stagnation in the seventies, and it was all leftist
Speaker 1: economists would talk about that.
Speaker 2: That's right, that's right. And then the rights started picking
Speaker 2: it up as the sort of premise for yeah, we
Speaker 2: need to do more to colm that free trade and
Speaker 2: whatever China and and you know, all these things. So
Speaker 2: it was sort of in the background though, and and
Speaker 2: then as Trump won, really after Trump won, it became
Speaker 2: much more prominent and I I sort of started putting
Speaker 2: all this stuff together and I really didn't have a book.
Speaker 2: I had just this giant pile of stuff, you know,
Speaker 2: and then long story short, that just kept going in
Speaker 2: terms of that that that thing, that theme on the left.
Speaker 2: You started seeing it more and more and more and more,
Speaker 2: and you know, I just I got really tired of it.
Speaker 2: And the motivation for me was that's that's not true,
Speaker 2: that that stagnation story is just wrong, and that free
Speaker 2: market paradise story is also wrong. And I don't really
Speaker 2: like people using data to lie about things. So you know,
Speaker 2: that was kind of that. That was my motivation for it.
Speaker 2: And I was lucky enough that a Cato, you know,
Speaker 2: it was sort of like, yeah, okay, we could do it,
Speaker 2: and so I was able to do it along with
Speaker 2: my other stuff, but still got that one out that
Speaker 2: just went out.
Speaker 1: So it's part of the motivation for leaving heritage, the
Speaker 1: fact that they went the populist route and away from
Speaker 1: kind of a defensive markets.
Speaker 2: I mean, I had a great, great opportunity to come
Speaker 2: to Cato, and I wouldn't change my decision for a
Speaker 2: million years, but but yeah, that certainly was on my mind.
Speaker 2: I'm glad that I'm here now because I really that
Speaker 2: that would have just clashed. You know that that whole
Speaker 2: thing clashes with my worldview, my philosophy what I like
Speaker 2: to think of as what I've studied for a very
Speaker 2: long time, you know, And and it gets to the
Speaker 2: core of what is capitalism, what is free enterprise, what
Speaker 2: is socialism? How much government involvement should we have? And
Speaker 2: that whole thing is just not lined up with my
Speaker 2: way of thinking at all. So I'm very lucky to
Speaker 2: be here and stick to my principles.
Speaker 1: Yeah, maybe talk a little bit about this mythology and
Speaker 1: what the truth is. You know, how do they come
Speaker 1: up with it? And then you know, how do they
Speaker 1: make such a big mistake if you will?
Speaker 2: Sure, well, it's sort of dependent on you know, who's
Speaker 2: saying it and when. So Orn Cass is a great example.
Speaker 2: He came out with that book, The Once in Future Worker,
Speaker 2: and that's when it really picked up at Heritage, and
Speaker 2: you know, if you go in there, you'll find a
Speaker 2: very very specific claim of income stagnation and it's from
Speaker 2: nineteen seventy five to twenty fifteen, and it's the wages
Speaker 2: of non supervisory workers and has adjusted with the consumer
Speaker 2: price end. And basically, if you take that exact same
Speaker 2: data series, and even if you just adjust it the
Speaker 2: way he adjusted it for inflation, it turns out that
Speaker 2: nineteen seventy five is the problem. In other words, if
Speaker 2: you pick nineteen seventy five's that gives you the lowest
Speaker 2: possible growth rate that you could have picked between nineteen
Speaker 2: sixty four and I think the year two thousand. So
Speaker 2: it whether they did it on purpose or whether it's
Speaker 2: a coincidence, you know, I'll let people decide, But that
Speaker 2: is my definition of some sort of cherry picking, even
Speaker 2: if it's by accident. In other words, what you have
Speaker 2: to do to get a stagnant line is you have
Speaker 2: to either have biased the dates, the inflation adjustment, or
Speaker 2: the income measure itself in some way. Because if you
Speaker 2: don't do that, if you just pick, you know, basically,
Speaker 2: ninety nine out of one hundred ways show a lot
Speaker 2: of income growth between nineteen seventy and now, and even
Speaker 2: before COVID, you know, just if you could want to
Speaker 2: cut it off before COVID. Yeah, and there's like one
Speaker 2: way that you can find, you know, that shows stagnant income,
Speaker 2: and that's the one that they pick, you know, But
Speaker 2: I mean, you can look at household income. You can
Speaker 2: look at median personal income, you can look at total
Speaker 2: compensation indexes, you can look at consumption measures. You can
Speaker 2: do this twenty different ways of the Sunday, and you
Speaker 2: know you're only going to find one way that shows
Speaker 2: that it's stagnant. And what that means is that the
Speaker 2: bulk of the evidence does support an enormous amount of growth,
Speaker 2: not just a little, you know, a lot.
Speaker 1: So we're a lot richer than we used to be.
Speaker 2: Incredibly so if you look at households and say, like
Speaker 2: households that earn more than one hundred thousand dollars, that
Speaker 2: number more than more than tripled from nineteen seventy on
Speaker 2: up to twenty nineteen. And if you look at the
Speaker 2: share of households earning less than thirty five thousand dollars,
Speaker 2: that share went down. So it's not that people drop down,
Speaker 2: it's that everybody, a lot of people dropped up. You know.
Speaker 1: So the middle class is shrinking, but the shrinking because
Speaker 1: they're getting rich rich.
Speaker 2: That's right, We're going to have to readjust the definition
Speaker 2: of middle class if we're not careful. Yea, because because
Speaker 2: so many people have done so much.
Speaker 1: Better, and of course a lot of the story, particularly
Speaker 1: coming out of Piquette and the whole inequality literature, is that, yeah,
Speaker 1: the top of the distribution has done phenomenally well, but
Speaker 1: put people that you know, put people, they're the ones
Speaker 1: who have really taken a hit since the nineteen seventies, right.
Speaker 2: And that's not true either. You know, we we do
Speaker 2: see a lot of that with the picketty stuff, and
Speaker 2: then you we would see that coming out of the
Speaker 2: left for a while there, and then the rights started
Speaker 2: picking that up as well. But if you look at
Speaker 2: the data sets that follow the same individuals over time, again,
Speaker 2: you see a lot of growth. You see a lot
Speaker 2: of phenomenal things. For example, about three fourths a little
Speaker 2: more than three fourths over the last five decades, a
Speaker 2: little more than three fourths of all the households spent
Speaker 2: at least one year in the top twenty percent at
Speaker 2: least one and less than ten percent spent more than
Speaker 2: one year in the bottom ten percent. This is a
Speaker 2: really small share. So it's just not true that we
Speaker 2: have these polar classes. You know, there's an enormous amount
Speaker 2: of income ability across those groups, a lot of people
Speaker 2: moving up, and if you stay away from that and
Speaker 2: you just look at the census data, so you're not
Speaker 2: following the same people. Again, outside of the two thousand
Speaker 2: and eight recession, you see most of the income growth
Speaker 2: for the groups that were in the lower end of
Speaker 2: the income distribution. You saw a lot of growth in
Speaker 2: the bottom ten, twenty, and thirty and forty percent, in
Speaker 2: many cases more than you saw at the top bend.
Speaker 1: So what do you think motivates? Because because the data
Speaker 1: is I mean, I agree with you. The data is
Speaker 1: pretty clear, and you can spice it and dice it
Speaker 1: in lots of different ways. And the left had a
Speaker 1: particular agenda that they were pushing, and this was consistent
Speaker 1: with that agenda. So I get it they bused everything
Speaker 1: towards that agenda. But what happened on the right that
Speaker 1: made this It made them kind of kind of switched.
Speaker 1: They used to defend, No, things are going pretty well.
Speaker 1: I don't know, Okay, I don't know.
Speaker 2: So like so there's there's a there's a wide swath
Speaker 2: of people on the right. Right in my experience, especially
Speaker 2: at Heritage, you know, or in CA was somebody that
Speaker 2: nobody ever talked about, and then he was there. So
Speaker 2: I don't know what motivates him.
Speaker 1: You know.
Speaker 2: Uh, there were certain people and I won't name names,
Speaker 2: but there were certain people who liked that story because
Speaker 2: they were able to say, well, the problem is immigration.
Speaker 2: We've we've let in so many immigrants and we have
Speaker 2: to clamp down on immigration. There were other people who,
Speaker 2: you know, saw it as an opportunity to win in
Speaker 2: the sense of we who I never thought I was
Speaker 2: a part of. You know, we need to win. And
Speaker 2: Trump is anti trade and look lokid free trade did
Speaker 2: to the rust belt, you know, so we need to
Speaker 2: we need to have we need to pound that and
Speaker 2: and and talk about how Yeah, maybe maybe free trade
Speaker 2: is not so great anymore, you know, maybe we need
Speaker 2: to be careful. Maybe it's needs to be sensible. And
Speaker 2: there were a lot of people who I think were
Speaker 2: anti China, you know, just broadly speaking. Uh, this there
Speaker 2: this geopolitical foe, and they're doing industrial policy and if
Speaker 2: we don't do industrial policy, we're not going to be
Speaker 2: able to keep up whatever the hell that means.
Speaker 1: Yeah, let's mimic them. We don't like them, so let's
Speaker 1: let's let's mimic them, right.
Speaker 2: Right, Yeah, But they would use the they would use
Speaker 2: the stagnation stuff, you know, as a way of justifying that.
Speaker 2: So there's different groups. Yeah, I think there's a lot
Speaker 2: of a lot of different things going on there.
Speaker 1: I think, I mean, they all seem to share a
Speaker 1: common feature of they somehow want to increase the power
Speaker 1: of US central government. Yeah, and this is a excuse
Speaker 1: to do that.
Speaker 2: Yeah. Yeah, you know, And and I'm sure some of
Speaker 2: it is the sort of just you know, basic power
Speaker 2: DC power hungry sort of mindset.
Speaker 1: So so one of the arguments they make, of course,
Speaker 1: is and Trump makes and and uh I think has
Speaker 1: resonated is about industrial jobs and and uh, you know,
Speaker 1: we've lost and you you talk about this in the book.
Speaker 1: We've lost industrial jobs with de industrializing. We need to
Speaker 1: re industrialize. And again this is for years a talking
Speaker 1: point from the left, and they kept talking about this
Speaker 1: and and promising one day the jobs will come back.
Speaker 1: And I think the political gimmick is that Trump figured
Speaker 1: out that he could get votes by stealing that and
Speaker 1: and claiming to be more serious about it. So well,
Speaker 1: what is the truth about the industrialization?
Speaker 2: And and and and you know, I think it's I mean,
Speaker 2: you're right, the left did do that for a very
Speaker 2: long time. I think it's also uh important for people
Speaker 2: to remember that there was a faction. There has always
Speaker 2: been a faction on the right who was sort of
Speaker 2: doing the same thing like yeah, Ross Bureau. So there's
Speaker 2: so that that that was certainly always kind of there,
Speaker 2: you know. And but but the truth then and the
Speaker 2: truth now you know, is that it wasn't because of
Speaker 2: free trade or globalization necessarily, right, it was it was
Speaker 2: really a productivity story. You can see it, you know,
Speaker 2: basically depending on exactly where which which data set you
Speaker 2: want to use, you can go back to like pre
Speaker 2: nineteen hundreds, you can go back to nineteen twenty. You
Speaker 2: can basically look at the most consistent data set you
Speaker 2: can get at nineteen forty three, and you can see
Speaker 2: service sector jobs becoming a bigger share of employment while
Speaker 2: manufacturing is dropping. And to say, and it was even
Speaker 2: steeper with agriculture, you know, and that going on for
Speaker 2: even longer. Yeah, and then so you know that again
Speaker 2: in the forties, so that has absolutely nothing to do
Speaker 2: with China or to or anything like that. And you
Speaker 2: could even take the data, say like the employment data
Speaker 2: and cut it off at nineteen eighty, so all those
Speaker 2: trends that took place between nineteen forty and nineteen eighty,
Speaker 2: and you can just do a simple linear projection and
Speaker 2: you basically nailed manufacturing employment. Yeah. So if the China
Speaker 2: stuff was so important and the NAFTA stuff was so
Speaker 2: important for jobs, just for jobs, you wouldn't be able
Speaker 2: to do that, you know, but you can. You can
Speaker 2: do it for labor force participation as well.
Speaker 1: So conquitise kind of make you what it means productivity gains.
Speaker 2: What does that mean we can make a lot more
Speaker 2: stuff with a lot fewer people. I mean, it's really
Speaker 2: just that simple. You know, if you look at something
Speaker 2: like steel, you know, basically nineteen seventy one worker would
Speaker 2: take hours and hours and hours to produce a ton
Speaker 2: of steel, and now it's close to a half an
Speaker 2: hour to produce a ton of steel. If we tried
Speaker 2: to have as many people working in the steel industry
Speaker 2: as we did, you know, say like in nineteen seventy,
Speaker 2: we would be producing enough to supply the world with steel,
Speaker 2: you know, even more or roughly on par rith or
Speaker 2: about the same roughly as what we were doing at
Speaker 2: the end of World War Two, when the industrial world
Speaker 2: had been destroyed. So I mean it's so like so
Speaker 2: that you know, just everybody like that's that doesn't that
Speaker 2: wouldn't make sense, right, Like, that's not it's just not
Speaker 2: where we are anymore. Stanley Tools, you know, you can
Speaker 2: like there's there's stories in the Wall Street Journal. They
Speaker 2: have a new facility in North Carolina. They drop down
Speaker 2: from having over thirty to forty people on an assembly
Speaker 2: line to maybe like ten, and they're talking about it
Speaker 2: in the next generation will have maybe two. Yep. Now,
Speaker 2: every single thing that we manufacture across the entire world,
Speaker 2: mind you, not just in the United States is like that.
Speaker 2: And that's a good thing. It's a very good thing.
Speaker 2: That's how that is the definition of becoming richer. But
Speaker 2: it does mean that you will have fewer jobs to
Speaker 2: produce certain things. I mean, that's just that is the
Speaker 2: way that works. And unfortunately that's like a historically that's
Speaker 2: always been a thing, right you think of like Paul Bunyon,
Speaker 2: the lore of Paul Bunyon and Patrick Henry in the
Speaker 2: United States, you know, with the hammer trail, yep. I yeah,
Speaker 2: you're going to have fewer people that have to chip rocks,
Speaker 2: you know. I mean, if you don't want to chip rocks,
Speaker 2: then that's good.
Speaker 1: Yeah, so there's something super attractive about chipping box for
Speaker 1: some reason.
Speaker 2: I don't know. Yeah, yeah, it's done it before, even
Speaker 2: with the machine. I don't really want to do it
Speaker 2: that much.
Speaker 1: Not fun at all.
Speaker 3: I mean, there's this nostalgia to a world where we
Speaker 3: all worked in machines and worked with muscle, whereas progress
Speaker 3: has basically led us to work one with our minds,
Speaker 3: which is you would think, is progress.
Speaker 2: Yes it is, you know that's I mean, if if
Speaker 2: we wanted to go and say well no, no, no, no,
Speaker 2: the thing that's important is that everybody has jobs, well
Speaker 2: we could we could do that right away, right We
Speaker 2: could outlaw machines, could outlaws shovels. I think I was
Speaker 2: a Midlton Friedman example. You know, why are you digging
Speaker 2: with the machines or shovels. You should just dig with spoons.
Speaker 2: We'll have a lot more jobs. You know, nobody wants
Speaker 2: to be in the fields all day. That was back breaking.
Speaker 2: That was a very difficult way of life. And we
Speaker 2: were poor. We were literally impoverished. And you know the
Speaker 2: flip side of that is that you have everybody has
Speaker 2: to do something to set themselves up to take advantage
Speaker 2: of the new opportunities. You know. But that's okay, because
Speaker 2: that's that and that has been happening. That doesn't mean
Speaker 2: that everybody is a millionaire, yep, But that's never going
Speaker 2: to happen that way. The numbers simply bear out that
Speaker 2: everybody is on hold much better off. Our standard of
Speaker 2: living is so high across the board, even for the
Speaker 2: people among us who are on the lower sides, lower
Speaker 2: rung of the income distribution, have a lot more opportunity,
Speaker 2: have a lot more amenities, have a much easier life,
Speaker 2: you know, than we did in say, like nineteen hundred
Speaker 2: and nineteen forty, even so even nineteen seventy.
Speaker 1: And it's not like we've had these massive unemployment rates.
Speaker 1: I mean, it's not like people last stage jobs and
Speaker 1: didn't find anything to do, and they found some stuff
Speaker 1: to do that pays more, that's right.
Speaker 2: The numbers of people who who lose it, who are
Speaker 2: displaced by a trade shock or some other shock, right
Speaker 2: and have to get a new job. The share that
Speaker 2: are not able to get a job earning at least
Speaker 2: is at least is what as much as they earned
Speaker 2: before or more has also been declining steadily, so we've
Speaker 2: been trading more and that share has also been declining.
Speaker 2: So it went from being I think it was about
Speaker 2: in the nineteen seventies only about a third of the
Speaker 2: people who lost their job could get an equal or
Speaker 2: higher pain, and now it's more than half. Yeah, I mean,
Speaker 2: that's why we're trading more, importing more.
Speaker 1: Yeah, I mean because we have the ability to trade,
Speaker 1: because we have the money to trade, and they want
Speaker 1: they want the money to invest in the United States.
Speaker 2: That's right.
Speaker 1: Yeah, I mean people think of trade, people think of
Speaker 1: service jobs. The sovice economy as McDonald's and McDonald's is fine,
Speaker 1: but the reality is, like Apple is service jobs, right,
Speaker 1: I mean, Google's service jobs is.
Speaker 2: So much more. Yeah, it's so much more. And it's
Speaker 2: service jobs broadly have been an incredibly important part of
Speaker 2: the US economy really from the beginning, you know, if
Speaker 2: you go back all the way to just after the
Speaker 2: Civil War, as we started to industrialize, uh, service jobs
Speaker 2: were taking off, and we're a big share, and it
Speaker 2: just kept growing and they've always been growing. It's it's
Speaker 2: it's it's definitely not just one type. It's an incredible
Speaker 2: array of diverse activities that do not require you to
Speaker 2: stand on an assembly line.
Speaker 1: So what happens with all these toasts? Do you have
Speaker 1: any sense of, you know, what happens to the US economy?
Speaker 1: Where do we go from here? Because it looks like
Speaker 1: Trump is not backing down. It looks like he's excuse me,
Speaker 1: he's serious about this, and it's.
Speaker 2: Been uneven sort of the application, right, so some on
Speaker 2: some off and exemptions, and so I don't, I don't,
Speaker 2: but but in general, it doesn't look like he's backing down,
Speaker 2: and that's incredibly unfortunate because you know, this is however
Speaker 2: you want to cut this and sell this if you're
Speaker 2: the Trump administration, Okay, fine, But the truth is, this
Speaker 2: is just a tax, and the higher you make it,
Speaker 2: the more of an impact you're going to have. And
Speaker 2: it's not just a tax on Americans, it's a tax
Speaker 2: on everybody. So it's a tax on economic activity. You
Speaker 2: know that this is designed for people to produce less,
Speaker 2: and that's what it will do. And the bigger we
Speaker 2: make the tariffs and the more people retaliate with their
Speaker 2: own tariffs, the less economic activity we're going to have,
Speaker 2: the less options we're going to have the less things
Speaker 2: we're going to have to buy, and the less income
Speaker 2: people are going to have, both in the United States
Speaker 2: and outside of the United States, so they're going to
Speaker 2: have less income to buy our stuff. So it's it's
Speaker 2: an absolute lose lose situation. There's there's no win here.
Speaker 2: There just isn't. You can tariff the hell out of everything,
Speaker 2: and you're still not going to bring all those those
Speaker 2: garment factory jobs back and all these who would want to,
Speaker 2: you know, but even if you did. You know, that's
Speaker 2: another thing. If you look, we've we've had we have
Speaker 2: had abnormally high, above average tariffs on garment, on the
Speaker 2: garment industry stuff for decades. It didn't save them. You're
Speaker 2: you know, you're not going to save it now, you know.
Speaker 2: It just it doesn't work, and it is it is.
Speaker 2: It is going to reduce economic activity at income for
Speaker 2: people all over the world, and that is not a
Speaker 2: good thing.
Speaker 1: And do you see the same thing happening with immigration.
Speaker 2: Yeah, yeah, that's one of my biggest pet peeves. You know,
Speaker 2: as an American whose last name is decidedly French, you know,
Speaker 2: I recognize that most of our are are my friends
Speaker 2: and brethren. You know, we were not Native Americans. We
Speaker 2: came our ancestors came from somewhere else. This country, you know,
Speaker 2: right or wrong, was is as big as it is
Speaker 2: because we've allowed people to come here from other places.
Speaker 2: And it's not a nationalist thing. It's in the sense
Speaker 2: that it's we've literally been built upon the principles of
Speaker 2: our constitution and we let other people come in. And
Speaker 2: unfortunately there's always some of that I was here first attitude.
Speaker 2: This is that attitude on crack apparently. But again, you know,
Speaker 2: this this sort of thing keeping out people, kicking people
Speaker 2: out and keeping people out who are productive members of
Speaker 2: a society. Uh, that's that's how you shrink it. That's
Speaker 2: how you isolate it. And that's not how you help people.
Speaker 2: And you you prevent help people from helping themselves. You know,
Speaker 2: that's that you're you're impoverishing people. Aside from what you're
Speaker 2: doing to their individual human rights, You're you're impoverishing people,
Speaker 2: both them directly and everyone else indirectly. And it's an
Speaker 2: incredibly bad idea.
Speaker 1: So again I'll lose, We'll lose lose.
Speaker 2: Yeah, yeah, And and and look, you know, if if
Speaker 2: we want to talk about securing the borders, that we
Speaker 2: have a better legal immigration system. Okay, fine, yeah, let's
Speaker 2: do that. That's not what we're doing.
Speaker 1: No, it's not what we're doing. Yeah, same and and
Speaker 1: and we know that when the economic whatever economic crisis follows,
Speaker 1: it's going to be blamed on whatever freedoms we have.
Speaker 1: I mean, that's the other phenomena, right, is that the
Speaker 1: quasis always blamed on a little bit of freedom that
Speaker 1: we still have.
Speaker 2: That's right, Yeah, I mean the two thousand and eight
Speaker 2: financial crisis was a great example. You know, somehow that
Speaker 2: got turned into well we had deregulated financial markets. Well,
Speaker 2: somebody forgot to tell all the people worked in financial
Speaker 2: markets that they had been regulating. But that's but that's
Speaker 2: what that's what took the brunt of that blame, you know,
Speaker 2: that idea, and we just expanded regulation and expanded the
Speaker 2: reach of government. You know, That's that's the way it
Speaker 2: usually ends up.
Speaker 1: So so how how do we get so rich over
Speaker 1: the last fifty years given all that? I mean, that
Speaker 1: always makes me wonder. Though we did go through a
Speaker 1: phase of significant deregulation in the seventies, real deregulation, and.
Speaker 2: In the seventies, what we did. Was the way I
Speaker 2: look at it is that we went through a change
Speaker 2: in the type of regulation. So in the seventies, we
Speaker 2: we we sort of moved away from rate regulation and
Speaker 2: and and profit regulation and price controls, and we did
Speaker 2: a lot more social regulation, you know, with e P I,
Speaker 2: e P A and VI, mental regulation and just other
Speaker 2: just broadly speaking socioeconomic regulation. And then that started creeping
Speaker 2: up more slowly over time, you know, and now we're
Speaker 2: sort of starting to get back to some of that
Speaker 2: price control stuff and a little bit more invasive, which
Speaker 2: is definitely not good. You know. So we've had a
Speaker 2: different kind of regulation, but it hasn't really been a
Speaker 2: shrinking amount of regulation. It's just been a different kind
Speaker 2: And you know, I don't know, I don't know. I
Speaker 2: think in a large part I think it says this
Speaker 2: is my opinion, but I think that it's in a
Speaker 2: large part it talks to how how much better our
Speaker 2: system pre enterprise included, limited government included, how much better
Speaker 2: it is in America than in a lot of other places,
Speaker 2: and how much opportunity we do provide through that kind
Speaker 2: of system. It's really nothing short of phenomenal because because
Speaker 2: it sure has God to be a lot better and
Speaker 2: a lot freer and provide a lot more opportunity.
Speaker 1: Yeah, no, absolutely absolutely, So let's talk maybe a little
Speaker 1: bit about I saw an article yesterday in the Wall
Speaker 1: Street Journal by the staff of the Wall Street Journal.
Speaker 1: I guess the editor is on Feddie and Fanny. Oh,
Speaker 1: you've written a lot about about Freddie and Fanny. Walk
Speaker 1: us through a little bit of the history of Fitting
Speaker 1: and Fanny and the financial crisis and what's happened to
Speaker 1: them since.
Speaker 2: Sure, sure, sure, sure you want history like where they started,
Speaker 2: or just start with the financial crisis.
Speaker 1: Give a little indication of where they where they started, right,
Speaker 1: I mean, and they coopose, and then we can go
Speaker 1: to what happened in the early two thousands and go
Speaker 1: from there.
Speaker 2: Okay, sure, So the first thing for everybody to remember
Speaker 2: on that one, they were never really truly private company. Yes,
Speaker 2: in the nineteen thirties we started Fanny and that sort
Speaker 2: of started out as just a government agency. Story is
Speaker 2: more complicated, but that's basically that's what we had. And
Speaker 2: they were buying government insured mortgages. Eisenhower tried to privatize them,
Speaker 2: or the Eisenhower administration tried to privatize them, and then
Speaker 2: it kind of like half asked it, and we ended
Speaker 2: up with these government this government's corporation, government sponsorship thing.
Speaker 2: In the sixties seventies and then late sixties we did
Speaker 2: Freddie Mack. We created that on the government side as well,
Speaker 2: to basically be the same thing as Fanny but for
Speaker 2: the Federal Home Law Bank system, which also was a
Speaker 2: government sponsored enterprise.
Speaker 1: Yep.
Speaker 2: And so so so then they in the in the
Speaker 2: eighties they sorted to blow up a bit more and
Speaker 2: grow a bit more. And they were always they always
Speaker 2: had this mix of public and private, and they always
Speaker 2: had this quasi public mission of increasing affordable housing, and
Speaker 2: that got really kicked into high gear in the nineties
Speaker 2: under Clinton, and it and without blaming it, just on
Speaker 2: that in Clinton. Eventually it blew up, but it had
Speaker 2: blown up before. It was just that it was papered
Speaker 2: over during the SNL cours. Yeah, Penny May was also insolvent,
Speaker 2: but everything else was insolvent, and they didn't want to
Speaker 2: make it look any worse, so we just kind of
Speaker 2: like let that one go. So it blew up again
Speaker 2: in eight and you know, at that point they could
Speaker 2: have been put into receivership where they would have been
Speaker 2: liquidated and shut down and say, Okay, this was a mistake.
Speaker 2: We shouldn't have gone this route. It keeps blowing up,
Speaker 2: it keeps costing taxpayers money. But that's, of course not
Speaker 2: at all what happened.
Speaker 1: There were put there was of privatizing them and breaking
Speaker 1: them up into smaller units.
Speaker 2: I mean, there was a lot of tots of talk,
Speaker 2: lots of talk, you know, and nothing short of a
Speaker 2: miracle that that they could lose that much money and
Speaker 2: bleed that much cash for so long after that, because
Speaker 2: they did for years yep, and still come out of
Speaker 2: it as standing, you know, but they did. So there
Speaker 2: there were multiple There was one specific set of agreements
Speaker 2: there that were that were put in place to put
Speaker 2: them into conservatorship, and then that that agreement was amended
Speaker 2: over the next several years. I believe four times. Account
Speaker 2: might be off, but roughly four times it was amended.
Speaker 2: And each time it was amended, the line of credit
Speaker 2: for the companies was expanded. So by the time it
Speaker 2: was over, the line of credit was up to over
Speaker 2: four hundred and forty billion dollars combined. Yeah, and they've
Speaker 2: just remained in government conservatorship. So they've been in purgatory
Speaker 2: like that ever since two thousand and eight. And it's
Speaker 2: really questionable, and I think I don't know where I
Speaker 2: fall on it, but it's questionable as to whether that
Speaker 2: debt that they have and the book of business that
Speaker 2: they have should be on the federal budget instead of
Speaker 2: being off the federal budget. Oh yeah, so that's another
Speaker 2: seven trillion or so in potential guarantees that probably should
Speaker 2: be on.
Speaker 1: Yeah, at least a portion of it.
Speaker 2: It's at least at least a portion, yes, yeah, And
Speaker 2: it's not so. And and the the agreements are as
Speaker 2: they are written still include something called a liquidation preference,
Speaker 2: which is sort of like a standard receivership conservatorship bankruptcy
Speaker 2: provision that says, okay, once he's come and these are
Speaker 2: back on their feet, if they raise more capital, that's fine,
Speaker 2: but we the primary creditor in this case, the government.
Speaker 2: We get a bunch of money first. Yeah, so we
Speaker 2: make the taxpayers hold. We compensate the taxpayers for all
Speaker 2: the risks that they've taken on. Well, that number is
Speaker 2: now really large, like a couple hundred billion dollars, right,
Speaker 2: So now to have to meet capital requirements, they would
Speaker 2: have to raise a couple hundred billion in the markets
Speaker 2: and pay off the liquidation preference. So now you're talking
Speaker 2: about like roughly you know, four hundred billion dollars with
Speaker 2: a B. That's a tall order for anything any company,
Speaker 2: much less these like sort of like monoline insurance type companies.
Speaker 2: So you know, the smart money is what they're going
Speaker 2: to do is they're going to redo the agreements and
Speaker 2: they're going to tell the taxpayers, I don't worry about it.
Speaker 2: You know, we already got paid back.
Speaker 1: It's just two hundred billion in a world of trillions.
Speaker 1: It's not a big deal.
Speaker 2: Nobody do you know, And they and and it is
Speaker 2: true that the companies have paid back a lot of cash,
Speaker 2: but again you know that that was the deal. Yeah,
Speaker 2: you know, it's kind of like it's a principal interest agreement.
Speaker 2: And you know, with your home mortgage, for example, if
Speaker 2: you just said, well, I mean no, I didn't pay
Speaker 2: the principle back, but I paid you a lot of cash.
Speaker 2: I paid you cash to cover the value of the house.
Speaker 2: So I'm good. Right, the bank's gonna say, no, you're
Speaker 2: not good. That wasn't the deal. And it's the same
Speaker 2: same sort of thing here, but the smart money is
Speaker 2: that that's they're going to do something like that.
Speaker 1: Yeah, it's it's amazing to me. I mean, these companies
Speaker 1: are so corrupt. I remember that in the early two thousands,
Speaker 1: for years, you couldn't even get a financial audit, a
Speaker 1: financial statement. Yeah, out of out of I think it
Speaker 1: was Fanny or Feddy. They couldn't even audit the themselves.
Speaker 1: And well that's.
Speaker 2: Another thing, you know, like when they when they were
Speaker 2: created with their charters, they were given these federal charters,
Speaker 2: they were exempt from SEC registration. They didn't they didn't
Speaker 2: have so they didn't have to file the statements at all.
Speaker 2: I mean eventually they did. They volunteered what they wanted to,
Speaker 2: but they didn't have to. They didn't have to pay
Speaker 2: state and local income taxes.
Speaker 1: I didn't know that. Well.
Speaker 2: Yeah, and then and they had a line of credit
Speaker 2: with the Treasury from the beginning.
Speaker 1: So yeah, and and you know, God and Frank I
Speaker 1: think did pretty well off of these companies. And yeah,
Speaker 1: ultimately they bill saved them.
Speaker 2: Yeah, I mean the whole thing, the Hair Act everything,
Speaker 2: and they I mean they could have they could have
Speaker 2: liquidated them but there was no way they were going
Speaker 2: to do that, and they didn't. And they're now you know,
Speaker 2: now they are they're more entrenched in the mortgage market
Speaker 2: US mortgage market, and they were before the crisis.
Speaker 1: So this is Trump. According to the Wall Street Journal
Speaker 1: on his I am working on taking these amazing companies public.
Speaker 1: I want to be clear, the US government will keep
Speaker 1: its implicit guarantees, and I will stay strong in my
Speaker 1: position and overseeing them as president.
Speaker 2: Yeah, that's so clear. I don't know what the hell
Speaker 2: that means. I don't know that's you know, if it's
Speaker 2: an implicit guarantee.
Speaker 1: Why you saying it?
Speaker 2: Yeah, you shouldn't be saying it, you know, And to
Speaker 2: take them public, well okay, but you know that's so.
Speaker 2: Are you saying that they're part of the government right now?
Speaker 2: And if they are, why isn't that on the government
Speaker 2: balance sheet?
Speaker 1: And if there's an implicit guarantee, why isn't that on
Speaker 1: the government's balance sheet? Yes, it's it's no end. Yeah,
Speaker 1: it's one of those. The perpetual perpetually amazes me. And
Speaker 1: I mean, who is there's a there's a small interest
Speaker 1: group out there in Washington, DC fighting for these guys,
Speaker 1: and they and everybody else I think knows that it's
Speaker 1: completely corrupt and it makes no sense, and yet it can.
Speaker 2: Every time I write anything about the g SES and
Speaker 2: how they should have been shut down and they should
Speaker 2: be shut down and that sort of stuff, I get
Speaker 2: tons of hate email and interesting. Interesting, Yeah, that's awesome, good, good.
Speaker 1: So this is the lobbyists and employee employees, I assume,
Speaker 1: because I don't think there's anybody who does economics who
Speaker 1: believes they should still be about.
Speaker 2: I don't know if it's bots or I don't know,
Speaker 2: you know, I don't I don't know what it is.
Speaker 2: It never fails.
Speaker 1: Getting hate mail is a sign you're you're you're doing
Speaker 1: something in the world that's good. I'm a huge I'm
Speaker 1: a huge supportive of it.
Speaker 2: Good.
Speaker 1: Talk about another institution that is, and this one might
Speaker 1: be might be ending. Maybe this cfp B, which is
Speaker 1: a you know, it's a unique animal that was created
Speaker 1: also out of the financial crisis. A lot of you know,
Speaker 1: financial crisis resulted in a lot of regulations and a
Speaker 1: lot of inugatory agency. This one, so tell us a
Speaker 1: little bit about its origins, you know, what happened to
Speaker 1: it and now what the Trump administration's trying to do
Speaker 1: with it.
Speaker 2: Sure, sure, this is another This is a Dodd Frank creation,
Speaker 2: flat out. This was Title ten of Dodd Frank and
Speaker 2: it was basically the brainchild of Elizabeth Warren and another lawyer.
Speaker 2: And the idea is that we needed this, or the
Speaker 2: idea that they as they pitched it, is that we
Speaker 2: needed a consumer protection agency just for the financial markets.
Speaker 2: And they kind of sort of ended up tying this
Speaker 2: to the financial crisis story, saying, well, you know that
Speaker 2: was the problem. We didn't have a regulator like this,
Speaker 2: and all those people that bought those mortgages were tricked.
Speaker 2: You know, they didn't know what they were buying, They
Speaker 2: didn't understand what their payments were are going to be,
Speaker 2: and all that kind of stuff, which you know, that's
Speaker 2: that's a stretch. Yeah, but that aside, you know, that
Speaker 2: story ignores that we had to create the CFPB. What
Speaker 2: we had to do was we couldn't ignore federal law
Speaker 2: because there were twenty something statutes that were absolutely one
Speaker 2: hundred percent consumer protection for financial market stuff, right, So
Speaker 2: we moved all of that stuff over to this new agency,
Speaker 2: and some of that authority came from and a little
Speaker 2: bit is still shared with the Federal Trade Commission, whose
Speaker 2: motto is protecting America's consumers, and the federal banking regulators.
Speaker 2: So the FED basically what you had before basically was
Speaker 2: you had the FED, the comtroller, and the FDIC doing
Speaker 2: the consumer protection in the banking industry, and the Federal
Speaker 2: Trade Commission and the Department of Justice doing it everywhere else.
Speaker 2: So you know, maybe maybe you had a case for
Speaker 2: consolidating it at the FTC or something like that, maybe,
Speaker 2: but that's not what we did. And we also so
Speaker 2: we created this new agency, the CFPB. We created it
Speaker 2: with some interesting structure that we didn't have in the
Speaker 2: other agencies. At first, you couldn't fire the director. They
Speaker 2: get their budget from this direct allocation from the Federal
Speaker 2: Reserve instead of appropriations and some other things. Some of
Speaker 2: this has changed a little bit, but not all of it. Anyway,
Speaker 2: what's going on now is the Trump administration has decided, yeah,
Speaker 2: we're just going to send everybody home and kind of
Speaker 2: ignore that it's there. We don't we're just not going
Speaker 2: to do anything with it. So so it's kind of
Speaker 2: just sitting there in limbo, and you know, I don't
Speaker 2: know what the endgame is. I would not be sad
Speaker 2: to see the CFPB go not at all, because it
Speaker 2: was not necessary in the first place. So, I mean,
Speaker 2: I believe that firmly. But you would need an Act
Speaker 2: of Congress to completely get rid of it, you know,
Speaker 2: so they could, I guess, theoretically, for the remainder of
Speaker 2: the term, just sit there, you know, and not do
Speaker 2: very much with it, just do the bare minimum to
Speaker 2: comply with the law.
Speaker 1: So they basically fight everybody who looked at There were
Speaker 1: a lot of employees, if I remember it.
Speaker 2: A lot of people. Yes, a lot of people have
Speaker 2: been furloughed, a lot of people have been told don't
Speaker 2: come to work. I think some of them are limbo
Speaker 2: still and they're just really not doing very much. They
Speaker 2: had nominated a director and then they pulled that nomination
Speaker 2: and sent him to Treasury. So it's just just kind
Speaker 2: of hanging out and Russ vote who is the OMB
Speaker 2: director is the acting CFPB director. So and look, I'm
Speaker 2: I'm all for.
Speaker 1: Absolutely, you know, not having it. I mean, we have
Speaker 1: too many financial regulation regulators anyway.
Speaker 2: Yeah, I mean, if you're if you're a large financial institution,
Speaker 2: you're regulated by over a dozen financial regulators.
Speaker 1: A dozen I never got to a dozen, yeah wow, okay.
Speaker 2: Or potentially depending on exactly what you're doing, you know.
Speaker 2: But that's that's another thing, you know, the cfp B.
Speaker 2: You know, it really didn't make any sense to give
Speaker 2: them examination authority. Well, if you're going to have an
Speaker 2: agency that's doing consumer protection, that's basically that's protection against
Speaker 2: fraudened deception, and that's you know, you don't examine somebody
Speaker 2: for that necessarily, right, It's if a case is brought,
Speaker 2: you go with it. So they've they've they've been a
Speaker 2: controvert agency from the beginning.
Speaker 1: And if they have done real home since they were established,
Speaker 1: I mean, is they real it was their cost? I'd say, so, okay,
Speaker 1: you know.
Speaker 2: I mean it's it's it's an enormous regulatory cost, you know,
Speaker 2: and it's it's it's it becomes hard to do business. Yea.
Speaker 2: The very first sort of well one of the very
Speaker 2: first things that that they did under Richard Quadre was
Speaker 2: they they changed their interpretation of the Real Estate Settlement
Speaker 2: Procedures Act, which sounds benign, but but but they changed
Speaker 2: the way they interpreted had been interpreted at the federal
Speaker 2: level for decades, and then they went and they said, okay,
Speaker 2: we're going to apply it retroactively. So they sued this company, Pah,
Speaker 2: and they find them one hundred million dollars. Now, how
Speaker 2: can you comply with a law retroactively based on an
Speaker 2: interpretation that somebody just made up? So you know, I
Speaker 2: mean that's a real cost, you know, I mean, and
Speaker 2: it's it's more than one hundred million dollars, you know,
Speaker 2: So so yeah, it's it's not been my favorite agency.
Speaker 2: They basically destroyed the payday lending industry. You know, there
Speaker 2: there is still small dollar lending, but it's not the
Speaker 2: industry is not anything like it was. A lot of
Speaker 2: people dropped out of the of the consumer small dollar
Speaker 2: lending industry because they implemented a rule that was much
Speaker 2: harsher than it needed to be, that really wasn't based
Speaker 2: on evidence, really wasn't based on data. A lot of
Speaker 2: people on the left have been crusading against payday lending
Speaker 2: and small dollar lending for a very long time. They
Speaker 2: wanted price controls, They couldn't get the price controls, so
Speaker 2: they de facto price controls, you know, and and and
Speaker 2: that's what happened, and now you're hearing a lot of
Speaker 2: that on the right too, you know, with in terms
Speaker 2: of price controls. But but anyway.
Speaker 1: So what's your assessment of this new bill, the Genius Act,
Speaker 1: the stable Coin Act is this? Is this a positive step?
Speaker 2: I think so there's there's some stuff in there that
Speaker 2: I think could be better, but there needs to be
Speaker 2: some clarity there. You know, there really does need to
Speaker 2: be some regulatory clarity, you know, in terms of of
Speaker 2: of how the SEC is going to regulate these things,
Speaker 2: how the banks are going to regulate these things. I mean,
Speaker 2: you just you can't move money in an unregulated fashion.
Speaker 2: Now I'm not saying that that shouldn't be the.
Speaker 1: Case in the world in which we live exactly exactly.
Speaker 2: So you're you're opening yourself up to a lot of
Speaker 2: liability without that regulatory clarity, and we need something, and
Speaker 2: there's a lot of good stuff in the bill. I
Speaker 2: think it should be opened up even more. I think
Speaker 2: part of it is anti competitive in terms of it
Speaker 2: makes it more difficult for non banks and non financial
Speaker 2: companies to issue their own stable coins.
Speaker 1: I mean, the obvious people to issue stable coins, in
Speaker 1: my view is like Amazon. That's right, I mean, the
Speaker 1: ideal player in the stable coin market, and yet this
Speaker 1: bill makes it more difficult to them to do it.
Speaker 2: That's right, that's right, that's right. Yeah, yeah, that's not
Speaker 2: the way to go. And that's anti competitive. And you know,
Speaker 2: if you are sitting there on the left or right
Speaker 2: and you're saying, you know you don't want concentrated economic power, well,
Speaker 2: I mean you would want to open that up.
Speaker 1: Yep. Is there other stuff coming down on crypto that
Speaker 1: that you think is going to be positive?
Speaker 2: There? So there's a market structure bill. Uh, Oddly enough,
Speaker 2: Clarity Act is one of them.
Speaker 1: Okay, it's the name, and uh, that one.
Speaker 2: Faces a lot of higher hurdles. I don't I don't know.
Speaker 2: I don't really see the obvious path for that one
Speaker 2: to get out of the Senate. But there's some stuff
Speaker 2: in there that's good, and there's some stuff in there
Speaker 2: that could also be a lot better. Maybe some you
Speaker 2: know that they I think it to to to really
Speaker 2: fix all of this stuff, you know, is going to
Speaker 2: take a much broader view than what we have at
Speaker 2: the moment. And and unfortunately, even though the administration seems
Speaker 2: to be in many ways like pro crypto you know,
Speaker 2: it's not principled in in many unfortunate ways, you know.
Speaker 2: And to start with the idea that it should be
Speaker 2: okay for us to exchange money, you know, without getting
Speaker 2: the government's permission before we do that, you know, that
Speaker 2: would be a big start, you know, But instead it's
Speaker 2: it's not really looked at that way, and that's that's
Speaker 2: that's the genesis of some of this, some of these problems.
Speaker 1: Yeah, I mean, it seems like there's an inherent conflict there.
Speaker 1: On the one hand, you know, they like crypto for
Speaker 1: some reason. On the other hand, they don't want to
Speaker 1: give up the control and the power that they're controlling
Speaker 1: money gives them.
Speaker 2: That's right, Yeah, And then you know, the House version
Speaker 2: of that and the Senate version of that, and how
Speaker 2: that plays in with the administration is a mess because
Speaker 2: a lot of people in both chambers see the administration
Speaker 2: rightly or wrongly, as in it for their own profit,
Speaker 2: and they see it as corrupt and you know, so
Speaker 2: it's just it's a mess in more ways than one.
Speaker 2: But that's a big problem, you know, to get it
Speaker 2: across politically where you but you really do again, you know,
Speaker 2: with with just broader crypto you need some clarity on
Speaker 2: what is a token versus what a security? What is
Speaker 2: a security? And without that, you know, you could easily
Speaker 2: see a replay of what happened under Gary Gensler's SEC
Speaker 2: if Paul Atkins isn't there or somebody on the other
Speaker 2: side comes back who's Againstler like person.
Speaker 1: Tell us a little bit what happened on the Guessla
Speaker 1: and I guess Elizabeth with Elizabeth Wallen's uh, yeah, you know,
Speaker 1: nudging yes, so no.
Speaker 2: They so they went they took a very broad.
Speaker 4: View of what would be a security, and what that
Speaker 4: effectively means is, if you're the SEC, you can look
Speaker 4: at pretty much any crypto token and say, no, it's
Speaker 4: a security.
Speaker 2: What you're doing and what you've done is illegal, and
Speaker 2: you can't do anything else unless we say it's okay,
Speaker 2: and we don't really know what we want yet, but
Speaker 2: we'll figure it out. So that just squelches everything.
Speaker 1: Yep.
Speaker 2: And that's that's the short layman version of what's happened.
Speaker 2: You know, it's it's it's just squashed innovation and it's
Speaker 2: held it's held the industry back quite a bit.
Speaker 1: And then they went after the banks, right, they went
Speaker 1: after the banks that hold custody on on on the
Speaker 1: on crypto, anybody who dealt anything with crypto.
Speaker 2: They yeah, yeah, that that was a you know what
Speaker 2: was a reputational risk you know that was that was
Speaker 2: one of the excuses for there because supposedly under crypto
Speaker 2: the only people who use crypto or criminals, Yeah, terrorists.
Speaker 1: I mean, they fosd that bank in California to shut
Speaker 1: down Silva something, Silva silver Gates, the.
Speaker 2: Silver Gate, Silicon Valley Bank, so Silvergate, and one other
Speaker 2: one that.
Speaker 1: It was the New York Bank. There was a New
Speaker 1: York bank that probably if it didn't have crypto, would
Speaker 1: not have been closed, but because they had crypto, was
Speaker 1: probably shut down because of that.
Speaker 2: That's right. And that was the Barney Frank Bank.
Speaker 1: Yes, yes, ironically, Yeah, he was on the board.
Speaker 2: So you know, and here you have the former Democrat,
Speaker 2: former Democrat chairman of the House Financial Services Committee saying, no,
Speaker 2: this is bogus. But didn't it didn't matter.
Speaker 1: Yeah, that was surprising. It didn't matter because you'd think
Speaker 1: he had he'd have some political capital over there, but
Speaker 1: I guess he is. He's at the end of his career.
Speaker 1: Not the not not not the peak or the beginning.
Speaker 2: I guess not enough, not enough sway anymore. I guess right.
Speaker 1: Let's see, we got a few questions here from from
Speaker 1: the audience. Okay, Michael asks, I mean feel fee to say,
Speaker 1: you know, if you don't want to answer them, that's fine.
Speaker 1: And mikel ask is the stock market doing well because
Speaker 1: of deregulation under Trump?
Speaker 2: Mm hmm, I mean I I.
Speaker 1: Is they deregulation going on? Or put it this way,
Speaker 1: is they deregulation going on into Trump?
Speaker 2: I think that there are there are pockets of things
Speaker 2: that are better for regulation, for the regulatory environment for
Speaker 2: there's no doubt. I think a lot of that is
Speaker 2: agency driven, though, you know, so hopefully I mean not hopefully,
Speaker 2: I mean it'll it will last as long as an
Speaker 2: agency lets it last. I but I don't see the
Speaker 2: massive type of deregulatory state that you know, we need. Yeah,
Speaker 2: And I don't know that they can do that without bills.
Speaker 1: They need Congress. They need Congress, but they need to
Speaker 1: do the hard work that's involved in that. Yeah, yeah,
Speaker 1: I mean maybe an energy It seems like it seems
Speaker 1: like they they're taking most systematic approach to deregulation.
Speaker 2: Yeah, I think that's I think that's been one of
Speaker 2: the bright spots. From my understanding of it is that
Speaker 2: it is one of the bright spans. So, you know,
Speaker 2: but but financial markets, you know, I I would say
Speaker 2: that we're much better off than Gensler than we were
Speaker 2: with Gencler for crypto and on the banking side, you know,
Speaker 2: I'm sure that the larger banks are happy that they're
Speaker 2: going to get a better capital regime than they would
Speaker 2: have had otherwise.
Speaker 1: Well, they're going to love consolidation. I think in the
Speaker 1: smaller bank space, the Biden administration was really restricted the
Speaker 1: the consolidation and banking need to consolidate. We have still
Speaker 1: way too many banks.
Speaker 2: Yeah, oh, I would agree with that. You know, I
Speaker 2: think we're probably in the minority opinion there, but yeah,
Speaker 2: everybody loves the community banks for some reason.
Speaker 1: Yeah, crazy, I mean, I love I don't know, if
Speaker 1: you know. Color Moses work on on on on the
Speaker 1: difference between the Canadian banking system and the American banking system,
Speaker 1: and it's striking.
Speaker 2: Yeah, yeah, yeah, Charlie's done got a great work on that,
Speaker 2: so is George George Ala. It's been it's an enormous
Speaker 2: difference we have. The US has the worst track record
Speaker 2: of pretty much any industrialized country, and you can't really
Speaker 2: say that they've been be regulated ever pretty much. Ever.
Speaker 1: No, it's a lay up on layer. They keep laying
Speaker 1: them on.
Speaker 2: Yeah, And that's so that's that's another area where you
Speaker 2: know there are some marginal changes for sure, but you
Speaker 2: know there's not there's not a structural change in the
Speaker 2: way we do the regulatory stuff, right. It just it's
Speaker 2: there's some good things, like the reputational risk stuff coming
Speaker 2: out of Congress, but there there's there's we need a
Speaker 2: lot more, I would say, yeap oh yeah, So I
Speaker 2: hate to predict or prognosticate on why the stock market
Speaker 2: is doing good or bad.
Speaker 1: Yeah, nobody should. Nobody should. It's it's a very dangerous game. Yes,
Speaker 1: So here's another one prediction progostinating. What do you so,
Speaker 1: what is going to happen with AI? I mean if
Speaker 1: if if everybody's still panicking about something, you know, tech
Speaker 1: reducing manufacturing jobs twenty years ago, AI is going to
Speaker 1: revolutionize productivity.
Speaker 2: In a way.
Speaker 1: That's that you know, jobs are going to change dramatically.
Speaker 1: How does the world deal with AI? I mean, economically,
Speaker 1: I don't think it's a problem. But politically and in
Speaker 1: terms of the kind of stuff, the policy stuff, how
Speaker 1: does what happens?
Speaker 2: I mean, that's a that's a that's a great question,
Speaker 2: and it's probably a little bit broader, you know, than
Speaker 2: than my area of expertise. Economically, I agree, I think
Speaker 2: it will work out. Politically, you know, there are all
Speaker 2: these data problems that that we have politically and in
Speaker 2: the sense that everybody's freaks everybody freaks out about who
Speaker 2: has what data and and what you can do with
Speaker 2: it or where the companies can do with it, and
Speaker 2: then we get into this weird space of should the
Speaker 2: government do this or that, or should the government have
Speaker 2: that or should the company have that? And there's a
Speaker 2: lot of a lot of potential major policy snaff Who's
Speaker 2: I think that you can get out of that? See
Speaker 2: a lot of stuff happening at the state level. So
Speaker 2: I don't know. I think, you know, it's probably the
Speaker 2: beginning of this is going to be a little messy.
Speaker 2: But I don't I don't I don't know politically, I
Speaker 2: don't know where that goes in. I'd be hard pressed
Speaker 2: to make an easy prediction on that one.
Speaker 1: I mean, I see these factories in China. They call
Speaker 1: them lights out factories because they never have to turn
Speaker 1: on the lights because they're no human beings there. It's
Speaker 1: just these robots just doing it all automated. Yeah, and
Speaker 1: it's one hundred automated. And and that's the future, one
Speaker 1: way or the other.
Speaker 2: Yes, I mean it, yeah for sure. How long it
Speaker 2: takes to get there and how pervasively that ends up being,
Speaker 2: you know, we'll see.
Speaker 1: So Jacob asks, what's a competitive edge for bick and
Speaker 1: mortar banks. I can't see their purpose other than consumer
Speaker 1: sentiment for an inputs and banker.
Speaker 2: Yeah. I think that a lot of people do like
Speaker 2: going in to see somebody. The banks, many banks, not
Speaker 2: the banks. Many banks still base their business on relationship building. Yeah,
Speaker 2: I think you would. I would have to say without data,
Speaker 2: But I think my gut feeling is that their competitive
Speaker 2: advantage has gone down.
Speaker 1: I think that the best data on that is the
Speaker 1: fact that the number of branches are shrinking.
Speaker 2: Yeah, so they recognize.
Speaker 1: It, Yeah, they know it, and so I yeah, I'd
Speaker 1: say the people who like to go into the bank
Speaker 1: are dying off, you know. So I think my generation
Speaker 1: is probably the last generation. I mean because the kids,
Speaker 1: you know. I mean I I don't go into the bank.
Speaker 1: I haven't been to the bank in a long time.
Speaker 2: Either, neither. My wife doesn't my son. I don't think
Speaker 2: it's ever been there.
Speaker 1: Yeah, exactly. So it's it's it's it's all going to
Speaker 1: be on the phone. And this is why you don't
Speaker 1: need so many community banks. Community banks are dying. I
Speaker 1: will die ultimately. Hopefully they'll consolidate a way instead of
Speaker 1: just going bankrupt, but they will die.
Speaker 2: Yeah. That's that's another interesting piece of this administration because
Speaker 2: a lot of those small banks are called c DFIs
Speaker 2: community development financial institutions. Okay, so a lot of those
Speaker 2: smaller banks are subsidized quite a bit. They get a
Speaker 2: lot of grants, they implement text credits, you know. But
Speaker 2: you don't you don't need them, No, you don't. You
Speaker 2: could lend to a rural community from anywhere. Ye you know,
Speaker 2: maybe you do need a branch here or there. I mean,
Speaker 2: I like that's for them to decide, you know, But
Speaker 2: you don't need thousands of little banks that are tied
Speaker 2: to individual communities, you know, which is where the whole
Speaker 2: the Community Reinvestment Act a big regulatory piece that whole
Speaker 2: that whole thing is misplaced. The technology has outstripped that act.
Speaker 2: It's a nineteen seventy seven billis that says you have
Speaker 2: to reinvest in the community that you're in. Yeah, that
Speaker 2: was before we had branch banking legalized, and now with
Speaker 2: technology it's it's basically completely obsolete. Ye.
Speaker 1: But it's this purpose of redistributing wealth to the Uh. Yeah,
Speaker 1: those social groups who all the groups that got the
Speaker 1: investment money in the communities. I remember they used to bribe.
Speaker 1: They used to they used to bribe the banks and
Speaker 1: say we'll object to your morgia unless you pay us X.
Speaker 1: And he got the money.
Speaker 2: No, that's right, that's right, not the money. Uh.
Speaker 1: Kim asks if you have any thoughts on Malay. Oh,
Speaker 1: it's been great to see the one bright spot in
Speaker 1: the world.
Speaker 2: It's great for me. I think it's great. Uh Caate
Speaker 2: went down and did a big conference with him. Okay,
Speaker 2: you know, I think it's it's a great, great example
Speaker 2: in the modern world of markets really do work and
Speaker 2: regulation and in heavy heavy government involvement. I don't if
Speaker 2: if the metric is you know, people doing well, Yeah,
Speaker 2: people improving their living their their living standards.
Speaker 1: It's it's uh, it's pretty amazing what he's managed to
Speaker 1: do in a year, I mean in a in a
Speaker 1: in a bit, so it's uh, it's quite stunny. Uh
Speaker 1: let's see. Oh yeah. Kim Os asked what's the best
Speaker 1: data to show people to dispute to claim the middle
Speaker 1: class shrinking because everyone is getting poor.
Speaker 2: Well, I mean, I've got a bunch of stuff in
Speaker 2: the book. I'm not trying to hawk the book.
Speaker 1: It just talked the book. The book.
Speaker 2: Buy his book, tell me and I'll send you the
Speaker 2: book for free. But but you can there's that's the thing,
Speaker 2: you know, there's really not one best bit of data.
Speaker 2: Like you can look at household income data, you can
Speaker 2: look at personal income data, you can look at consumption data,
Speaker 2: you can look at uh, total compensation data, and you
Speaker 2: there's there's a whole bunch of references in there. I've
Speaker 2: got a whole bunch of blog posts you know that
Speaker 2: that show different different cuts of this. The thing to
Speaker 2: remember is you want to look at along as long
Speaker 2: of a series as possible. You want to avoid the
Speaker 2: trick of starting the series somewhat excuse me, starting to
Speaker 2: look at somewhere in the middle of the series, it's
Speaker 2: better to adjust it with the PCE for inflation rather
Speaker 2: than the CPI. What's there too, The the CPI is
Speaker 2: going to bias you downward, so it's it's not going
Speaker 2: to look like there's as much growth because there's an
Speaker 2: inward there's a there's already about a bias toward higher
Speaker 2: inflation in there. Okay, but even if you just do
Speaker 2: use the c p I UH and you can, you
Speaker 2: can use the official UH Census Bureau numbers, you know,
Speaker 2: when they put out the household income distribution. If you
Speaker 2: want to avoid you know, having to listen to somebody
Speaker 2: like me, and just go to the government website, go
Speaker 2: to the Census Bureau when they where they put out
Speaker 2: the annual income household income distribution. You can see that.
Speaker 2: You can go right there. You can see it. You
Speaker 2: can see the if you look at the long series,
Speaker 2: you don't see this. You know, you see this. It's real,
Speaker 2: It's really there. But I but I do have more
Speaker 2: more in the book, I have more blog post I'm
Speaker 2: happy to I'm happy to send things.
Speaker 1: And you post stuff on Twitter that that corroborates all this.
Speaker 1: Kimos asked, is the middle class shrinking a problem even
Speaker 1: if they're getting richer? Should we redefine middle class?
Speaker 2: Well, in one sense, it's you know, it's it's the
Speaker 2: group that's in the middle all and you know if
Speaker 2: if if people are getting richer and and and they're
Speaker 2: still in the middle, well, I don't really care, you know,
Speaker 2: that's how I look at that. The but the part
Speaker 2: of the problem is how do you define middle And
Speaker 2: if you do define it in a static way, you
Speaker 2: know what happens when people get richer and and I
Speaker 2: don't I I don't think that that's a problem. I
Speaker 2: think that that's a good thing. So even the people
Speaker 2: who come into the middle or used to be the
Speaker 2: middle have been getting richer. And I think that is
Speaker 2: as long as per capita income is going up, as
Speaker 2: long as people at the lower end and the mid
Speaker 2: and and every other you know, cut that we take
Speaker 2: of that distribution, As long as as people have opportunities,
Speaker 2: and as long as as people are doing well, then
Speaker 2: then we're good.
Speaker 1: Well we're good. We're not as good as we could be.
Speaker 2: No, that's right, that's right, that's right. I know I
Speaker 2: I should have been more careful.
Speaker 1: No, that's right now.
Speaker 2: I mean I do. I I because I and that's
Speaker 2: a fine line that I walk with the book, because
Speaker 2: I do think that things could be a lot better.
Speaker 2: I do which and given how good that they have
Speaker 2: they have been, I mean, I think that that's amazing.
Speaker 2: And unfortunately, I think we're going in the wrong direction.
Speaker 2: And I do think you're going to see things flatten
Speaker 2: out a bit.
Speaker 1: I think stagnation is it looks like it's it's where
Speaker 1: we're heading.
Speaker 2: It's they have what some would call a de growth agenda,
Speaker 2: whether they want to say that or not.
Speaker 1: And they left and right are united on this. That's
Speaker 1: what's scary.
Speaker 2: Yes, it's very hard to see getting out of it.
Speaker 1: If if so, Mike, as if the fond companies eat
Speaker 1: the tariffs, could that justify saying China will pay me
Speaker 1: so much money just justifying them?
Speaker 2: No? No, I mean that's no.
Speaker 1: They can't eat the tarffs.
Speaker 2: No, they can't. And and and even if you even
Speaker 2: if you want to have that thought experiment, okay, fine,
Speaker 2: then basically what you're doing is you're saying that attacks
Speaker 2: on our imports is a tax on their exports. So
Speaker 2: now you're going to take money away from them. On
Speaker 2: their side, they're going to have less money to buy
Speaker 2: other stuff. So that's still a decline in your overall
Speaker 2: consumer base. And that's enriching government officials, not the private sector,
Speaker 2: and not the people who are trying to make a living.
Speaker 2: So no, that's not it's still not a win.
Speaker 1: And and given that, given that it appears tariff revenue
Speaker 1: is way up, somebody, you know, we're obviously paying for it. Yeah,
Speaker 1: the American government doesn't get anything directly from China. They
Speaker 1: get it from customs officials who collect customs at American borders.
Speaker 1: So we are paying for it one way or the other.
Speaker 2: That's right. No, No, And and you know, I mean
Speaker 2: there's not like historically the average rate of profit is
Speaker 2: not fifty Yeah, I mean that's that's not the way
Speaker 2: any businesses tend to.
Speaker 1: Work, particularly not in China, particularly now Walmart. Right, none
Speaker 1: of these companies there's they run a very thin margins,
Speaker 1: so they could go out to business if they eat it,
Speaker 1: which is another hits on our stand of living, quality
Speaker 1: of life. So there's no way out of it. No,
Speaker 1: Jacob says Hong Kong didn't collect financial data for years
Speaker 1: due do they fear that politicians would distort it. Should
Speaker 1: all governments do the same, you know, take us out
Speaker 1: of business vi yeah, some people out of business vie. Yeah.
Speaker 2: Yeah, I mean you can make a good case for that,
Speaker 2: you know. I think unfortunately, you know, if we talk
Speaker 2: about the realm of what's possible in the US polics
Speaker 2: right now, I don't think we're closed.
Speaker 1: But yeah, I mean, I mean, laym I do it
Speaker 1: in Argentina. You could you could imagine him doing something
Speaker 1: like that. You see what happens there. Yeah, all right,
Speaker 1: I think this is the last question. A take as
Speaker 1: a Turk dicotomy says the middle class is shrinking, with
Speaker 1: more moving up, some falling down. How do we address
Speaker 1: those who fall behind and grow resentful and.
Speaker 2: Destructive and go and go resentful?
Speaker 1: Yeah, because they're falling down, they grow resentful and destructive.
Speaker 2: Oh okay, okay, okay, Well, I mean so some I'm
Speaker 2: sure some have fallen down, you know. But but again
Speaker 2: that's to be clear, that's a small because.
Speaker 1: The actual low income is actually shrunk the number of
Speaker 1: people in the low income Yes.
Speaker 2: And the groups at the lower end on average have
Speaker 2: done much better as well. Now, so all that said, Okay,
Speaker 2: this is is another one of those things where let's
Speaker 2: let's just sort of theorize that the thing to do
Speaker 2: is to have some government safety net. I'm not saying
Speaker 2: you should, but let's just say you should have some
Speaker 2: government safety net there that maybe it even includes, say
Speaker 2: like career development and a special assistance and stuff like that. Okay, well,
Speaker 2: we've actually got that, and we've had that for many years.
Speaker 2: We've had specific things that deal with trade assistance, so
Speaker 2: if your job was taken away by trade, then you
Speaker 2: go for that, you know. And we've had over three
Speaker 2: thousand one stop labor development shops. You know. We've got
Speaker 2: aid for two year degrees, four year degrees, vocational training.
Speaker 2: All of that is. We have financial aid available to everybody,
Speaker 2: especially lower income folks. It's easier for them to get
Speaker 2: it now. So I'm willing to entertain that it's possible
Speaker 2: that we need to do those sorts of things. But
Speaker 2: I just want to start from the position of Okay,
Speaker 2: we do do do do it. We have been and
Speaker 2: we have been for decades. That's not new. You know,
Speaker 2: this stuff started a lot of it in the thirties
Speaker 2: or forties, increasing so in the sixties and seventies and
Speaker 2: it has not gone away. So there are things that
Speaker 2: we can do as just members of our community and
Speaker 2: our society just to be aware of what's going on
Speaker 2: and pay attention to our fellow citizens as well. You know,
Speaker 2: I think that's important.
Speaker 1: And a lot of its education.
Speaker 2: Right.
Speaker 1: As long as we have these people are the right
Speaker 1: and the left capitalizing on these people's frustrations, it's very
Speaker 1: hard to get through. But if you had actual leadership
Speaker 1: explaining to them what's actually going on, Yes, I think
Speaker 1: that would maybe they're like all these things would be different,
Speaker 1: but you all right, great, this is this will be fun.
Speaker 1: Thanks you no, but I really appreciate it. So where
Speaker 1: could people find your stuff? Twitter handle stuff like that.
Speaker 2: Yeah, if you go, if you go to Cato dot org,
Speaker 2: you can search my name, or if you just do
Speaker 2: a Google search Cato nor Bird, Michelle m I C
Speaker 2: H E. L. You know I'm right there. You'll find
Speaker 2: me right there.
Speaker 1: And don't forget guys to get the book. So question capitalism,
Speaker 1: a populist policies are threatening the American dream. It's Amazon,
Speaker 1: Buns and Noble, It's it's available everywhere to.
Speaker 2: Get the book, and it's a quick read.
Speaker 1: Yep, it's a quick read and it's fun. If you
Speaker 1: like data, absolutely get it. And uh if you want
Speaker 1: those tools. I think Kim asked for convincing people the
Speaker 1: data is all there. Yeah.
Speaker 2: I hope it's there. I tried to invest to keep
Speaker 2: it pretty comprehensive and not put people to sleep. So
Speaker 2: thanks Novode, thank you very much. Appreciate it.
Speaker 1: Keep up the good wok all wait wait here man,