Insitute for Policy Innovation
Tom Giovanetti is the President of the Institute for Policy Innovation in the United States. The Institute is a free-market policy think tank that focuses on issues related to economic growth, innovation, limited government and individual liberty. In this special interview we explore crucial issues related to government policy, tax, stable money, innovation and much more.
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Jonathan Doyle Nathan Lewis
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TOM GIOVANETTI MASTER
Jonathan Doyle: [00:00:00]
[00:02:10] So Tom Giovanetti from IPI. Thanks so much for making time to join us on the supply side podcast.
[00:02:18] Tom Giovanetti: [00:02:18] Oh, I’m delighted. Thank you for having me.
[00:02:20] Jonathan Doyle: [00:02:20] Well, we had a great chat before we started, and hopefully we’re going to revisit some of that. And, uh, what I wanted to ask you first, what I was interested in was, was hearing a little bit about your journey into this vast, great realm of political economy, economics itself, uh, all the different theories that have shaped the age of all the things you could have done in life.
[00:02:42] Tell us a little bit about the journey into, uh, the path that you’ve taken.
[00:02:46] Tom Giovanetti: [00:02:46] well, you know, it’s an interesting question because my training is not in political science or economics or anything like that. Mike, my background is all in theology and philosophy. So I have, I have, I have lived my. My college and my graduate school life and the world of ideas. And in, in thinking, trying it at least attempting to think sort of high thoughts, but I was always interested in, in policy and political science, just sort of as an aside, And I had a, I wrote some op-eds for the, for the newspaper here in Dallas, Texas, the Dallas morning news.
[00:03:20] And I came to the attention of a, of a, sort of a startup think tank in the area called the Institute for policy innovation. And so I think by very odd, strange circuitous route, I ended up exactly in the field that I should always have been at, which is in this world of ideas and political philosophy and economics.
[00:03:41] Philosophy, but I do end up being self-taught in many ways for that reason, because I, you know, I’m one of those strange people who never took a college economics course, but I’ve actually taught economics courses. So it’s, it’s a, it’s, it’s a little strange, but I, uh, I, I consider myself extremely fortunate to have been given the opportunities that I have and to have been.
[00:04:07] Around the people that I’ve been around, very influential people, some of the key sort of people in the room, you get administration, the whole supply side revolution and the tax cuts of the 1980s and the incredible economic growth spurt and all of those things. And this remains, one of my concerns is that somehow we seem to have lost a lot of those lessons and I’m sort of dedicated to making sure that those lessons.
[00:04:30] Are perpetuated. And that we, we, we continue to understand, you know, as, as our, as our mutual friend, Jude Wanniski said the way the world works.
[00:04:42] Jonathan Doyle: [00:04:42] now you met him several times. What do you remember?
[00:04:46] Tom Giovanetti: [00:04:46] Oh, Jude was a fascinating guy. Yeah, you would. Um, I spent many hours in his home in Moorestown, New Jersey. You would hop on the train in Washington DC and go up to New Jersey and he would be waiting for you at the train station. His office was out of his home and, uh, you know, Jude also was not a trained.
[00:05:01] Economists Jude was a journalist, but he was brilliant. And he had a remarkable ability to synthesize ideas and to take ideas from, from a variety of sources and synthesize them. And Jude just Jude was just honestly a brilliant open-minded human being. He was very, very open-minded maybe too. Open-minded.
[00:05:25] Jonathan Doyle: [00:05:25] Well, again, I, I read ’em yesterday. I read Cedric Muhammad’s sort of eulogy for him. Somebody sent me and there was, yeah, there was that question about the relationship with, uh, you know, with the nation of Islam and that sort of stuff.
[00:05:36] Tom Giovanetti: [00:05:36] he got, he got involved late in life with, uh, with Louis Farrakhan. Who’s really an objectionable human being. But, you know, Jude, Jude was very, he was very ecumenical in the sense that anyone who was open to his ideas, he was happy to engage with. And I think. The fact that Jude was so open to ideas, was that probably part of the key to his ability to synthesize ideas.
[00:06:00] He didn’t really, you know, he didn’t start off with a, with a refusal to consider almost any idea.
[00:06:06] Jonathan Doyle: [00:06:06] You mentioned a moment ago that you have this great fascination with ideas, you were fascinated by the supply side revolution in the Reagan era. When you think about Jude’s Corpus of work is his sort of meta thesis. How would you describe what you see as the key aspects of supply side and what can they offer this particular moment in history?
[00:06:29] Tom Giovanetti: [00:06:29] so Jude, one of the things that I really took from Jude, which was fascinating was June understood that there was a significant difference between politics and economics and in his view, political questions should be settled in the political realm, like questions like. What should be the size of government, how much money should government spend?
[00:06:51] How big should the welfare state be in his mind? Those were all questions that should be decided through democracy, through politics that he wasn’t terribly interested in those things. Yeah. I mean, he had, he had opinions, but in his view that was the world of politics, but he considered economics, especially supply-side economics to be settled science.
[00:07:12] He really felt like however much, however big the government is going to be. However much revenue, the government needs to raise. Those are political decisions, but how to raise it should be settled. Science. He really felt very strongly that, you know, Neo, you know, what w what you and I are calling supply side economics today, which is really sort of neoclassical economics, right?
[00:07:34] It’s like a return to pre Keynesian economics. He really felt like that was settled science, that it was just a parable. And if you were a Democrat, If you were a progressive, if you really wanted a large welfare state, and if you wanted a big government, that’s fine. But the way to raise the revenue for that big government was to embrace supply side economics.
[00:07:55] Right? In other words, Jude felt like no matter how progressive your politics, you should still believe in low tax rates. Because ironically, that’s the way to raise a lot of government revenue. And, you know, for those of us on the right, for those of us who believe at a small government and Liberty limited government, this has always been a bit of a, of a funny juxtaposition of issues because.
[00:08:18] If you, if, if the government really does embrace supply side economics and low taxes and low regulations, that is a recipe for actually raising more money. So if you believe in limited government, do you want the government to actually raise more money? I mean, it’s kind of, it’s kind of comical, but Jude really saw a distinction between politics and economics.
[00:08:37] He considered economics to be empirical and settled and politics to always be an open question.
[00:08:43] Jonathan Doyle: [00:08:43] at the moment, it seems wearing this kind of vast. Monetarist experiment. Right. Which is kind of constantly changing, constantly tinkering. And I was talking to somebody here last night, over, over a couple of drinks. And I was saying that if you look at the level of tinkering, that’s happened since going off the gold standard and the constant interventions in fiscal and monetary policy.
[00:09:06] And then we say, you know, the inflation of the seventies and eighties, we see the Asian financial crisis, the.com bubble, the 2008. I guess what I’m asking is. If Jude saw these fixed laws operating in the economic world, are they essentially being ignored?
[00:09:23] Tom Giovanetti: [00:09:23] well, I think so. I don’t think he would think so. You know, Jude. Like most sound neoclassical thinkers did believe in the gold standard, but one of the last conversations I had with Jude was really interesting. It was along the lines of, we don’t have to have a gold standard, but we all have some kind of standard.
[00:09:40] In other words, the currency should be tied to something real. And he felt like we had gotten so far away from the gold standard that it was probably impossible to ever return to it. Our goal should be to return to some kind of a standard, like a basket of commodities. So Judah would have been completely happy with the value of the dollar tied to some sort of an index, you know, gold oil, corn.
[00:10:06] We pork bellies, natural gas, platinum, you know, just some sort of an index that you would create and he called it a basket of commodities. But the idea is that ought to be tied to something real. You don’t not be just arbitrary, you know, at the whim of the, of the federal reserve and Jude was not a monetarist like, like Milton Friedman, but of course, you know, Jude, Jude saw wisdom and know most everyone’s work.
[00:10:31] Jude saw wisdom in Keynes’s work. Jude saw wisdom in, in a lot of Marx’s analysis. He thought Mark’s really did a great job of sort of understanding sort of the tension. In capitalism, just that Marx came up with the wrong prescriptions. So, you know, Jude’s argument was if you had sound money and by definition, sound money has to be tied to something real.
[00:10:56] It almost doesn’t matter what it is, but if you have sound money, then you could actually do what Milton Friedman jokingly suggested, which, you know, Milton Friedman said that the entire job of the federal reserve could be done by one computer sitting on a table. Right. Because all it would have to do is keep the money supply consistent.
[00:11:14] Right. And, and, and Jude’s point was, if, if it was tied to something real, then you could do that. Then you could keep the money supply. Uh, stable. And that stability is one of the really key elements in. Not only a sound economy, but in a healthy politics. Because I mean, if you think about it, I mean, us policy, at least for the past couple of decades has really been characterized by this whipsaw, right?
[00:11:42] It depends on who you have in office. You end up with these dramatic swings and changes in policy. And I think Jude would have attributed a lot of that political instability, economic instability. And he would have seen that he would have seen the core problem there. The fact that th that the currency is not attached to anything stable, not attached to anything real.
[00:12:02] And so then you have the, these concern. You mentioned inflation. I remember when I was in high school in the United States, a mortgage rates were 18 and 19%. The idea was you pour young people. You’ll never again see the kind of low interest rates that us baby boomers had or whatever. And now all of a sudden, you know, interest rates are like two or 3% here, you know?
[00:12:23] So it’s kind of shocking when you look at a country and you say that in 20 years, interest rates could fluctuate from from 18% to 2% that’s in stability. And that’s, that’s coming from the fact that the currency is not tied to anything real. And so it’s purely the whims of whoever happens to be in control of the federal reserve or whoever happens to be in control of the government at the moment.
[00:12:44] Jonathan Doyle: [00:12:44] And do you see that as fundamentally undemocratic? Do you, I mean, do you think it’s fair to say that the vast majority of the policy has no idea what’s really driving their economic experience of
[00:12:57] Tom Giovanetti: [00:12:57] it certainly, it certainly erodes Liberty and it certainly puts Liberty intention. You know, if you think about like the circular flow. Uh, of, of money in any economy where you, you, uh, I’m, I don’t know if your listeners are familiar with this or not, but you sort of picture in your mind and oval, right. And at one point in the oval businesses pay wages to households that at another point in the oval households pay money to businesses to buy goods and services, right.
[00:13:25] In this that’s an extremely simplistic sort of picture of sort of how an economy works without circular flow. Of money, both businesses and households need stability and predictability in order to make decisions. And so when you have dramatically fluctuating rates of growth, when you have dramatically fluctuating interest rates, and when you have huge.
[00:13:47] Changes in policy from one administration to another erode stability. So it affects your decision-making. It affects your ability to do long-term planning and all of those things, I think create friction for economic Liberty in my organization, Liberty is our Keystone, both economic Liberty and individual Liberty.
[00:14:06] And we’re concerned about anything that creates friction for Liberty or that he Liberty. And I think that a pendulum swing of economic policy from one extreme to the other certainly erodes economic Liberty.
[00:14:17] Jonathan Doyle: [00:14:17] And how would you define Liberty? W w what’s what’s your essential definition of Liberty in the personal and economic sphere?
[00:14:24] Tom Giovanetti: [00:14:24] you know, there was this whole ball of creative thinkers. Uh, in the eighties, in the Reagan administration and Jude was one of them and there was another one, there was a, there’s a treasury department official named Norman Turay and Norman Turay was a very, very influential thinker on tax policy. And one of Norman Terez key.
[00:14:45] Principles for economics and tax policy was neutrality. Norman felt like government policy should be neutral. It shouldn’t attempt to influence anyone’s choices or decisions. So for instance, tax policy should not attempt to influence people to buy a home or have children or go to college or not have children or not go to college.
[00:15:10] The tax policy should be neutral. It should be neutral with regard to spending and investment decisions, businesses make. So if you’re a printer, do you go out and buy the money to buy a printing press? Or do you lease the printing press? Do you buy your vehicles or do you lease them? Norman felt like those, the tax policy should not influence those decisions.
[00:15:31] Those ought to be made for purely business reasons and not tax reasons. And so to me, to me, that’s the essential of economic Liberty. Is that government policy does not try to nudge you in one direction or the other. So you make economic decisions for your family based purely on family considerations, not tax considerations.
[00:15:55] You make your decisions for your business purely on business. Decisions business factors, not tax factors. And the sad thing is, is that’s the opposite of what happens in real life, right? I mean, you know, if, if a, if a business is trying to decide whether to make a purchase or investment, one of the first things they have to consider are the tax consequences.
[00:16:15] Right? And, and so Norm’s point Norman Theresa’s point was that’s wrong. The tax consequences should, should be in consequential. And so that’s why Norman would say for instance, that there ought to be a principle, that productive activity should be taxed once, but only once all units of productive activity should be taxed once, but only once.
[00:16:40] And about what we tend to do is, you know, if you, if you earn a buck as a worker, And then on your way, home from work, you go through the drive through at the restaurant and you buy a burger, you pay sales taxes, and then you’re done. Right. But if you were to take that buck and save it and invest it. You actually enter into a whole new stream of new taxes, right?
[00:17:02] Capital gains taxes and dividend taxes and interest taxes. And then if you happen to die, having accumulated any money, you’ve got to pay a state taxes and things like that. And to norm, that was a violation of economic Liberty because the tax code was actually encouraging you to spend the money on the burger rather than save it and invest it.
[00:17:23] Right, because you actually ended up paying more taxes. If you did the, you know, if you did the right thing with the money rather than the wrong thing. So that’s been a huge influence on my thinking. And it’s a principle for evaluating any kind of government. Tax or economic policy is that it should be neutral.
[00:17:42] It shouldn’t. We have a, we haven’t, we have a very influential thinker in this country named Cass Sunstein at the university of Chicago. And he wrote a book a few years ago called nudge. And the whole idea of the book is that we should use government policy to nudge people in the direction that we think they ought to be nudged.
[00:17:59] And this is diametrically opposed. To the way June Wenski and norm Turay, would’ve looked at it. It’s diametrically opposed to neoclassical economics. If you’re free, you make decisions based on your own criteria, not criteria that is imposed on you by the government, in the form of tax policy and taxes on investment and tax credits for having children or tax deductions for going to college and things like that.
[00:18:27] Jonathan Doyle: [00:18:27] so we’re seeing. As you are in the United States, we’re seeing a huge range of increasingly ideological tax maneuvers and incentives in government. I mean, a classic one at the moment is around electric vehicles. Like there’s so much in our news here about, you know, tax incentives and all sorts of stuff.
[00:18:47] So is that a case of what you’re talking about of governments choosing an outcome and then structuring tax policy to drive a particular ideological outcome?
[00:18:57] Tom Giovanetti: [00:18:57] Yes, it has. It’s a perfect example of that. And you know, not to become too educated, but on the other hand, This is sort of a decade Pollo podcast. Right. And I should mention, by the way, just, just backing up a little bit. I’m a, I’m a great admirer of this project that you have taken on. I think these topics are crucial.
[00:19:16] I think these topics, these are things I thought we learned in the 1980s and now we’ve sort of largely stepped away from them. So, so I’m an admirer of this project you have taken on to continue to talk about supply side economics and to. Maybe maybe a return to good thinking in those areas. So I think that’s, I think that’s really important, but yes, your, your example of like green subsidies and that kind of thing is a perfect example of this.
[00:19:43] So what you have is you have a government from the top down deciding we think we know the direction, that things should go. And so we’re going to try to encourage that through tax policy right now. The problem with that. Uh, I don’t know if you’re familiar with, with the economist Friedrich Hayek, but of course you have high X knowledge problem, right?
[00:20:06] Which is, I think one of the most important things people can understand in public policy and the idea in the knowledge problem is that economies are not just ways of moving around pieces of paper. They’re not just ways of moving money around and economy is actually an incredibly. Complex data processing system information processing, right.
[00:20:28] And, and economy is just mind bogglingly complex. And the idea that any group of government bureaucrats sitting at the top of that, the idea that, that they have enough access to information, the idea that their brains are big enough to sort of direct any economy from the top down is just ludicrous. It’s just crazy.
[00:20:48] And I think we saw that, you know, with central planning in the Soviet union and things like that, it just doesn’t work. Right. When I talk to us audiences, I say, where, how do you think you’re going to get the best outcome? From an economy by the real time decisions that are being made by 350 million people in the marketplace at any given time or by, you know, by seven government appointed bureaucrats sitting around an Oak table.
[00:21:14] Okay. I mean really? Where do you think you’re going to get the best outcome? And to me, the answer is obvious to me, the answer is you’re going to get the best outcomes. You’re going to get the answer to the question. How much should we pay for price of strawberries? You’re going to get the best answer.
[00:21:29] From the computer of 350 million people making real decisions in the marketplace in real time, rather than having some group of bureaucrats from the top down, trying to decide what should be the price of the pint of strawberries. Right.
[00:21:44] Jonathan Doyle: [00:21:44] As I listened to you. I just thinking of a, I can’t remember where I saw this, but the us fed has over 1500 PhDs on staff. And as I’m listening to you, I’m going, they have more pH economics PhDs in anywhere in the world in one concentrated space. And yet us debt to GDP is running close to 130%. It’s like, as I listened to you, I think that’s it.
[00:22:06] Pretty compelling argument that if you, you sell this idea that all the smartest people in the room they’re going to make the right choices on your behalf. We’re not exactly seeing that bone out.
[00:22:16] Tom Giovanetti: [00:22:16] no, we’re not. And we never have. I mean, if you go back in the U S all the way back to the progressive era and the attempts to deal, for instance, with the great depression, there’s an author here in the U S named Amedee chalets. Who’s written a wonderful book going back and talking about the great depression and how frankly, that sort of arrogant, technocratic top-down approach.
[00:22:36] To the great depression actually extended the damage of the great depression. It made it worse. It didn’t solve it. Economies are just too complex. There’s too much information going around for any group of bureaucrats to direct things from the top down. And so that’s one of the problems with. You know, if you go back to the 1990s, for instance, Japan deciding that the route to success for us as for us to become globally dominant and creating flat-screen TVs, you know?
[00:23:06] Oh, and see how that worked out for them. It didn’t work out or in the U S you know, or in Australia deciding, you know what, we need to create tax incentives to force people, to buy green vehicles or to convert to wind energy or whatever. Those are all examples. I think of just stepping your foot squarely and high acknowledged problem, because your brain’s not big enough and you don’t have enough knowledge to direct something as complex as an economy.
[00:23:35] We’re far better off letting the economy be driven from the bottom up by again, by the real time decisions being made. Every hour by 350 million consumers making decisions in the marketplace. And one of the really humorous examples of this of course, is at the same time that the Obama administration in the U S was trying to kill the fossil fuel energy industry and was trying to direct, you know, convert to a green economy at the very same time you had the fracking revolution going on, and while the U S refused to join the Paris climate Accords.
[00:24:13] We are the only major country that is actually meeting. The CO2 standards of the Paris climate Accords, even though we didn’t join, but it’s not through any effort of government, it’s through the conversion from coal to natural gas that became possible because of fracking. So, you know, it’s sorta like, you know, you and I are in a split screen right here, as we’re talking, it’s almost like a split screen.
[00:24:36] On one side, you have the government trying to direct the economy in the green direction. And on the other side of the split screen, you have the private economy. Operating and which one was successful? The private economy, the bottom up approach. Actually resulted in lower CO2 emissions in the U S whereas if you look at countries where they’ve taken this top down approach, where they’ve had all sorts of green energy mandates and carbon taxes and things like that, they’re not meeting their, they’re not meeting their Paris, you know, commitments in the U S is.
[00:25:09] So I just think over and over and over again, we see the demonstration of the superiority of economic Liberty and a bottom up approach. To the economy as a, as opposed to a top down approach.
[00:25:21] Jonathan Doyle: [00:25:21] so are we back to like Adam Smith’s invisible hand? And I say that because listening to you. Well, I took my family to Manhattan last year, 18 months ago, and we’re on the upper East side. And we went into this, uh, supermarket. I remember walking in there and we have everything here in Australia. We’re very well provisioned, but I was like, Oh my Lord, this was like phenomenal.
[00:25:43] You know, like, and then another whole foods market is like the sheer range. Of available stuff. And then the logistics and the, the complexity of how each individual thing was created and perceived as a marketable commodity. And it made its way via transport. It’s quite extraordinary when you step back and look at it, right.
[00:26:04] Tom Giovanetti: [00:26:04] it’s brilliant. It’s really, it’s almost a miracle. This reminds me of the famous Leonard Reed essay. I pencil where he says, you know, nobody knows, Nope. Nobody knows how to make a pencil. Right. And of course his, the point of the illustration is that even for something as simple as a pencil, there’s an incredible complex.
[00:26:25] Chain of events that has to take place for that pencil to ever be produced, whether it’s the graphite or the wood or the metal or the rubber. And it’s a beautiful example of sort of the simple symphony of voluntary association and people working, no one compels anyone to do any of those things, right.
[00:26:46] Everyone just work, you voluntarily to produce that. And then you look at it. I mean, I’m old enough to remember the pictures of, you know, Housewives standing in line in the Soviet union, hoping they could get a loaf of bread that day. So, I mean, the contrast could not be more powerful between the government, you know, on the one hand look have, have property rights, have a rule of law regime, try to have as level playing field as possible, and then get out of the way and let.
[00:27:17] Intelligent hardworking people create for themselves. The difference between that approach and this sort of top down, we’re going to trust the genius bureaucrats to tell us what to do and to direct the economy. That, to me, the contrast could not be more clear. And I certainly think Adam Smith was correct about that.
[00:27:34] And you know, the most influential economists probably in history earlier today, I was actually wearing an Adam Smith tie at an event. So I’m, I’m very much an acolyte of Adam Smith.
[00:27:44] Jonathan Doyle: [00:27:44] I wanted to ask you, I I’ve read this quite recently in Roth Bard’s book, uh, the case against the fed, and I’m going to have to dig out who he was quoting because it really stayed with me and he argued that there’s only three things government should do and only three. So I’d love your thoughts on this.
[00:27:59] And they were in force contracts, national defense and the protection of persons and property. Yeah.
[00:28:07] Tom Giovanetti: [00:28:07] and that’s a, a really clear statement of essentially libertarian philosophy. You know, in principle, of course, I would agree with all of that. On the other hand, I live in a real world and I don’t think in a real world, anything approaching sort of a perfect libertarian situation is possible. I mean, I think we’re stuck with the welfare state.
[00:28:25] I think we are stuck with what we in the U S called the social security system, or, you know, various sorts of retirement security systems. I think we’re stuck with those things and I don’t lose sleep at night because of that. But again, this takes us back to Jude Wanniski, right? Jude would say, okay, fine.
[00:28:41] Those are political decisions. I mean, if a state wants to have a welfare state. If he wants to have some sort of retirement security program disability program, essentially those are, those are not economic decisions. Those are political decisions, but let’s run them in a way that makes economic sense.
[00:28:59] And the problem is too often, governments don’t run their welfare States in ways that make sense, and they don’t run their retirement systems in ways that make sense. And in fact, here in the U S. The two greatest threats to our future economic health are in fact, the welfare state and the retirement system, both of what you’re running deficits and are going broke, and which really seriously imperil the economic future of generations.
[00:29:24] Jonathan Doyle: [00:29:24] was reading your piece in the spectator this morning and you quoted unfunded future social security obligations of 13.2 trillion and student debt, I think is running at about 1.5. So I wanted to ask you about that. When does the music stop? At what point does the government finally say we are not going to fund these obligations?
[00:29:46] Tom Giovanetti: [00:29:46] you know, we have a, we all have a natural sense that. The idea of being like deeply in over your head and debt can’t end. Well, you know,
[00:29:57] Jonathan Doyle: [00:29:57] complex.
[00:29:58] Tom Giovanetti: [00:29:58] no, it’s not complex. The trick is though that human beings have a limited lifespan, right. I have a certain amount of time in which I have to get my finances in order or else I leave.
[00:30:08] Terrible problems to my ears. And the thing is nations. Don’t die. Nations don’t have a lifespan. And so it’s not fair. I think to compare government debt to household debt for that reason, because in theory, governments can roll their debt over forever. But what does matter is that it has to be serviceable.
[00:30:27] It’s gotta be serviceable. So I have, and most, most supply siders, both, you know, in, in Jude’s day. And also today, most supply siders don’t have a whole lot of problem with national debt. We see debt as a tool, not as a curse, the debt you use to, to get to gain additional education, the debt you use to gain a, to buy a house, to buy a car.
[00:30:49] That’s not bad debt. That’s good debt it’s tool. It’s gotta be serviceable. You gotta be able to service it right. At some point it’s too much. And so the real question, the answer to your question of when I think that I think the exact same question is how much debt can a government service. And we don’t know the answer to that, but we do know that it’s tied to economic growth.
[00:31:13] We do know that if, if an economy is growing. If an economy is innovating, then it is actually, it is increasing the degree to which it can serve as a debt. Right? And so that’s why for supply siders supply siders tend to not be debt and deficit Hawks. What we tend to be is enthusiastic proponents of economic growth, because you really can grow your way out of a lot of problems.
[00:31:40] If the debt is growing at 2% a year, but your co your GDP is growing at 4% a year. You’re great. You can grow your way out of that. The problem is that there’s not, what’s been happening lately in most of the developed nations and most of the developed nations or economies have been growing slower than their debt has been growing.
[00:31:58] There’s almost been an inverse relationship and what’s scary is, you know, you, you look at low interest rates and you say, you know, I mean, what are interest rates? Interest rates are essentially an informed bet on the future. So if interest rates are low, Informed people are expressing confidence in the future of that country.
[00:32:20] So that’s a good thing. Right? So if we have really low interest rates in the U S what that says is that. Informed investors are optimistic about the longterm economic future of the country. That’s good news. Here’s the problem. The problem is we know from things like the financial crisis in 2008, that things can change fast.
[00:32:39] They can change really fast. And so if something happened to erode. Confidence in the U S economy, all of a sudden, I mean, if you game this out, what would happen? Well, people would suddenly stop buying us debt. They would stop buying treasury debt. What treasury needs people to buy that debt. And so what would it do?
[00:32:58] Well, it would have to offer higher interest rates in order to get people to buy that debt. You’d have to put more of a premium on it. And so you have this sense that things can. Seem to be good for a very long time for decades and decades, but that it can turn really, really fast. And so for those of us who are.
[00:33:18] Supply siders. We’re not deficit Hawks and we don’t lose sleep at night over the national debt. You got to keep it under control. Economic growth is not a license for government to just spend recklessly. And that’s one of my great concerns, you know, in the U S when president Trump. Came into office. Part of his political calculation was to promise people, you know, we’re not going to change social security.
[00:33:42] We’re not going to change welfare or anything like that. And so ironically, president Trump has that has ended up adding more to the debt even than president Obama did, which is scary.
[00:33:51] Jonathan Doyle: [00:33:51] wanted to ask you something. I asked Nathan Lewis, we’ve got a, is there a truly structured problem in the nature of our democracies in that at best political leaders are getting one term to two terms. So depending on the country, you know, somewhere between six to eight years, Peter Schiff makes the point that people don’t go into politics to make money.
[00:34:12] They go into politics to make money after politics, by which you know, this idea that our political. Leaders are able to kick the can down the road indefinitely, as long as it doesn’t blow up on their watch. That strikes me as a major structural problem in where we’ve reached in the sort of the whole democratic project.
[00:34:30] Doesn’t it in a sense that there’s no imperative, true imperative for a political leader to deal with real estate equity questions, or really change things on a, on a truly seismic level
[00:34:41] Tom Giovanetti: [00:34:41] I think that’s true. And unfortunately, this can be an entire podcast in and of itself, like where democracy gone wrong. And I can’t speak authoritatively about your country or any other country, but in the U S clearly one of the problems that has happened is that. We have a system in the U S of divided branches of government.
[00:35:03] You have the legislative branch has the judicial branch in Navy, the executive branch. And what has happened over time is the executive branch and the judicial branch have accrued some of the power of the legislature. And this was not the founder’s design. It’s not our constitutional design. And so what has ended up happening?
[00:35:23] You have like the judicial branch, which is unaccountable to the voters. At some point, it dawned on Congress, legislative branch that they could defer to the other two branches that could avoid all the really tough. Political issues that could avoid dealing with them. They could leave them to the executive branch and the judicial branch, and they could just keep getting elected.
[00:35:43] And so we have a crisis, a crisis of civics in the U S I think that has contributed to this, which is that the very branch of government that is designed to be most accountable to the people has figured out that it can essentially defer its duties to the other branches of government. And that I think is one of the real central problems that we have in government right now is that the voters don’t hold the legislators.
[00:36:10] They don’t hold the elected officials accountable for the results, which is a very, very peculiar thing that has happened.
[00:36:16] Jonathan Doyle: [00:36:16] the elected officials can just put, throw their hands in the air and say, Hey, we tried, but.
[00:36:21] Tom Giovanetti: [00:36:21] And of course it happened over time. It happened over time in the U S but I mean, essentially what happened is Congress at some point in a very gradual evolutionary way, figured out that when they make law, they can do it in a very generic way and they can leave the implementation of it. To the regulatory branch and they can leave the interpretation and enforcement of it to the judicial branch.
[00:36:43] And both, both of those functions are aren’t accountable to the voters. And so both of those functions, we’re more than happy to take the additional power. The regulators were more than happy to take on additional power. And the judicial branch was more than happy to take on additional power. And so you, you ended up with this really sort of corrupt, almost incestuous bargain where Congress said, you know, we, we we’ll, we’ll continue to get elected.
[00:37:09] Then when we’re no longer, as you said, when we’re no longer in power, we’ll go out and become lobbyists and become board members of various corporations and we’ll make our money, but we’ll actually leave all the hard stuff to the other two branches of government. I don’t think American the American system is functioning today.
[00:37:25] As it was, it was designed to function. And the problem is, is that you, you know, there will be a series of crises that happen as a result of this. I think the 2008 financial meltdown was an example of that. And remember a Dick chain in the U S used to say, there are unknown unknowns. And so I think we have a number of unknown unknowns ahead of us.
[00:37:48] We don’t know what’s going to happen, but, but you know, something’s going to happen. You know, there are going to be crises because. No one is really accepting responsibility to deal with these issues.
[00:38:01] Jonathan Doyle: [00:38:01] well, what’s that going to look like? I was listening to Jim Rogers, just that I talking and he was on Kitco news and they’re asking him the next crisis. What are his thoughts on it? He said, look, and he must be in his late seventies, maybe early eighties now. And his point was, he says, this will be the worst.
[00:38:18] In his lifetime now he’s a pretty sober kind of guy. And they asked him why. And he said, well, simply because the debt levels are so much higher without getting into doomsday scenarios with debt to GDP the way it is. And I know you’ve made some great points about, you know, the, the debt, not being the preeminent thing per se, but what do you see coming down the line when you look at it?
[00:38:42] The level of currency creation, the level of debt, the unfunded for what obligations would you agree with the Jim Rogers? Would you think it’s going to be the worst we’ve seen?
[00:38:52] Tom Giovanetti: [00:38:52] Jim’s brilliant. Did you ever read his book? Investment biker?
[00:38:55] Jonathan Doyle: [00:38:55] Not yet. It’s on the list.
[00:38:57] Tom Giovanetti: [00:38:57] Oh, it’s, it’s a, it’s a fabulous, it’s a fabulous book. He’s really, he’s brilliant. You know, Jim essentially relocated to Singapore because as an expression of his sort of lack of confidence in the, in, in the U S economy and in the U S system, the problem in the U S is that.
[00:39:14] Despite what most people think the federal reserve does not actually control interest rates. Interest rates are still determined in the marketplace by willing buyers and willing sellers. One of the problems with departing from the gold standard or departing from any standard whatsoever is that absent a standard governments have an incentive.
[00:39:34] To inflate the currency and governments have an incentive to try and have low interest rates because it makes their own debt easier to surface. Right. And it doesn’t matter that that’s, that that’s a brutal on. Retirees on fixed incomes and things like that. It doesn’t matter that it hurts them because it helps solve the government’s problem.
[00:39:53] But the problem that we have when you have these high levels of debt, is it doesn’t take much of an inch of an increase in interest rates to actually bring the whole house of cards down, even as high as the debt is right now. I think you would have to say that this is still a serviceable amount of debt, as long as, as long as the treasury department has no problem.
[00:40:12] Selling treasuries. If I were going to bet five bucks on what the next big crisis is, I would bet that it is an escalation of conflict with China, because all it would take is China saying, you know what? We’re not interested in buying us dead anymore. That’s all it would take and interest rates on us debt.
[00:40:32] The treasury department would have to immediately raise interest rates on their offerings in order to get people, to buy the debt. And I think that’s the sort of thing that could create a cascade of economic problems. And again, this is one of the reasons why supply siders tend to be advocate proponents of free trade.
[00:40:54] Because we really do believe that people who profit from each other and trade with each other, tend to not get into shooting Wars with each other. And China’s a bad actor and we know that China’s a bad actor and there’s steps we need to take from a cyber security and national security standpoint in order to frustrate China’s attempts to be a bad actor.
[00:41:17] But on the other hand, I’m one of those rare few who still believe that engagement is better than disengagement. And I think it’s, it’s in the U S as entrust to try to remain a constructive, engaged partner with China, for the very re if for no other reason, but the fact that we need them to continue to buy our debt, we need them to continue to be a constructive player in the global economy.
[00:41:42] Why make unnecessary enemies?
[00:41:45] Jonathan Doyle: [00:41:45] We’ve got huge amount of stuff happening here in Australia at the moment, even in the last 48 hours, China’s just put an 80% tariff on Australian coal. So, you know, we are huge net exporters to China across a whole range of things. So we are in literally in Australia this week in the absolute thick of some really complex decisions with, uh, with what exactly what you’re talking about.
[00:42:09] Tom Giovanetti: [00:42:09] Well, you know, my friend, my friend, Tim Wilson, who’s a member of your parliament posted an interesting thing the other day on social media, it’s like a post a poster. And it said like fight communism by Australian wine. Right. Which I, which I think is all sort of part of and tied up in this scenario that you’re describing.
[00:42:28] Jonathan Doyle: [00:42:28] Yeah, absolutely. So, I mean, also China obviously has some big designs on Taiwan as well. Right.
[00:42:34] Tom Giovanetti: [00:42:34] Sure. Yeah, absolutely. And you know, foreign policy is not my thing. I just have to acknowledge that upfront. It’s hard for me to see what the alternative is to spheres of influence. It’s really hard for me to understand that. And if you go back in us history, look at things like the Monroe doctrine, where essentially the U S essentially.
[00:42:53] Declared that central American South America were within the U S sphere of influence. So that may have an overly ambitious thing to do. I don’t know how you get around the idea of spheres of influence, especially when it comes to Taiwan. I’m a tremendous, I have tremendous respect for Taiwan and for what they contributed for their independence.
[00:43:12] I think that’s really important. I think the U S should be an ally of Taiwan. They all, all people who respect. Freedom and Liberty should be allies of Taiwan, but will the major powers really get into a shooting war with China over Taiwan? And will they really be able to sell that to their people? I don’t know.
[00:43:29] I don’t know how, I don’t know how you sell that. I don’t know how you sell that to your citizens.
[00:43:33] Jonathan Doyle: [00:43:33] Yeah. I mean, China’s got also enormous internal problems, you know, demographically. I mean, my understanding is that there’s enormous dislocation internally, the Chinese miracle in terms of the huge growth and output along the coastal fringe sucked in vast numbers of guess what you would have called peasant labor in the past.
[00:43:51] And. You know, there’s, there’s huge internal cohesion problems in China itself. Some one simple thesis is that the Chinese need to distract from internal problems by looking for increasing, you know, challenges overseas.
[00:44:05] Tom Giovanetti: [00:44:05] It’s very popular in the U S right now to say, boy, wasn’t that stupid to think somehow that economic Liberty is associated with political Liberty. Boy, weren’t we stupid to think that. I still believe that there’s a relationship between economic Liberty and political Liberty. I still think that dung shout Ping’s decision to open the economy and to allow for private property and to allow for elements of capitalism.
[00:44:30] I still think it is a logical possibility that that will still be the thing that ends up. Bringing down Chinese communism. I have not yet disposed myself of that idea. It’s very popular right now to see that as a ridiculous, naive, romantic notion in the U S but you know, you, you see right now, you see in, in China, you see she cutting back on economic Liberty and things like that, because I think he correctly sees it as a threat to the party, to, to all of
[00:45:01] Jonathan Doyle: [00:45:01] Well, I was talking to Mike Kendall about this last week, where we discussed the Chinese social credit system and also the potential issuing of central bank, digital currencies around the world that every digital dollar is programmable, right. In the sense that, uh, it’s possible for once we get rid of cash, I mean, really starting people are starting to have those conversations that your access to funds can be literally controlled.
[00:45:30] By central banks. Now, I think I wanted to ask you to pivot a little bit was I’ve just finished reading Ross Douthat’s book, the decadence society, which I’ve found really, really interesting. He makes some really important points about demography, about declining birth rates. And also his take on technology is really interesting.
[00:45:48] He would say that we have not. Being growing massively in terms of technological improvement over the last 30, 40, 50 years. What I wanted to ask you about was you said earlier that the debt’s not serviceable necessarily in supply side is aren’t necessarily worried about debt, the concept of a growing economy.
[00:46:10] I want to talk about the interplay between a declining birth rate and technology. Do you think the us can get itself out of this? Problem by leveraging technology while its birth rate is starting to decline. Do you understand what I’m getting at?
[00:46:27] Tom Giovanetti: [00:46:27] Absolutely. We already know that that’s happening, right. I mean, that’s essentially what you just described is increasing productivity and that that’s what increasing productivity is a greater amount of economic output. Without a corresponding increase in the labor supply. Right? So there’s no question that that is what innovation does, but you know, for those of us, I mean, if you really want to sum up the supply side approach to economics, it’s what supply creates its own demand.
[00:46:53] Right? We, we, we believe that you want an abundant supply of all of the factors. Well, labor is one of those things. You want an abundant supply of labor? If the supply of labor restricted that will restrict economic growth, just like if capital is restricted laborers, it’s the same way. And so that’s why for any country that wants its economy to continue to grow.
[00:47:18] If the birth rate is going down, you can really only compensate for that in two ways. One is with increased productivity and the others with immigration. Those are really the only two ways you can deal with a constrained labor supply in the U S we’re really, really good at the innovation part. And we have historically been really good at the immigration part.
[00:47:40] One of the things that has concerned, those of us who are supply siders during the, during the four years of president, Trump has been this reversion to sort of an anti-immigration. Attitude it’s astonishing. How many of the fortune 400 companies today were either started by or are currently helmed by immigrants to the United States are earlier today?
[00:48:04] I did a zoom policy briefing with the chairman of the federal communications commission, a sheet PI his parents were immigrants from India. And in one generation, he went from being the child of poor immigrants to being the chairman of the federal communications commission. That kind of immigration is a net plus and a blessing to a country.
[00:48:27] And so you’ve got to have both, you’ve got to have. I mean an advanced economy has to have both a third world economy or an LDC can get by simply on abundant supply of labor, but an advanced and advanced economy has to have both. It has to have an abundance supply of labor and it has to have innovation.
[00:48:45] And so one of my great concerns about the U S economy going forward is not a lack of innovation, but a lack of labor supply because of this sort of turn this pivot that’s going on right now against immigration. Now I do think that. I’m not so libertarian as to believe that anybody who wants to come to the U S should be allowed to come to the U S and no government should stand in their way.
[00:49:11] Some libertarians believe that I actually think borders matter, but we should certainly be encouraging skilled immigration in the U S we should certainly be encouraging people with degrees. People with technical expertise, we should be almost bribing them and luring them to come to the U S you know, we want the rest of the world’s brain drain of the U S has always been blessed by cursive.
[00:49:39] A lot of countries is brain drain, right? It’s their best in their brightest, leaving and coming to the U S what we’ve always been blessed by that you don’t want to see that change. So, yes, we need the increased productivity that comes from innovation. But we also still need a constant inflow of skilled new labor that’s coming into the country.
[00:49:59] The fact of the matter is, is that the hardest working people in the U S economy are immigrants and the children of immigrants, because they have a greater appreciation and less of a sense of entitlement. Than most native born Americans have. And so there’s a constant rejuvenation of the American experiment that happens as a result of immigration.
[00:50:21] And we don’t want to see that come to an end. This was one of the real problems of Trumpism in the U S actually, is that in a period of four years, the Republican party at least has pivoted from being generally pro immigration to being generally negative on immigration. And there’s all sorts of.
[00:50:38] Ridiculous things that happen as a result to use sort of a silly example. I mean, groups of students used to come from other countries from Brazil to the U S to I go to Disney world. You know, and things like that. It used to be easy for them to do that. They don’t come anymore because we’ve made it too onerous to bring light groups to the U S so the tourism industry is harmed.
[00:50:59] The theme park industry is harmed. We have a university here in Dallas with me, the university of Texas at Dallas, they were known for the number of international students that study computer science and things like that at UTD last year for the first time in the university of Texas at Dallas is history.
[00:51:15] Their enrollment was down. And it was due to foreign students not coming into the U S either because the us has made it harder or because of everything they say, see, and hear in the media about, you know, the U S becoming hostile to immigration. So there are some real long-term problems. If we have a cultural shift in the U S against immigration, now I’m a big proponent in doing everything we can do to stop illegal immigration.
[00:51:43] I think you want people to play by the rules in a sense our immigration system in the U S has been so broken that I almost can’t blame people for sneaking across the border because it’s been so hard to come in legally. So what we really, what we really need in the U S is a system where it’s easy to get a work permit to come into the U S and work as an immigrant.
[00:52:04] And the shorthand for that in the U S has legal status. We don’t need to make them citizens, but we need to make it really easy for them to have legal status, to come into the U S and to work and to pay taxes. And if they want to send their net receipts back home to Mexico or wherever for the family, that’s great, but we ought to make it easy for people to come into the country.
[00:52:26] And work on a legal status because again, supply siders, believe you want an abundant supply of everything. We needed. Abundant supply of labor. There was a very, very important economic work that was done years ago by two economists, a Lowell Galloway and Richard Vetter. And they did a study of what happened after world war II.
[00:52:47] The U S had hundreds of thousands of young men who had been fighting in world war II. They were young, they were trained to be violent and they were all going to come home at one time. And there was incredible consternation in the U S what are we going to do with all of these young man? Who have been trained to be violent.
[00:53:05] There’s just no chance that, that they will all be able to find employment. And so you had things like the GI bill and things like that that were created to try to address this. Well, a remarkable thing happened. They all did find employment. They did. And all of the societal problems that people were forecasting, none of them happened.
[00:53:26] And it was a really interesting demonstration of supply side economics that supply creates its own demand. You had this very unusual situation where you had a sudden increase in the supply of labor and what happened, the economy absorbed it and grew it absorbed it and grew. So it really is true. Say’s law really is true.
[00:53:47] That supply creates its own demand. If, if you create an abundant supply of capital, if you create an abundant supply of raw materials, if you create, uh, an abundant supply of intellectual capital, if you create an abundant supply of labor, a free economy absorbs it. Finds creative things to do with it and grows.
[00:54:08] And that’s one of the most powerful demonstrations. So this idea, somehow that every net immigrant to the U S is like a lost job for a, you know, native born American. That’s just nuts. It’s not what happens. The pie grows. It’s not a zero sum world. The economy is open. It’s not closed.
[00:54:26] Jonathan Doyle: [00:54:26] ask you as coming back to this question of technology. So there was definitely a time going back into the seventies and eighties where manufacturing was still relatively strong. Uh, no doubt, obviously in places in the U S like Detroit, but here in Australia, we had, you know, a really strong steel industry in towns like Newcastle, which is just North of Sydney.
[00:54:47] So. With technology changing so much that great manufacturing base. Can you talk about that? Like if those jobs are disappearing, I guess I’m alluding to is things like universal basic income because there’s this. Terrible idea that we should be paying people not to work. And I think that has huge. My background’s in philosophical anthropology.
[00:55:11] There’s something about humans where I think we need to work. Ontologically. We need to actually work is in itself an inherently edifying noble thing. And so I guess my question is with. The disappearance of manufacturing, the impact of technology and AI, are we S how is this going to happen? How are we going to find work?
[00:55:35] Are we just coming back to what you’ve just said, which is supply will create new types of demand. We’ll figure it out. Could, can you talk a little bit about the whole paying people? Not to work technology, disappearing, manufacturing, any thoughts on that stuff?
[00:55:49] Tom Giovanetti: [00:55:49] so many thoughts on that stuff. It’s really, it’s really an interesting and fascinating area. And, and I have a lot of thoughts on that. This fear, somehow that technology and innovation is going to result in. Huge swaths of people being unemployable. This is not a new thing. I mean, this, if you watch episodes of the old, black and white TV show, the Twilight zone, this is a common theme, right.
[00:56:15] That robots were gonna take over and humans weren’t going to have anything to do. And all that kind of thing. This was sort of what drove the whole sort of Luddite thing in England, where they were smashing textile looms and things like that. I mean, our, our human experiences that those fairs have never actually come true.
[00:56:33] And this is another Testament to supply side economics, which is that there seems to be an unlimited potential. Uh, free economies to observe new influxes of whatever, whatever information, talent, labor, capital technology, and to find creative things to do with it. So I am not among those who think somehow this time it’s different, you know, AI is going to put everybody out of work and we’re going to have to have a universal, basic income and, you know, pretty we’re we’re right on the cusp of things, looking like.
[00:57:08] The star Trek universe, you know, where there’s unlimited power. So if I’m not one of those people, I don’t believe it. I don’t believe, I don’t believe this time. It’s different. And there’s a couple other directions to go with this on this idea of the declining and lost manufacturing base. Some of that again, because the economy is open.
[00:57:25] And because capital can move around the globe like Quicksilver. Some of that is just the natural result of other economies growing and developing. Right. I grew up in the state of South Carolina in the United States. The dominant industry in South Carolina was textile manufacturing. And in about a 12 year period of time, that all went away, that entire industry went to Southeast.
[00:57:46] Asia, went to Vietnam and I went to Cambodia and I went to Indonesia. The entire industry went away. In little over a decade, the South Carolina politicians thought the only solution was protectionism, right? I mean, tariffs and protectionism. That’s the only thing we can do or will be devastated. Well, they didn’t get their tariffs, they didn’t get their protectionism.
[00:58:05] And in fact, today, The state of South Carolina is the home of advanced manufacturing. Boeing. The aircraft company has a facility there. BMW has a car manufacturing facility there, the French, a tire company. Michelin has a manufacturing facility there in the course of 12 years. The economy of South Carolina.
[00:58:23] Flipped over from an economy that was dependent on low skill textile manufacturing to high skill, high value added manufacturing. So again, there seems to be this unlimited capacity of a free economy that no government is trying to direct from the top down. You just let people be creative with their investments and with their decisions, there seems to be an unlimited capacity.
[00:58:45] To deal with change and to deal with new influxes of things. But we should not look past the ability of government to screw things up in the U S at least part of the story of the loss of manufacturing. There’s more to it than just other countries, other countries developing. There’s also our shooting ourselves in the foot.
[00:59:01] You know, we have something in the U S that we call the rust belt, and it’s the sort of Northern central us, which was the home of, of heavy manufacturing and the steel industry. And. And, uh, smelters and things like that. We killed our own Russ belt with tax policy, with ridiculous depreciation schedules, to where manufacturers were having heavy manufacturers.
[00:59:25] If they would invest in new plant or new equipment, they couldn’t deduct the investment in the year. It was made. They had to depreciate it out over 35 and 40 years with high capital gains taxes with. Union and labor policies that resulted in manufacturing workers making two and three times the wages that would have been determined in a free market.
[00:59:47] So there’s a very real sense in which at least in the U S we killed our own heavy manufacturing industry through government policy. And that’s a factor that you, you don’t want to overlook. That’s one of the reasons why. One of the most exciting things in the U S that has happened in the last four years has been the, the 2017 tax cuts, where we dramatically slashed taxes on corporations and got us corporate tax policy in line with the rest of the advanced world.
[01:00:15] We changed our depreciation rules to where most businesses now can. Deduct the cost of an investment in the year in which it’s made, rather than having to depreciate it out over 30 or 35 years and things like that. So to some degree you end, you can end up with changes in the industrial mix because of factors that are outside your control, but we should never gloss over the fact that there are factors that are within our control to the government can very often.
[01:00:42] Screw up and, and cause harm to. So I’m not a, I’m not a believer in the universal basic income. There are some libertarians who are, and they make some interesting arguments. I’m not a believer because I don’t believe this time. It’s different because I do believe again, to sort of beat a dead horse that there’s an almost economic history suggests there’s an almost unlimited capacity of a free economy to make something.
[01:01:11] Of of any resource, be it abundant labor, be it abundant capital between it be new knowledge and new innovation. Be it labor. I think we’re on the cusp of a biological revolution in the biological sciences. I think the speed at which we were able to. Design, not one but multiple vaccine candidates for COVID-19 vaccine development used to take three to five years.
[01:01:34] One of the vaccines that was developed was essentially developed in a computer in two days. And the rest of the time was all devoted to trial and testing. I think that we will see a revolution now in the development of vaccines for things and in vaccines used as a treatment for other diseases like cancers and things like that.
[01:01:52] All of those things are going to create jobs. They’re going to create economic growth and you might lose your job working in the steel mill, but your child and your grandchild may end up working, using gene splicing to develop genetic treatments, to cure muscular dystrophy and things like that. And you’ve got to take that sort of generational view and never just look at the economy at one given slice in time and make judgements about
[01:02:23] Jonathan Doyle: [01:02:23] tell, let me ask you, cause I’m, I’m relatively new to this whole space. The critique of supply side is it’s Reaganomics. It’s trickled down. It’s rich. You’re going to get richer and there’ll be some scraps maybe for the poor. Can you critique that for me? Can you help me understand how that argument, how you would respond to it?
[01:02:44] That argument.
[01:02:45] Tom Giovanetti: [01:02:45] the rhetoric that you, you, that you, that you, uh, accurately quoted others as criticizing with supply side economics. And that is the rhetoric that they use. But there is a sense in which while trickle down economics is a, is a slur of supply side economics. I firmly believe that that happens. I firmly believe that that’s true.
[01:03:04] Absolutely true. One of the distinctions of supply side African economics is the idea that human beings largely make rational, intelligent decisions. Given the rules of whatever game they’re playing. If government says, okay, we’re going to raise the capital gains tax human beings, they’ll go out and they’ll sell a bunch of their longterm.
[01:03:28] Investments right to get in under the wire before the capital gains tax goes up. If a country says, you know, if you make over a million dollars, we’re going to tax every additional dollar at 90% like the UK did back in the seventies, people are going to make rational decisions and that’s why the Beatles and the rolling stones and all those musicians fled the UK because of those high taxes, as long as there’s freedom of movement of people.
[01:03:50] And as long as there’s freedom of movement of capital, people are going to make rational decisions based on. The rules of the game. And so that is a key thing to understand. In supply side economics that people respond to incentives, they change their behavior based on incentives. And a great example of this is in the early 1990s during the bill Clinton administration.
[01:04:14] When, when bill Clinton first came into office, I don’t remember the year, but it was one of the first two years of the Clinton administration, democratic rhetoric insists that, you know, we have to stick it to the rich and we have to tax the rich and all that kind of stuff. The democratic party controlled Congress and the white house.
[01:04:27] And so they implemented what they call it a luxury tax and the luxury tax was an additional sales tax on goods that the wealthy supposedly bought. Right. So it was an additional tax on jewelry, boats, yachts. For coats and things like that, luxury goods. Right? And so what’s the idea here is let’s stick it to the rich.
[01:04:50] Let’s let, let’s let the rich pay their fair share in an astonishingly short amount of time. It became very clear that that wasn’t working. What in fact was happening is that the rich were going and buying those same things. Other places, they were buying them in Europe. They were buying them in Switzerland.
[01:05:05] They were buying them in Germany. But what was happening is. The poor working stiffs, the poor blue collar working stiffs in the U S asked who, who made boats and who sold jewelry and who worked a sales clerk selling for coats. They’re the ones who lost their jobs. And it became, it came very clear that the luxury tax completely backfire and that it was working people that it was harming.
[01:05:32] Not the wealthy. And so within about 18 months, Congress, you know, retracted the luxury tax, they undid it because it was very clear that the results of bad economic policies did indeed trickle down to the working class. And what supply side economics says is everything trickles down to the working class, both the good and the bad.
[01:05:55] So if a wealthy person is able to keep more of their money through lower taxes, They are more inclined to spend that money on, more consumption, more saving and investment. You know, maybe you’re an upper middle-class person and your taxes get cut and said, you know what? For the first time in my life, I can afford to pay somebody to come mow my lawn.
[01:06:17] I can afford to pay somebody to come out and clean my pool and test for chlorine or whatever. For the first time in my life, I can afford to pay someone to come in twice a month. And. You know, helped me clean the house and things like that. That’s what happens. So when you cut taxes on upper income people, you absolutely do create increased economic opportunity for people that are lower on the income schedule on the income ladder.
[01:06:42] It is absolutely a fact. And we know that this happens. So it is actually true. Trickle down is true. Both good and bad trickles down. You know, when the left says, for instance, let’s mandate a $15 an hour minimum wage, that’s going to benefit the most desirable employees in a company, but the marginal employees, the ones that are not worth $15 an hour, what’s going to happen to them.
[01:07:06] They’re going to lose their opportunity. They’re going to lose that first or second rung on the ladder. And even though I would today be classified as an upper income earner. There was a time when I worked for minimum wage, when I was in high school. When I was working my way through college, I worked for minimum wage.
[01:07:24] Again, you don’t want to look at just one slice in time. You have to think about the impact policies over a lifetime or over multiple lifetimes. There’s nothing wrong with earning a minimum wage at the time in your life. When it’s appropriate for you to be earning a minimum wage, it gives you an opportunity to get a leg up.
[01:07:41] So trickle down is true. It’s demonstrably true, and both the good and the bad trickles down. So I don’t have a problem embracing the idea that supply side economics is a form of the benefits trickling down. I think it absolutely happens. And the data suggests, especially, you know, during the Reagan years, during the eighties and the TAC Reagan tax cuts that arising tide.
[01:08:05] Lifts all boats. It really is true. You know, there’s a very important book that was written by Robert Bartley. Robert Bartley was the, the head of the wall street journal editorial page for decades. And he was a supply side or he’s the guy who hired Jude when Inscape and Robert Bartley wrote a book called the seven fat years.
[01:08:23] And it ought to be required reading. For people. And he goes through not only the, not only the history of this time period, but he also marshals all of the arguments that were used and Bartley does a terrific job in that book of dealing with is exactly this topic about how. Low-income people were actually the biggest beneficiaries in relative terms from the Reagan tax cuts.
[01:08:49] Now did the wealthy do well? Yes they did. But in relative terms, low-income people actually did the best. And the same thing happened as a result of the 2017 Trump tax cuts in the U S I mean, before the COVID pandemic hit, you had the lowest rates of black unemployment on record. You had the lowest rates of Hispanic unemployment.
[01:09:11] On record the Trump tax cuts and the Trump economy disproportionately benefited lower income demographics. There’s just no doubt about it. Cutting. Literally cutting the corporate tax rate, benefited workers. Now, did it benefit the corporations? Yes, but corporations and wealthy people. They don’t bury their money in a hole in the backyard.
[01:09:33] They don’t stuff it in the mattress, they put it to work. And when they, when they put their money to work, that creates economic opportunity for the rest of us. So I want to live in a country where it’s easy to become rich, not simply because I would like to have some hope of becoming rich someday, but because I know that in a country where it’s easy to become rich, just that function in and of itself creates all kinds of economic opportunity for everyone else.
[01:09:58] Jonathan Doyle: [01:09:58] So help me understand the one big question. I keep. Asking myself is when I read Nathan Lewis’s work. It just struck me as so much common sense and his research and his data. And I listened to you. How is it that within very short spaces of historical time, governments forget these basic principles. How do you account for that?
[01:10:21] If we know that low taxes and stable money works and you’ve just articulated. Some of the benefits of, of those tax cuts. Why do we seem to forget it so frequently?
[01:10:32] Tom Giovanetti: [01:10:32] well, I think, you know, ironically, we’re talking about incentives, which is again, as, as supply siders, right? We believe in incentives. I think government has different incentives than the private sector has. One of my personal sort of political philosophical distinctions is this idea that, and this comes from public choice theory.
[01:10:51] That government is its own interest group. Government has its own interests that are independent from the interest of the people in the country. There’s too much of a tendency of people to see government as a proxy for the country. In my view, the government is not the country. A country has a government, but the government is not the country.
[01:11:12] And I think that’s important because we can see empirically that government has its own agenda. It has its own. Interests and those interests may or may not be aligned with the interests of the people. And so in a, in a democracy, we rely on representative democracy to try to keep the government’s interest, at least somewhat in line with the peoples.
[01:11:34] Because if it’s not, we can vote them out. But the more entrenched, the parts of government that are not responsible to the people become the regulators, the judicial branch, things like that, the more entrenched that becomes the public sector as a whole, the less responsive it becomes to the people in the more it tends to develop its own.
[01:11:52] Interests. It’s more of interest to the government to play off of the negative elements of human nature than it is to play off of the positive elements of human nature, because the positive elements of human nature, our individual responsibility. Self-sufficiency responsibility, productivity, et cetera, et cetera.
[01:12:11] And you don’t need government for any of that stuff. It’s the negative elements of human nature, dependency, weakness, irresponsibility. Those are the things you need government for. And so I think it is in the interest of government, again, as its own special interest as its own constituency. It’s in the interest of government to play.
[01:12:28] To the negative elements in human nature rather than to the positive elements in human nature. And so I don’t think it’s cynical to say the government has an interest in the people being dependent on government feeling like they need government feeling like they can’t survive without government. And this is one of the reasons why when we have those rare occasional government shutdowns in the U S because of some dispute over the budget or something, I cross my fingers and pray that they will last for an extended amount of time, because I think the American people need a lesson in the fact that you know what, Hey, the federal government’s been shut down for three weeks, but when I get up in the morning and turn on the shower, water still comes out.
[01:13:07] You know, the lights still come on. When I flip on the light switch, I’m still going to work. I’m still able to put gas in my car. I’m still getting a paycheck. Maybe I don’t need government as much as I thought I did. Instead, you get this idea somehow that if the government goes 36 hours, without the ability to cut checks to people that somehow the entire country is going to collapse.
[01:13:26] So I do think that the government has a cynical self-interest in playing to the worst. Elements in human nature. And so it falls to those of us who are proponents of freedom and individual Liberty, and economic Liberty. It falls to us to continue to beat the drum and to make the arguments of the superiority of capitalism, free enterprise, individual, Liberty independence from government limited government.
[01:13:51] All of those things. If we, if we don’t proactively make those arguments, we will be swamped by government.
[01:13:57] Jonathan Doyle: [01:13:57] do you see the developed world essentially on a trajectory in the opposite direction? To what you’re saying? I mean, is it fair to say that the developed world at this moment is on a trajectory of increasing levels of government intervention and involvement in people’s lives?
[01:14:11] Tom Giovanetti: [01:14:11] I think that’s absolutely the case.
[01:14:13] Jonathan Doyle: [01:14:13] do you account for that?
[01:14:14] What do you, what, what do you think is the, is the fundamental reason for that?
[01:14:18] Tom Giovanetti: [01:14:18] There’s a lot of consternation about things like voter turnout. There’s an assumption for instance, that high voter turnout is a good thing. And low voter turnout is a bad thing and I’ve always felt exactly the opposite. I’ve always thought that high voter turnout is actually an indication that the people are unhappy.
[01:14:37] Or having anxiety about something. And I’ve always seen low voter turnout, actually as a healthy sign of stability and content, you know, with the way things are going. And we see trends in all the developed countries have increased voter turnout. Once again, everybody talks like that. Like that’s a good thing.
[01:14:54] I don’t think it’s a good thing. I think that wealthy nations, the curse of wealth. Is this idea somehow that by paying high taxes to government, government can solve all problems. And I think this is why high X knowledge problem is such a revolutionary idea. We were joking internally among our staff about this the other day.
[01:15:13] There’s this dirty little secret. The first time you get a first job in government, or the first time you get a job with like a corporation or something like that, it’s a bit of a shocking revelation. When you find out that, like, nobody actually knows what they’re doing. You know, they’re, they’re, they’re not smarter than you are, you know, everybody’s just kind of winging it.
[01:15:32] And the reason that that’s a shock is that we grow up with this idea somehow that it is the brilliant among us who are all running things wisely. And the truth is that that’s not true at all. The people who are running things are the people who managed to weasel their way into positions, of running things.
[01:15:47] It doesn’t mean they’re smarter or better or brighter or anything is that we’re all, we’re all just winging it. Again, it’s a sort of funny revelation. When you look around the conference room table and realize nobody at that table is any smarter than you are, but I think it’s human nature and it goes back to tribalism.
[01:16:01] I think, to think somehow that our tribal leaders are wise and intelligent that they speak directly to the gods or whatever, and that it is our job to somehow trust them and have confidence in them and to do what they tell us to do. I just think it’s human nature. And I think that, that the enlightenment was a shot across the bow of that sort of tribalism in human nature.
[01:16:22] I think you’re always fighting a rear guard action when you’re sort of fighting against tribalism and that kind of human nature. So I think it’s human nature to believe that our betters. Are our betters that they know better than we do. We can trust them. We can believe what they say and that if they say that all our problems will be solved by raising taxes and by spending more money on education.
[01:16:43] Well, that must be the case. Despite all evidence to the contrary, there are, there are tribal leaders and we chose them more or less. And so we trust them. I just think that’s human nature. And I think we always have to fight. I think rationality always has to be at battle with our lizard brains and with human nature.
[01:17:00] Jonathan Doyle: [01:17:00] well, Tom, I wanted to ask you about your work at, um, the Institute for policy innovation, a particular aspect of it. The fact that the Institute for policy innovation exists is a statement in itself that there’s an awareness that. Policies shouldn’t be permanently fixed that there’s a constant need for vision and revision.
[01:17:23] Take us to the essence of what you’re doing. How do you evaluate where innovation is needed? How do you develop innovation? Take us through the process that kind of governs what the institutes about
[01:17:38] Tom Giovanetti: [01:17:38] the way I described this to people is sort of picture a wheel with a hub and spokes. And for us, the hub is economic growth. Economic growth is our reason for being, we are in the business of trying to advocate economic growth, foster economic growth, explain to people the importance of economic growth.
[01:17:53] And then all of the elements that contribute to economic growth are like the spokes coming out of that hub. So it’s property rights. It’s innovation. It’s rule of law, trade energy, intellectual property. We’re big believers in the importance of patents and copyright and intellectual property and fostering innovation and economic growth and those sorts of things.
[01:18:11] So that’s sort of our message discipline, how we decide whether we’re going to work on something or whether we’re not, we don’t try to work on every issue. We don’t work on issues of national defense and foreign policy except to the degree that they touch. One of those things, because we really do believe that economic growth is not the solution to everything.
[01:18:28] But it covers a multitude of sins. As we, as we discussed earlier, you can grow your way out of a debt problem. You can grow your way out of a welfare state problem over time. If your, if your condoms is growing faster than your debt, you don’t really have a problem. If your debt is growing faster than the economy, you have a problem.
[01:18:44] So we’re really, really interested in economic growth. And I do think that innovation is the core of economic growth. And so the question is, as you rightly asked it, and as you rightly formulated it, what are the elements that contribute to innovation? And here we come back to supply side because we know we know from history that innovation depends on an abundant supply of several things.
[01:19:07] It depends on an abundant supply of human capital, just smart people with, with technological expertise. This is why innovation hubs tend to grow up around major universities. Because they have a supply of really talented people. We also know that innovation depends on an abundance of capital. It’s not by chance that the information revolution.
[01:19:31] Happened very shortly after the Reagan tax cuts in the 1980s, because the Reagan tax cuts made available and abundance of risk capital that could be put to work and companies like Intel and some of the semiconductor manufacturers and things like that, all came out of that abundance of capital. We think the key to innovation is an abundance of human capital.
[01:19:53] We think it’s an abundance of financial capital. We think it is an intellectual property regime that tells people that if you actually invent something useful, that will be useful to society, that you will actually have the ability to yourself, profit from it, that it can’t be stolen from you. Your, your patent can’t be stolen from you.
[01:20:12] Your creative work can’t be stolen from you. So we actually think that one of the most underappreciated areas of public policy is intellectual property. And, and I think one of the keys to the U S has been that we have a very robust intellectual property system in the U S of patent protection and trademark protection and copyright, and that sort of thing.
[01:20:30] And part, I would say the other element to this idea of communicating to creators and inventors and innovators that if you’re successful, you can profit from it. Is to have reasonable taxes and to not say to someone, you know, what, if you actually do invent something massively useful, and if you become rich as a part of it, we’re not going to tax you at 90% of a marginal tax rate.
[01:20:54] So we, we want to say to innovators, you know, what, if you actually do take out a second mortgage on your home and cash in all your credit cards and take all your retirement money. And put it at risk for this new business you want to start, or this new idea you want to foster. If you do happen to be successful, we want to reward that success.
[01:21:13] And we want to guarantee you the protection of the rule of law. And we want to guarantee you your intellectual property protection. And we want to say to you that we will not make you poor again through tax policy. We will reward you rather than punish you for your innovation. I think those are the keys to innovation, and I think innovation is the key to the productivity growth.
[01:21:34] That we spoke about earlier in the podcast.
[01:21:36] Jonathan Doyle: [01:21:36] You make some great points. I remember talking to Nathan again, the, you know, once those marginal tax rates get higher and higher, I mean, I, my wife and I built a very successful media business in the education space here. And I remember the day that I told her we were being taxed at 45. Percent. And she just went piles.
[01:21:55] She hadn’t really realized that close to half of what we were creating was being appropriated. And, uh, you know, Nathan makes that great point that sooner or later that we innovate as an entrepreneurs and business people realize that there’s just not as much incentive to work that hard.
[01:22:13] Tom Giovanetti: [01:22:13] and it happens at the margin. That’s a key, I’m sorry that we didn’t mention this earlier. One of the key ideas of supply side economics is all these things happen on the margin. All these things happen at the decision. Shall I make an additional dollar of investment. Should I put forth an additional dollar of spending?
[01:22:33] Should I put forth an additional amount of labor or is there no incentive for me to do so? Everything interesting that happens in the economy happens at the margin. So if you’re being taxed at 47%, you’re not going to stop working completely. Cause you can’t. But you might not put forth that additional extra effort.
[01:22:53] It happens at the margin. It doesn’t happen at the first dollar that you earn or the first unit of productivity that you produce. It happens at the last dollar that you earn or the last. Bit of productivity that you earned. And so our focus should always be on the marginal impact of those kinds of decisions.
[01:23:13] And that’s why it’s a mistake, for instance, for governments to say, you know what we’re going to do. We need to stimulate the economy. So we’re going to send every household a check for $600 that has no marginal impact. I’m happy to get checked from my government if they want to send it to me, but that has no, that has no marginal impact on the decisions that I’m going to make.
[01:23:32] I’m not going to that. Doesn’t encourage me to work harder that doesn’t encourage me to make an additional investment. It doesn’t encourage me to go out and get another degree or anything like that. It, it, that doesn’t incentivize at the margin. So we always want to think about how can we get people to make more productivity.
[01:23:51] More saving more investment, more labor, more whatever. At the margin, it’s always the marginal effects that we should look at. So in your example, you don’t focus on the fact that you only pay an 8% income tax on your first $10,000 of earning you focus on the fact that you pay a 47% rate marginal rate on your last hundred dollars of earnings.
[01:24:12] Right? That’s where the marginal effects take place.
[01:24:14] Jonathan Doyle: [01:24:14] I wanted to ask you something else related to all of this tome. I read a brilliant biography of Rockefeller about a year ago called Titan. I think it’s kind of the Seminole biography. And then I joined a few dots and I want to ask you about this. Back when people like Rockefeller and standard oil and Carnegie and all those guys were, you know, the gilded age, all of these capital expenditures, all of this wealth was yes.
[01:24:39] Being put into amazing mansions and things, but it was also providing huge amounts of jobs, huge amounts of infrastructure. So that money was being plowed back into the economy. My, my understanding is that. The difference we face at the moment as the companies, for example, with Apple being the preeminent one is that they’re sitting on vast piles of cash with much smaller workforces.
[01:25:03] So they’re not hiring people like standard oil or Carnegie’s empire was theirs. They’re hiring a very small subsection of the population they’re sitting on enormous amounts of cash share, buy backs. Are we seeing a big difference here? Is this problematic? I’m not invested in this. I’m just curious that are we seeing a kind of problem here where innovation and technology is leading to a kind of stagnation?
[01:25:28] Tom Giovanetti: [01:25:28] Mr. George Mason university named Tyler Cowen, who essentially makes this argument that contrary to what people might think. We’re not actually seeing a ton of innovation broadly across the economy. Right now. We’re only seeing it in a few very narrow areas. And I think that’s probably right, but do I view this as a problem?
[01:25:45] No. As a proponent of free market, laissez-faire. Capitalism and free enterprise. I don’t believe that I have an obligation to defend any particular slice in time of an economy because so-so, yes, it is absolutely true that companies like Apple and other companies are sitting on enormous hoards of cash.
[01:26:03] Right now, Apple, I think has more money in the bank than the total GDP of something like 75 countries or something like that. I mean, it’s really astonishing, but I, I don’t see it as a problem. And if it is a problem than what the supply cider would say, Is, we’re not giving them adequate incentive to invest that money.
[01:26:21] We’re not giving them adequate options to invest that money, to put that money to work. And so you would look and you would say, For instance, are we making mergers too difficult that these companies don’t want to go out and acquire other companies and be subject to antitrust scrutiny? Again, if you think it’s a problem and I don’t, but if you think it’s a problem with the supply side, who would say, okay, well, let’s take a look and see why do they not have an incentive to put that money to work?
[01:26:45] W what are those factors that are causing that unless address that because these companies are rational players in the market, and if there were good places to put that money to work, they would put that money to work. They have no incentive, they have no rational incentive to mal investment. There’s no rational reason why they would.
[01:27:03] Poorly invest their money either. They’re not poorly investing their money and we just think they are, or there’s some structural problems and that is not providing them with adequate places to put that money to work. You see countries now that are doing things like negative interest rates and things like that.
[01:27:19] The real challenge is not to roll our eyes and talk about how crazy is this. The real question is to say, why, why are. Banks, essentially charging people to save their money there. What is going on here? And again, from a supply side standpoint, if there’s an abundant supply of something, why is it not being put to work?
[01:27:37] I think that a major factor right now is literally policy instability with governments. These companies don’t know what’s going to happen to them when the next administration comes in. They don’t know if somebody is going to come after them on antitrust. They don’t know, Apple doesn’t know if somebody is going to come after them on, on privacy.
[01:27:57] They don’t know if the EU is going to come after them and say, you’ve not been paying adequate taxes. We’re going to change our tax regime. Google doesn’t know if the EU is going to come along and hit them with a $50 billion fine, for some reason. And so I tend to think that. These very same companies that you might describe as sort of forming the new gilded age.
[01:28:20] They’re the very companies that are the most subject to dramatic swings and getting yanked around by governments and by policy. I would like to thank as a supply side of that. If we had anything approaching stability and policy regulatory policy and tax policy, some portion of that money would be being put to work.
[01:28:38] I don’t know how much it would be. But some portion of it would be being put to work. But again, I would emphasize this because I think it’s important. Economies are information processing computers, essentially, like we talked about earlier. And so if you don’t like the result you’re getting from the computer.
[01:28:52] Don’t blame the computer look and figure out why you’re not getting the result that you think you ought to be getting. And just because the market is not delivering the result you think it should deliver. Doesn’t mean there’s something wrong with the market. It might be that you’re wrong. You look at a market and say, there’s not enough competitors in this market or whatever.
[01:29:08] So we need to do some sort of big antitrust action or something. Well, you know what, maybe your role, you know, just, just because the market is delivering a different answer than the one you would prefer to see doesn’t mean there’s a market failure. It might just be that you are wrong. I tend to think that markets are smart and governments are stupid.
[01:29:25] I’m much more inclined to think that the result that a market is delivering is the correct answer and that the government is wrong rather than vice versa.
[01:29:34] Jonathan Doyle: [01:29:34] low hanging fruit for a politician. Isn’t it to basically to get on a major network and rail against a particular company. It’s not a particularly difficult.
[01:29:45] Tom Giovanetti: [01:29:45] if you’re a very wealthy, successful company they’re coming for you, there’s just no doubt about it. It happened to IBM in the 1970s, it happened to Microsoft in the 1990s. It starting to happen now to the tech giants, Amazon and Google and Facebook and Twitter. You’re very successful and very wealthy.
[01:30:02] They’re coming for you. They’re coming for their pound of flesh. There’s just no doubt about it. It’s stunning to me because when you look like an Amazon, for instance, when you look at the incredible benefit to consumers, that Amazon is delivering, there’s rarely a day that goes by that we don’t get an Amazon delivery at my house.
[01:30:20] One thing or another.
[01:30:21] Jonathan Doyle: [01:30:21] guilty.
[01:30:22] Tom Giovanetti: [01:30:22] Yeah. I mean, they, they, they deliver incredible value to consumers. Only government would have a problem with that. You know, only government would have a problem that people love Amazon. They love, they love signing up and taking on those Amazon prime accounts and things like that.
[01:30:39] That it’s a tremendous boon to consumers, but sure enough, here comes the government coming after them. Because again, it goes back to this thing, I think where government has an incentive to look after its own interests, as opposed to the interest of the people. I don’t get a dollar from Amazon just for the record, but to me, Amazon, Deliver such an incredible amount of value to consumers.
[01:31:02] You would never have consumers rising up and screaming about Amazon, but sure enough, you have government doing it.
[01:31:07] Jonathan Doyle: [01:31:07] So let me ask you a couple of final questions. One is I’m interested in. The possible restoration of stable money over the last few weeks, I run ultra marathons and I listened to a huge amount of stuff. So listen to Jim Ricard’s latest book, which was 13 hours and he finishes with about seven or eight.
[01:31:25] Possible outworkings of currency collapse and what might take its place yesterday. I finished listening to George Gilda’s the 21st century case for gold. And he’s arguing for a currency basket sort of idea, possibly with gold and bids point involved just, just quickly. What do you, do you see the restoration of a gold standard and how do you see this MMT stuff working out?
[01:31:51] Tom Giovanetti: [01:31:51] I kind of think we’re doing MMT now, even though we don’t, even though we, we don’t think we are, I kind of think we’re doing it right now. I don’t believe there’s any hope of ever returning to a gold standard. I think the best we could hope for is as we discussed earlier in the podcast Lincoln currency to some standard, just something real like a basket of commodities.
[01:32:10] And that’s one of the reasons I have been so discouraged lately that president Trump’s appointed Judy Shelton. Did not make it onto the federal reserve board. Judy is one of the most brilliant economists out there. She is a proponent of both the gold standard and the idea of a basket of commodities.
[01:32:29] Getting Judy Shelton on the board of the federal reserve would have been one of the most important accomplishments of the Trump administration. But of course it got shot down and it got shot down because. You mentioned earlier, the federal reserve having a couple thousand, you know, PhD economists, the federal reserve is a, almost like a training center in and of itself for Keynesian economics.
[01:32:52] You get a PhD, you got to work for the federal reserve. You get completely inculcated in the idea of Keynesian, economics and big government. And then you leave the federal reserve and you go get another job in government, or you get a job in corporate America or something. The federal reserve. I’m not a big conspiracy theory, deep state kind of a guy, but the federal reserve is, is one of the most insidious institutions in the world for this reason, because.
[01:33:15] It has an interest in and of itself of maintaining its power and control over the economy and expanding its control over the economy. Any one who would be the slightest bit disruptive to that, like Judy Shelton has to be taken down. It’s a great loss that Judy Shelton does not get to contribute her perspective and expertise to the federal reserve.
[01:33:36] I think the federal reserve is the problem. I think quantitative easing has made the federal reserve and even bigger player in the economy, even more dangerous. Anyone who looks at the balance sheet right now, the federal reserve would, would just basically just leave trembling from that experience. The federal reserve is the locus of any major collapse that we will have economically because the federal reserve policy and because both Congress and the white house have basically allowed the federal reserve.
[01:34:04] To do whatever it wants to do. And politically they become dependent on the federal reserve, right? Because you want low interest rates. Politically, every president wants low interest rates. You know, Congress wants low interest rates. They don’t want anybody. Who’s going to break up the party.
[01:34:18] Jonathan Doyle: [01:34:18] And the fed is not accountable to Congress anyway. Right. So my understanding is that to this day, the actual nature of the ownership of the fed is still unknown. Like people assume it’s the big banks, but we don’t actually know who owns the fed. Right.
[01:34:31] Tom Giovanetti: [01:34:31] It’s an independent agency libertarians for years, Senator Rand Paul in particular for years has been campaigning to simply audit the fed. Should the federal reserve not be subject to a, to a public audit? Why, why not? What, what are you trying to hide? And we can’t get something as simple as an audit of the federal reserve to show us what’s on your balance sheet to show us what you have to show us the assets.
[01:34:51] Show us the liabilities. And we can’t get it done. So, yeah, I, I th I think the federal reserve is a huge problem. Everyone has an incentive and keeping the party going when I was a teenager, interest rates, mortgage interest rates were 19% or whatever. And a period of three years, Paul Volcker at the federal reserve got inflation completely under control.
[01:35:10] Interest rates dropped from 19% to 5%. Now it took putting the country in a recession to accomplish that, but it was worth it, and it was important. So that’s an example of the power for good that the federal reserve. Actually has, but you have to have people on the federal reserve board that are courageous, that believe in sound money that want to do the right thing.
[01:35:29] And unfortunately, There’s nobody on the federal reserve board right now that believes in anything approaching sound money. So sadly, I think it will take as, as most things in life I’m afraid it will take a crisis to give us any chance of rebooting and resetting things and putting things back on the right path.
[01:35:47] Again, that sort of goes back to human nature. We tend to, we tend to not try to initiate change unless we’re forced.
[01:35:54] Jonathan Doyle: [01:35:54] are you bullish on gold? Like over 5,000 years of history, it keeps reestablishing itself after every crisis. Are you bullish on gold?
[01:36:03] Tom Giovanetti: [01:36:03] I don’t, I don’t give investment advice. I’m not smart enough to give investment advice. I do certainly believe that gold should be part of everyone’s portfolio. Some percentage. I actually own a tiny, tiny little bit of cryptocurrency, tiny little bit of Bitcoin and tiny little bit of ether. I think it makes sense just for diversification to have a little bit of money in cryptocurrency.
[01:36:23] Not a lot. It seems to me the last time I ever looked at these kinds of recommendations, people say you should have like 10% or 15% of your assets in gold or something like that. Jim Rogers, who you mentioned earlier. Is a big believer in this idea of owning and investing in real things, rather than just paper, whether that’s, you know, a share and an REI T on a shopping center, or whether that’s a share in Timberland or assets of various kinds.
[01:36:47] I think that it’s a, especially in a time of instability, it’s a terrible mistake for all of your saving and investment to be tied up in, in paper assets that have no connection to anything real.
[01:36:57] Jonathan Doyle: [01:36:57] buffet calls it a pit rock.
[01:37:00] Tom Giovanetti: [01:37:00] Yes.
[01:37:01] Jonathan Doyle: [01:37:01] I, I beg to differ with the, with the wizard of Omaha. Now last question is a real favorite of mine. So tomorrow morning you find rings. You answer the phone and it’s president elect Biden and he says, Tom, I heard you on this podcast. It was great.
[01:37:15] Well done. And then he says, We want to rebuild the entire us monetary and fiscal system policy. We want to fix the economy. Give me three recommendations. What do you tell him?
[01:37:29] Tom Giovanetti: [01:37:29] well, the first would be let’s get on a ten-year glide path toward a stable currency, and let’s not do it all at once. Let’s do it over 10 years. Let’s create it. Let’s create a basket of commodities and let’s, and let’s gradually incrementally year by year work our way toward a stable. Currency. That would be the first thing.
[01:37:47] I think the second thing would be let’s do entirely away with all depreciation in the tax code, all of it so that anyone who invests any, any business who invest any amount of money in growth is able to immediately deduct it that year off of their taxes. Now that will mean that some companies don’t pay any taxes some years.
[01:38:09] Because of the level of investment you want to stimulate investment and going back again to Norman Turay, there’s no reason why a dollar of productivity should be taxed more than once, so let’s encourage them to invest. So that would be number two. And I think number three, oddly enough, oddly enough would be let’s extend the life of patents.
[01:38:30] From 15 years to 20 years, let’s give creators and innovators even more additional incentive to profit from their creations and innovations because if the U S economy is going to continue to be globally dominant and competitive, we are going to be the people who create and invent things, not the people who make things.
[01:38:48] And so if you’re a creator and an inventor, I want you to move to the United States. And I want you to build your plant, your research lab, everything here. I want you to incorporate in the United States. And I want to give you the most robust property rights in your invention and in your creation that you could get anywhere.
[01:39:07] On the earth. And I think those are the kinds of, they’re not sexy. None of those three things are sexy, but they are structural changes that would have ripples going out 20 and 30 years from now. And you notice none of those three things had anything to do with restraining government spending. I think we ought to do that too.
[01:39:25] It’s remarkably easy actually, to balance the budget. If you just, if you were to reduce federal spending by like, if you would restrict the growth in federal spending for life by like half of 1% per year, You bounced the budget like in 10 years, the problem has never been not enough revenue. The problem is too much spending, but if I only got to push three buttons, they would all be related to stimulating economic growth and innovation.
[01:39:49] Jonathan Doyle: [01:39:49] Sorry. Good. Uh, it’s interesting, as you said that, like in the first episode we did Nathan talked about, you know, how, how do you deal with the deficits and the spending? And he said, well, as a thought experiment, he said, you’d literally just the federal government. Just say, right. As of next Tuesday, There’s no more federal programs, nothing gone, all of it and push everything back to the States.
[01:40:08] And then it was a fascinating discussion just to see you, you would see huge amounts of population mobility as people move to different areas and just fascinating as you as you de-centralize that decision-making but look, those three are fantastic. And, uh, I’ve learned a huge amount and I can’t wait to have you back and just go deeper on other topics, but I’m going to point people to the two fantastic podcasts you guys are doing at the moment, uh, which I’ve been listening to.
[01:40:35] And I really want people to get connected to those. So we’re going to put a bunch of links to connect everybody, but Tom, I want to thank you for your time. I want to thank you for your wisdom and, uh, and just for sharing so many insights with us today on the supply side podcast.
[01:40:48] Tom Giovanetti: [01:40:48] you know, this has been one of the most intellectually satisfying conversations I’ve had in a long time. So I thank you for having me. I’ve very much enjoyed it.
[01:40:56] Jonathan Doyle: [01:40:56] Thank you, Tom.
[01:40:57] Well, Hey everybody, Jonathan, back with you again, I really hope you enjoyed that wonderful discussion with Tom Giovanetti there from the Institute for policy innovation. Now, make sure you check out their website, ipi.org. Easy to remember. I P i.org. If you want to get some regular content on all the big issues that we’ve discussed in this episode, then make sure you check out the website and they’re doing some great podcasts as well. So if you’re always looking for great content, any podcast, Platform will have access to the IPI podcast. So check those out. I, uh, that’s it from me for this episode, please once again, make sure that you’ve hit that subscribe button that you’re sharing this with people. We’re going to have some really great guests coming up in the next few episodes. So you can find out everything else about me, about what we’re email@example.com. Supply side partners.com. You can sign up there to get regular notifications. When the episodes come out. But listen, thanks for your time. Thanks for taking the journey with us. I hope we brought you some value in this episode. My name’s Jonathan Doyle. This has been the supply side podcast. And we’ll have another episode for you very soon.
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