Economics 101: Your Dollar Is Worth Less Than a Nickel Was in 1913 | Lawrence Reed

[00:00:00] A lot of people talk about economics and they seem to be armchair experts when it comes to today's economy. They're worried about the debt our country is in, which is over 40 trillion dollars now. Today we're going to delve into what economics really is. This is the first episode in a four-part series where we're going through the basics of economics. And you could really think of it as an

[00:00:23] Econ 101 course in four weeks. I'm Jenny Beth Martin and this is The Jenny Beth Show. Welcome to The Jenny Beth Show.

[00:00:47] Welcome to the show and joining me today is economist and author Lawrence Reed. He is also the President Emeritus of the Foundation for Economic Education. And we're going to be talking about economics in this episode and the next three after it. It's going to be a good series. I hope you enjoy it. We need to know more about our economy so we can figure out how we address the debt and inflation and we're able

[00:01:14] to help find the answers to the problems we're all concerned about today. Larry, thanks so much for joining me. Thank you, Jenny Beth, for having me again. I appreciate it. So let's talk about what we're going to do in this series. It's a four-part series. Kind of give the audience an outline of what we'll be discussing in each of the lessons. Okay. In this first episode, we'll talk about the basic fundamentals of economics, the building blocks that help us to understand it as a science. And then we go

[00:01:44] to a discussion in the second episode of systems of economic organization, where we'll talk about capitalism versus socialism and other things in between. And then the third episode is about money and inflation, which is on a lot of people's minds these days. And then the final episode, we'll talk about the myths and misconceptions about economics that need to be addressed. Okay. And then before we

[00:02:12] get into the basic fundamentals of economics, remind people what your background is, just so they understand that you are an expert and qualified to be teaching about this. Well, thank you. I have been involved in economics and economics teaching since my twenties. I was president of three different think tanks over the years. I taught economics at the university level for seven years, and now as a very

[00:02:40] active president emeritus of the Foundation for Economic Education, I continued to write and to speak on economic topics. And I should add that on our website, which is feefe.org, we have more than 70 years of content on economics, commentary and articles about economic issues. So visitors who are turned on by what you and I do can visit our website and learn a lot more. Very good. Okay. So that's fee.org.

[00:03:09] Yes. And let's get into it. What is a good definition of economics? Well, you've gotten right off to a great start with a question that deals with something we talk about every day, especially when we have programs for high school and college students. Economics, I'll give you a definition and then we'll sort of pick it apart. Economics is the study of human action

[00:03:36] in a world of limited resources and unlimited wants. The study of human action in a world of limited resources and unlimited wants. Now to break that down, human action, we're not talking about anything and everything that humans do or, you know, we're not talking in economics about biology and physiology.

[00:04:00] You were talking about conscious, thoughtful actions that people engage in when they interact with other people in a marketplace. And there are parameters of that marketplace at any given moment in time, resources are limited. All you have to do is, you know, look at pictures of the earth taken from the moon and you can see it doesn't go off into space forever. There's only so much as big as it is.

[00:04:26] Um, and we also have unlimited wants. Everybody wants more than what they have. Well, I certainly do. And I think that, yes, that that's right. We always are, are reaching for, for something more. Um, at least most of us, I know there are some books on simplicity and,

[00:04:48] and not buying things. I, I've never been very good at that. Um, okay. So why is it important to study this and to find a way to, to address the, to balance these, these unlimited wants with limited resources? Well, uh, you know, we live in this, uh, world in which we can't just, uh, sit around and

[00:05:14] expect, uh, uh, food to magically appear or housing to just, uh, set itself up. We have to produce, we have to invest, we have to innovate. Uh, economics talks about how we do those things and how we do them in a sense or in a way that is rational and that, uh, helps as many people as possible. So when we're talking economics, we're talking about how you earn your living,

[00:05:38] uh, why you engage in this economic activity as opposed to that one. Uh, we're talking about how prices function in an economy. Uh, what happens when they go up? What happens when they go down? How do supply and demand interact with each other in the marketplace? All of these things are critically important because, uh, you know, society has to feed itself. It has to clothe itself, house itself. Uh, individuals are doing those things every day of the week in marketplaces. And that's what

[00:06:08] economics helps us understand. Okay. And how we humans, we've been exchanging goods or services and goods and items and figuring out a system where we're exchanging things. One thing, one thing I have for something someone else has throughout all of human history. How, how did it turn into this science or,

[00:06:36] um, who's the father of it and, and how, how, how did this come to be? I guess. If we lived as a, uh, Robinson Crusoe's on a deserted Island, just one person per Island, we wouldn't have, uh, much discussion of economics, would we? Economics involves, uh, the interaction of people, uh, to improve their wellbeing. So if there's somebody else on the Island with Robinson Crusoe,

[00:07:01] they would likely begin to trade, they would establish prices. They would decide, uh, what they want to do today that might produce income or, uh, uh, food in the future, that sort of thing. Uh, and so, um, everybody needs to be concerned about economics and everybody always has been, but it really wasn't a science of its own until the 18th century. There were people who dabbled in it from time to time. They

[00:07:29] didn't have a name for it, but they would from time to time talk about things like prices and markets. It was a man named Adam Smith in 1776, who sort of pulled together the best of what others had previously written about, added some new insights of his own and came up with a, uh, a book that became known as the first economics, uh, comprehensive economics book, uh, in the world that was called

[00:07:55] the wealth of nations. It had a more full title, the full title of it. And this is very important. The full title was an inquiry into the nature and causes of the wealth of nations. If you had asked Adam Smith, why didn't you write about the poverty of nations? There's a lot more of that than there is, uh, wealth at that time. I think he would say, well, because everybody

[00:08:22] knows what causes poverty. If you do nothing and just sit around, you're going to be poor. Uh, he wanted to know what causes people to suddenly decide, Hey, let's work together. Let's make this instead of that. Uh, let's respond to prices and produce and sell over here instead of there. Um, he was the guy who pulled it all together and produced that magnificent book. We are celebrating its 250th anniversary this year, same as we are for the country. Uh, and he was a

[00:08:51] Scot. Uh, he was a moral philosopher in Scotland. Uh, but he also in the process of writing that book effectively became the world's first economist. So we sometimes call him the father of economics. And, uh, was what he wrote in this book new, was it new thinking and how was it new? And was it different than what the prevailing, um, thinking about the exchange of goods and services was at

[00:09:21] the time? The system under which people lived across Europe, uh, and had been living for two or 300 years at the time, Adam Smith wrote the wealth of nations was called mercantilism. And, uh, Adam Smith was very much opposed to it because he thought that it was too limited in its thinking. Mercantilists used to teach that, uh, the world's wealth was fixed. It was only so much and there'll never be any more. So we have to fight over, you know, how to divide it up. But Adam Smith

[00:09:50] said, and this was a relatively new observation. He said, no, you can make a bigger pie. And you do that through things like the division of labor, specializing in the things you can produce at the lowest possible cost, engaging in, uh, uh, the creation of companies and, uh, uh, and marketing your products and innovating and improving, competing with others. Uh, that's what Smith devoted his attention to. And he

[00:10:17] blew that mercantilist myth away. He said, let's get over this idea that the world's wealth is fixed. We can produce so much more. Um, but you know, at that time to most people, it probably didn't look as though we were increasing, uh, the world's wealth. It had been pretty stagnant for hundreds of years. People weren't living much better in 1700 as that they lived, uh, in, as they lived in 1400.

[00:10:43] But, uh, Smith told us we can be a lot more optimistic. We can produce, and here's how, how you get, uh, that done. Um, when you see wealth is not fixed, that is something that he was challenging then. And it is also something that we have to challenge right, right now. We're $40 trillion in debt. It's

[00:11:05] a staggering, just a staggering number. And the, to me, the most alarming part about that number at the moment is that it is greater than our gross domestic product. Yes. And I want you to explain what gross domestic product is. And then, and then come, and then also this, the gross domestic

[00:11:30] product, it isn't fixed. We still can grow that. So explain, because I think that's a real challenge right now between what you and I think about the possibilities still ahead of us, even with this massive debt sitting right in front of us. And what, with the left and the, the democratic socialists and the communists are, are thinking right now on the other side that it, that everything

[00:11:55] in the economy is completely fixed. Yeah. Uh, yeah, it is an enduring myth, isn't it? Even though Adam Smith, uh, did his best to answer it, uh, 250 years ago, uh, he pointed out that, uh, whatever, uh, there may be in the way of earth's resources, it is fixed at the moment, but, uh, you're going to have more tomorrow if you do such things as invest and produce and create. Uh, and so that's why some people

[00:12:23] argue even that, uh, they, we can work our way out of the national debt, uh, by, uh, producing more. And, and that's true. If the national debt in the meantime doesn't continue to rise. Yeah. We have to quit spending so much money. That's right. We're spending $2 trillion more this year than we're taking in. And, uh, it's beginning to crowd out other priorities in the federal budget. Can you believe

[00:12:47] that in this year's budget of about $7 trillion federal budget, uh, about $1 trillion of it is going to go simply to pay the interest on the national debt? Well, just think of what, uh, we could do with another trillion dollars. Uh, we could give it back to the taxpayers who earned it in the first place. What a stimulus that would be to economic growth, or we wouldn't have to worry about running out of weapons in the Iran war. You know, there's talk about that today. We could

[00:13:16] put some of that, uh, to use there if we needed it. Um, but we're spending a trillion dollars now just on interest every year. And that is scheduled to rise dramatically in coming years. It's going to crowd out social security, Medicare, Medicaid, defense priorities. Um, if we don't turn that around. Yeah, we, it's why the Tea Party movement started and we're 17 and a half years old right now. Um,

[00:13:45] the modern day Tea Party movement. And we were worried about the debt when we started and it is nowhere, it was nowhere near where we are right now. But we were worried about this day when the debt becomes bigger than how much you owe. When, when that happens, if I bring in a hundred thousand

[00:14:05] dollars a year and that's how much money I earn in a year, but my debt is 150,000. That is, that is a problem. I understand you can have a debt for your house. So maybe you kind of pull the house aside because it's a 40 year loan and, and, or not a 40 year, it's a 30 year loan normally, but, um,

[00:14:31] you're, you, so pull that aside, but all of the rest of the debt, if it is over what you're bringing in, you're going to, you will crush under it. You can't, you just, you, you, it winds up crushing you unless you find a way to either stop. You have to stop spending so much, but then you also have to find a way to, to bring in more money so you can pay it down. That's right. Uh, there is a kind of a productive debt. You might say, uh, let's say you want to

[00:14:58] build a road that's going to service people for the next, uh, couple of generations. You might want to sell bonds to raise the money. That means going into debt, uh, to pay for the road, uh, in the 20, 30, 40 years that it'll be around. Well, that's a productive investment. Uh, the problem today is that we are going through the federal government ever deeper into debt for current consumption. Yeah. For stuff that, you know, we, we eat or we use and it's gone, uh, not, uh, capital projects

[00:15:28] like roads or buildings. And, uh, we probably should have had a provision in the constitution a long time ago that said when the government issues debt, it can only be for certain capital, uh, projects that will generate a return over time, not for, uh, financing current handouts. You know, Larry, that is the first time I've heard something like, like that when it comes to

[00:15:55] a balanced budget amendment. And we've, there are a lot of people, including me who have said we need, I'm pretty sure Mark Levin talks about it in the Liberty amendments here, that we need a balanced budget, um, amendment. And if he actually talks about it in there, I've forgotten that, but saying, okay, we need a balanced budget amendment and we would allow for debt for capital projects

[00:16:17] or debt for capital projects plus maybe extreme circumstances like war. Um, I think that that might be much more palatable for, for the politicians in DC. Yeah, I think so. Uh, but now of course they don't make such distinctions and just spend like crazy. And you hear every day from people, uh, often from one party, uh, more so than maybe the other, but they're, they're both complicit in this.

[00:16:45] You hear proposals for ever more spending. Uh, somebody should stand up and say, well, how about a rule from now and into the future whereby, uh, uh, if we increase our spending, we will have to cut dollar for dollar someplace else. But, uh, nobody's talking about that. They just, they take the $40 trillion debt, put it aside, forget about it. And then just add another

[00:17:10] trillion in spending people who are today calling for Medicare for all. The estimates are that that'll cost an additional $4 trillion every single year. We don't have an, uh, how are we going to do that? Because they're not talking about ways to grow the gross domestic product by that much. They're not talking about ways to, I mean, maybe the, the way they think that they can, can bring in an extra $4 trillion on top of the 7 trillion we're already spending is to tax us all to death. But if they

[00:17:40] do that, they're going to contract the gross domestic product. Yeah, exactly. The, uh, the more you tax in the long run, the less, less income you get from, uh, income from tax revenue, because people say, I'm going to go someplace else, or I'm going to invest in sterile things like T bonds or, uh, you know, something like that instead of, uh, risky things like factories that actually employ people.

[00:18:05] Okay. I think that we'll come back to that part in a later episode. So I, I would imagine. So we'll, and if we don't, we'll make sure that we address that, that more, because I don't want to get us completely sidetracked. Before I go to the next part in the outline you've created, explain what, gross domestic product is. Okay. Uh, it is a theoretical abstraction derived from, uh, numbers

[00:18:31] in the economy today, uh, to suggest that the, you know, whatever it is, this is the value of everything that we produce. The only problem with that is of course, and that makes it an abstraction is if you've put everything in the economy up for sale at the same moment, uh, prices are going to change. But if you just look at the raw prices of all the things that are sold today or

[00:18:57] this year, you get a rough estimate of what we are producing. And from one year to the next, that's a, that's a valid, uh, comparison to see whether GDP is growing or not. Um, uh, but it is an abstraction, uh, but it just gives you a rough measure of the size of the economy. Okay. And that can, when that can grow, um, examples of how that can grow that I can think of right now that are relevant to the discussion that we'd be hearing on the news. President Trump

[00:19:27] is talking a lot about manufacturing in America and it's coming back to America right now. That means that there are factories that are building things that would, they'd be able to produce things once they're finished that we'd buy. So that's more product right there. And then in addition to that, as they're putting those factories in, almost always, you're going to wind up with an extra restaurant, maybe a hotel nearby. So that also, uh, adds to it. So that's a very simple example of

[00:19:55] how you can grow the economy. Exactly. And when the gross semester product. Yes. When you bring it down to the level of the individual, a growing GDP means more individuals are making investments. They're hiring people, they're building a plant and equipment and they're, uh, producing product. They're innovating or using technology. That's how you bake a bigger pie and make the GDP bigger.

[00:20:20] Okay. Um, and that wasn't really part of exactly what we had planned to discuss here. I took us down a little bit of a rabbit hole, but I think it's very important when we're talking about the debt to also talk about the gross domestic product because it is in the news a lot right now. Yes. It's, it is especially as we record this, um, and we'll be airing it, um, in, in a week from now. So we,

[00:20:44] we just hit that number last weekend at the end of last week. So, okay. Now we, we talked about Adam Smith. We talked about the difference in mercantilism versus what he was saying and how he felt like you really can grow wealth. Um, what are other kinds of foundational principles of economics? Okay. Uh, Adam Smith also gave us, so this is a foundational principle now,

[00:21:09] the notion of the invisible hand, uh, that was his phrase. Uh, and he contrasted the invisible hand of the marketplace with the iron fist of government. He said, you can direct an economy from the top by having the King issue the orders. That's the iron fist, but he questioned what the King really knew. How could he possibly plan an economy when he's, you know, uh, planning his own life as a full-time

[00:21:38] job. So Smith said, we don't need somebody at the top to, uh, use their political power to plan an economy because there are market forces that do that job for us as if they were governed by an invisible hand. What he meant by that was, how do we know if, uh, people want more green beans? Okay. I mean, you could rely upon the King to figure that out and tell us, but then again,

[00:22:06] why would he know? How would he know? Well, we tend to know that because in the marketplace, the prices of green beans would tend to rise as demand increases for them. Or let's say for one reason or another, if supply were to fall, either way, you'd have rising prices, which send a signal. It says to producers, Hey, people want more green beans. Let's plant them next year. Or if we overproduce green beans, that would tend to cause the price to fall. And that sends the

[00:22:35] signal, plant something else next year. That's why the marketplace provides a kind of spontaneous order, uh, so that we don't have to walk into a store one day and find just truckloads of green beans unsold. And the next day, no green beans at all. There always seems to be just the right quantity. If you want them, they're going to be there. Uh, and that's because the market's invisible hand through the profit motive, the price system, uh, sends the signals to producers that, uh, this is

[00:23:04] what's needed and this is where it's needed. Okay. When it comes to the invisible hand versus the, um, iron fist, it's easy for a little bit older to think of the Soviet union and, and how they had a planned economy. But I think we have a very real example that we all, everyone in America who

[00:23:29] is alive right, right now, and it's over the age of six just lived through. And that is the COVID and the lockdowns. And, um, both parties were guilty of this. And I understand responding to an emergency. And I do have grace at the beginning of the situation when COVID was spreading. I remember thinking,

[00:23:58] listening to people in Washington, DC who worked for Congress, who were saying, well, we'll just shut everything down or you could watch different governors around the country. Thankfully here in Georgia, we, we had a governor who was like, oh no, we're not doing this. I'm not going to let people go broke sitting at home. Um, but in most other States around the country, they were saying, well, you

[00:24:23] can open, um, a big box store like Home Depot, but you can't open your local, your local seed store. You can't open your local toy store or whatever it might be. And they were just making all these decisions. And most of them never had to meet payroll. They didn't have any idea what payroll was because they've never even run their own business. And they, they didn't understand the market forces at all.

[00:24:49] So I think my, my point here is it's a really good example to that. Maybe you could elaborate on how they were acting as the iron fist. And I think what we're seeing right now today with inflation, with just this weird economy that we're in right now, plus the government spending so much money. A lot of it stems from what happened five and six years ago. Yeah. Uh, if Adam Smith had been around during COVID, I think

[00:25:17] the first thing he'd say was, I told you this, I've warned you don't trust them, the iron fist because they really don't know what they're doing. What a beautiful example, uh, the COVID experience is to, um, that testifies to the importance of relying upon dispersed information, private initiative, uh, choice, and the things that are hallmarks of a free economy. You put politicians in charge of

[00:25:44] things and they don't react to the normal signals that you and I do. They just sort of make stuff up and, uh, uh, their grandstanding half the time and really don't know what they're doing. That's one of the big lessons now of the COVID experience. If we had relied more on market forces, we wouldn't have had a top down one size fits all national approach to COVID that proved to be, uh, so seriously

[00:26:08] flawed. It, it really was. We're fortunate in Georgia that we had a governor during that time who was a small business owner himself. So he understood, he, I, I always come back to what he said. And I think he said it on Fox news the day or the day after he said he was reopening everything. And that was, I am not going to let people sit at home and go broke. And that's exactly what would have happened

[00:26:34] to people. And we saw that happen around the country. And then governor DeSantis and in Florida, not, not, not the same kind of background as governor Kemp, but a strong, strong constitutional attorney who understood the constitutional principles. The good thing that we have from COVID if we as a society are willing to learn from it is that we can contrast what happened in states like

[00:27:02] Georgia and Florida to states like Michigan and California and go, see, this is what happens when you let, when you trust the invisible hand versus iron fist. Yeah. And look what the governors of certain, uh, blue states were doing at the same time, California, Michigan, and New York. Uh, they even were forcing, uh, people with COVID into nursing homes, which effectively made, uh, the most vulnerable,

[00:27:32] um, even more, uh, threatened because, um, you know, we, we knew at the time that, uh, the older, the older a person is, the more vulnerable they would be to COVID. Young children were not very vulnerable. And yet, uh, you have governors in those states, I just mentioned, uh, stuffing nursing homes with, with, uh, COVID infected people. I mean, it's just ridiculous. It really was. And,

[00:27:57] and we knew from very early on from the first weeks of COVID being in America, I think it was in Seattle. I know it was in Washington state. There was an, uh, an outbreak in a nursing home and it was catastrophic to the residents there. So by the time that that was happening, like in New York, they already could have learned from the lesson from, from Washington. And for some reason it just

[00:28:22] went over there. And that dramatizes another flaw of a top down central planning type regimes, because they're not very flexible when they make mistakes. They're not quick to pivot and do something that's right. They, they tend to, uh, hunker down and keep doing it. Whereas in, in markets, people say, wait a minute, all the signals are telling us one thing. Let's listen to them instead

[00:28:45] of, uh, uh, sticking to, to one failed formula. Right. And to be very fair to that first nursing home in Washington state, nobody knew at the time. And it, it was a spontaneous spreading of it in that, that nursing home, but in New York, it had already happened. They could have learned from it,

[00:29:06] but they were inflexible. Yeah. Okay. So humans act, um, purposefully and all action is individual. That's one of the, the foundational principles that you want to discuss. Yes. Uh, I think it's important to understand and not all economists appreciate this fully that all action in the economy is individual. It stems from individuals who make decisions. Sometimes we talk

[00:29:35] about, uh, abstractions like society and we speak as if they are making decisions like society did this or society did that. Well, where does society live? What did it have for breakfast? I mean, there really are only individuals that are real decision-making acting, uh, entities in a, in an economy. So if you want to understand economics, you have to accept that this foundational principle

[00:30:03] that all human action stems from individual choices and activity. Um, sometimes people say, uh, Oh, well, we are all the government. There's a collective abstraction if there ever was one. Well, I'm grateful that we have a lot of say in what our government, uh, does and who makes it up. But, um, uh, but our government is, uh, not all of us. If a Martian landed in your backyard and said,

[00:30:33] take me to your government, you wouldn't say, Oh, well, here I am. What can I do for you? You'd send him to Washington. Uh, so we have to get out of the collective abstractions like society and talk about the real living choice-making individuals that make up, uh, the economy. Why do we act? Well, we act, uh, to improve our wellbeing. That's why we engage in trade, for instance, because we think that doing

[00:30:59] so will leave us better off than we were, uh, before we traded. So we act with purpose in mind. Sometimes it doesn't look rational to another person, but it usually is from the standpoint of the person who's actually doing, uh, the acting. Well, and, and that's part of being acting as an individual, as an individual. If it, I'm trying to think of a simple example, but I, I mean, I guess

[00:31:27] it could be something as simple as I have a bunch of books about the constitution and, and founding principles. And for me, it made sense to go get those because I want to learn more about that. And it's what I care about and it's my job, but does somebody who makes their living performing and singing, they probably would have books that are all about music and, and in neither one, it doesn't look right. Like I would never buy a bunch of books about music and they would never buy these books,

[00:31:54] but to each of us, it makes sense. That's right. And who knows you and your interests and passions better than you. Right. And, uh, that's what motivates us, uh, to act. And then what happens when you have people who, um, and we're seeing this a lot on, on the left right now that they are acting more as a, a collective you've, we, you mentioned Medicare for, for all, um, earlier, but,

[00:32:21] but they, they are, they'll talk about affordability and they're trying to fix affordability for everyone. But what my issue with affordability might be is different than, than another person's. I heard an example this morning of someone who said, I want to be able to sell my house, but my interest rate is 2.9%. And if I sell, I'm going to be in a much higher interest rate. So I'm not selling, I'm just sitting on my house. And there might be somebody else who's like,

[00:32:48] I'll take a 6% interest rate. I want a house right now. And, and so affordability is different for each of those individuals. That's right. And the people who harp on affordability, and that isn't to suggest it's not an important issue, it is, uh, but they, they sort of start from scratch as if there's nothing in the background, oops, sorry. That's okay. As if, uh, uh, you know, there's nothing that happened before the present moment of

[00:33:16] unaffordability. They never ask, well, how did it get to be unaffordable? Instead, they just start out right from today. And then they say invariably that the answer to the affordability crisis is more government in one form or another. And when I hear that, I'm tempted to ask, can you tell me, uh, when government jumped into something with both feet and, and as a result of

[00:33:41] its activity, it made that, uh, uh, that whole business cheaper. It government doesn't make things cheaper. It makes things more expensive through its regulations, through its meddling, through its, uh, often, uh, nonsensical, uh, rules and mandates. Uh, and so if you're worried about affordability, I think the last thing you'd want to do is to, uh, ask the most inefficient entity in society, government to, to, to somehow make things cheaper. It doesn't do that.

[00:34:10] No, it doesn't. I think that we're going to see in the state of New York where they're putting in these Mondami grocery stores that the grocery prices are, are not going to go down automatically because of that. And in fact, they'll probably go up in the neighborhoods where, where they put these grocery stores in, or, um, they won't have as many choices. That's right. And they will never

[00:34:36] tell you what the full cost of their little venture is because these grocery stores, these government grocery stores are going to be subsidized. So the price of, uh, of the products that they'll sell is, is only a part of the picture. It's also all the tax revenues that people are going to be paying to subsidize these grocery stores. Uh, government rarely, if ever, I'd be hard pressed to name a single example, gets involved in something and, and somehow makes it cheaper.

[00:35:04] Well, and then the other grocery stores that are nearby are the bodegas in, in New York, they're not going to be able to compete. You, business can't compete with unlimited government subsidies. It doesn't, that's not the free market. So it doesn't work that way. Um, they'll wind up closing up or having to charge more, or they won't, they won't sell the things the government is selling and have to find some other way to compete if they're going to be able to stay in business.

[00:35:33] Yeah. Well, that's common sense. But the problem is that, uh, these, uh, socialists aren't interested in common sense there. They are sold on their good intentions and to them, all it's important is that they meant well and did something. Yeah. And if you start raising questions about, uh, the actual outcome, they're not so interested in that. Well, you know, we meant well and maybe it didn't work out,

[00:35:59] but at least, uh, they would do it again because they're more interested in going through the motions, feeling good about their actions than they are actual real world economic outcomes. Yes. That, that is so, it's just so true. It's very emotional. I tried, I, I, I really tried hard. It's almost like a participation trophy. Yeah. Yeah. Um, okay. So some more foundational principles

[00:36:28] of economics, trade-offs, scarcity versus unlimited wants. Yes. Uh, all of us every day when we make choices in the marketplace, recognize either consciously or subconsciously that we're making trade-offs. You can't, uh, have everything all at once that, uh, acquiring something means giving up something else. So we're constantly weighing, is that item worth the $10 I'd have to give up

[00:36:55] in order to buy it. People are going to differ from one to another on how they see those things because value is in the eye of the beholder. It isn't something objective or fixed. Uh, an important principle in economics is that value is subjective. It's very personal. We used to think, and this is

[00:37:17] pre-18th century, uh, or pre-19th century, uh, that the value of something was determined by the amount of labor that went into it, the labor theory of value. Uh, even Adam Smith made this mistake. He assumed that the amount of labor would determine the value of a product. But the example I like to use to point out why this is invalid is, let's suppose it takes you the same amount of labor to make a mud pie

[00:37:46] as it takes you to make an apple pie. Okay. Well, according to the labor theory of value, they should both go for the same price in the marketplace. They should be, uh, uh, equal in value. But of course, nobody values a mud pie the same as he values an apple pie. It doesn't matter how much effort went into it. We value things based upon the utility or the satisfaction that we derived or derive

[00:38:12] when we use that item. And that's going to differ from one person to another value. Isn't objective. Is it fixed? It's very subjective and personal and it's constantly changing. It's why luxury brands often can get more for their more money for a product that is almost identical because people value the name on the product. Yeah, exactly. Okay. Um, and also I would always pay more for an apple

[00:38:41] pie and I would not ever buy a pen of mud pie. Um, and I think most people feel the same way. I think so. Unless your child was like making it for you and you gave them a stick or something. But when you're not looking, you're going to throw it in the can. Yeah, exactly. Um, but that would be where the value is really in and beauty is in the eye of the beholder because if it's your child, you don't want to upset your child. Um, diminishing marginal utility. I think you were just hitting on this a

[00:39:11] little. Yes. Uh, this explains, uh, another aspect of value. Let's say ice cream. Uh, if you were to be asked, well, do you value ice cream? You know, in the, in the abstract, uh, in a very general sense, you would say, well, yeah, I like, I value ice cream. But in the actual world of where you act,

[00:39:36] uh, the next ice cream cone that you might buy doesn't give you the same satisfaction as the last one did. At some point, the value continues to decline with each incremental unit. This is what economists call diminishing marginal utility. You don't get as much from the sixth ice cream cone as you got from the first one. And therefore you won't pay as much for it. Okay. And then what about,

[00:40:02] um, I pencil? What is this? I pencil is a fantastic essay, very famous, uh, the world over written by the founder of the foundation for economic education, Leonard Reed, no relation in 1958. And he tells the story of how a pencil comes into existence as if that's, as if it's the pencil itself telling that

[00:40:26] story. And so the pencil says, well, I'm far more complicated than you might imagine. The graphite within me comes from mines in certain places and the, the wood, if it's really good, has to come from certain kinds of trees in certain places. The eraser material comes from rubber trees in Malaysia and so forth. And he goes through this whole process of making something that seems to be simple, a pencil, but shows that it's incredibly complicated. There are people who don't even

[00:40:54] know each other from all over the world who apply their particular skill in the process of making a pencil. It's far more complicated. So much so that, uh, Leonard Reed says at the end of his essay, it's not an exaggeration to say that nobody in the world could make a pencil entirely on his own

[00:41:18] by scratch from scratch. If you, if you were told you can't rely upon anybody else's knowledge or skills, you just have to make a pencil on your own from your own knowledge. You couldn't do it. You'd have to be a logger. You'd have to be a minor. You'd have to be, I mean, even the waitress who serves the coffee that the loggers have for breakfast, you know, uh, there are a lot of people involved in that process. Steal band to hold the eraser on. Oh yeah. They call that the ferrule, which I did not know until

[00:41:47] I read that essay. But yeah, all these things, uh, come together, not by central command. There's no puppet master with political power who's telling everybody what to do and do whatever else, but rather free people operating in marketplaces guided by prices in the profit motive produce pencils. And if nobody knows how to make a pencil, what does that say about, uh, planning, planning an economy?

[00:42:15] If somebody said to me, Oh yeah, I, I'm a wise central planner. If I just get some good buddies of mine together and we have the power to do so we could plan an economy. My response would be, you don't even know how to make a pencil. And yet you make, you are making the preposterous claim that you can plan an economy. My guess is it's very difficult for you to plan your own life,

[00:42:39] let alone an economy of 340 million people. Uh, yes, that is very true. We should be humble in other words. Right. That is, is very true. And I, I, I can't, I, and we don't have to go back into it right now. I just, I always at this point go back to the COVID lockdowns and they're like, Oh, well you can just close your business for a month or two. We'll just send you some money

[00:43:03] and that'll take care of it all. Uh, that it, it doesn't, it, it just doesn't. Um, the, the prices allocate scarce resources and, and direct production. Yeah. By that we mean that, uh, the price system that is fluctuating prices that move according to supply and demand, uh, they, uh, embody information. Prices tell us far more than you could ever find

[00:43:33] out from a central planning politician. Prices tell us which resources are better to use for the production of this item than another. Relative prices tell us that. Um, and it, it, they tell us, you know, what's scarce, what's scarcer. Uh, prices tell us, uh, well, who really wants this item more than, uh, others and where is it needed? Uh, the price system directs those things. Um, that's why in

[00:44:02] the old Soviet union where they abolished the price system and thought we'll just have politicians telling everybody and bureaucrats, uh, what to do. They would pile up unsold quantities of some things and have chronic shortages of other things. They didn't know what they were doing. They were at sea without a rudder because they didn't have a fluctuating free price system that would tell them over here is where it ought to be. Don't use more of that stuff. It's too expensive. Uh, they were just making prices up. And so they made no sense.

[00:44:35] And giving vouchers and in some cases, not even, you didn't even really, you just had a voucher and this is all you were able to get. Yeah. A kind of rationing. Rationing. Central plan, centrally planned economies do rely upon a lot of rationing instead of the price system doing that, uh, for, for you, you get printed, printed tickets from the government that say you can, you can buy it, but only so much and you have to get it here instead of there.

[00:45:02] I, I think that that's something that most Americans can't even fathom. It's very hard for us to imagine that because we've not lived under that kind of a system. That's right. And, you know, under those systems, you don't have what we call consumer sovereignty. What you have is economic decisions being made by politicians and bureaucrats. And they have a lot of other things on their minds, uh, other than what you have on yours, which is to improve your

[00:45:32] wellbeing by making good, rational, sensible choices. And so, um, the consumer in a free economy is ultimately sovereign. Uh, even the biggest, most well-heeled of providers or suppliers can go out of business if consumers say no thanks. But in a planned economy, the government says, well, if consumers don't want it, we'll just subsidize it. And so you can have mistakes being made for

[00:45:59] generations that never get corrected because the government is, uh, uh, circumventing the signals that would otherwise be sent by the price system. Um, what about supply and demand that when I think of economics, I always think about supply and demand. Yeah. There is a hard and fast rule in a free

[00:46:24] economy that tells us that as supply goes up, all other things being equal, um, prices will fall. As demand goes up, all other things being equal, prices will rise. Uh, the problem is how do you coordinate supply and demand? I mean, nobody, no society should want piles of unsold goods here and

[00:46:49] then massive shortages over there. How do you coordinate so that supply and demand come together? So what's demanded is supplied no more, no less. That's again, the price system. It's an amazing, in fact, I've often thought if, uh, if I had to choose what are the most awesome, remarkable forces that govern our lives that we should recognize and appreciate, I'd put the price system right at the top because it sends all these signals that coordinate supply and demand.

[00:47:18] So I can go into a grocery store knowing that chances are pretty good that what I want is going to be there. Uh, you go into a grocery store in the old Soviet union and you often found, you know, maybe an entire row of shoes that nobody wanted and then empty shelves in the produce section. That's because, uh, politicians were determining prices and production instead of, uh, market signals

[00:47:43] from sovereign consumers and profit seeking entrepreneurs. Okay. When you just said, do you think that prices are one of the most amazing forces? How, what would you say to someone right now who says, but things are too expensive and I'm struggling and they're talking about whether they say it this way or not, either they're talking about inflation or affordability. Yeah. Well, you know, high prices are, uh, in and of themselves, uh, their own cure because of this

[00:48:13] signal mechanism that I'm talking about. If prices go up and make things certain, uh, certain things unaffordable, well, that sends a signal to, Hey, more people want this item. So start putting more resources into it. High prices are their own cure ultimately. Because, because when it goes, goes up, it means demand is going up. Yeah. But if demand, if then if you meet the demand with supply, then supply is going to bring the, the price back down. That's right. Okay. You know, America,

[00:48:43] without any central planning switched in terms of energy from whale oil, oil from whales, uh, to light our homes, uh, uh, uh, crude oil and its various derivatives in the 19th century. Why? Because we were, uh, harvesting whales without, they were common property. So nobody had the incentive or the technology to produce more of them. And so as whale oil became increasingly scarce, price went up and

[00:49:12] what did it do? It sent a powerful signal to entrepreneurs, find something else that can light our homes. And, uh, John D. Rockefeller was one of the early ones who said, ah, it cut, it can come from the earth. This stuff will burn and we can clean it up and make it even more efficient than whale oil. That was all directed, not by a federal department of energy, but by the price system that said, whales are ever scarcer, find something else. And we did. Okay. And then what about the people

[00:49:41] right now who feel the pinch of all this and they feel like the cost of food is too high? Like we can sit here and talk about demand and prices and supply and demand, but that's going to ring hollow to somebody who is like in 2019 and 2020, I could buy food for my family of four for a week for a hundred dollars. And now I can buy food for a couple of days for a hundred dollars.

[00:50:07] Well, there are a lot of reasons why prices may rise, not just an increase in demand or a reduction in supply. Another reason can be simply that, uh, the government is, uh, ruining the currency. And there's a strong case to be made, uh, that that's what it's been doing for, for generations. Now, the dollar is worth less than a nickel of what it was, uh, when the federal reserve began,

[00:50:31] uh, in 1913. So I'm sympathetic to those who say things are becoming, uh, unaffordable in part, because I know that the government has made it so. Right. Because, uh, it's inflating the money, making the money worth less and less, which shows up in ever higher prices. So the question is, do you want to fix the fundamentals or do you just want to play around with the symptoms? Do you want to rig the prices or issue orders that they can't go up or whatever, or do you want to

[00:50:58] fix the fundamentals that are causing them to rise, such as massive budget deficits and government printing of money? Okay. I think that's, that's good. And right now, right now is we, this is, um, September of 2026. So as we're looking at September, 2026,

[00:51:23] inflation is still not where everyone would want it to be prices or not where everyone would want it to be. Things are better than they were during the previous administration. So I, one thing that I've thought about is it really, it takes, we, we should have been more clear and hindsight is 2020 and

[00:51:45] perfect. We should have been more clear in 2024 and it's planned. We're going to fix inflation and the cost, the cost of goods by fixing the economy. And it's going to take time to do it. It isn't like some magic wave your wand and everything is perfectly cured instant, instantly. But things, this administration and this Congress are trying to write the ship. It just takes a while.

[00:52:14] It does, but there are so many things they ought to be doing that they still aren't. Well, they should just spend less money. Yeah. I mean, they're spending like there's no tomorrow and, uh, and relying upon the Federal Reserve to monetize that debt, which simply dilutes the value of every dollar in circulation. So, uh, as much as they might be doing, there's still so much more that they haven't begun to address. Yeah. And one thing that I've heard, um, especially on the Senate side, much more so on the Senate

[00:52:44] side than the House side. One of the things that I've heard is that the cuts that they made, especially to Medicaid and the cuts to Medicaid were cuts. They were, you, if you were able-bodied, you've got to go get a job. You've got to be working. You're not just going to get Medicaid if you were able-bodied and not working. And, um, the, we're working to root out waste, fraud,

[00:53:09] fraud, and abuse. And in June, May, June, and the beginning of July is when the, the one big, beautiful bill was passed into law of 2025. And it was a tough vote apparently for some, especially senators who were concerned that if they were in kind of a purple state or a blue leaning state, that they would have trouble getting reelected because of those cuts because they'd say,

[00:53:37] you're taking Medicaid away, even though they weren't taking it away from people who, who truly needed it, either, either a pregnant woman, a disabled person, um, children, that's who it was set up for originally. Now, since then, in, in late December, 2025 and early 2026, Nick Shirley came onto the scene. I think he's an American hero and he showed what the fraud actually looks like.

[00:54:04] So people can conceptualize it. But the, the, the real issue is the senators are worried they're going to have political consequences because the voters want the easy fix. Yeah. Nick Shirley, uh, his investigations have, has shown that there's an awful lot of fraud and abuse within the system and it isn't accidental. It isn't, uh, just, oh, well, we just accidentally

[00:54:32] sent too much money to this person. This is the process by which vote buying politicians feather their own nests. And so that's why you find such resistance in many blue states to attempts to uncover fraud and waste because they're making money off of it. They're buying constituencies with waste and fraud. They don't want to, uh, uh, cut that out. And, uh, well, that's a, that's a moral

[00:54:59] issue. I mean, we're electing fundamentally immoral people who spend like there's no tomorrow and then remind you at election time what, what they did for you. They're just buying your vote with your money. Yeah. And then you're sitting there, so many other people are sitting there going, I'm struggling, I'm having financial difficulty and they want some sort of a fix. Um, and the, they should feel cheated

[00:55:25] because the people who are, are, um, are committing this fraud, this fraud, they are cheating. They're cheating. They're stealing. They're, they're lying to be able to set up the fraudulent businesses or going through elaborate schemes to set up a storefront to have nobody or one person that just works there to leave the lights on when no business is actually even transacting inside of the place.

[00:55:51] Well, I sure wouldn't want to leave, uh, viewers with the notion that the problem is entirely with the politicians because if somebody came up with a plan and said, this is, this is foolproof. We're going to cut $2 trillion out of the federal budget so as to balance it over the next say two, four, five years, whatever. I can guarantee you that half the country, if not more, would be up in arms because they like that spending. They don't like the consequences of it. They complain about

[00:56:20] affordability, but when they say, don't cut, don't cut, no wonder we have a $40 trillion national net. So there has to be a fundamental change in the mentality of the American people to say, hey, this government thing has gotten way too big. It's out of hand and it's corrupt to its core. So let's cut its spending and rely more on what we can do ourselves at home. And that is going to be a challenge that we all face in, and we either are going to have to find

[00:56:49] the solution and have leadership that, that leads people to understand these are things we must address or we're going to be faced with the consequences economically. One way or the other, we're going to have to, to face the consequences. It's just whether we do it on our terms or we do it as a result of ignoring the problem. Yeah. I think the American people ought to say to their

[00:57:12] politicians, if we vote for you, will government spending be higher or lower in two years? And if they say lower, but don't deliver, vote them out. Yeah. If they say higher, don't elect them in the first place. I mean, we have to say with our votes that we want less spending, even if that means some short-term pain, because otherwise we're going to bankrupt the country. And what kind of a future

[00:57:38] will we be passing off to our kids and grandkids? Well, I think that if we're not careful, we're not going to be worrying about what we pass off to our kids and grandkids. We're going to be facing it in the next decade or so. Yeah. Some of these programs that so many people have become dependent upon, like Medicaid, Medicare, Social Security, they're running out of money. Yeah. And in the decade of the 2030s, that's the next one coming up. It's only four years away. Yeah. They're going to go broke.

[00:58:07] So, and then we can talk about America going the same path that say ancient Rome did, spending itself into bankruptcy. Well, that's why we're doing this series though, because we're trying to prevent that from happening. And it is working against history, but it is important that we get to the basics so we can try to work to solve the problems. Yeah, I agree. Even though I worry about

[00:58:33] that constantly. Okay. Competition. How does competition help with prices and how does competition fall into economics? You know, the opposite of competition is monopoly. One of those two things tends to reward excellence and service and lower prices and cost control, whereas the other one tends

[00:58:58] to reward just the opposite. Competition delivers lower costs, better quality, because effectively what it is is suppliers saying, I got to do better so that customers will come to me instead of the other guy. Monopoly, just the opposite is where, hey, I don't have to worry. The consumers have no choice. And that's what you find often when government enters the picture and gives special privileges to

[00:59:25] certain providers or gets into the business itself of providing something. And then it's got, can create its own monopoly. We should want more competition because that is nothing less than the striving for excellence in the service of others for self-benefit. That's how I used to describe it to my students. Competition is the striving for excellence, trying to get ever better to attract

[00:59:53] those customers, striving for excellence in the service of others for self-benefit, knowing that if you want to get ahead, you've got to be competitive in the marketplace. You've got to offer something that people will say, hey, I'm going to quit buying from the other guy and buy from you. That's a good thing. It makes us better as we compete with each other. And what about monopoly? Monopoly is a stagnating influence on the economy. When you don't have to compete for any reason,

[01:00:24] maybe government protecting you from competition or whatever, when you're in a position of not having to worry about customers going someplace else, well, you stop serving them. You don't invest, take risks to innovate and improve and attract new customers. You're sitting on your fanny thinking that, hey, I'm in charge and they have to buy it whether they like it or not. We should never want

[01:00:48] an economy that's dominated by monopolies. Adam Smith told us he tried to define monopoly. He didn't think it was something that would automatically develop in free markets because he thought competition will be too powerful. He saw monopoly as a government grant of exclusive privilege. And he dealt with them in his day when the British government said to the colonists, for instance,

[01:01:12] you can't engage in transatlantic trade except on British made vessels. Well, that was conferring a monopoly privilege on British shipbuilders. And Smith said, no, no, we don't want monopoly. We want competition. Don't give anybody some special privilege that all of a sudden they can sit on their fanny and do well regardless of what consumers think of their product.

[01:01:38] One thing that I think happens today is that we wind up with a few businesses. They start out small and then in a natural free market society, they would grow bigger and maybe they would grow so big they become a monopoly naturally. But what I think happens is then they get big enough and they're like, oh, wait, I don't want that little guy encroaching on me. So they go to the government to ask for some

[01:02:04] sort of law that protects them and harms the little guy. Yeah. And they wind up colluding, it's the only word I know to use with this, with the government to prevent competition. Happens all the time. And it's so anti-capitalist, so anti-free market. It smacks more of the use of government power that you see under socialism. And as a free market economist, I despise

[01:02:30] the use of government to rig a market or attack your competition or give you some special privilege. We should always be fighting that and make sure people understand that when that stuff happens, that's not capitalism. Capitalism is a free market, not special favors for the politically well-connected. Yeah. And it's something we have to remind people of all the time.

[01:02:57] Okay. So we talked a lot about problems with the government and the economy. What is the proper role for the government and the economy? Well, I would say, and this is not original with me, this is a classically liberal position, classical liberal, meaning the way we used to think of liberal, referring to liberty. That position is the government should be a night watchman,

[01:03:19] a referee. It draws up the general rules under which we live so that people's rights and property are respected. And it provides a court system for the adjudication of disputes when people do things that harm others. And it also provides a defense for a people against the possibility of foreign

[01:03:44] aggression. It's essentially a defensive mechanism. When you confine government to that, and be careful that it doesn't grow beyond that scope. In fact, I still say from time to time that the two biggest problems in government are mission creep and creeps on a mission. And by that, I mean, when government says, oh, we don't want to just provide a defense. We want to give you things.

[01:04:13] We want to be involved in this and that. Well, then they end up not doing what they're supposed to do very well because they've got their fingers into too many things. And power, as Lord Acton told us, is corrupting. And the more it tends towards absolute power, the more corrupting it is. So government's role in the economy ought to be, as a referee, it ought to say, hey, you broke

[01:04:35] a contract. So we're going to try you in court. And if you're guilty, we'll find you guilty. We have penalties that you'll have to pay. It should be a defensive mechanism, but not involved in other aspects of our lives. It shouldn't be that way, not just for the economy, but for everything. Yeah, I do so too. Punish wrongdoers. Right.

[01:05:03] But otherwise leave free and peaceful people alone. Yes. So many of our problems today can be solved if we could get it to the more basic foundational principles of government. What are the basic elements of free trade? Free trade, which I know is under attack these days from various sources. This is the notion that

[01:05:30] people benefit from cooperation. That's sometimes called the law of association in economics. Very fundamental. It says people benefit from cooperation. What do we mean by that? We are not Robinson Crusos living by ourselves on deserted islands. We are living in the midst of others. And we are social beings. We tend to do better if we find peaceful ways to collaborate

[01:05:56] and cooperate with other people, especially in economics when, you know, we have a multiplicity of talents among us. You might decide, well, gee, I can't play an instrument, but you can. So I'll go to your concert and maybe you can buy the corn that I grow. So we engage in trade to improve our well-being, recognizing that doing so helps everybody. Okay. So anything that tends to pull

[01:06:24] people apart that prevents them from cooperating freely and for mutual benefit is going to tend to reduce the standard of living. So if you start out saying we would be better off if we produced everything we needed just in our local community, you're going to deprive yourself of all the kinds of wonderful collaborations that can come by working cooperatively with others outside that boundary. So people benefit from cooperation. And then we find that when they learn that lesson,

[01:06:54] the next thing they tend to do is they begin to specialize. People recognize, hey, it doesn't make me, it doesn't make sense for me to try to make everything myself when you can make it better than me. So let me specialize in what I do best. You do the same, and then we'll trade and both be better off. So the division of labor is a tremendous way by which we increase the productivity of society.

[01:07:20] And then we have the economic concept of cost. And here's where the economist deals with a common notion in a very different way than most people do ordinarily. I used to ask my students, what is the cost of your college education? And they would instinctively say, oh, well, it's tuition plus room and board. And some of them knew what that was, and they could give me

[01:07:44] exact dollar amount. But then I said, no, to the economist, cost is a lot more inclusive than just that. What would you be doing if you weren't here in college for four years? And they started to say, oh, well, I'd be out working somewhere, earning an income. So then I had to point out to them, but you're not doing that. Okay, so that's a cost. The cost of college is not just tuition plus room

[01:08:10] and board. It's all the other income you're giving up because you're at college instead of out in the workforce. That makes college sound even more expensive, doesn't it? It's already expensive. Exactly. But that's the way the economist looks at cost. It's all the foregone opportunities. When you make a choice to do this or to buy that, the real cost of that activity or that product is all the stuff now that you can't have or can't do because you're doing that. Opportunity cost is

[01:08:39] what we call that, the foregone opportunities. It has a lot of implications in economics, but probably more than we want to get into today. But then we have in the free trade discussion of what is known as the principle of free exchange, which says that both sides to a free trade benefit. And by both sides, I mean the people actually doing the trading, not somebody else who might say, well, I wasn't benefiting because they didn't buy for me.

[01:09:08] But in terms of the people who are actually buying and selling from each other, they're doing that because each of them figures that what they're getting is worth more than what they're giving up. Okay. Because value again is in the eye of the beholder. When I buy a newspaper for a dollar, I value the newspaper more than the dollar. Whereas the newspaper boy who's selling me the paper for a dollar, he'd rather have the dollar than the newspaper. So we engage in free trade and

[01:09:36] wow, both of us are better off as a result. Nothing new has come into being. We're just trading a dollar for a newspaper, but just the act of doing it leaves us both better off. That isn't so true of a coerced or forced change, exchange. If you're forced to trade for something, that's probably because you don't value what you're getting more than what you're giving up. So that's an important thing. We benefit

[01:10:05] from trade every bit as much as we benefit from production itself. And what about protectionism? Is it ever justified? Protectionism is the intervention by government in trade through tariffs or quotas or other barriers to sort of keep people apart for one reason or another. When it's motivated by simply the desire

[01:10:30] to give a domestic company a special advantage, it almost always hurts the consumer. It deprives the marketplace of competition. It may close the door to the acquisition of goods that are otherwise hard to find at home. There's a great advantage to allowing people from different parts of a country or

[01:10:53] the world to engage in free trade because they're acquiring what they can't get in many cases as cheaply at home. If we decided in America, we don't want to buy bananas anymore from Honduras and grow them instead under glass in New York City. Yeah, we still have bananas, but they cost so much that we wouldn't be eating very many of them. But Honduras has an advantage in the production of bananas. So we get them from

[01:11:23] there and they buy something from us. So protectionism, generally speaking, is harmful. It raises costs. It pulls people apart. It reduces the array of choices that we have in the marketplace. Now, the Trump administration has been using it in a little different way, using the power of tariffs to affect a policy change in another country, sometimes not even an economic change. It may be some other

[01:11:52] change that we want to see in their behavior. I think the jury is still out as to what the long-term effect of that is. We know that in the short run, it does mean higher costs. But whether you can effectively move a nation's harmful policies in the right direction by closing off trade with them is still something that the jury is out on. In other words, what I'm saying is if we were to find

[01:12:21] that after the Trump administration, that the tariffs that he has put in place actually had the effect effect of reducing other countries' tariffs on our goods or changing their policies for the better, I would say, well, then it was worth the risk. But the jury is still out on that. And that's something that I think time is going to tell. I think what he's...

[01:12:45] I think a lot of what President Trump is trying to do is set the siege for the next 50 to 100 years in the country. And he's got a very big picture that sometimes in the day-to-day we get caught up in things that we're thinking about that he's not thinking about, and we're not thinking of the broader global picture that he is thinking about. One thing that I...

[01:13:16] And I don't have... I guess I have one specific example of this that I could point to. We were talking about how the grocery stores in New York that are run by the government are not going to be fair to the private because a private company cannot compete with tax subsidies. I think that

[01:13:37] the same thing applies to private companies in America trying to compete with... The bananas are a different example, but trying to compete with a foreign country that is subsidizing their private business. Or they're actually just competing with a foreign country. The businesses, the foreign countries altogether. It's very... And if to the extent that President Trump is trying to level that out,

[01:14:08] I... And I am very much for free markets and free trade. I think that that is the right... Somehow that has... It's not any more fair to private businesses in America to have to compete with a foreign country. Especially a foreign country that produces oil. Yeah. So they basically are printing their own money every day. Then it is for the private bodega in New York to have to compete with the grocery store

[01:14:34] that's run by the government in New York. Yeah, I agree. I think you've made a good point. And if Trump can get other countries to stop subsidizing their industries, I think that's to the benefit of the whole world community. But our ability to affect policy change inside other countries is maybe more limited than sometimes we think. But we'll see.

[01:14:59] Yeah, we'll see. And the specific example I have in mind, just so that I'm not leaving it just like this vague hypothetical. We have what are called open skies treaties. I believe that's what they're called. I studied it several years ago for our airlines. And our airlines say that if you are going to bring a domestic plane, not a domestic, a consumer plane into the country and American consumers are

[01:15:28] going to be buying tickets on it, the foreign government cannot subsidize the cost of those flights. So if an airplane is going from Atlanta or New York to France, then a foreign country can't bring an airplane in and undercut the American businesses in the foreign country is actually subsidizing the cost.

[01:15:52] So the cost may be an $800 ticket or a thousand thousand is easier to deal with. So a thousand dollar ticket. But they come in and say, well, the government has is subsidized the cost. So now it's $400 a ticket. Well, the American business, if they went down to $400, they'd be losing money on that flight. That would be an example where we have these treaties in place. So that isn't supposed to

[01:16:18] happen. But it's something that if that's happening with other businesses and he's trying to write that, I have a lot more leeway in that, especially since we already have treaties to protect the airlines. It should be the same for someone producing jeans if they wanted to. Yeah, there's some truth in that. But we should also remember that there is some benefit to accepting

[01:16:45] products from other countries that are fundamentally cheaper, even if it's because of their subsidies. And the example I'm thinking of comes from a French economist by the name of Frédéric Bastiat. Yes. In the early part of the 19th century, he talks about candle makers who write up a petition to the king. And in this petition, the candle makers say, King, you've got to do something. We're faced with this

[01:17:14] merciless competitor that doesn't charge anything for his product. How can we candle makers possibly deal with that? And you must intervene and do something. Well, the competitor they're talking about turns out to be the sun, which provides its sunlight during the daylight hours for free. Well, how can a candle maker compete with free? You know, half the day, people aren't using candles.

[01:17:42] So then the candle makers say in the petition, King, you must keep that free sunlight out. Pass a law requiring that everybody paint their windows black. And that'll keep that low cost, no cost sunlight out. And the result will be more candles, more candles. And so what that says is there is a cost. And sometimes it's to our benefit to accept things that seem to be unreasonably cheap from overseas.

[01:18:12] Okay. And we'll see how things work with the Trump administration and what he's doing. And I hope that his overall goals work out in the long run because it benefits all of us if they do. That's right. Cross your fingers. Okay. What is the difference between microeconomics and macro?

[01:18:34] Micro is the study of the economy in its most core components, the individuals who are making the decisions to invest, to hire, to trade, and so forth. The closer to the individual that you get when you study economics, the more micro your analysis is. Whereas macro is sort of the broad,

[01:19:00] general outcomes of human action, business cycles, and rate of inflation. Those are more macro concepts because they're broad, all-encompassing, sometimes abstractions. They too come about because of the actions of particular individuals. But we look at the economy in that aggregate sense when we deal with

[01:19:26] it in terms of its macro manifestation. Okay. And then why is it important to study both? Well, because one depends upon the other. Let's say we look at the GDP that we talked about as it is a macro statistic,

[01:19:51] but it's the direct result of the individual decisions. It's the accumulation of production and its value in the marketplace. So they are directly connected. But I think the economy is best understood the more you bring it back to the individuals who are actually making the decisions.

[01:20:13] So I never lose sight of the micro components of the economy, even if I'm using macro aggregate statistics and analysis. Okay. And I think that, well, when people go and vote, they're worried about the micro. Yeah, that's right. Who they're going to vote for. Yeah. But the actual outcome is the macro. Okay. Then there are several different schools of thought when it comes to economics. You're of the Austrian school. What is that?

[01:20:43] You know, so many different professions will have schools of thought within them. But they may be just a sort of an emphasis or an angle that people are most interested in within that broader discipline. In economics, you have the Austrian school as one of many schools of thinking. It's different from the other schools of thought for a number of reasons. One is the method of our analysis, the way we examine the economy.

[01:21:13] We think that the best way, as I mentioned a moment ago, to understand an economy is to understand individuals, what motivates them, why they, the conditions that they confront that prompt them to make the decisions that they do. Other schools of thought will not look so much at the individual. They're focused on the macro aggregate numbers. But we Austrians very much look to the role of the individual.

[01:21:41] We've also made incredible contributions to our understanding of economic science. The Austrian trade cycle theory is by far the best explanation of why booms and busts happen. And that's a matter I think we may have on our agenda in a later episode.

[01:22:01] But so schools of thought can give major contributions based upon their particular perspectives and still remain distinctive within the science of economics. We agree on a lot of things with the other schools of thought. But we have certain emphases and motivations that we tend to pursue more than the others. Who are other economists who follow the Austrian school?

[01:22:28] Nobel Prize winner F.A. Hayek was one. He won the Nobel Prize in 1974. Another one, his teacher was Ludwig von Mises, M-I-S-E-S. Many of us regard him as maybe the best economist of all time. But then he too was influenced by the Austrian economists before him, like Karl Menger.

[01:22:54] It gets that name, Austrian economics, because its founder, Karl Menger, taught at the University of Vienna. And so you had generations of economists who came out of that school because of Karl Menger and his students who adhere to the Austrian way of thinking about the economy. But it's just a name for where it came from.

[01:23:21] Austria itself is not necessarily a place where Austrian economics is practiced. It should be practiced everywhere. The world would be so much better off. OK, but it's not practiced everywhere. And economists disagree on things. Why? A lot of reasons. You know, some come to economics with a predetermined agenda. And these are the ones that might be less than the honest scholars.

[01:23:50] I wish they'd be. But if they have decided philosophically that they like the notions of collectivism, of government power, well, then they may look at the economy through the lens of things like central planning and government control. But also economists look at data and interpret it differently. And so they may be led to different conclusions based on how they read the data that comes forward.

[01:24:20] They may have biases in other respects that affect their thinking on the economy. That's true in any profession, I suppose. I think of some of the socialist-leaning economists like John Kenneth Galbraith.

[01:24:39] And I would say he was an example of somebody who came to a conclusion of government power is the way to go first and then looked at the economy as opposed to studying the economy first and then trying to arrive at the right conclusions.

[01:25:26] Okay. And I think that's why I'm watching and listening are getting something out of it. And I've really enjoyed this conversation because we're talking about the fundamentals and then I'm bringing up things that are happening today and you're bringing up things that are happening today and trying to tie it to the real world that we're living in, not just the concepts in general. Yeah, we've covered the waterfront, haven't we? We sure have. Well, Larry Reed, Lawrence Reed, thank you so much for being on this first episode.

[01:25:56] And I really appreciate it. So thank you for being on. My pleasure. Thank you, Jenny Beth. So this was the first in four episodes. If you want to go back and watch the interview that I did on Lawrence Reed's book, Born of Ideas, you can click through to do that. And then be sure to tune in again for our next episode where we'll go through our second in the series on economics. I'm Jenny Beth Martinin and this is The Jenny Beth Show.

[01:26:23] If you enjoyed today's conversation, go ahead and hit like and subscribe. It really helps us reach more people who care about liberty and the Constitution. You can find this and other episodes at JennyBethShow.com as well as Facebook, YouTube, Rumble, Instagram, X, and your favorite podcast platform. The Jenny Beth Show is hosted by Jenny Beth Martin. The Jenny Beth Show is a production of Tea Party Patriots Action.

[01:26:49] For more information, visit TeaPartyPatriots.org.