Jeff Deist: We’re very happy and pleased to be joined this morning by John Tamny, a name I’m sure many of you know. But if you don’t know, you really ought to be reading and following him. John is the Editor of Real Clear Markets. He also writes quite a bit on political economy for Forbes magazine. He is a Senior Fellow at Reason and he also wrote a book a couple years that Regnery put out, that we carry in our own bookstore, called Popular Economics: What the Rolling Stones, Downton Abbey and LeBron James Can Teach You About Economics.
John, What do you think of Trump pro and con?
John Tamny: What I like about Trump is probably what many do. He is not like other politicians. I like that he kind of says what’s on his mind. At the same time, I’m terrified by him. Trade is the purpose of our work. To import is the reason that we get up and go to work every day. Trump wants to limit our ability to do that. He’s bought into this falsehood that’s confused thinkers for years, that somehow, imports are what hurt us when in fact, imports are the award for all of our work and it also terrifies me that he thinks you can devalue your way to prosperity. Devaluation is the biggest enemy prosperity has ever known, simply because it’s the biggest enemy of investment. And so, I like the change, I don’t like politicians in general, but it terrifies me he could really be bad if he gives into his worst instincts.
JD: Do you think there’s a difference, fundamentally, between his vision for global trade and markets and what Hillary’s might have been?
JT: Yes. I legitimately do. I base this on the fact that her husband was a free trader and I feel like she ultimately would have been guided by some of his logic. I think Hillary moved against free trade simply because she thought it was politically expedient. I think in Trump’s case, when you look at his commentary and you look at his commentary going back to the 80s, we’re talking about someone still living in the 1980s, who back then felt that Japan was the biggest threat to the United States and thinks China is today and I would make the argument that if Japan and China didn’t exist, we’d have to invent them, so good have both those countries been for US economic growth. So, it concerns me. I think Hillary would have been more moderate, had she been elected. That’s not me giving a preference to her, but I think on trade, she would have been better.
JD: Well, there’s also the areas of nationalism and of course, war and peace and as you well know, one knock on libertarians is that we’re so focused on trade and economics and GDP and you know, we’d sell our grandmothers for a few more points of prosperity. Do you think Trump is less likely maybe to set the world on fire than Hillary would have been?
JT: You know, that’s an interesting point. He says interesting things about North Korea, as in that’s China’s problem and I tend to agree with that. He tends to say that the rest of the world, particularly the rich world, needs to take on or foot the bill for more of its defense. I think that is ultimately a peaceful concept. I don’t think the world is made more peaceful when the US is its policeman. But, you hit on something that’s important to me that I’m preaching to the choir and saying it to you. Guys like us love economic growth and free trade simply because we think that is the cheapest and best foreign policy mankind ever conceived. And so, when people criticize us for love of open trade and open markets, they missed why we think it’s so important because we love peace more than anyone.
JD: Yeah, it’s interesting, though, that they also don’t see terrorists and trade sanctions as acts of war and they don’t see domestic aggression against citizens in the form of what I would argue, aggression, in the form of regulations and taxes, they don’t see that as acts of war amongst our friends on the left.
JT: Yeah, I love how you put that. I think you’re so right and again, between what we know is when individuals are trading with one another, war becomes very expensive. It becomes costly because they’re not serving one another’s needs. To bring in someone who’s known for being on the left, Joseph P. Kennedy always said to his son, John, war’s bad for business and it is. It staggers me that an economics profession almost to a man and woman, would say that World War II ended the Great Depression, that war stimulates the economy. Mises put that so well in his book, Liberalism, that in fact, war is the ultimate depressive concept.
JD: Well, ladies and gentlemen, if you recall a few years ago, the earthquakes in Japan caused Honda dealerships across the United States to be short on both automobiles and parts for about six months, so the idea that we’re ever going to have another war with Japan is a nonstarter. But John, I’d love to turn to your article that’s in Real Clear Markets called "No, Mr. President Elect, the Dollar is not Too Strong." And I got to tell you, I loved this article because there’s even a lot of good folks on the free market side. I might throw out Larry Kudlow, who talks a lot about King Dollar. Explain to us, this fetish, this enduring fetish for exports over imports. Why do so many of us believe this?
JT: All I can think is that people still believe, after all this time, that when people are buying from you, you’re prosperous. Well, okay, that’s true, but really, why do we get up in the morning every day? Why do we work for dollars? We’re working for all the things we don’t have. Our goal, from the day we start working to long after we retire is to import. That is the source of our prosperity, what we can command in return for our toil, yet somehow economists have turned that on its head and it doesn’t surprise me. I think it’s a ridiculous profession. Economists believe that imports actually hurt us and exports are what strengthens us. What an odd thing.
JD: Well, but in the article, you get into how devaluing the dollar simply devalues the power of average people’s wages. Let me ask you this. You talk about measuring in yardsticks and how these things don’t really matter. Would you agree when Rothbard says, we don’t care about the money supply per se. Do you think that’s correct?
JT: Oh, absolutely. How arrogant for us to presume what the money supply should be. I think Mises put it brilliantly in The Theory of Money and Credit. He said…and I paraphrase lightly, "no nation or individual need ever worry about having too little money." And his point was, if you’re productive, if a country’s productive, or an individual’s productive, money supply is always willing to find that individual. Beverly Hills and Greenwich and Manhattan never have a money supply problem because there’s lots of productive people in those places. And so, you never worry about money. What you worry about is this measure because that’s all it is, is it stable? Because how awful if you’re working for money and per Mises once again, you’re not working for money, you’re working for what money can be exchanged for. How cruel if suddenly that ticket that you’re working for is devalued because that’s the sole reason you’re working to get what you don’t have to import. If they’re devaluing the currency, they’re defeating the sole purpose of your work because suddenly the dollars you exchange or toil for, buy less.
JD: Well, do you think that stability, in and of itself, is a goal? In other words, if a currency is volatile relative to other currencies or relative to the goods people want to buy? That means that workers have a harder time knowing what they’re going to be able to afford and it means business owners have a harder time budgeting their future costs. So, is a rapidly or widely fluctuating currency, is that a bad thing in and of itself?
JT: Of course, it’s a bad thing because it deprives money of its sole purpose. Bringing Adam Smith into the conversation, the sole use of money is to circulate consumable goods. I would just add to it the other sole use of money is to facilitate investments. What are investors buying when they commit capital to new ideas? They are buying dollar or currency income trends in the future. So, if the currency’s volatile or it’s constantly being devalued, you’ve reduced a great deal of incentive to commit resources to the future or to delay your consumption of resources. Since stability is essential, I’ll point out here, my views are evolving. Historically, I’ve said, the best way to do this, markets have been up on gold long ago is a great way to measure the value of a currency. I’m still for a gold standard, given the choice between what we have no, a floating currency and gold. I think Mises got this right too in the Theory of Money and Credit, that if governments didn’t create money, obviously, market actors would create money very quickly because it facilitates trade among producers. I’m guessing JP Morgan, Wal-Mart and Visa would do a much better job of creating stable money that we’d all want to earn and exchange with, then does the US Treasury.
JD: Well, if stability is good and wild fluctuations are bad, isn’t slow erosion bad too? In other words, the Fed has an express policy if about 2% inflation targeting per year. Isn’t that crazy too if we think about it properly?
JT: Oh, it’s completely nutty because I don’t have to tell you that if your goal is 2% inflation, what you’re going to do is double the price level or devalue the dollar by name the percentage over 36 years. The only thing I would say about the Fed is the Fed doesn’t view inflation in the way that you and I do. You and I view inflation as a devaluation of the unit of account, in our case, the dollar. The Fed views inflation as too much economic growth, which is really strange because if you look throughout global economic history, economic growth is the biggest enemy of rising prices mankind has ever known. I cite the original mobile phone which was $4,000. The original laser printer was $17,000. Early flat screen TVs cost $25,000 plus. Economic growth pushes down the prices of everything. The Fed thinks, in its infinite un-wisdom, that economic growth drives up prices. It staggers me that people take those people seriously.
JD: But, even the financial journalism world does. You’re an economic and financial journalist. Are you ever shocked at what you read about the Fed in mainstream financial publications?
JT: Jeff, I’ll one-up you on that. That is the reason I write about this stuff. I used to work on Wall Street, I watched CNBC and read the newspapers and I’d read about how growth causes inflation and all these other nonsensical concepts and I thought, I’ve got to get into this because I grew up in the 1970s. I know what inflation is. An economist and journalist who claim to be experts on this and the people who report on these experts, do not have a clue about what inflation is. So, that’s what got me into the field I’m in.
JD: Well, we only have time for one more question, so I’ll ask you this. Given the current reality and what most people probably believe about trade, about the Fed, about the dollar, etc. What are some small things a Trump administration could do, either in the Treasury Department or at the Fed itself? We know he’s at least spoken to John Allison, the former Cato head about a position, perhaps Vice Chair at the Fed. What are some realistic things that Trump could do, conceivably over the next four years that would make John Tamny happy?
JT: Well, this is where people disagree with me, but I think if you look at history, you don’t need a central bank to devalue the currency. We were devaluing the dollar long before we had the Fed. I think the dollar is a Treasury concept, which means it’s a President concept. Presidents get the dollar they want. Reagan and Clinton largely wanted a strong dollar, they got it. Bush Jr., Carter, Nixon wanted a weak dollar, they got it. What Trump could do is just be quiet and tell his Treasury Secretary and his officials to be quiet, to stop complaining about China and the value of its currency. That quietude would signal to the markets that we believe in the importance of a strong dollar. That’s the most I can hope for. In my perfect world, they legalize private money because I do think, just as market forces bring us computers, socks and shoes of all shapes and sizes, I think market actors would bring us much better, more stable money that we would much prefer to earn over what the US Treasury issues, but that’s an idealistic dream of mine.
JD: Yeah, but I like the idea that you could legalize competing currencies right alongside the dollar and let the Fed keep doing what it’s doing, let the Treasury keep doing what it’s doing, but simply allow people to use other forms of payment, both in private business and to pay their taxes without putting them in jail for it.
JT: Absolutely. Imagine what that would do, that kind of competition. I would very happily earn a Wal-Mart dollar or a Visa dollar. I think many others would too.