It's A Saturday Morning Bonus Podcast For 07-12-25

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Episode Transcript

Speaker 1 (00:00):
The Michael Berry Show. Hope you enjoy the Saturday podcast.
We started doing that. If you don't know the story,
I'll tell you. We had folks who said, you know,
we listened to you once sometimes twice a day. We
do two different shows during the weekday and on Saturday.
I like to get more Michael Berry Show. So Jim
Mudd said, you know what, we can do this and

(00:21):
it'll give us an opportunity to air some things that
we talk about constantly and can't put on the show,
and that is longer form content. And the reason for
that is our segments are about nine minutes each. In
a nine minute segment with an intro and an outro,
we have to constantly be going in and out. We
can't help that. That's the business. The industry has to

(00:42):
pay the bills, and us we're one of the bills.
So what happens when we have something that needs to flow?
And if we have a thirty minute speech at Milton
Friedman Game nineteen seventy nine, it's one of our favorites,
we can't what do we cut that into four different segments?
We wouldn't be able to retain your attention if we

(01:02):
did that. So The Saturday Podcast Gets gives us an
opportunity to amplify speeches, interviews and the like that we
particularly really like, and this is one of those that
qualifies that we really really like. You may not have
studied economics in school, You may not have even been
a great student. You may not have realized that you

(01:24):
would ever care about any of this stuff, but now
you do, and it's never too late to learn. So
ask yourself as I say them, how many of these
have you heard of before? The robber baron myth, the
Great Depression myth and really what caused it? The demand
driven government myth, the free lunch myth, and finally the

(01:51):
robin hood myth. No matter how many you knew, even
if that's zero, even you've never heard of those, you've
probably heard the free lunch myth. Hopefully you will walk
away from this podcast knowing a great deal more and
when you finished this podcast, just a reminder, I do
love to hear from you. Go to Michael Berryshow dot
com Michael Berryshow dot com. You can send me an

(02:14):
email where you are when you listen what you'd like
more of. You can send me links to things you like.
Just make sure to explain it. I can't just click
on something and spend ten minutes trying to figure out
if it's something I might be able to use or not.
So explain what it is and why you sent it.
And if there's a part in a two hour speech
that I need to hear thirty eight minutes in, tell
me that as well. I do love to hear from you.
Now enjoy the podcast.

Speaker 2 (02:34):
I want to talk today.

Speaker 3 (02:38):
About the contrast between myths that are widely believed by
the public at large and what I regard as a
reality which typically contradicts those myths. As you are all aware,
there has been a drastic shift in public attitudes and

(03:01):
public opinions in the past fifty years or so with
respect to the role of the individual on the one hand,
and the role of government and collective institutions on the other.
There has been a shift in the philosophy and attitudes
of the public from a belief in individual responsibility, a

(03:22):
belief in a society in which the role of government
was as an umpire, to a belief in a society
in which the emphasis is on social responsibility and the
role of government as big brother and protector of the
individual as always When such shifts arise in public opinion,

(03:45):
they are largely produced and reinforced by the development of
myths about prior experience. Someone once wrote, and I'm not
sure who it was, that I'm the myth is like
an air mattress. There's nothing in it, but it's wonderfully comfortable,

(04:07):
and deflation causes an uncomfortable jolt. Well, my purpose today
is to give you that jolt. When myths get established
and are adopted, they tend to be so strongly held,
they tend to become so much a part of you

(04:29):
that when anyone comes along and differs with them and
contradicts them, he risks automatically being dismissed as a crackpot.
But I shall nonetheless take the risk of being dismissed
as a crackpot, because it seems to me so urgent
that we deflate these myths, recognize what the reality is,

(04:52):
in order to be able to provide a basis for
a change in our philosophy, a reverse of the.

Speaker 2 (05:00):
Direction of our thought.

Speaker 3 (05:02):
In my opinion, if we do not do so, if
we continue on the road we have been going, if
we continue to rely more and more on government and
less and less on the individual, we are condemned to
a future of tyranny and misery, and therefore it seems
to me essential for the future of this country that
we recognize these myths for what they are and just

(05:28):
our thinking to a correct perception of our present and
our pest.

Speaker 2 (05:34):
I'm encouraged in this.

Speaker 3 (05:36):
Venture by another quotation, one which comes from a nineteenth
century American humorist by the name of Josh Billings, who wrote, somewhere,
it ain't what people know that causes trouble. It's what
they know that ain't so. And that's when I'm going
to devote this talk to to trying to tell you

(05:58):
about some things you know that ain't so. I am
going to try to cover five myths that are part
of your thinking, and if they're not part of your thinking,
they will tend to become so after you take your
first course in American history. The first of those myths
is a robber Baron myth, the myth that, somehow or other,

(06:22):
in the nineteenth century, there was an era of rugged,
unrestrained individualism, in which heartless monopoly capitalists exploited the poor
unmercifully and ground them beneath their heels. The second myth
I'm going to talk about is a great depression myth,
the myth that the Great Depression from nineteen twenty nine

(06:44):
until the late thirties was produced by a failure of
private enterprise. The third myth I want to talk about
is the demand for government service myth, the myth the
government has had a step in because of a failure
of the private market and a great widespread demand for
government services. The fourth myth I'm going to talk about

(07:08):
was suggested by mister Eccles and his introduction, It's a
free lunch myth, the myth that there is such a
thing as a free lunch. And the final myth I
want to talk about is the robin hood myth, the
myth that somehow or other, government operates by taking money
from the rich and giving it to the poor. Let

(07:29):
me start with the first of those myths, the robber
baron myth, the myth that in the nineteenth century was
a period in which the rich became richer and the
poor poorer. That it was a century in which you
had a conflict between wall street and the workingman. That
it was a period in which, particularly the farmers of

(07:50):
the Middle West were being ground beneath the rapacious activities
of the Wall Street financiers, in which there was whites, red,
farm distress and misery. Now this myth had its origins
in the nineteenth century. It produced the widespread greenback movement

(08:10):
that you will learn about in your history books, a
party which at one time reached significant size, a party
devoted to the idea that all of the problems of
the time could be solved if only the government would
print enough of those nice pieces of paper which are
lay of colored green on the back, in which are

(08:30):
called greenbacks. It was a period that also gave rise
to the free silver movement to WILLIAMS Jennings Bryan, the
silver tongued orator from North Platt, if I remember rightly
from these areas, who gave his famous speech on the
Cross the Gold in eighteen ninety six in Chicago at
the Democratic Convention, in which he asked whether mankind shall

(08:53):
be crucified on across the gold, a speech which got
him the presidential nomination of the Democratic Party, and he
subsequently was a nominee of the President of the Democratic
Party for several subsequent elections, fortunately never elected. That was

(09:13):
a myth. What was the reality. The reality is that
there is almost no period in human history which saw
as rapid and widespread and increase in the well being
of the ordinary man as the nineteenth century. That was
a period when millions of people from all over the

(09:35):
world streamed to these shores. They came here with empty hands,
in the hope and the belief that they could make
a better life for themselves than their children, and they succeeded.
I suspect that most of the people in this room
who are American residents and citizens today are descendants of

(09:57):
the people who came to these shores in that period.
I know, to take the immediate local case. The Eccles
family derives from a Scotsman who came to this country
in the middle of the nineteenth century. My parents came
here in the eighteen nineties from a part of Europe

(10:19):
which is today part of the Soviet Union, although at
that time it was part of Hungary, and I suspect
most of the people in this room have similar background. Now,
do you suppose those people kept coming to these shores
in order to be exploited? Do you think they came
here to be ground under the heels of rapacious monopoly capitalists,
not a bit of it. A few people might have

(10:41):
been led here under misapprehension. You conceivably could have had
an initial inflow of people who thought they were going
to improve their lot and ended up being worse off.

Speaker 2 (10:53):
But you would not have had a continuing inflow.

Speaker 3 (10:55):
They would not have sent back to the old country
for their relative and friends. You would not have had
a flow of millions upon millions year after year. And
of course they were not exploited, They were not ground
under the hill. They got jobs. They spread out west
to the middle west, to the far west, to where
we are now, and they made of what was a

(11:16):
desolate country a country that was prosperous and green and productive,
and improved their own lot. With respect to agriculture in particular,
that was a period when the number of farmers increased.
It was a period when the price of farmland rose. Now,

(11:37):
of course, then is now every farmer would have liked
it better if he had done still better. What happened then,
of course, was that the spread of farms, increasing productivity,
the development of machinery, the bringing under the plow of
productive land led to a great increase in production, which

(12:00):
led to a decline in the prices of farm products.

Speaker 2 (12:04):
So it's true the prices of.

Speaker 3 (12:05):
Farm products went down, but that was a sign of success.
It was not a sign of failure. And the evidence
that it was a sign of success was a rise
in the price of farmland. After all, if this decline
and the price of products had been a sign of failure,
if it had been an indication that the farmer was

(12:27):
being ground under the heel of Wall Street, why would
people have been willing to pay higher and higher prices
for the land from which those crops were produced. So
the actual story is one of a great growth of
productivity and agriculture, of great development of agriculture in this country.

(12:47):
If we turned to the to the charge that that
was a period of heartlessness, a period in which the
rich were willing to say, let the public be damned,
as one man was quoted incorrectly as saying, if we
turned to that charge, let me call your attention to

(13:09):
the nineteenth century, the period when we came the closest
we've ever come to pure unrestrained individualism, a period when
government spending, the spending of the federal government in Washington
amounted to less than three percent of a national income,
when essentially you had no restrictions on immigration and few

(13:30):
restrictions on economic activity. Let me point out that that
was also the period of the greatest flowering of charitable
activity in the United States.

Speaker 2 (13:40):
That was a period when you.

Speaker 3 (13:42):
Had the establishment of so many independent private schools and
colleges around the country. It was a period when the private,
nonprofit alamosnary hospitals grew and sprouted in every city in
the land. It was a period of the Carnegie life.
It was a period of the founding of the Society

(14:02):
for the Prevention of cruelly to animals. You name it,
and you will find that the charitable emotionary activities date
back to the period of the nineteenth century. So the
robber baron myth is a myth, one that should be deflating.
It gets its appeal from a common fallacy, from the

(14:25):
fallacy that one man's gain must be another man's loss.
Of course, it is true that many men became wealthy
during that period.

Speaker 2 (14:34):
There were robber barons. There always are robber barons.

Speaker 3 (14:37):
People are people, some are good, some are bad, some
are in between, and of course some people did try
to mistreat other people. That is part of the course
of history unfortunately. But the main part of the starting
is that the process whereby some people became wealthy was

(14:59):
also the prom which opened up the country and provided
opportunities for millions of other people to have a modest competence,
to be able to improve their own lot.

Speaker 2 (15:10):
It was the robber.

Speaker 3 (15:11):
Barons who were instrumental in building the railroads that joined
the country together, who are instrumental in developing the industries
of this country, and in thereby providing the opportunities for
the ordinary man to improve his lot on life.

Speaker 2 (15:26):
Everybody can benefit.

Speaker 3 (15:27):
You can have some people become wealthy, not at the
expense of other people, but by enabling other people to
become wealthy.

Speaker 2 (15:37):
We had robber.

Speaker 3 (15:38):
Barons then and we have robber barons today, But there's
a big difference between the robber barons then and the
robber barons today. The robber barons then primarily could get
their money only if people freely gave it to them.
They got their money by selling a service and nobody
had to buy it, and if people bought it, it

(15:58):
was because it was a better service than it was before.
The robber barons today are in large part able to
get their money by sending a policeman to take the
money out of your pocket. Now that's a figurative expression
on a literal expression. But how do you become wealthy today?
By getting government assistance, to mention only one very famous example,

(16:23):
by getting government to assign you some TV licenses, or
by getting anyone of a large variety of other sources
of government support. If you look at where modern wealth
comes from, it almost always comes from political influence, which

(16:47):
enables you to get benefits at the expense of the
public at large.

Speaker 2 (16:51):
Now that is a zero sum game.

Speaker 3 (16:55):
When the money is transferred from some to others through
force and coercion and.

Speaker 2 (16:59):
The tax, then it need not be that.

Speaker 3 (17:02):
The one man's benefit is also the other man's benefit.

Speaker 2 (17:06):
Then it can, and often is, that both parties.

Speaker 3 (17:11):
That the party who gains gains at the expense of
the party who pays. So robber barons will always be
with us. The crucial question is whether we have a
form of economic organization in which one robber baron keeps
the other robber baron in check, or whether we have
a form of economic and political organization in which one

(17:32):
robber baron can help the other robber baron at the
expense of the public. I want to turn to the
second of these myths, the Great Depression myth. There is
hardly any view that is more widespreadent then the view that,
somehow or other, the Great Depression was produced by a
failure of private business.

Speaker 2 (17:51):
That view is held not only.

Speaker 3 (17:54):
By those who are in favor of greater role of government.

Speaker 2 (17:58):
It is held by almost everybody. I venture to.

Speaker 3 (18:00):
Suggest that if you go to any bankers, the people
who are here today at this banking conference, and if
you talk to them, I venture to say, nine out.

Speaker 2 (18:08):
Of ten of them, if they didn't hadn't.

Speaker 3 (18:12):
Heard what I'm going to send, that nine out of
ten of them would say, well, of course, the Great
Depression was a failure of private business. It was due
to an over extension over speculation in the nineteen twenties,
Or it was due to an excessive concentration of wealth
in the hands of the wealthy at the expense of

(18:34):
the poor in the nineteen twenties, or it was due
to the spectative investment abroad, or whatnot. But it was
a failure of private business, and government had to step
in in order to rescue private business from its own failure.
Nothing could be father from the truth, the Great Depression
was produced. In my opinion, and I may say this

(18:57):
is not a random opinion. I will be glad to
refer you to a several hundred page book in which
it is documented. I won't tell you who the author is.
Mister Eccles did that it was produced. The Great Depression
was produced by a failure of government, by a failure

(19:19):
of monetary policy. It was produced by a failure of
the Federal reserve system to act in accordance with the
intentions of those who established it. It was produced by
a failure of the Federal Reserve system, despite the presence
of knowledge on the part of many of the people
in the system about the right course of action. It's

(19:42):
interesting to speculate for a moment about why this myth
is so widespread.

Speaker 2 (19:48):
The answer is really very simple.

Speaker 3 (19:50):
In this case, private had a prize has no press agents.

Speaker 2 (19:55):
The free market has no press agents.

Speaker 3 (19:58):
The government has a great many press agents, the Federal
Reserve has a great many press agents. And the Federal Reserve,
of course, would never admit, never proclaim that it produced
a great depression. On the contrary, and again I don't
mean to be criticizing individuals. We're talking about the way

(20:19):
institutions operate. You and I are the same as all
the rest of us. We're all the same. The hardest
thing in the world is for anybody to admit that
he made a mistake. If any one of us makes
a mistake, we can always find somebody else to blame.
And if you read, as I have, for my sins,
had to read the annual reports of the Federal Reserve

(20:42):
System over a fifty year period, there's only one element
of humor that lightens that test, and that is the
cyclical fluctuation and the powers of the Federal Reserve. In
a good year, when things are good the enemy is booming,
you will read that the Federal Reserve, by its wise policy,

(21:06):
by its efficacious management of money, has produced this fine situation. However,
let things get bad, and all of a sudden the
tone of the annual report is different.

Speaker 2 (21:17):
Then you discover that despite.

Speaker 3 (21:20):
The best efforts of the Federal Reserve, outside forces combine
to produce difficulties. Even at the depth of the depression.
In nineteen thirty three, when in the spring of that year,
the Federal Reserve System, which had been established in order

(21:42):
to prevent banking panics and keep banks from closing.

Speaker 2 (21:45):
When the Federal Reserve System itself closed.

Speaker 3 (21:48):
Its doors and you had a banking holiday for seven days,
and when over the previous three years a third of
the banks of this country closed the doors and went broke, because,
in my opinion of the poor policy followed by the
Federal Reserve System, even in nineteen thirty three, if you

(22:09):
read the annual report, you will discover how much worse
things would have been if the Federal Reserve hadn't behaved
so well. Now, as I say, I don't blame the
members of the Federal Reserve for that. Any one of
us would do the same thing. We have to find
somebody to blame. But as an objective's collar, I can
tell you what the facts are.

Speaker 2 (22:29):
The facts were.

Speaker 3 (22:31):
That from nineteen twenty nine to nineteen thirty three, the
total quantity of money in the United States, the amount
of currency, the amount of bank deposits, what mister Ecchels
referred to as M two. That total amount of money
declined by one third. The total number of banks went

(22:52):
down by one.

Speaker 2 (22:54):
And why did the quantity of money decline?

Speaker 3 (22:57):
It declined because the Federal Reserve System failed.

Speaker 2 (23:00):
Prevent the decline.

Speaker 3 (23:02):
The Federal Reserve system could have prevented the decline at
all times. There never was a moment during that period
when the Federal Reserve did not have the power to
prevent the decline in the quantity of money. If it
had prevented the decline in the quantity of money, you
might still have had a recession, but it would have
been a garden variety of recession. It would have been

(23:22):
over in the middle of nineteen thirty or early in
thirty one at the latest. It would not have been
the major catastrophe not only for this country, but throughout
the rest of the world. The Moreover, this is not
only hindsight. At all times, the people at the Federal

(23:43):
Reserve Bank of New York and at the number of
other banks were pleading with the Federal Reserve Board in
Washington to do the right thing. At all times, there
were people in Congress who were arguing that the Federal
Reserve system should take a different course. At times, there
were outside commentators. One of the Canadian banks was particularly prescient,

(24:08):
but there were other commentators who were pointing out the
disastrous effects on the American economy of the restrictive policies
that the Federal Reserve system was following and which was causing,
was permitting and facilitating a whole series of bank runs.

Speaker 2 (24:24):
So the Great Depression.

Speaker 3 (24:26):
Was not produced by a failure of business. On the contrary,
it was produced by a failure of government, and a
failure of government in an area in which responsibility had
been assigned to government since the founding of this country.

Speaker 2 (24:41):
The Constitution of the United States.

Speaker 3 (24:44):
It gives Congress the power to coin money and set
the value thereup. And it was in the management of
this fundamental function of government that governments failed and produced
the Great Depression. We have learned from that failure. The
Federal Reserve will not fail in the same way again.
This time it will fail in a different way. This

(25:09):
time it has been failing not by producing a great depression,
but by producing an inflation.

Speaker 2 (25:16):
Because just as.

Speaker 3 (25:18):
You will hear the story that it was business that
was responsible for the depression, so you will today hear
the story that it is labor and management that are
responsible for inflation. It is the same kind of a myth.
Inflation is made in one place, in one place only.

Speaker 2 (25:35):
Washington, d C. And in Washington, d C.

Speaker 3 (25:38):
The chief source immediate source of inflation is a Greek
temple and constitution avenue in which houses the Federal Reserve Board.
An accomplice, and a major accomplice, of course, sits in
the halls of Congress in Washington. They are a major
accomplice because you tell them to be. The American people

(26:01):
have been telling Congress for many years, spend more money
on us, please, But they've been telling us, don't raise
their taxes. Congress has been listening. It's been spending more
money on you. But on the other hand, it's been
very unwilling to raise taxes. As a result, it has
imposed inflation as a tax.

Speaker 2 (26:22):
That's one tax that you don't have to vote for,
but you have to pay. Let me turn to the
third of the myths I want to cover.

Speaker 3 (26:31):
This is a myth closely related to the Great Depression myth.
It is a myth that somehow or other, the private
market has failed to provide certain important services and the
government has had to step in in response to an

(26:51):
overwhelming public demand in order to provide those services. The
reality is very different. The reality is is that if
you look at every program that the government has adopted
in the direction of extending its scope. It took an
enormous propaganda campaign by special propaganda groups to get those

(27:12):
measures passed.

Speaker 2 (27:15):
There was no.

Speaker 3 (27:16):
Underlying public demand for those measures. On the contrary, the
demand had to be created. It had to be developed,
It had to be produced, and it was created.

Speaker 2 (27:26):
It was developed.

Speaker 3 (27:27):
It was produced by people who, sincerely, I'm not questioning
their sincerity, who sincerely wanted to see an expansion in
the scope of government. Let me take some of the
most prominent examples. Let me take the example which today
is the greatest sacred cow of them all, social Security.

(27:48):
Was there an overwhelming demand for social Security in the
nineteen thirties when the law was adopted.

Speaker 2 (27:53):
Far from it. There was no public demand for it.
It had to be sold.

Speaker 3 (27:58):
How was it sold by the slightest devices of Madison Amna,
by imaginative packaging and deceptive labeling.

Speaker 2 (28:08):
Social Security was sold as an insurance scheme. It is
not an insurance scheme.

Speaker 3 (28:13):
There is very little relationship to the amount of money
any one individual pays and the amount of money.

Speaker 2 (28:19):
He is entitled to receive.

Speaker 3 (28:21):
Social Security is a combination of a bad tax system
with a bad way of distributing welfare. It's got two components,
and I have never known anybody, whatever his political or
other persuasion, who would defend either components separately.

Speaker 2 (28:38):
If you look at the tax.

Speaker 3 (28:40):
System, who can defend a wage tax, a tax on
wages up to a maximum, a tax on work, a
tax which discourages employers from hiring people and discourages people
from going to work. And a tax which is borne
by the lowest wage groups.

Speaker 2 (29:00):
It's a regressive tax.

Speaker 3 (29:02):
You could never in a millions of years Sundays, you
could never have gotten such a tax passed as a tax.

Speaker 2 (29:13):
Look at the benefit arrangements here.

Speaker 3 (29:17):
You have an arrangement under which the amount of money
a person receives does not depend on his poverty or
his indigence. It depends on the accident of what industry
he worked in. If he happened to work in a
covered industry, he gets a benefit. If he happens to
work in a non covered industry, he doesn't. If he

(29:40):
has only worked a certain number of quarters and not more,
no matter how much how indigent he is, he doesn't
get anything. If he's sixty five and he decides to
continue to work earning more than a modest amount per year,
not only doesn't he get a benefit, but to add
insult injury, he has to pay tax on the wages

(30:01):
he is receiving in order to finance the benefit he
is not receiving. If a man who is sixty five
years old has a million dollars in income from property
he is and doesn't work, he gets his full Social
Security benefit tax free. If the same man goes to

(30:24):
work and earns twenty thousand dollars a year, he is
in the position I just described.

Speaker 2 (30:29):
He doesn't get any benefit.

Speaker 3 (30:30):
Is there anybody who would justify that system of distributing benefits?
And I could go on to all the difficulties with it,
I've only touched the surface.

Speaker 2 (30:42):
Note the misleading language.

Speaker 3 (30:47):
The Social Security system consistently refers to the taxes you
pay as a contribution. Now tell me do you regard
taxes as contributions. The word contribution denotes voluntary arrangements. If
you buy an insurance program, you are contributing freely. If
you contribute to the United Way freely, you're contributing freely.

(31:11):
But if you pay taxes on your wages as the
conditions of being employed, that's a tax.

Speaker 2 (31:16):
It's not a contribution.

Speaker 3 (31:19):
Again, it always refers to the payments people get as benefits.

Speaker 2 (31:23):
They are not benefits, they're subsidies.

Speaker 3 (31:27):
What you have is a system of subsidizing people on
the one hand, and of taxing it. What about the
claim that it's insurance, that there's a relationship between the two, Well,
there is a minor relationship. It is true that on
the whole, those people who pay more will receive more
other things the same. But every student of the subject

(31:49):
has pointed out that the relationship is very small, that
most payments are independent of most receipts. Moreover, what you
really have is not a system under which people are
providing for their own security as a social security system.
Will say it as they describe it in their pamphlets.
They describe it as a way in which ninety percent

(32:11):
of American workers are providing for their own future.

Speaker 2 (32:13):
That's nonsense.

Speaker 3 (32:15):
What people today are doing is paying taxes today to
pay the subsidies to the people who are receiving benefits today.
What you have is a system of taxing the young
at any point in time to subsidize the old.

Speaker 2 (32:29):
Now, there may be nothing wrong with that. For the moment,
I'm not discussing that issue.

Speaker 3 (32:34):
I'm discussing whether social Security was a response to a
broad scale public demand or whether it had to be
sold to the people by the worst devices of Madison Avdey.

Speaker 2 (32:45):
And the answer is that clearly was the latter.

Speaker 3 (32:48):
What you have is a system under which people today
are being taxed to pay benefits today.

Speaker 2 (32:53):
To the people who are receiving them.

Speaker 3 (32:56):
So far, those people who are been receiving payments have
received much more than the actuarial.

Speaker 2 (33:04):
Value of what they paid.

Speaker 3 (33:06):
That's because you've had a growing working force, You've had
higher wages being paid.

Speaker 2 (33:11):
Wage rates have gone up very rare.

Speaker 3 (33:13):
I mean, the wage tax has gone up very sharply,
but the number of recipients is growing relative to the
number of people paying. And that's why Social Security is
currently in so much financial trouble. That's why the so
called reserve, which is not a reserve at all, the
so called reserve has been getting smaller and smaller, and

(33:36):
that's why you have all the agitation for Congress to
do something to make Social Security again financially.

Speaker 2 (33:42):
Responsible again for the moment.

Speaker 3 (33:45):
I'm not discussing whether social Security or the separate parts
are good or bad, but only whether it can be
regarded as a program adopted in response to a great
public demand.

Speaker 2 (33:56):
Let me take another more recent movement.

Speaker 3 (34:00):
Imposition on you and me and on our automobiles of
all sorts of safety equipment, so called safety equipment. Nothing
to prevent us individually from buying it, but now we
are required to buy it by government.

Speaker 2 (34:15):
Why was there a great public demand? Not at all.
There was a man named Ralph Nader.

Speaker 3 (34:21):
Now maybe he arose in response to a public demand,
but if so, it was a public demand for entertainment,
not for safety. But Ralph Nader launched a major propaganda campaign,
and as a result of this propaganda campaign, as a
result of a great selling effort also.

Speaker 2 (34:42):
Characterized by misrepresentation.

Speaker 3 (34:45):
Also, as you know, his original weapon was a book
safe unsafe at any price, which damned the Corvair as
being an unsafe and a knowingly unsafe car. Later study
have demonstrated that his claim was not justified, but that
did not prevent it from having its effect. It did

(35:07):
not prevent it from adopting it. But the extent to
which this did not result from a great public clamor
can be shown by what has happened whenever the.

Speaker 2 (35:21):
Agency that was established.

Speaker 3 (35:23):
To administer auto safety regulations has overstepped its bounds. You
will recall it a few years ago it tried to
impose the requirement of an interlock, that no car could
be started unless the seat belts were fastened, and that
produced such a great public outcry that Congress stepped in
and it had to be rescinded. You are now having

(35:46):
a similar kind of a controversy about the airbag. Or again,
let me take a very different example, one which has
not yet emerged, fortunately, the drive for.

Speaker 2 (35:56):
National health insurance.

Speaker 3 (35:59):
Is there a wide spread drive for national health insurance?

Speaker 2 (36:02):
Not so you can notice it.

Speaker 3 (36:04):
Indeed, the proponents of it have been trying to get
it passed a year after year, and so far they
haven't gotten it passed. As I say fortunately, because if
so called national health insurance were passed, it would bear
as little relationship to insurance as social security does. It's
not a program for national health insurance at all. It's
a program for socialized medicine. It's a program for making

(36:27):
physicians government employees. It's a program for creating long waiting
lines and inferior medical service.

Speaker 2 (36:37):
But that isn't the way it's labeled.

Speaker 3 (36:41):
But the pressure for it is having to be created
and build.

Speaker 2 (36:44):
Up by propaganda. Or again, let me take another modern version.

Speaker 3 (36:49):
Has the FDA's been on saccharin been in response to
a great public outcry for it? Let me turn to
the fourth of my myths, the free lunch myth, the
belief that somehow or other government can spend money at
nobody's expense. I don't know how many of you have

(37:12):
ever heard of a wonderful description of government that was
made by a French economist by the name of Frederic
Bostiat about one hundred and fifty years ago. He said,
government is a fiction whereby everybody believes that he can
live at the expense of everybody else.

Speaker 2 (37:30):
And that is the free lunch myth, the myth.

Speaker 3 (37:34):
That somehow or other government can provide goods and services,
can spend money at nobody's expense. Now, the particular form
which that myth takes is very specific.

Speaker 2 (37:50):
It has two parts.

Speaker 3 (37:52):
One part is a belief that somehow or other you
can tax business without consumers or workers or individuals.

Speaker 2 (38:01):
Paying for it.

Speaker 3 (38:01):
Somehow business is a big source, a big cornucopia out
there that can be taxed at no cost. And the
other way it form the myth takes is that you
can create money at no cost, that if you turn
the printing press, if you produce those greenbacks, that will
enable people to become richer with nobody becoming poorer. Well,

(38:22):
let me look at first problem. Can you tax business?
What's business? There's no business to be taxed. There are people.
Only people can pay taxes. Can I tax this floor?
Can I tax the building? The building can't pay taxes.
Only people can pay taxes. So when you talk about

(38:44):
a tax on business, it has to be paid by somebody.
Either it's paid by the stockholder, or it's paid by
the customer, or it's paid by the worker.

Speaker 2 (38:56):
There's no other way it can come from. There's no
there's no Santa Claus, no tooth.

Speaker 3 (39:05):
Fairy that's going to provide a source by which the
government can spend money that doesn't come from somebody. Somebody
has to pay. And yet, over and over again you
hear the claim, oh, we cannot, we must not increase
taxes on individuals, will increase taxes on business. In connection

(39:27):
with the current discussion of social security, this fiction arises.
There is a fiction that the social security tax is
half on the individual and half on the employer. It's
that the individual only pays five point seventy five percent,
the employer plays it pays an equal amount. That's nonsense.

(39:50):
That's bookkeeping. That's not economics, that's not reality. The part
that the employer pays is part of his wage cost.
If an employer can see whether it's worth his while
to hire an additional worker, he has to consider as
part of his cost not only what he pays to
the worker, but also the extra taxes.

Speaker 2 (40:11):
He will have to pay to the government.

Speaker 3 (40:13):
It makes no difference to the employer at all if
he pays the worker a bigger check and the worker
pays a larger part of that directly to the government,
or he pays a worker a smaller check but an
addition has to send a check to Washington. What matters
to him is a total number of dollars it costs
him to hire an additional person. So the fact is,

(40:35):
the logic is, the reason is that the tax on,
the so called tax on the employer is paid by
the employee.

Speaker 2 (40:43):
Now this has always.

Speaker 3 (40:44):
Been clear from economic reasoning general economic reasoning, but it
has also been subjected to empirical test in a book,
even from that from that tempo of belief in greater
and bigger government.

Speaker 2 (41:02):
The Brookings Institution.

Speaker 3 (41:05):
In Washington, published a couple of years ago, demonstrated empirically
that the tax on the employer was really paid by
the employee, that it was shifted to the employee, And
it can't be any other way, as you will see
if you think about it.

Speaker 2 (41:20):
So business doesn't pay that tax.

Speaker 3 (41:22):
And yet despite this you have the great move in
Congress right now in remedying the problem of social security,
to impose a larger fraction of the tax on business
on the alleged grounds that somehow or other that spares
the worker. It doesn't have any such effect. It reduces

(41:42):
the incentive to hire people, and thus is imposed on
the worker.

Speaker 2 (41:48):
But again, if.

Speaker 3 (41:49):
You look at the taxing corporate profits, the distinction you
have to draw is between who writes the check and
who fundamentally bears the cost. It may well be that
an official of a corporation writes the check for the
tax on profits, so called profits.

Speaker 2 (42:08):
He writes the check, but who pays it? He doesn't
pay it.

Speaker 3 (42:13):
Here is a poor fellow who may be earning a
modest competence. He may be writing a check for ten
million dollars. That isn't coming out of his hide. Where's
that ten million dollars coming from?

Speaker 2 (42:26):
It has to.

Speaker 3 (42:26):
Come from the proceeds of the goods and services which
the enterprise sells.

Speaker 2 (42:32):
And that ten million dollars is ten million dollars.

Speaker 3 (42:35):
Less available either for cutting prices, or for paying out dividends,
or for paying wages and salaries. The tax is borne
by people, and for this reason I must say I
have always myself been strongly in favor of eliminating altogether
the tax on corporations. So it's open and above board

(42:56):
that you are taxing people, and that you do not
conceal that fact by appearing to tax corporations. Well again,
with respect to money, can you print money at no cost?
It's very cheap to turn out those pieces of paper.
But does that get society something for nothing?

Speaker 2 (43:15):
Not at all.

Speaker 3 (43:16):
It's simply a different form of taxation. If you print money,
people have more money to spend. If they spend, If
they spend more money on the same amount of goods,
prices go up, and in effect everybody is paying a
tax through inflation. Once again, it's only a form of taxation.

(43:37):
Let me turn to my final myth because it is
in some ways the most pervasive, the most dangerous, and
the most deep seated. That is a robin Hood myth,
the myth the government has benefited the poor at the
expense of the rich.

Speaker 2 (43:55):
That's the myth.

Speaker 3 (43:59):
Those are the terms on which many a governmental program
is sold.

Speaker 2 (44:03):
What is the reality. The reality has.

Speaker 3 (44:08):
Been described in an article in the Journal of Law
and Economics by my colleague George Stiegler under the title
of Director's Law. And Director is the name of Aaron Director,
who is a professor at the University of Chicago Law School.
And I might also say, my brother in law. Director's

(44:30):
law is that almost invariably, government programs benefit the middle
income class at the expense of the very poor and
the very rich. Now that may seem to you strange,
but let me first explain why it makes logical sense,

(44:52):
and second give you some empirical evidence, starting right here
at home with higher education and the state financing of
higher education. On the logical level, you have an econotic
political system under which laws are passed by fifty one

(45:13):
percent of the people voting one way against forty.

Speaker 2 (45:15):
Nine percent of the people.

Speaker 3 (45:17):
Now the way to get a law pass therefore, is
to form a coalition covering fifty one percent of the people.
You might think that you would take the bottom fifty
one percent versus the top.

Speaker 2 (45:27):
Forty nine percent.

Speaker 3 (45:29):
But the more you think about it, the more you
realize that that's not a very effective way to form
a coalition. Why because those people who are at the
bottom tend to be much less skillful in political activity
for the very reasons that leave them at the bottom
in the economic scale. They are at the bottom of

(45:49):
the economic scale because they have low skills, or low abilities,
or low entrepreneurial capacities, or have been unfortunate to have
been born handicapped, or in groups that are discriminated against.
But those same features make them relatively less effective in
political activity. Who are the most effective people in political activity?
Those of us in the middle and in the middle classes.

(46:11):
Where are the people who are literate. Where are the
people who write for the newspapers, Where are the people
who mount the hustings, Where are the people who provide
the candidates? Well, you might say, why doesn't the coalition
come from the top all the way down fifty one percent? Well,
the answer is the g those people at the top.
That's a place we can get a lot of money
from and it's worth sacrificing a few votes to get

(46:35):
a large.

Speaker 2 (46:36):
Fraction of a tax base.

Speaker 3 (46:38):
And therefore the logically most reasonable coalition is sort of
fifty one percent of the people running from the lower
middle class through the upper middle class and leaving out
the very rich at the top and the very part
at the bottom.

Speaker 2 (46:51):
Now, it doesn't always work that way.

Speaker 3 (46:53):
Sometimes the very rich are able to use their money
to get a effective coalition. But most of the time
that's the way it works. Now, let me illustrate it
in reality, in the real world. One of my favorite
examples is state finance of higher education. This is always

(47:13):
sold on the ground of providing opportunities to everybody in
the society to get an education.

Speaker 2 (47:19):
But what are the facts.

Speaker 3 (47:21):
I doubt that there is any program financed by government
in the United States which is as regressive in its
impact and its financial impact as the financing of higher schooling.
Who are the people who go to school? Who are
the people who are attending this university? Mostly people who

(47:43):
come from middle, upper middle or lower middle income class families.
If there are a few among you who come from
lower income families, you are going to.

Speaker 2 (47:55):
Be among the middle and upper income classes. You are
the rich among the poor. They are the people who
go to school. They are the people who get the
benefit from it.

Speaker 3 (48:07):
Your training here will enable you to get higher incomes
than you otherwise. Coun Who pays for it, well, you
pay for it and your family and friends pay for it.

Speaker 2 (48:16):
Not through tuition.

Speaker 3 (48:18):
I am told your tuition covers about fifteen percent of
the cost of your schooling. The taxpayers pay for it,
including the people who don't go to school.

Speaker 2 (48:29):
Some years ago, there.

Speaker 3 (48:31):
Was a study made for the state of California which
showed that fifty percent of the students at state supporting
institutions of higher education came from the top twenty five
percent of the income class, and five percent came from
the bottom twenty five percent of the income class.

Speaker 2 (48:48):
This is a program.

Speaker 3 (48:50):
When I talk in California and want to be demagogic,
I say it's a program to impose taxes on the
people in Watts to send the children from Beverly Hills
to college. Now you here in Utah know better what
the local equivalents of that are.

Speaker 2 (49:06):
Now I'm not blaming you as individuals.

Speaker 3 (49:08):
Again, I couldn't do that because I myself am a
beneficiary of state support of higher education. I went through
a school that has since become a state university, Rutgers University,
in the state of New Jersey, on a state scholarship.

Speaker 2 (49:23):
Now I think I.

Speaker 3 (49:24):
Benefited from going to the university, although I know and
I think even maybe the country at large did. Although
I know there are many people who disagree with that.
But there's no reason why I shouldn't have paid for it.
What did the poor citizens in New Jersey game? The
day I graduated from college, I left New Jersey and
I've hardly ever been back since.

Speaker 2 (49:50):
There's a strong.

Speaker 3 (49:51):
Case to be made that everybody who wants to go
to university should have an opportunity to do so, provided
he's willing to pay for it. Not necessary right now,
it's highly desirable to have arrangements under which he can
borrow now to pay it back later out of a
higher income that his education will make possible. But there

(50:11):
is no justification for imposing taxes on lower income people
to finance the schooling of people who are or will
be in the higher income groups. And yet, how much
political movement is there to impose full cost tuition on colleges.
There is nobody who would have a ghost of a

(50:35):
chance of being elected to a legislature or to the
state house on that program. It's the hardest thing in
the world legislatively to get higher tuitions in post one
because the middle class looks after itself.

Speaker 2 (50:51):
Because of Director's Law. Now, what's true for higher education
is true in every other area. Consider social security.

Speaker 3 (50:59):
Now, social secure curity is also sold as a program
to benefit the poor.

Speaker 2 (51:02):
What are the facts? Social security is a.

Speaker 3 (51:05):
Program which imposes unduly heavy taxes on the lower income
groups in the society to provide higher benefits.

Speaker 2 (51:16):
To upper income groups in the society.

Speaker 3 (51:18):
How does it work. It's not because of the regressive
nature of the wage tax. It's not because of the
structure of benefits. It's because of a very simple phenomenon.
At what age do.

Speaker 2 (51:30):
Younger men from the lower classes go to work?

Speaker 3 (51:33):
Sixteen seventeen, eighteen nineteen, that's when they start to pay
Social security taxes?

Speaker 2 (51:39):
At what age are you people.

Speaker 3 (51:40):
Going to go to work and start paying Social security taxes?
Some of you may in part time jobs have been
doing so, but you will be a full time Social
security pay payers only when you reach your middle twenties,
so they will pay tax for the more years then

(52:01):
you will pay taxes next, which one is going to
receive benefits for longer. Every demographic study is shown that
the average expected length to life of a middle and
upper income classes is longer than the average length to
life of people from the lower income classes. So those
poor suckers are going to pay taxes for more years

(52:26):
and receive payments for fewer years than you and I will. Now,
some of us, by virtue of continuing to work between
sixty five and seventy two, will not be in that
favored class. But already the fraction of people who work
between sixty five and seventy two has been cut to

(52:46):
a small part of what it used to be because
of the incentive offered by social Security. And overall there
is little doubt therefore, that Social Security is a program
which transfers income from low income classes to high income classes.
Same thing is true of almost every other social program

(53:07):
you can mention. I have often challenged people to find
a single governmental program in which the people who pay
taxes have higher incomes than those who get the benefits.
I know only one, and that's direct relief public assistance,
the aid to families that dependent children. It's not a

(53:28):
good program. It's a terrible program. It's a welfare mess.
But so far as I can find out, it's the
only program that demonstrably transfers income from higher income classes
to lower income classes. And that's why it's such an
unpopular program. Director's Law shows up in the unpopularity of
the welfare mess as well as in the popularity of

(53:51):
social security, housing.

Speaker 2 (53:53):
Programs and the like. I could go down, agreed many others,
and that time will not permit. I come to my.

Speaker 3 (54:03):
That if we are going to look forward to the future,
to an end of this reduction in our freedom and
the growth in centralized government, I think we must begin
to dismantle these myths which are so widely accepted by people,
which have become an unthinking part of their philosophy and

(54:28):
of their beliefs. And I hope that in the course
of this hour I have deflated your air mattress and
given you an uncomfortable jolt.

Speaker 2 (54:41):
Thank you.

Speaker 1 (54:43):
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(55:04):
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(55:28):
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(55:51):
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(56:16):
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