Transcripts For CSPAN2 After Words Steve Forbes Inflation 20220823

Hi mr. Forbes. Thank you so much for taking the time to do this interview. I wonder if we could just start it really broad because your book obviously is about pressing topic of the day inflation and you define inflation a little bit differently in the book then its traditionally i think talked about here in america, and i wonder if you could just go through your definition and how how it differs from other definitions. Well really as we explained in the book, there are two kinds of inflation nonmonetary and monetary the nonmonetary kind which affects prices would be an event like such as a drought or the lockdowns that we had during covid or the war now undergoing in ukraine, which is affecting Food Supplies and Energy Supplies those kinds of events can send up prices. We underestimated for example with the covid lockdowns how intricate those supply chains were and have huge disruption sending up prices. Those are the non very kind of inflation though if they have authorities allow it will eventually work itself out after World War Two for example the us economy. We forget it today under what a huge transformation from a wartime economy to a peacetime economy for making tanks to making cars those things you dont do overnight eventually the price situation settles down the monetary kind of inflation results when governments or Central Banks create too much money undermine the value of their currency which leads to all usually rising prices and that is really the more ominous kind dangerous kind because people dont understand why prices seem to be going up for no real reason and it leads not only to economic problems that also political and social problems as we explain in the book. Okay, interesting, and i wonder if you could talk a little bit about how that differs from. I think the way that we traditionally talk about inflation, especially sort of in the central banking universe, which is very much as sort of what described initially the the shock inflation thats very much sort of supplyside inflation and then economists typically understand the you know, the other side of inflation to be very sort of demand pool, you know, as people are demanding more and going out and shopping. They push up pushup prices it pushes up prices and i wonder how your framing squares with that one. Well, the two kinds of inflation nonmonitoring monetary can coexist as were experiencing today, but in a normal economy if the currency is stable prices rise and fall because of supply and demand something as popular the price goes up or you get productivity gains prices will go down. So those kind of normal signals what makes obviously an economy work which is why we can do literally billions of transactions here and around the world each day. So i think if you separate the two monetary nonmonetary, then you can get policy responses the more effectively address both and you avoid some of the mistakes that we see undergoing now and unfortunately, we as we explain in the past a governments for thousands of years. They always blame other forces. They always blame others rather themselves for for the mistakes they make on the monetary kind. I wonder you kind of just alluded to this, but i wonder if you could walk us through what you see as the causes of the 2021 inflation, which is obviously continuing into today. One cause is on the monetary front the Federal Reserve the Federal Reserve even before the covid lockdowns was undermining the value of the dollar you saw it in rising Commodity Prices rise of gold prices. So there are a brewing trouble even before what happened during the lockdowns. Obviously, they created a lot of to try to keep things from collapsing but unfortunately in 2021 the Federal Reserve even as the covid crisis was the severity was beginning to receive was still turning out churning out tons of money. They are buying 120 of bonds each month and they paid for that by creating money literally out of thin air now, they employed a gimmick which we explained in the book to try to make sure this money didnt flood the economy all at once but they created excess amount of money and theyre not even going to stop this money creation the announced recently theyre going to stop it but awfully awfully late in the game. So the Federal Reserve has been creating too much money undermining the integrity of the dollar and so you pay price for that in the dislocations in the economy. You also combine that with the we still havent fully recovered from the lockdowns now you look at china to the recently for example those severe but i think were unnecessary lockdowns massive lockdown. And shanghai, perhaps beijing and other major cities in china have severely disrupted once again supply chains, which is going to mean delays higher prices at the marketplace. So the the nonmonetary kind of inflation factors are still there. The Biden Administration unfortunately is still putting barriers in the way of production of oil and gas which is raising unnecessarily prices at the pump and thats not just because economies are recovering. Its also because of a lack of supply and putting in regulations on infrastructure they put in some new rules. Theyre going to make Infrastructure Projects even more difficult to get approval for so all of these things combined together to give us an economy that is going to be going into unnecessary trouble. So the Federal Reserve has got to get its act together governments got to get its act together in terms of just leaving the economy alone not putting up these arbitrary barriers. And the amazing thing is as weve seen in the past when these policies are in place by golly things start to get better. Now, of course, i would like to see tax cuts not tax increases. I think that would help economic output which also helps the fight rising prices more supply, but i dont think were going to get that in the near term. I would love to return to the fed later, but i before i do i just want to continue on this topic a bit. Obviously, we saw a lot of spending from the government in response to the the covid shock. We saw first the cares act and in the 900 billion dollar package under President Trump and then we saw the American Rescue plan under president biden. I wonder to what degree you think that spending impacted inflation. Well during the initial covid lockdowns of obviously something emergency spending how to take place. I dont think anyone would argue with that, but unfortunately the pace is spending continued into 2021. You mentioned what present biden did and so the question then becomes when you have these spending bills, how do you finance them and a big chunk of the financing was done in effect by the Federal Reserve buying government debt, they dont do it directly the government auctions of bonds off dealers buy them and the dealers turn around and sell them to the to the fed and the fed and support for people understand how money is actually created in this case. Lets say the Federal Reserve calls up a dealer. Lets use Goldman Sachs as an example and say we want to buy that says we want to buy billion dollars of government bonds. A goldman says fine. They deliver the bonds. How does the fed pay for those bonds . They credit a goldmans bank account for one billion dollars. Where does that one billion come from out of thin air . This is the ultimate atm machine. They just created out of thin air and thats what the fed was doing long past when i thought it was justified. They were doing it in 2021 at a huge pace keeping Interest Rates artificially low and the now were a pain for the price for today. And the question is can the fed unwind this in a way without giving us a big recession. Okay, timely topic. We we just recently had a fed decision in which they announced that theyre going to start drinking those those bond holdings. I wonder you know, most economists would say that those those what you just wait the process you just describe by which the fed creates money and puts it in the system in order to buy these bonds isnt quite the same as Government Spending in the sense that a lot of that money basically just sits on on bank Balance Sheets. It doesnt trickle into the economy in the same way and i wonder i wonder what your thoughts are about that because it does seem to be the case that theres some debate in the Economics Community around how inflationary that process really is. Well when you have massive amount suspending and the scale of the spending in this crisis was exceeded anything weve had in a peacetime. And so the question then becomes how do you finance it and was financed a big chunk of it was financed by the Federal Reserve buying those bonds each and every month and again creating money out of thin air. So the Government Spending created pressure for the Federal Reserve to respond by financing it. Otherwise, they felt the bonds might not sell in the marketplace. You might have higher Interest Rates than they wanted and you would have a trouble so the fed stepped in and bought those bonds at some point one point during the crisis in early 2021. Theyre buying over half of the governments new debt, which was unprecedented that kind of scale of bond buying by the Federal Reserve. So now as you alluded to theyre starting they say theyre going to start to pull pull back on that but theyre starting very very slow pace and what the danger with the Federal Reserve right now is they still believe they have this mistaken notion that you fight inflation by depressing the economy when they talk about soft landing thats fed speak for can we slow the economy down slow job creation and avoid a recession. Thats what soft landing means too often in the past soft landing in terms of economic terms of meant crash landing ie a fullblown recession, but its a bogus idea that you that the way you fight inflation is by depressing the economy the way the fed should do it is keep the dollar stable in value. They did this in a sort of way in the late 1980s and 1990s when Alan Greenspan was the head of the fed and he said at the time he was keeping the dollar trying to loosely tied to go loosely tied to commodity indexes. So at some sort of frame of reference unfortunately, the late 90s he forgot that frame of reference and we got the troubles that led to 2008 but the fed in the past has dealt with the dollar and a more or less semicorrect way in the late 80s and 1990s. But now they seem back to the idea that you have to have have to really slow down Economic Activity to fight inflation. And i think that just gives us unnecessary trouble. Were gonna have problems enough readjusting postcovid and the fed. Unfortunately anything is going to make make it much more difficult. Id love to get back to that point about alan green the Alan Greenspan era because its an important point in your book. But before we do, id like to just finish talking about bond purchases because thats also an important point in your book. I wonder how you sort of square this argument that youre making which is that fed bond purchases spur inflation with the reality that we had fed. Bond purchases also been very large quantities over the sort of postfinancial crisis period and we didnt see a lot of inflation. In fact, we saw very low inf over that period and so i wonder i wonder how those how those things work together. A very good a very pertinent question because what happened after 2008 was a two things one is the Federal Reserve while theyre creating this money in effect froze the money, you know, the mention they the fed buys the bonds they credit the bank account that the dealer has at the Federal Reserve and what they did was something theyd never done before they started to pay interest on those reserve. Theyd never done that before at the same time. They were putting pressure on banks to slow down lending. Thanks for hiring more after the disaster of 2008 2009 banks are hiring more compliance officers and loan officers. So the volume of loans went down even though the reserves went up. So the fed in a regulatory manner it was putting pressure on banks. Well, they thought lending was risky. So slow it down. Theyre paying bank. Some interest to so the banks are still earning money on that even though they didnt lend it out. And also you had the banks replenishing rebuilding their Balance Sheets leading up to 2008 banks got took on too much debt. They did not have enough equity. They did not have enough free free assets you might say and so they had to spend several years and this is why one of the reasons why the fed did qe quantum what they call quantitative easing was to help the banks replenish their Balance Sheets and they had this thing what they call basel 3 Basel Switzerland and the regulators around the world got together and put in Capital Requirements for banks. They call it basel 3. Were meeting the new requirements under basel 3. So you had a period of time where regulations regulators didnt want you to be aggressive in lending theyre paying and they still do today. Theyre paying interest on the reserves and banks were rebuilding the Balance Sheets. That have been battered in 20082009 because they went overboard and lending before 20082009, but its very clear in 2019 that basel 3 requirements or more than fulfilled banks were brimming with reserves. And so we are heading for trouble even before covid. And so what you have today is banks are loaded with cash loaded with reserves and if lending activity picks up that is what they call money creation when banks start to lend the money and thats going to cause could cause problems in the economy. So well see what the fed does if they try again through regulation Interest Rates in the light to try to freeze that money. They created to make sure it stays in the deep freeze doesnt go into the economy strange, but thats what they did. Obviously we have seen quite a pickup in mortgage lending but aside from that debt levels have been relatively steady throughout this period for example, weve seen some uptick and auto loans, but we havent seen a lot of credit card. Indebtedness increase and so i wonder i wonder if you think that this is a problem for tomorrow if this is something were going to see play out and it hasnt quite manifested yet or whether you see signs of this is already happening. Well, i think one of the things that we have to keep an eye on, is that as the payments that were made during the covid crisis when we wanted to keep people above water because everything was being shut down you couldnt earn go go go or money on a job anymore up as those as that cash starts to run down. The savings rate is starting to move down and people see prices rising up they and getting less for their wages. As you know prices are rising at a faster pace than than the wages are. I think youre going to see pressure to for people to be household pressure to be borrowing more businesses are going to want to punch inventories. Theyre going to want to be borrowing again. So you have situation where the distortions created by the covid lockdowns are going to start to work their way through and youre going to have a situation where theres a lot of money. Essentially out there people are going to start to desire to borrow again. People want to spend again. People want to live a life again and but theyre doing in the headwinds of rising prices, which means theyre going to be looking for more cash. Okay, interesting interesting, and i wonder you know you obviously you mentioned earlier the greenspan era as in the early 90s as a period that you think is worth emulating. I wonder if you could walk through in a bit more detail what you mean by that. While during the 1990s which they call it the time the great moderation the Federal Reserve kept the value of the dollar fairly steady Interest Rates were fairly steady. So you had an economy that was growing after bill clinton came in. Yes, he put in tax increases which slowed things down, but then he put in tax cuts which people forget today including a big cut in the Capital Gains tax and so the us economy enjoyed a boom after the early 80s, especially in the late 80s and 1990s. Yeah, theyre ups and downs, but it was a pretty decent period so there was stability. Relative stability not perfect, but relative stability in the value of the dollar and so the economy responded to that now obviously there are other factors that affect an economy, but the thing to remember is money makes it possible to buy and sell and so it should have a stable value. You know when you go buy a pound of cheese you expect to get 16 ounces. It doesnt float 14 ounces one day 18 ounces the next you will go by gallon of gasoline. You expect the size of a gallon to be steady and so an economy works best when money has a fixed a stable value that you know that youre going to get pretty much if you have a dollar today you lend it out here two years three years what youre going to get back is pretty much what you lent out if you have that kind of inst. Today you get less productive longterm investment more speculation and then you get in trouble. Now what happened in the late 1990s . I dont know whether the Federal Reserve meant to do this or not. But what the clinton tax cuts and the rise of the internet where they kept taxes off and with a hardly a regulatory of hand at all. You saw the economy boom the dollar became desirable and the Federal Reserve started to tighten up you saw it in a crash and Commodity Prices. He saw it in Agricultural Prices go down Oil Prices Went down and then so that that was a mistake the Federal Reserve titan when it shouldnt have then in the early 2000s the fed one in the opposite direction. Oh, we had a special recession the fed then when in the opposite direction and weakened the dollar so suddenly oil went from 25 dollars a barrel to a hundred dollars a barrel was that because oil suddenly became harrison people are using it more no wasnt so much that oil was getting more valuable. The dollar was getting weaker and when you have that kind of weakening of the dollar, what is that lead to it leads to people going to hard assets starting with commodities and we sought play out in the disaster and housing which came crashing down and led to the crisis of 2007 eight and nine. Its interesting that you mentioned oil because obviously that is a market its very effective by Global Supply and demand dynamics and i wonder you know, if that it seems like that would be more kind of thing that you talked about when you talked about shocks to inflation earlier, but i wonder why why you chose to frame it as more of a money thing in this case. Well oil or any commodity the price will change if people want more of it or people want less of it, but when you get these violent changes in price, even though the the economies had much change then you know, youve got currency problem. Go back to the 1970s during the great inflation of the 1970s which we discussed in the book oil was about three dollars a barrel up and down throughout the 60s then when the inflation started we had several rounds of it during the 70s and early 80s. The price of oil went from roughly three dollars a barrel to almost 40 a barrel and people talked about. Oh, he must be running out of it. We need to invest more in it. He saw in terms of hard assets. You saw farmland prices zoom up because it was a hard asset you saw Commodity Prices go up and then when the inflation was ended in the early 1980s what happened oil crashed from forty dollars a barrel to around 10 or 12 dollars a barrel finally settled at 2025 so he had a depression in the 1980s in texas the rest of the economy was doing fairly well, but texas was in a virtual depression as the crash in the energy industry. You saw the farm belt. Inch the same thing, iowa which had been a red state went democratic in 1988 because of the distress in the farm bell farmers going broke because they borrowed the land prices were going up. They are theyre commanded the prices for the crops are going up and suddenly the prices crashed and they are left with a lot of debt and one of the things that happened in the farm belt since was when you had another commodities boom as a result of the weakening dollar a most farmers are very careful this time not to take on debt because they remembered what had happened before so price. This is like inflation. This sense like a virus in a computer. It distorts. The information prices are supposed to tell you what people want what people dont want. And if you if the price is telling you giving you false information like oh oil is suddenly very valuable. Then you get the money misallocated capital misallocated and you end up with the kind of a tears that you had in the 80s and the oil patch and they went through a hard time after 2012. So again stability is good. So you want prices to be set by people buying and selling in the marketplace not because of changes in the value of the dollar. Particularly all mainstream economists attribute the 70s and 80s Oil Experience in large part to the embargoes that were happening with opec and really just extremely constrained supply during the 70s that found rebounded during the 80s and i wonder how you think about that supply side of the dynamic. Well, this again is one things we point out is that prices are a symptom of inflation. Theyre not the cause theyre result of when you have in this case a monetary inflation. And so the arab opec made very clear in the early 70s. They said if you continue to have this devaluing dollar. Prices are going to go up. And so again, it wasnt so much that oil suddenly became more valuable or opec suddenly became more powerful. He had a greatly weakening dollar. So everyone and then we made we made the situation worse in the us by putting on price controls. And so which distorted the market so we had these lineups where youd wait two hours to get five gallons of gasoline. Youd have alternate days where youre allowed to buy gas. Depending on the number of your license plate and stuff like that. So the mistake of devaluing the dollar and then the controls they put in turn to bad situation into a disaster. But again when the dollar was finally stabilized somewhat in the early 80s, you saw oil prices come down and while they focus on oil copper prices went up when oil was going up and there was no opec and copper Aluminum Prices other prices were going up and there was no equivalent of opec and if opec was so for why why werent they able to control prices after the 1970s . So the distortions you saw in the oil market in the 70s or a result of a weak dollar not suddenly opec or a huge surge in demand for oil. There was less supply for oil in the 70s or do you disagree do you do you have other data . Well in in the 1970s there wasnt some sudden shortage of oil what you find is when a currency weakens and we walk you people through in the book when when when you have that kind of a distortion people will do some anticipatory buying because they figure they wont be able to get it and we see sort of that play out a little bit during the covid lockdowns. So many people feel. Oh, were not going to be able to get paper towels. Were not going to be able to get this were not being able to get that and so you have anticipatory buying so you get an artificial surge which then when things calm down play out, so thats what you saw in the 70s was not so much supplying demand you what and and oil is an international market. And so when they said, oh, we wont sell oil to the us there are plenty of other so youd sell it through a holland and then they would sell it to us the oil flows where the demand is. So oiled suddenly again in the 1970s did not suddenly become more valuable but on a scale of 12 to 13 going from three bucks to 38 dollars almost 40 dollars wasnt certain value of the oil. It was the weakening of the dollar and when the weakening stopped oil went tumbling down dollar prices. Okay, i think it is important to note for viewers. So there was some constraint supply in the in the 70s, but id like to move move back actually and a lot of the constraints some of the constraint was again price controls put on when reagan took off the price controls in the early 1980s investment flowed and by golly you got more oil and you got a lot of lower prices so stable dollar more supply kaboom and the oil patch. Id like to the motorist is great. Id like to move back to the greenspan era because you do talk about it quite a lot in the book and you talk about it very much in the context of you know stable. Isis being essential obviously in the greenspan era though, and in their early 90s, we still had some inflation it sort of hovered in the two to four percent range, which is relatively similar to what weve seen, you know for much of the decade prior to the pandemic it actually a bit higher and i wonder if you could talk a little bit about how you square with that with the idea that it would be better to have no inflation at all. Well in terms of again anyway this where we have to make a distinction between nonmonetary and monetary inflation what you as paul volcker who in the early 1980s headed up the Federal Reserve and to kill the terrible inflation at a very high cost that had been inflicting us in the seventies because in the 70s, theyd fight. It not fully kill it then would come back worse than before. So we went through a very grim period in the early 80s to finally stop it once and for all and he rolls we did an interview with him a couple of years ago and he four years ago and he would roll his eyes at the idea that 2 inflation is good in terms of the stability of the dollar you want you dont want inflation or deflation you want inflation. Now, this is a very subtle point you may get prices going up because of supply and demand. For example a hotel room in cambodia a very poor country is going to be a lot cheaper than a hotel room stay in singapore very prosperous country when a country becomes more prosperous. And peoples salaries are going up in real terms. They not only start to buy more things, but theyre going to want more services for example take somebody who cuts hair barber. A barber if a country comes more prosperous a barbers not going to continue to be accepting as you saw in the 1970s two dollars for a hair or lets say in the early eighties four dollars for a haircut. Youre not going to get the labor. So youre going to pay the barber more because the general prosperity is going up. And so thats not that that is just supply and demand and people buying more things and this gets to one of the flaws of price indexes as they often dont really keep up with the changes when you have more services coming online. You have more products coming online the whole rise of the internet the whole rise of iphone cell phones you take for example, the original cell phone in the early 1980s coming out of motorola across 3,950. He had a very battery that lasted about an hours as big as a the phone was as big as a shoe box waiting like a brick now today you have devices even though they may cost 8,51300 depending on the model that are virtual supercomputers way beyond voice thats awfully hard to calculate in a Consumer Price index whether that is really going up in price or down in price. You look at typical automobile today in the shortage of microchips some emphasizes that vehicle today is infinitely more complex and does more more things than the car. You would have bought say in the 1970s or the 1980s. So those those kinds of things so you may depending how you put your Consumer Price index up and what you put in it may go up one or two percent, but thats very different from a currency losing value. So the key thing is again keep the dollar steady in value prices will go up and down depending on supply and demand or if you get a drought or Something Like that, but these things will themselves out and so in terms of a Consumer Price index you could make a case that if you had stability might go down a little bit not because of a depressed Economic Activity, but because of productivity as we now see in the in the handhelds. Interesting and you make a big point in the book of arguing that we shouldnt be aiming for really any inflation over time it the fed obviously has a 2 inflation target, so they do prefer a little bit and they when they explain that 2 inflation target they often use basically the logic you just lay it out, which is that over time as the economy evolves. Youre going to want to pay a little bit more in wages and as Companies Pay more in wages. Theyre going to need to charge a little bit more so that they dont destroy their Profit Margins and so a little bit of inflation is basically like grease on the years of the economy is the phrase theyll often use and i wonder i want if you could walk us through your argument of why you think thats thats not the right way to think about things. Well, its manipulating a measure of value. We have 60. Lets take an hour 60 minutes in an hour. If the fed was in charge of the time bureau i could see them making the case inside gee if we gradually increase the number of minutes an hour from 60 to 61 or 62 look what that would do to productivity people would be working longer at the same wages. And you say thats ridiculous an hour should be an hour and people would start to notice something strange going on the same thing money is a measure. Theres something we emphasize in the book money is supposed to be a measure of value. When when you go to a restaurant, what do you get you get a coat check piece of plastic or piece of paper . In and of itself worthless, but its a claim on a real product you buy a ticket to an event whether its ellipsis on your handheld or paper ticket or whatever. Its a claim on a real service a real event money is like claim checks. You get it well for a working or selling something or whatever and then you are able to go out and use it to purchase something you want. So you dont so the idea that if you manipulate the value of what you earned somehow can gin up the economy it never works and one thing to keep in mind. Is that when you think manipulating money whether its low inflation or high inflation as the way to wealth no country becomes a colossus with unstable money. And you look at for example, we point out for 180 years and economists hate to hear this but 480 years. The us is largely on a Gold Standard till the early 1970s. And postWorld War Two they put in a thing called the Bretton Woods International Monetary system. You can look it up on online and the dollar was fixed to gold at 35 an ounce. All that meant was that when above 35 it reduced the money supply went below 35, theyd increase it. They keep they try to stable and value. During that period of time the us average growth rate was 4. 2 percent from the late 40s to the late 60s and since weve had this era of relatively unstable money since the early 1970s. The average rate has gone down to 2. 7 now. I hate to use numbers like that, but you think well, yeah, its a little less but not that much but you compound. That slower average growth of the last 50 years. Compared to the previous growth we had for 180 years you compare that average growth. And compounded and you realize over time. It has been devastating the Median Household Income today is roughly about 67,000 depending how you measure. But number they widely used 67,000. If we had had normal Economic Growth rates. That that nominal that income that Median Household Income would be a hundred thousand dollars to 110,000. Thats over 50 years. I think most people would say gee wed love an Economy Today where were earning twenty thirty forty thousand dollars more. With stable prices. Thats the longterm cost and the thing is money is how we relate to strangers. I dont have to know you but we can do a transaction together. We can put a business complex supply chains with people. We dont even know by using something trustworthy like stable money. And when money starts to change in value and people dont understand why it is changing in value why their dollars arent going as far as they should be where suddenly speculation is paul volcker has pointed out suddenly seems to be a way to get ahead rather than honest work. Its debilitating in society and leads to social problems and countries that repeatedly play with their money devalue their money are more violent societies. They have more crime we point to brazil. Brazil in the last couple of years has tried to stabilize this currency, but its been notorious for decades. Look at the crime there terrible, so you get less social trust you get more lawlessness when you have unstable money, and there was a book written about the german hyperinflation in the early 20s, which made possible help make possible the rise of adolf hitler when they destroyed completely destroyed their currency. A book called when money dies pointed out that before that hyperinflation. Germany was probably the most lawabiding country on earth everyone obeyed the rules then with the hyperinflation suddenly that went by the boards because you were a suckrophy played by the rules because you were going to lose and see more lawlessness had more people cheating people not looking to the future just living for the moment. It was debilitating to civil society. And that was a hyper inflation, but you can get over time. A gradual under mining of social trust. Its not as dramatic as what happened in germany and what you see in venezuela today, but is still debilitating and it so its not just an economic thing on prices and stuff like that. Its also about how we interact with one another how he trust each other and something the economists dont pay enough attention to but they should because it has real consequences the fabric of a society when you have unstable money. I have so many followup questions on what you just said, but ill start with sort of one that zeros in on the point you just made about falling growth rates. I think the mainstream economic argument for why growth rates have fallen over the last 30 40 years very much centers on the aging of the population. You know when you have a younger population people are working more people are buying more. Theyre buying houses. Theyre having kids and as people age you have less of that activity and the economy naturally slows. I think the second thing people sort of talk about is this idea that a lot of the lowhanging fruit when it comes to Macroeconomic Development has already happened here because we went through the industrial revolution. We went through the era of interconnection. We went through globalization. All those things were very good for you know the economy, but those those things have happened and you cant do them again. I think Robert Gordon who wrote a book on this one of the things he says in it is you cant reinvent the washing machine and so that sort of that idea and i wonder i wonder how you square that sort of mainstream narrative about what has happened with growth with the one you just laid out. Well the thing about talking about Economic Growth in the future is you cant see the future. No one in the early 1990s, maybe could handle around one hand could lay out the implications of the rise of the internet. Imagine if you could bring somebody back from the dead who died in the 1980s and try to explain the internet. You would have a hard time doing it. They couldnt comprehend it unless they live with it. And so nobody foresaw the rise of google. Nobody saw the rise of a facebook. And so the say well at the time well, everything has been invented. You find in every era people who say well the low fruit is all gone. The easy inventions are over and now were in a period of consolidation when the Great Depression hit. You had a lot of economists including president Franklin Roosevelt gave a speech on in San Francisco when he was running for president 1932 saying the age of great enterprise of big new inventions and new corporations and blah blah blah are over and its a period of management and consolidation. Well the economy of 1932 bears no resemblance to the economy vibrant economy multitudinous economy. We have today you cant foresee what people are inventing and even during the 1970s during that great inflation of the 1970s. Look what was happening below the surface of things fedex was being invented and jen was being invented. Apple was being invented microsoft was being invented oracle is being invented southwest airline all of these things that nobody saw at the time were rising up and fedex created a whole new industry and the rise of the pcs created a whole new industry. Nobody foresaw that in the 1960s like that or what it would do to a mainframe computers. So these people say well were in a period where all the inventions are over no way. Theyre people out there working in garages and elsewhere or coming up the things things we cant even imagine especially especially in healthcare the government doesnt smother health care. Youre seeing a lot of research and i hope im an age where i like some of these breakthroughs to happen where in combating diseases some major big things are in the offing so peoples inventiveness if you have an open environment and allow it is endless coming up with things that other people didnt foresee. Theres a book a few years ago about musk in the rise and others the rise of paypal. Credit Card Companies and banks at the time when that was starting didnt they could have crushed it and then and the early participators were wondering why didnt these big guys come in and crush it because the big guys didnt see what they were doing and realize the implications of what theyre doing. So even though paypal stock has taken a hit still worth over a hundred billion dollars and none of the incumbents at the time 30 years ago 25 years ago for saul with paypal would do and you have that going on all the time if you have a free economy people things people never thought of yeah, thats interesting. I guess. I wonder how you square that with what we see in sort of the international context, which is very much the case that as Companies Develop as they sort of move up the industrialization ladder and as their population growth slows their growth does tend to slow i think china, you know obviously is a very obvious example that weve all probably watched happen within our lifetimes. It really went from being sort of a double digit growth economy to moderating down towards 6 and i wonder how you square that sort of Global Experience where it does seem like the mainstream story basically checks out and and what youre arguing well what i think the point being made is one is yes. Its one thing for a country to grow catching up. You might say but also even though we have deep deep real problems with china today, very serious sister strategic problems with china for a while before xi jingpin came along you had not only catching up in china, but they allowed remarkably as long as you didnt get involved in politics allow hightech entrepreneurs to flourish. So china became rather inventive. And so it wasnt just catching up and thats the key thing. Its not just taking whats there and saying well, were not there but in five years well be where everyone else is. Its that you have constant change and innovation. That what do we accept as normal today looks obsolete and silly tomorrow and so in the United States because of massive regulations and other mistakes. Weve made we havent been creating new businesses on the scale that we traditionally did. I think thatll change in the next few years. I mean, were going to create an environment where that kind of flourishing will happen again, and so again people are always looking to do things better. People are always coming up with ideas most of them fail. But some of them really stick and for profoundly change our lives and just just to go back on that a little bit. I remember the early 1980s when pcs first came along people wondering. Oh, thats very interesting. What are they good for, you know keeping track of your recipes in the kitchen. Im making typing easier. Theres no conception, especially when you start a network these machines what it would do nearly put ibm in the early 1990s and in the corporate graveyard, theyre now back in a very vibrant company, but no one foresaw. Most people didnt foresee what these devices which look like. Theyre just play things for hobbyists what they would actually do in terms of profoundly changing our lives where everyone today even if youre utterly technically ignorant. This is the virtual free market. You can operate a super what is equivalent of a few years ago. What have been a super computer. We just take it for granted. Its amazing now in the book you quite a bit about going back to the Gold Standard as a solution to the current inflation, and i wonder if you could just sort of lay out your argument there. Well, all the Gold Standard is and there are various kinds of it if we touch on is that you for a variety of reasons gold keeps an Intrinsic Value better than anything else on earth and has for 4,000 years, not perfect but better than anything else, so when you tie your currency to say gold all it means is it doesnt restrict your money supply we point out from 1775 to 1900 from 1775 when we started this national experiment. The money supply in this country is best we can figure out went up 164 and and yet the dollar was fixed to gold the gold supply only went up three or four times. All that gold is like a yardstick a measuring tool like a clock measures time a scale measures weight goal and money meas. Value so when you keep it to a fixed rate whether its used to be 35, how long ago that was but pick a rate today 1800 2000 all that means is that the the dollar will stay relatively stable in value. So lets lets first simplicitys sake. Lets pick 2,000 because its a round number. So if youre creating too much money in the gold price starts to move up above 2000. Thats a signal youre creating too much money if it goes below 2,000 for a while. Its a signal youre not creating enough money again. No Monetary System is perfect. But over the span of history. Youve never had an inflation when youve had a Gold Standard and the us had 180 years from 1790s when Alexander Hamilton George Washington put us on a Gold Standard. They fixed the gold in the east put in silver in that those days too. We had a Gold Standard from the 1790s and 1970s. The us experienced even though we had a civil war depressions world wars. The average growth rate was the highest in Human History now, obviously, there are other factors, but the key thing is money makes it possible for people to invest in the future. Take more risk have more trust in them and and their day to day activities and over time. The results are astounding when you look at where we began and we didnt invent it the dutch. Did it back in the 1580s and became the Global Center of the world the english which were a second tier nation in the 1690s early 1700s went on the Gold Standard and did other positive things. They became the son of the world Alexander Hamilton. We took it another step and we became the Capital Center of the world and the largest economy in the world, but a country can get the regulations right spending right the taxes, right . But if you dont get the money right you are going to have problems because money again is not wealth in and of itself. Its a measure of value and thats what i wish our central bankers would understand you dont muck around with clocks. You dont muck around on scales. You you shouldnt muck around with value of money. I would love to drill down on the the point you just made actually because as our viewers may be familiar with. The you know, we were on some variety of Gold Standard sometimes a golden Silver Standard for much of the postrevolution period up through up through Bretton Woods, but we left it pretty regularly. I think for a good example is during the civil war. We basically completely abandoned the Gold Standard the Union Printed greenbacks and vastly expanded the money in circulation and you know, obviously there was there was inflation after the civil war, but i guess i wonder you know that did happen repeatedly and i wonder how you see a Gold Standard working in the modern era. What what would make it the reason we left the Gold Standard ultimately is because we couldnt defend it because we could not expand the money supply to meet demand basically, and i wonder what you think has changed. Why would we be able to do Gold Standard today when we used to leave it repeatedly in the past . Yeah. Let me hit two things on that. Yes, periodically the us left the Gold Standard. You mentioned the civil war, but it was always understood after the war. You would go. Back to it. So civil war we went off it and during wartimes big wars everything goes by the boards. You do everything you can to survive, especially a total war civil war two world wars. And so peacetime finance goes by the boards everything focuses on winning the conflict and postconflict. You try to reestablish what you had before and get back to normal and move ahead. Thats what we did after the civil war. I think they made some mistakes in the transition, but it was done. Thats what we did after world war one. Thats we did after World War Two. Sometimes you get a devaluation arbitrarily roosevelt Franklin Roosevelt thought helping get out of the depression 33 34 to devalue the dollar which she did at old amenities and do much good. Were still married in a terrible economic troubles, but but for the most was understood during the 180 year period even though he may have a crisis or a war eventually you would go back on it britain. Example i mentioned britain earlier during the napoleonic wars the 1790s to the around 1815. Britain was off the Gold Standard because theyre fighting of what was then qualified as a world war certainly continental war for their existence. But after the war was understood you would make the transition back onto a Gold Standard after world war one and this is another stubborn for another time britain botched it they made huge mistakes, but it was always understood certainly in this country. Youd eventually turn to go now in the early 1970s. We went off of it not because of any existential crisis, but because of fallacious economic and political thinking they they the people the us was not. Pursuing Monetary Policy in the way. It should to keep the dollar fixed at 35 an ounce. If theyre just sold bonds bought bonds to keep that 35 announced thing. That wouldnt have been a crisis. So why did they go off of it . They thought nixon and his treasury secretary connelly and others profession thought gee you can have a devaluation of the dollar thatll help stimulate the economy. Were in a mild recession at 69 and 70. Theres an election coming up in 1972 and as politicians are want they think thats the most important thing in history. So they close the gold window put in wage in price controls as a way to a goose the economy and when the election will nixon won the election, but by taking the us off a gold and not returning with the devaluation the dollar sank, like a stone countries went out had chaos you had the terrible inflation of the 1970s and but they didnt have to go off of it. It was a political decision and and economic thinking to think you can let your currency go up and down like a stock. Its like saying the number of minutes should float up and down or the number of ounces in a pound should go up in it. No, its supposed to have fixed fixed weights and measures and thats their big mistake and it was unnecessary and weve been paying the price for it ever since so to win an election. We destroyed a system. We didnt realize the full implications of it and i think someday i think ill and i think ill live to see it. Were going to realize Alexander Hamilton George Washington had it, right the old bridge had it right the old dutch had it right. Well go back to stability and youll see this country confound those as say were in an era of slowness all the great inventions are over. Theres going to be stuff coming along whether its software kind of thing or whether its fighting diseases that are going to astound us and but we do get we do get spo. I mention a handheld, you know, which is a miracle. So if you place a call to a goat herder an outer mongolia, it takes longer than six seconds to connect you say what a piece of this is, you know, we just take for granted these great breakthroughs, but the great great breakthroughs will come but answer your questions about the early 70s. I was totally unnecessary. They botched it. They didnt have a crisis to justify it interesting interesting and in the book, i want to make sure we hit this point because i thank people will be interested in the book you dig into a little bit this idea that cryptocurrency might be a reasonable alternative to gold and i wonder if you could walk through your thoughts on that. Well cryptos, i dont think will be an alternative to gold. Although some may see it as a speculative vehicle and we make the point that cryptos the kind of crypto we think of is take bitcoin. That is so volatile and value. You cannot use it as money. Imagine if several years ago you took out a mortgage. Lets say you took out a 250,000 mortgage on your house and you did it in bitcoin. You probably owe the bank 10 or 20 million 30 Million Dollars today. That instability is not money that is a speculative vehicle the real miracle of of the cryptos is what theyre creating in terms of a Technology Blockchain blockchain technology, i think in the next 10 years is going to profoundly change the whole payment systems. We have again another subject for another time. What are we think . You should watch for on. Whats happening with cryptos is what theres a class called stable coins. Which are growing in popularity a stable coin crypto is tied to a specific asset. Whether gold or the dollar or a basket of commodities, but its tied to something. So you have stability and value. I think as technology evolves. And it becomes easier. To use cryptocurrencies for commercial transactions and ultimately easy and trusting where you can use these things to write longterm contracts, which you wouldnt dare do today because mentioned what happened with bitcoin. Youre going to see coming years. Youre going to see stable coins become an alternative to government currencies and thats why for example turkey which has had a terrible time in the last year with its currency banned stable coins. Because they thought as a threat to the turkish lira, i think youre going to see him coming years a real Regulatory Political battle coming. With a stable coin cryptos versus government money. And thats going to be very interesting to watch but thats where on the money side. I think youre going to see the real surge is going to be with stable coins for people say i trust that more than i do my central bank and in a country like venezuela or some of these other countries, i think thats going to have a lot of appeal. Thats an interesting point. You also i want to make we dont have a ton of time left. So i want to make sure that we talk about this you have a section in your book where you talk about what you think where you think people can invest to sort of whether the current inflation and i wonder if you could just sort of walk through your bigger points there. You know, what what is your advice in this moment of inflation . Well, we begin were talking the book that we at forbes we ran a cover story back during the terrible inflation of the 1970s and and the cover was there was a come on how you can prosper with inflation. And then we went and then we go how you can fight in flight. So when we got into the story we revealed weve got honest in the first sentence and saying theres no way youre going to fully most people can fully protect themselves from inflation. Its going to hit everyone but there are things you can do whether its a buying whether its a stores that deal and bargains, but whether its hard assets whether its a real estate. Farmland forest land or things like that you look for companies. This takes work. Theres no easy way to do this, but this takes work where you try to find companies that have a history of good cash flow. One of the things thats going to happen now the fed is raising Interest Rates is a lot of companies that were surviving because they could get no virtually no interest loans or bonds or very low interest loans. Theyre going to be choking when those rates go up. So youre going to have unfortunate some carnage on the field coming soon with that. But in terms but in terms of investing you got to do the work what companies have good cash flows. You want several what companies have a history of raising dividends not just of dividend today, but where you can look forward to maybe getting more might help you keep up with inflation and we we walk people through that. But again, you have to do real homework. For example on commercial real estate. There are some cities you could make a case like a new york or San Francisco or wherever where there might be over building of commercial real estate. You dont want to do that. So theres Good Real Estate and not and real estate you want to avoid . And so you can do some of these things. And you should have some gold just not as an investment, but as an insurance policy like Homeowners Insurance or Auto Insurance in case of an accident you want it as as an insurance policy we walk through whether its better to own the coins. I think it is rather than a mining company, but then we talk about their Certain Companies that deal and royalties that you might want to look at and the other thing to keep in mind is is that what works during inflationary period probably wont work during a noninflationary period so you have to be ready to be nimble. You have to be on the lookout it does it look like the government is really serious about getting this thing under control and it knows what its doing. Its the fed doesnt know what its doing today. And then youre going to have to change because as we mentioned earlier oil, which was a Big Wonderful thing in the 1970s and farmland were disasters in the 1980s. So it worked in one era doesnt necessarily work in another era. So you have to work you have to be nimble and realize youre dealing with forces that ultimately are beyond your control. Its humbling, but thats what the authorities have done to us. Interesting and have a i think what is a pretty provocative line in the book as i say as somebody who covers the fed and Monetary Policy. So i wonder if you could expound a little bit on on what you mean, and maybe we can make we can make this our final topic, but you say and im quoting from page 130. Theres no such thing as price stability even during times of little or no inflation. And obviously we know that the feds mandate is price stability, so i wonder what you mean by that well, this is a sketch to prices in a normal marketplace and that is prices are always changing because peoples preferences are changing new products or improvements come along so prices fluctuate. They dont stay flat you look at a typical house today versus typical house 30 40 years ago, very very different certainly going to need more electrical outlets or more juiced you might have had in the past. So those kinds so youre always going to get those kind of Price Fluctuations people might like a new fancy shoe or whatever so that price will fluctuate or they may turn away from something that price may crash. So perfect and then how you measure what is price stability the these indexes they have different kinds which tells you something. Theres no one kind of index. They think its very signed Producer Price index but Consumer Preferences are always changing. Shes new stuff comes along. It looks like his exotic and expensive today. Then becomes a common place tomorrow how many people could survive today without a handheld 20 years ago you had games where how many days could you go without your cell phones . We call them then and you could go maybe two or three but today you have to have it with you all the time. So these things are always changing and theres no way governments either came anticipate those changes because nobody can foresee the future. I dont know what the next steve jobs is doing is going to come up with and and so governments cant foresee the future and its very hard even measure what people are doing today. Okay, enjoyable humility would be in order. Im part of all of us. We will we will and done writers and on a humble note that i guess because we are we are all done. Thank you so much for taking the time. Its a interesting topic. Thank you. U can find more information booktv. Org or consult your program guide. The vast majority of americans 71 , believe the economy is rigged in favor of the rich and guess what . They are right. Morris pearl erica payne a few of americas wealthiest class traders know that while and joint as tonight to share in engaging and enlightening insiders tour of the nations tax code which is where they say everything starts. Morris pearl a former managing director of investment