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What Is The Risk From Our Current Monetary Policy? - Podcast

| May 18, 2021
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In today's episode Nicholas Olesen, CFP®, CPWA® speaks with Professor Kevin Dowd about the current state of monetary policy and the risks of the increasing the U.S. government debt obligations. 

During this timely conversation Dr. Dowd shares what history has shown works and does not work regarding monetary policy. Having spent his career researching and studying history of central banks and markets, he brings a depth of knowledge to these topics. A few of the questions we covered are:

  • As the world was facing of an extreme shock to the global economy from COVID, we have seen governments around the world increase their debt as well as issue more currency, i.e. print money, in a way we have never seen before. What lessons from the past can we learn and thus expect from the future?
  • How long can governments continue to increase their debt?
  • There has been a recent resurgence in an economic theory called Modern Monetary Theory. What is MMT and how does it differ from conventional and Keynesian economics?
  • As it is just a theory, what does MMT get right and what does it get wrong in the real world?

Professor Kevin Dowd is Professor of Finance and Economics at Durham University in the United Kingdom and an adjunct scholar at the Cato Institute. He is written extensively on the history and theory of free banking, central banking, financial regulation, and monetary systems.

You can find a transcript of our conversation below.

To listen to all our episodes and receive them as we publish, please subscribe to our podcast on your favorite app:

Please send us feedback and any topic or questions you would like us to cover.  Email us at: nolesen@kathmere.com 

Transcript from our conversation:

Nicholas Olesen: [00:00:19] Hi, thanks for tuning into A Wealth of Advice. My name is Nicholas Olesen, Director of Private Wealth at Kathmere Capital. Today, we have a really special show for you in which we're going to go down the deep rabbit hole of monetary policy. We're bringing on a guest who's an expert in all things monetary policy and central banking.

And as you'll hear throughout the interview, there are things that we're all going to agree and disagree on and topics that are political or not political. But I thought it was really important to have an open mind going into this interview, talking to this guest, and really get an understanding of where and why they have the opinions that they do, and also the deep research and historical context that our guest brings. So I hope you really enjoy this interview.

Today I have the honor of speaking with professor Kevin Dowd. Dr. Dowd is Professor of Finance and Economics at Durham University in the United Kingdom and an adjunct scholar at the Cato Institute.

He is written extensively on the history and theory of free banking, central banking, financial regulation, and monetary systems. We are recording this in May of 2021, and thus the conversation on monetary policy is extremely timely. So without further ado, welcome Kevin Dowd to A Wealth of Advice..

Kevin Dowd: [00:01:25] Thank you very much, Nick. It's great to be here.

Nicholas Olesen: [00:01:27] We really appreciate your time. I know it's a busy time of year, but a very important topic. So I want to dive right in and, and talk about it as we saw the world was facing just an extreme shock from the global economy of COVID. We saw governments increasing their debt, spending money, printing money, issuing out currency in ways we'd really never seen before. So I want to start with just a really hard question, which is what lessons from the past can we learn and expect to see in the future with your history and knowledge that you know of the monetary policies?

Kevin Dowd: [00:02:01] Well, I think the first, the first point I would make is that we could learn a lot about how to handle pandemics from looking at the history.

I think that in particular, if you look at Asian flu in 1957, essentially was treated as a medical emergency, which is what it was. But it didn't occur to anybody that it would make any sense to shut down the whole economy to deal with it. Now, it was a severe pandemic in the United States, over 110,000 people died of it.

So this was nothing it, but it was only one among a series of pandemics that we had periodically. And I think if I think less than that, I draw from a COVID is that the whole thing was a ghastly mistake and that we should have handled it the way, for example, the Eisenhower administration. And the States at the time handled it in a much more measured, reasonable way.

They didn't dismiss it by any means, but they treated it as a medical emergency that did not require shutting the economy down regardless of the cost of that. And including the lives lost through to the side effects of shutdown. Hmm.

Nicholas Olesen: [00:03:15] And when you look at history and the knowledge of research you've done,  looking at the monetary policy side of it, what is the longer term effect that, that people are missing out on or not really thinking about?

Kevin Dowd: [00:03:26] Well, the, the thing that bothers me, most of all is the if you like the insouciance about, about debt, I mean, government debt in the west, is already a levels that are arguably not sustainable, right?

We can't keep kicking that can down the road. So then come a situation where we were already in long term acutely difficult fiscal situation. They just pretend that that doesn't matter and issue vast amounts, more debt. This is creating huge problems down the road. That there comes a point where the debt deficit, sorry the, the debt to GDP ratio will become so high that governments simply cannot meet those obligations, without either default thing or printing money to dissolve the obligations in real terms. So that's what we're looking at down the road. This is very, very serious. And I see very little little that reassures me.

And in fact, when we look at things like monetary theory, we've seen completely blahzay attitude. The debt doesn't even matter, right? This is a horrifying prospect. Now some of us who are older might not live to see the full horrors of that workout, but if I was younger, I would certainly be acutely worried.

Nicholas Olesen: [00:04:41] Sure. And I think that's the thing that we've, we've heard you know, having studied economics in college 28 years ago and all the theories we had, everything, nothing really pointed to MMT at the time, you know, Keynesian economics was, was the prevalent study.

And I know you, you have extensive research and study on that. What is MMT for those that don't know? What can you give the brief overview of what their theory is? Again, it's just a theory, but what their theory is,

Kevin Dowd: [00:05:10] Yeah. So the essence is that the government should spend big and print money to finance its expenditures, that's the absolute essence.

And so basically what they say is that the government can never run out of money because they can always print another dollar bill. That's not entirely true and by the way, we can come back to that. In the short term, it is true. You can always print another bill to stop the government. But, but then the implication, they, they, they draw the instead they draw on the idea that the debt doesn't matter, the fiscal deficit, which is the rate of increase of the debt, the debt itself can go up and up and up and up.

So you get a Debt to GDP ratio could be a thousand percent, we'll just print more money. I think this is grossly unsound and irresponsible policy, especially in the present circumstance. Now, one thing about MMT is some of the MMTers have argued that taxes, the government doesn't need to find out it doesn't in fact finance itself by tax, but it doesn't need to.

The purpose of tax is two fold. One is it it's the practice pseudoeconomics. So pseudoeconomics is where we punish people, we don't like. I think this is basically what the democratic democratic party. And secondly, it believes that taxes should be used to raise taxes should be used as an anti inflation.

And that is completely my mind on, bonkers. When you dig down further into it, you find that actually a lot of it is very reminiscent of the 1950s start of Keynesianism. There is no no notion of a supply side, everything is demand management. If prices are going up, it's big and you just need to sort of demand that.

And there's no theory of the price level. There's not quantity theory. There's no theory of inflation, it's just an incoherent, I would say a kind of primitive Keynesianism? Can I also add, sorry.

Nicholas Olesen: [00:07:14] Yeah, please. Kevin, please.

Kevin Dowd: [00:07:18] What drives inflation is the money supply. If you print money in response to, let's say a very extravagant fiscal fiscal policy, which is essentially, you know, if you want it, we'll, we'll pay for it and we'll print it.

Then your fiscal policy is out of control, which means your money supplies out of control, which means our inflation rate is out to control down the road. It cannot emphasize. Listen to me, look at the experience. This is not a new thing that has been tried. It's been tried in the Weimar Republic. It's been tried twice in Zimbabwe in living memory.

Even the Bolsheviks tried it when they, when they took power and the result in every single case was a catastrophe. By the time, all this, after four years of Bolshevism, Lennon himself was pushing against this kind of policy because he saw that it was absolutely destroying the country. And within, let's say four years later, the Soviet Union was one a and say, so it's been tried and failed.

So, you know, Einstein's definition of insanity. You keep doing the same thing, expecting a different result, right? This is not a political point. If you are, if you let's say you Bernie Sanders and you want big government, big taxes, big spending, go ahead and have that practice. Fiscal restraints. What worry about the long-term fiscal situation.

I'm not defending such a policy, but it's a lot better than MMT you see, so that, so what if, if you want big government spending. The choice between MMT and tax and spend tax and spend wins every time. Of course, that's not a good policy. We had this in Britain. We ended up with an IMF bailout 1976, but still it's better than this, right.

Nicholas Olesen: [00:09:17] And that's that, that's the key part of that I think is, is being missed. You know, the big book that went around, I think it was two years ago now with the deficit myth and it argued that we're really just taxing people in order to penalize those that we want. And there's no reason for it.

And we can just spend as much as we want. And inflation will eventually come, but it'll be a long time from now. And we have tools against that. But you, you cited in one of the papers that you wrote about MMT. Just how many examples we have. And that I think is what's so key for people to remember, is this what you're saying is not just a theory it's, it's been practiced before.

And so when we think about it and we think about the impact of increasing, you know, let's, let's divide out these different topics and money supply. You know, when the government says, we're just going to print and increase our money supply, what, what does that do? What is the, you know, five, 10, 20, 50 year ramification of them doing that.

Kevin Dowd: [00:10:14] Okay. So MMTers think of printing money, simply as a means of financing expenditures, but that money then goes out into the economy. I mean, it doesn't, it's not just of financing, it pushes prices up. You see, so I think the fundamental sort of our of time, here is the quantity of money, that says that there is a relationship between the price level and the amount of money in, in, in, in, in circulation.

So therefore, you know, if you print a lot of money, we have to expect a lot of price level increase. And if the danger is always that the system that the process gets out of control, and what happens is the government catch on to the central bank. See the central bank really as a part of the government that they end up on a treadmill, an inflation treadmill, and it just gets more difficult to keep up in, in the, in the long run.

The danger there is that the money supply becomes completely out of control. Then you got hyperinflation. This is what we experienced in these other cases in every single case. But at least we have high inflation, to completely crazy hyper inflation. So somewhere around that.

Nicholas Olesen: [00:11:31] Somewhere in the spectrum. Yup.

Kevin Dowd: [00:11:34] Heading with these policies. And that point needs to be got across. It's very important also to get across the point that there are no easy result, goodies to be obtained out there simply by printing money. See that's the fundamental point that there's no sort of magic money tree, there might appear to be one.

If you're a bad economist that follows MMT and I can't blame politicians desperately want things like this to be true. You know, like fairy dust, we really want the fairies to exist so they can sprinkle magic dust around, because politicians do not like taking the flack of raising taxes. They do not like taking the flack for denying people the goodies that they all eat from.

And if I was a politician, I wouldn't like it either. So a nice, easy solution would be very, very uneasy, but also you've got to look at the distinction between the short run and the long run. In the short run, you can print more money and avoid default. In the very long run, you have hyperinflation. The whole tax collection machinery has been destroyed and the government reaches a point where even printing money is no longer enough to be able to finance itself. Then you're looking at fiscal and monetary collapse and massive, massive social problems. Which have been well documented, that is where we're heading, if we don't confront this.

Nicholas Olesen: [00:12:57] Right.

And that's, that's the big concern, I think, as we continue to see packages come out, you know, you and I emailed a few months back to set this up and start talking. And since then, we've seen here in the United States, another package being talked about and how much money they're going to put in.

And we're the amazing part going back to 2008, when you had packages during the great financial crisis that were sub $1 trillion, those were even talked about as being too much, you know, $800 billion economic packages. And we, in a matter of about 12 months are going to see a $3 trillion in quote, unquote stimulus or money printing into the economy.

While we're not seeing it super short-term and we just, this morning had another inflation read that showed here in the U S it's it's gone up as far as core CPI numbers. But looking at it, how, how quickly based on history do you see inflation numbers coming, where people start to kind of pick their heads up and realize that this actually might start getting a little out of control?

Kevin Dowd: [00:13:59] Well, I think we're seeing many indicators of rising inflation, but not massively rising inflation. Usually after two to  three years. You certainly, you know, w w within that kind of period, you see a major problem. Like I remember in when I was a teenager watching the Baba boom boom in Britain, where basically once we went off we picked off the dollar floated, we removed Bretton Woods went on a massive spending spree and it was just great.

You know, we, we saw, you know, the shops were just doing fantastically well and so on. And then for some strange reason, 18 months later, we had massive inflation, industrial unrest, wage, and price controls, all sorts of policies that didn't work. And of course, I went through this as a teenager and followed it.

It w it looks great at first. But then the longer run consequences come through. And I think we have to think in terms of the quantity theory of money, that if you print a lot of money, you're going to get a lot of inflation. It cannot be avoided. It can be delayed, but it can't be avoided.

Nicholas Olesen: [00:15:07] Right. Yeah, no, I think that's, that's the key part that I think that's what I'm trying to grapple with and that's what you and I, you know, when I reached out and said, can we, can we have a conversation about this as an expert in the field to talk about where the disconnect is from what is being written about and talked about?

And I think you hit that on a head perfectly, which is as a politician, it's really hard to say no to raising taxes. But also say yes to programs. And so, and I think that COVID in the lockdown philosophy that that was put into place for, for valid health reasons, for sure. But that then caused them to look around and say, what can we do?

And in the short term, you then saw the stock market rise. You saw real estate prices rise and everything. And so it quote, unquote, looks like everything's okay. And that it's just going to be this little blip.

Kevin Dowd: [00:15:58] This is absolutely right, Nick. Policy often comes down in practice to simply political expediency.

Political expediency is not a principle. It's not even a policy. It's just, we do one thing one day and we do whatever we think is a good idea the next day. There's no guiding sense to it. And so this has always kind of bothered me about economic policy. That we have to go back to first principles and ask, you know why do we, why do we have the institutional arrangements that we have, what policies or rules should guide them. And we should always go back to these things because these things protect us against ourselves. They protect those against politicians that are out of control, for example.

And what we need, I mean, the politicians are only part of the problem. They're only enabled to do what they do because the public allows it. So some of the fault lies with everybody, basically, almost everybody. I would emphasize the importance looking for solutions that are long-term based on principle. And there are small number of very sound American politicians who are like this. We have the odd example here in the UK, but most politicians, are just live for the day, whatever's convenient. It's everything has a political calculation. I can't blame them for that too much. That the policy discussion discussions that we have should be focusing on principle on what's a good principal, what's a bad principle. I gave the example before, if you want big government, if you Bernie Sanders, I would advise Senator Sanders,  don't got for MMT, go for tax and spend and take the political pain that goes with that.

And this is the kind of discussion that we should be having. Of course, I will go further and say, don't do any of that. That's another,

Nicholas Olesen: [00:17:56] yeah, that's another one. And we'll, we won't go down there because I think one of the things that having read a lot of your papers and having gone through it was the, the, the advice is key based on the policy people want to make. And that's that I think is, is where there's a slight disconnect, which is people are just talking about printing money and, and trying to make it meet their policy. But we're talking about marrying two of them together, you know, looking at what your fiscal policy is, make sure that's in check and then make sure your monetary policy lines up with them.

And sometimes they're going to be painful to go through. And so what let's, let's give you the magic wand of saying you get to facilitate a, you know, worldwide or, or pick a country policy, and this is how we're going to do it. What would you advise? You can pick on the U S you can, you can pick on the United Kingdom you choose. I'd love to kind of know, in theory, having looked at all the research and everything you have, but what would you put into place?

Kevin Dowd: [00:18:55] To me, it doesn't really matter what the country is, but the formula is essentially always  small government with sound money. How small the government is, whether we should even have a government, or anarchy. That's a discussion we could have.

Nicholas Olesen: [00:19:11] That's a longer discussion. Yep.

Kevin Dowd: [00:19:12] That's another discussion. But we should think on these things because without thinking about the first principles, we don't know what the policy should be. 

Definitely sound money. Sound money to me would involve a commodity standard. Gold standard is the obvious one, but it doesn't have to be a gold standard. I would also suggest getting rid of central banks. The central banks are essentially an engine of state control over the  monetary system. I think the monetary system works best when it's left alone. On my own work, which one of my main interests has been the history of state intervention in the monetary system.

And most economists, for example, take central banks for granted. The necessity of, of central bank. They overlook the fact that most central banks were established in the 20th century. So that's directly the quite recent, a few go earlier. The Fed itself was only established in 1914, so the U S period without a central bank. And it had, you know, much more stable price level, before the fed. And after, as soon as the fed was founded, the us dollar has lost 96% of its value. That's quite a record.  Thank you very much. The gold standard performs much better. So I would suggest to shift the, if you like the Overton window, towards these sorts of issues. I don't think there is a solution.

Based on big goverment because big government is inherently uncontrollable, eventually it grows too big, everything goes. But sound money and limited government.

Nicholas Olesen: [00:20:51] Okay. And when, when you talk about sound money and, and central bank, I I'd like to kind of dive a little deeper in there because I think most people especially those, I talked to call it in their forties to early sixties. Really have always thought of the central bank as always being around. And, and I read a fascinating book and it's, it's escaping me the name. It's got Jekyll Island in the title, just talking about the history of the United States central bank. Yeah. And there's some little

Kevin Dowd: [00:21:21] The Creature from Jekyll Island.

Nicholas Olesen: [00:21:23] Yes. Yes. Yes. There are some, there's some interesting concepts and why, and, and theories inside of that. But I think it's a really fascinating book to kind of give yourself a different thought than what you might've had on why central bank came around. I would love you to, yeah. I would love you to dive into having the, the research, everything on central banking. What is your, you know, three minute, four minute clip of why central banks were created here in the U S?

Kevin Dowd: [00:21:52] They, they generally created it because as vehicles to help finance the state. So this was essentially the case in Britain. In the United States, it's more complicated because there were very confused monetary debates in the period before the Fed. About which then you get into the check Island horse trading and the Fed came out, basically fell out of this.

When you look at the Fed, it's by comparison to the central banks, it's a rather unusual institution that has a Federation structure and stuff like that. But in essence, however, the, whatever the process by which they emerged, the purpose, the primary purpose of a central bank is to finance the state. Is to ensure that the state can finance itself. And in doing that that's part and parcel of what monetary policy involves. Not just printing money, but helping the government to stay fiscally solvent so that it can pay it's debts so that the fiscal side of central banking is the drive.

And you see that whenever you're going to war or something, it becomes difficult. For example in 1797, the Napoleonic French Revolutionary War. The, they, the government pushed the central bank off the gold standard in order to maintain the ability of the central bank to finance the government. So there was a choice, the good men can reign in its expenditures over and on the gold standard.

And that was a no brainer as far as the government was concerned.  Lincoln did the same in 61, 1861. Even though there was no American central bank at the time he was dealing with the big New York banks. That's just a  detail in this context.

Nicholas Olesen: [00:23:42] Right. Interesting. Interesting. Okay.  I did not know that that's good, good to know. When, when we think about them and, and central banks to me go hand in hand and, and you can correct me if I'm wrong in this thinking, central banks go hand in hand with just government budget constraints and the way that we fund them and taxes. There's, there's kind of a bunch of levers we can pull on here.

And I think one of the theories right now, and just from what I'm hearing and seeing on, on what is being produced as policy is print money, and it's not going to affect anybody. Yeah, and I think that's a wrong, you know, well, maybe I'm biased on that. But why is that a wrong idea then we've talked about a little bit, but what is as individuals today looking at it saying there's, there's no downside to it.

Kevin Dowd: [00:24:31] Well, first off there is a downside. The downside is sometimes hard to identify. So okay. Let me give you an example. Helicopter drop , just drop money. And everybody picks the money up and spent those. For those who received the helicopter money, that's great. It doesn't follow that there's no cost to society of doing that.

I'll give you an example, approves it. Suppose that the IRS helicopter and drop vouchers. They said  you can use this voucher to pay $1 of your own taxes. That would be effectively the same thing. So fiscally, helicopter money is equivalent to a tax cut. We know that tax cuts have implications and are not zero cost, zero, whatever.

You know what I mean? That we're not that there's no magic money when you're talking about tax cuts. There's no magic money tree when you're talking about helicopter money. But you mentioned early in the business the long, the consequences of printing money, I go back to the quantity theory of money, which is an old established tradition of thoughts.

Which is kind of going into a kind of rip van Winkle phase in the last, let's say two decades. I believe it's truth was always there, it's just that it's, it's gone into this hibernation. That coming out of hibernation now, because we see the prices are rising. We see, you know, very serious rates of growth of the broad money supply. M's of Ms, M2 in the United States as an example.

If you want to look at where inflation is going, you first look at these. When you see a sustained process of monetary growth. So not just like a one-off boost, but then it stabilized the sustained process of monetary growth. Then you know inflation is coming through on the horizon. The definition of inflation is a process of sustained a sustained process of rising price.

So in order to, to see that coming, you want to sustain process rising monetary growth, monetary growth, sustained courses. And that's basically what kind of inflation watchers have been looking at. That's the short-term stuff. The long-term stuff is you just have to ask the question with all these debts, debt-to-GDP ratio is rising astronomically. One of two things can happen. Either the government defaults or it inflates that away. So in my own perspective that we're looking at that, and then in the intermediate perspective, let's say you've got Stephanie Kelton and MMTers all saying let's print money, like crazy, and it doesn't really matter. Well, that's got to go somewhere.

So how would you look at it? I end up with the same kind of answer.  What I can't tell you is the timing of it.

Nicholas Olesen: [00:27:22] No, and that's, that's, that's fair. And I think that's what we're trying to bring to listeners is just what are the points of view and what is the theory that they're talking about, and then what is the research shown?

You know, someone who's studied this and understands it, and isn't just giving a hypothetical, but we've seen the history of it. And that's always gets pulled from somewhere. And, you know, you'd mentioned in there that the US dollar being worth 96% less than what it was previously. And that's, that's the that's part of the inflation issue is we all have value in the dollar, and if it just continues to lose value over time from so much more money supply coming on, you are affected, you just might not see it immediately.

Kevin Dowd: [00:28:02] Yes.

Nicholas Olesen: [00:28:05] When we look at it and when we look at at the I think one of the quotes in the book Deficit Myth, was have your cake and eat it too, and that we can do those.

And we've touched on those a lot. When, when you say in one of your papers that you wrote, you said anything but MMT, can you expand on that about why? And I think we've touched on a lot, but I'd love to just a concise kind of what your model is, alternatives to MMT. What, what else you see that's out there?

Kevin Dowd: [00:28:36] Look, I go back to my basic principles, sound money and small government and rules. Rules. So we don't, we don't want, we want, we want to minimize discretion because discretion gets abused. So throughout my life, I've always taken an anti discretion position, pro rules. I'm not saying get rid of all discretion, but you can, get rid of a lot of it and replace it by rules. Which one simply follows, which also make for predictability you know, that we can predict the outcomes. We can predict long-term prices on stuff like this. And I'm going to, we can have a sensible discussion about what those rules should be? You know, do you want a gold standard, the silver standard, do you want crypto standard?

Do you want. Let's have these discussions. But when you're just talking about unbridaled discretion, you just talking about about expediency. And that's what it is political expediency and there's never any rhyme or reason except a political rhyme or reason. We've come completely away from the principles of good principles, that we should be seeking to get the best outcome for everybody.

So Now going back to the Kelton. So I see I'm seeing is the extreme of expediency based, is the polar opposite of my position. There are no rules, just expediency, spend a lot and make a lot of fancy promises and the long run doesn't matter anyway. It's very short term position. And the deficit doesn't matter.

The debt doesn't matter. The absolute polar opposite. So now coming away from that all polar opposite. I come  to Bernie Sanders. And my advice to him is if you want big government, okay, please don't use MMT to finance it, do it the old fashioned tax and spend, where I'm not defending that, I'm really saying it's better than that alternative.

Then I would, if I was, you know, talking to people who were not so far left, I would be talking about more limited government. Rules and so forth. Looking at sustainability, fiscal sustainability, everybody pay lip service. I don't think most people pay lip service to it, but they, it doesn't mean anything because from tomorrow we'll have gone spend another trillion dollars.

You mentioned 3 trillion or 4 trillion. It could be 7 trillion , who knows. It's going to be a lot.

Nicholas Olesen: [00:31:02] Yeah, no, it's an, it's an unfathomable number that I don't think even just a handful of years ago, anybody would have said that that's a good policy or that we're, it's gonna, no, nothing is gonna happen to the negative from doing something like that.

Yeah. When we look at it and one of the things in MMT and just to kind of dive a little deeper into it, one of the I would say, policies that they want to put out there or theories they want to put out there is a living wage or having kind of a guaranteed income. Does that go hand in hand with all of what we've just talked about, which just says that's one of those policies, but you have to find a way to fund it and it can't just be printing more debt. Is that, is that how they resolve it?

Kevin Dowd: [00:31:47] Well, Kelton makes a big deal about this in her book, and I can understand why. But the question is how do we achieve, let's say living wage,  a decent living wage. Now, the two traditional approaches are. Number one. No, there are three, actually. One is just to increase the minimum wage.

And that's just great, if you're on the minimum wage and you keep your job. Of course, you know, if, if for example, you think the minimum wage should be $15. I come along and say, Oh, that's a great idea, really? Why not make it 30? That's even better. And so far of course you lead the opposition and then where you won the argument.

So you can have welfare policies for stuff like that. There's something obviously for that, we should have a discussion about those, but the fundamental cause of prosperity is free market. Sound institutions. Free markets. Free trade. Low taxes and things like that. That's the fundamental way of lifting people out of poverty.

We know that works. We've seen it work in Hong Kong. And Hong Kong was nothing. When the British captured it in 1840. It was just an Island with some people on it. It didn't even have proper water supplies and then became a kind of little superpower. Look at Singapore. Now what made that work? It was a combination of obviously a culture on the people, which was based on hard work and all that kind of work ethic. But, fundamentally whatenabled that to work was the institution that that the British, which was basically, they, they were lazy governments. They, they just leave them alone, not the rule of law. You know, someone's else is  making money on this. We're fine. It was what you might say, benign, benign neglect. That worked, you see. So that's what I would recommend. I'm not saying that poverty is  not a massive problem.

The question is how best to do it. But I think the limited role, if you have a government that provide welfare services or housing, fine, I'll go with that and try and improve it. Don't do minimum wages that will put people out of jobs. We see that now in California, I mean, with all the recent minimum wage hikes, and then people attempt to turn around and find that, my goodness we've lost our jobs. Well, that's a surprise.

Oh, secondly, they go into McDonald's and so on. And suddenly the prices are enormous because they that the restaurants have to cover that cost. And they hired fewer people, so the service, you wait longer for service. And all of these things are predictable consequences.

So I think what economics does is it teaches us behind the under superficial. It's like it's like slogan to say all $15 minimum. To which I say, well, why not 20, 30,  why not hundred? You see the danger of me saying that, is they might actually think I'm actually serious. But the point is that the unintended consequences of these policies are what we must address.

And this is why you don't want, I  hate to use this phrase, but I'll use it to kind of rebel rousing politician. It's too many. There's always too many of that, particularly too many of them at the moment. We should think these people are very dangerous.

Nicholas Olesen: [00:35:25] I appreciate that thought and I appreciate, you know, that, that's why I thought it was so key to talk to you because I've, I've read a lot of your pieces and seeing the point of view that you come at with historical context is not just theories about them, but what has seen, and I you'd mentioned Hong Kong in there. I had the, the joy of in the early nineties, living in Hong Kong for a handful of years and, and saw what it had become. Through the prosperity of, of basically just getting left alone. And allowing them to grow into the, you know, little, teeny mini two islands superpower that they became with Kowloon and Hong Kong.

Kevin Dowd: [00:36:00] On Hong Kong it, a lot of it boils down in modern times to one particular British civil servant, Sir John  Cowperthwaite. Who basically was the, I forget his position, but he was the chief, let's say finance Mandarin. And he was a Libertarian sort you know, set the rules, let it be. And he spent a lot of his time fighting London, which was trying to impose these sorts of more socialistic policies. And he was fighting them as it was you know, sometimes lot just depend on a single individual. You know, who just the right person at the right time, who can make the difference.  Which means there is always hope for policiticians. You get the right person.  The right person, the right place can make a huge difference. In Poland. You know, the shock therapy, anybody else in Poland turn the country.

Nicholas Olesen: [00:36:59] So, is there an and thinking on that and pulling on, on that thread a little bit are, is there a country that has, is right now going through the kind of more free market than other places. Where they're saying we are going to allow this to, kind of work itself out versus stimulate it right now. Is there, is there an example right now that we can think of, or, or push listeners to think about?

Kevin Dowd: [00:37:24] That's a great question. I wish I could give you a good answer. Some countries are better than others obviously. And some countries are innovating and in interesting ways, Estonia, for example also on the digital front. So definitely Estonia as a country.

I've always been fascinated by Switzerland.. I guess being an economist and one, you know, the dismal science, I tend to focus on the countries that are going wrong rather than the ones that are going right. I think history is a laboratory of experiments. It doesn't have to be now. There are loads of experiments in the past, including in Scotland and with free banking, where essentially, again, it was benign neglect by the London government, which allowed the Scottish free banking system to, to grow up.

And there was something similar in Canada, basically where the Canadian banking system just developed and nobody paid a great deal of attention to it. And the and that was just perfect. Especially when you can say that the problem is just south of the border, with all the monetary experiments in the United States.

I launched didn't work some somewhat, occasionally, I mean, you've got free banking experiences in some of the Southern States before the war, civil war, for example, most American experiments didn't work.

I always think historically, I don't think in the present.

Nicholas Olesen: [00:38:50] Sure. No. And that's, with history, then you can also see what then happened from that policy to then say, okay, where is it today? So with, with just a couple of minutes left, as we're wrapping up here, I'd love to know one of the countries that I I've just always been fascinated with is Australia and their, their monetary theory, their, their, their fiscal policies.

You know, we we've been economically. They, they have not had at least. On paper, it looks as though they haven't had a recession in decades. And what if you've done any research on their studying of that? I'm throwing you a last minute question. I did not talk about at a time. Any idea about kind of, how, why or anything there on, on a philosophy?

Kevin Dowd: [00:39:31] I'm not comfortable to give an answer on that. I just don't know enough. The countries that I would look at were actually Scandinavia, especially Sweden, because Sweden, especially Sweden went through, like fiscal banking crises in the 1990s. And out of that emerged a very strong tradition of practice of fiscal restraint. And that to me is a very interesting experiment.

Nicholas Olesen: [00:39:58] Okay. Good to know. No, I appreciate it. Good answer. And I appreciate your honesty on that. So one last question then that I have for you, which is if our readers want to dive a little bit more into a good book, a good article, we'll obviously put some links to some of your papers that are out there, but is there anything that people can read to kind of learn from the past and what we've talked about today?

Kevin Dowd: [00:40:23] Well, David Stockman's book, The Great Defamation, I think is a really good place to start. On the, in terms of the kind of policies and the issues we've discussed, I would encourage people to look at the websites of the free-market institutes. I would think of CATO, I think, of the Misa Institute, think of the American Institute of Economic Research. There's some absolutely fantastic material on the website, all of these institutes. So that's what I would start with.

Nicholas Olesen: [00:40:55] Perfect. Great. Well, I really do appreciate your time. I know that it's busy and this is just such an important topic. I know we could talk for hours. On this, but I wanted to keep it kind of concise for our listeners. I really, Kevin, I do appreciate your time today.

Kevin Dowd: [00:41:09] Thank you very much, Nick. And I appreciate the opportunity to speak to your audience.

Nicholas Olesen: [00:41:15] This was wonderful. Thank you.

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