‘Economic Catastrophe' If This Continues, Only One Way Out Says Economist — Steve Hanke

[00:00:00] Speaker 1: if things continue we are going to have an economic catastrophe how do we avoid this economic catastrophe forget fundamentals forget technical analysis you just wait until a rumor comes around swirling around or or even better some it appears that some of the oil traders have had inside information with regard to when trump is going to make an announcement it's my pleasure to welcome [00:00:30] Speaker 2: back to the show regular guest steve hanke professor of applied economics at johns hopkins university on the agenda today who's manipulating markets and how do we navigate a market that's so heavily concentrated by the big players we're going to find out who these big players are and what we can do as investors we're also going to be talking about wealth inequality and why so many people feel so poor these days while the rich are getting richer is there a solution to this we'll find out and of course professor hanke will give us an update on his economic outlook and inflation outlook we'll be going over how high gas prices will get this year a topic that a lot of people are thinking about professor hanke is going to give us the answer that's actually a trade on kaoshi right now gas prices in the u.s next month is a trade and traders are predicting there's a 62 percent chance that it'll get above three dollars and eighty cents so kaoshi is the sponsor of today's video it's the largest prediction market in the united states and unlike a sports book you're trading peer-to-peer on real world events from economic data to political outcomes and the price moves based on public opinion not a house go to the link in the description down below or scan the qr code here to get started new users who use my code lin lin will get ten dollars when you trade ten dollars and if you want to place a trade on how high gas prices will get in the next month let's say you place fifty dollars on above 380 and you turn out to be right your payout could be seventy eight dollars so we'll find out what professor hanke has to say about gas prices and inflation welcome back to the show professor hanke good to see you as always great to be with you david i want to start by showing you the prediction markets prediction for gas prices in the next month 61 chance believe that there's an uh well 61 chance that gas prices will be above 380 at the gas pump 34 chance it'll be above four dollars it's still very high now this is a post a remarkable post by president trump made earlier yesterday he said gasoline retailers must get their prices down immediately they're too high considering that oil is now at 68 a barrel and heading south the retailers must quickly react to the statement and do what they know is right which is drop your price for our great american people there will be no price gouging which is totally illegal if retailers don't do this big problems lie ahead start targeting around the 250 a gallon number and california should stop charging such heavy taxes on the gasoline soon the tax will be higher than the product itself and the u.s will not stand for it nor will the people of california who are being abused by these ridiculous taxes by their own government well i think he's right the taxes on gasoline are too high but uh let's get to his bigger point here gasoline prices should target 250 a gallon at the prompt at the pump what can the government do to actually enforce this if anything [00:03:35] Speaker 1: well trump uh he's he's jawboning the thing he's a little bit delusional about 250 because the number number one the price of crude now is a little over 70 a barrel wti today and and it's going to go higher and and the reason the reason for that uh before we get into the price of the pump kind of thing just thinking about crude we uh with the attack by the u.s and israel on iran that that is what caused the problem trump caused the problem and now he's trying to say that the oil companies have caused the problem so it's a typical trump thing with his rhetoric often doesn't doesn't comport with the reality whatsoever i mean he he says more things that are off the reservation than on but the attack was made prices jumped up uh the strait of hormuz was shot and as a result of that the world basically borrowed 1.2 billion barrels of oil from the future sucked that into the present put it into the present market lowering inventories out of strategic reserves and private inventories and so forth and and now what's going to happen assuming the strait by the way is is not open uh it's not operating in a normal way whatsoever uh contrary again to what trump has has been advertising there there's a trick trickle of tankers coming out of the gulf but even assuming that the thing completely opened up which which is not going to do uh we we would have to find uh the the 1.2 billion barrels that we borrowed from the future and dumped it into the present we'd have to replenish all of that so the demand for oil is going to go up the all this restocking will occur and the and the price will go up i my my base line case is probably around 85 90 a barrel that wouldn't surprise me whatsoever [00:06:01] Speaker 2: so so that's one factor by the way the markets uh kind of agree with you the prediction markets are saying there's basically uh less than two percent chance that the gas prices will go below 250. [00:06:14] Speaker 1: says here 98 chance above 250 so there you go so so so that so there we have the background is crude oil and what what's going to happen to the crude oil market so now we get towards the pump and what's going on now of course the the major oil companies are operating with very high margins or profits are very high uh and and profits for refined products like gasoline so trump is laying into them and and trying to jawbone them but also he he's seeking the the department of justice on them so you've got two things going on he he's he's he's not only barking but you know there's there's some potential bite in that because if you get the department of justice going after you you've got a you've got a legal problem on your hands so so that's that's that's what's going on but this is this is this is a larger pattern of things that are happening and i've talked about this with you in the past and that is we we have everything being politicized every all all major decisions now everything is running through washington either the bureaucracy in washington or more likely directly trump himself is is it the control tower trying to run things this is this this is the american version of the soviet system of centralized planning well there is no centralized plan but there there is a centralized voice and and you just read it read it it's it's announcements on true social so with everything being politicized you you have a lot of what i called before regime uncertainty where everything is changing all all the rules of the game and so forth are being changed but you also get another factor coming in and that's what's called the the big players theory and economics and and and the the big players operate uh and and they can be private if they're real big like like musk for example that he's a big player but obviously trump's a big player chairman z in china is a big player and and they're big enough to influence supply and demand uh and expectations about supply and demand they're they're insensitive to profit and losses so they can spout off uh you know not not thinking about is this going to increase or decrease profits and their announcements and pronouncements are pretty much arbitrary they're not based on any rules or anything like that so as a result um you have asset prices that get disconnected from fundamental rationality in other words fundamental rationality does what it what are the expectations about free cash flow and you discount them at some discount rate you get a present value you come up with a the market cap of you know whether whether you whether you whether whether you think that a share price is fair or not fair but but that just goes out the window once you get big players and and once you get big players you you have hurting it takes effect hurting behavior you forget fundamentals you forget supply and demand forget the level of inventories forget present values of free cash flow forget all of that you just trade off of hype rumors other factors that are not associated with fundamentals and as a result you get a lot more volatility in the market you you get a much higher chance of a bubble or and a and a higher chance of a bubble popping and you get what's called noise trading instead of trading off the fundamentals you you you you noise trade and and that is going for the rumors following the herd getting on the bandwagon all of these things that we're observing are all off based on the whole this whole notion of big players which which which most people aren't familiar with but there there actually is an academic literature on this and it turns out that one of the contributors is my co-author on my book uh making money not not making money work is leland yeager capital interest in waiting leland yeager capital interest waiting and yeager was one of the first ones and he he wrote one of these first articles with one of these students roger copel is a who's now a collaborator with with me so i am familiar with the literature and and where it leads you is is towards noise trading uh something that was actually introduced by fisher black you know the the black shoals option pricing model that that black fisher black in 1986 introduced the idea analytically and and and that's in a sophisticated way of of noise trading what noise trading was all about and noise trading is something as i say it's it's completely disconnected from trading off fundamentals or technicals [00:12:09] Speaker 2: it's trading off rumors noise what about trump saying that he moves the markets take a listen to this remarkable statement that he made at the g7 summit a couple weeks ago people online are asking hey did trump just admit to market manipulation take a listen every time we talked [00:12:29] Speaker 3: about the possibility of peace the stock market shot up like a rocket ship it never went down they didn't like it the people you know the stock market is more brilliant than anybody there is [00:12:41] Speaker 2: including the people on this stage other than me of course every time he talks about peace the stock market shoots up okay well if he's identified a pattern one can surmise that he could just [00:12:55] Speaker 1: keep doing it over and over again oh yeah that that's the big player you just saw the big player that that's the point of the of the the theoretical apparatus called blake big players uh and it doesn't happen that often by the way but it we're we're in we've entered an era of big players now we've we we're we're moving away from the the efficient market hypothesis you know rational markets and all this we're moving into the era i think in my view of the big players so you have to understand this theory understand what noise trading is all about if you want to understand what's going on in the markets and and why you observe hurting and why given every measure we have on on the planet of a bubble we're definitely in a bubble and and no one even cares in the united states the equity markets are clearly in a bubble and and and going back to trump by the way why do you think the u.s attacked iran over the weekend this past weekend and why did they announce that friday 33 minutes after the market closed because trump didn't want to rattle the markets yeah all right the markets closed last friday and 33 minutes later the u.s attacked iran i have noticed that all these announcements are made on yeah over the weekend yeah and and and when when did they announce that they were going to patch things up right before the market opened on monday morning yeah so so this is this is how big player operates [00:14:47] Speaker 2: what does economic theory tell us about how to navigate this kind of environment oh it it it's [00:14:54] Speaker 1: you hurting behavior if you're going to make out you you've got to be part of the herd you you you have to jump on the bandwagon for you have to first throw fundamentals out the window okay forget fundamentals forget technical analysis you just wait until a rumor comes around swirling around or or or even better some some it it appears that some of the oil traders have had inside information with regard to when trump is going to make an announcement so there there have been huge trades occurring either long and short in the oil market prior to trump's announcements on what's going to be happening next and with regard to the u.s vis-a-vis iran are you suggesting that the whole market is operating based on insider information uh well not not not really because everybody can't get the inside information but but that that that but the big players move the markets yeah that that that appears to be a part of it because some appear in the in the oil trade to have inside information and once they place these big bets based on what apparently is inside information and then is confirmed by a few minutes later an announcement by trump then the herd comes in and and then what do you get you tend to get overshooting going on and and and that's why by the way that's why i think the oil market clearly is not looking at fundamentals right now and is overshot on the downside i think seventy dollars a barrel is not fair value i i think i i think the price is more in the you know as i said before 85 maybe 80 my bit my [00:17:00] Speaker 2: base my baseline case is more like 85 90. what's your explanation as to why oil dropped to 70 a barrel immediately after the iran uh the strait of hummus reopened for a few days remember two weeks ago and then they reclosed the strait following the iranian strikes sorry the israeli strikes in lebanon the ceasefire was broken but anyway oil went down on a ceasefire but it didn't go back up after the ceasefire [00:17:29] Speaker 1: was broken why not well i because i the the i i think it it is the hurting aspect of the big players i think it overshot i see and and and and it's going to take time to it's going to take time for the fundamentals of supply and demand and inventory levels to to to come into the picture and and [00:17:57] Speaker 2: influence the herd okay i want to just bring this up very quickly uh before we move on to other matters of the economy professor here how many screen is a chart made by the eia what do we pay per gallon of retail regular grade gasoline in 2025 14 of that was refining costs and profits 17 was distribution and marketing 16.6 federal and state taxes and 51 from crude oil itself so when trump says to the gas price to the gasoline retailers lower your prices i mean which part of this pie can they actually control here i guess distribution and marketing they can they can not make any profits and the state has to take out the [00:18:44] Speaker 1: taxes but yeah yeah so it's mainly the top the first thing the margin which they're not going to do so uh well we we don't know exactly how they'll react we don't know exactly what trump's going to do with the department of justice and so forth but but basically he's he's trying to he's trying to he's trying to nationalize profits okay this is the politicization of things this is this is a the we used to call these things socialism okay now now another form of socialism not not not not the directly out of the communist manifesto kind of indirectly out of the communist manifesto we have interventionism which is we we have all kinds of things going on protectionism sanctions all all the tariffs quotas sanctions all of that is part and parcel of interventionism which which is obviously by definition the interference with the free market system [00:19:55] Speaker 2: and trump just loves this stuff back in the soviet union if um the government wanted the uh distributor or the retailer to produce a certain thing and keep a price at a certain level and they refuse the owner will probably end up in a gulag somewhere my point is what is the recourse here in the united states we don't get sent to guantanamo bay if we're a retailer and we don't [00:20:22] Speaker 1: follow trump's tweets right well so well depend on depending on what the department of justice does and and and the fbi and so forth and so on you you could end up in the in the slammer okay we we we we don't we don't have we don't have a gulag in camps uh as far as i know well uh well we we we we kind of do in a way guantanamo bay would probably it it is a slammer but it's kind of a camp type thing in other words you you you can go to guantanamo without any due process of law or anything like that right so they just nail nail you and say you've done something and and you stew down there forever and uh you know there's no trial or anything else all right well i mean let's go back [00:21:19] Speaker 2: to economic theory then didn't trump just solve the inflation problem if he can threaten everybody to lower prices and say look if you don't do this somehow we're going to make the department of justice think you're guilty of xyz and you're going to go to jail well in theory didn't he just fix higher [00:21:36] Speaker 1: prices well he he works inflation includes everything so yeah the answer is what what causes inflation inflation is every it's always and everywhere a monetary phenomenon it depends on the how fast the money supply is growing how big the money supply is so so that's that's the cause of that um and you know the the the only thing he could do there is do something with the fed which he's been trying to do desperately but but he's actually doing the he's trying to get the fed to loosen up he he wants to keep this this speculative mania what we're in right now in the united states going he he doesn't want it to stop he want he wants to goose the thing so okay so so the idea of fighting high prices at the gas pump that that that that happens to be one particular price that that that's very sensitive because number one it's easy to follow and and and number two a lot of people drive cars that burn gasoline and and and they fill a tank once or twice a week maybe even more than that so every time they fill it they kind of have sticker shock [00:23:01] Speaker 2: on the monetary policy thing i've been talking to some people who believe that there is reason for the fed to lower rates this year the prediction markets are predicting that there will be a 77 chance of exactly zero cuts the fed watch tool which is something you look at is kind of predicting the same thing uh roughly 83 chance of a hike 17 chance that uh it will not move but no one's pricing in on the cme fell watch to at least no one in the bond market is pricing at any chance of cuts [00:23:35] Speaker 1: so i wonder what do you think well well yeah the reason for that david uh uh i didn't mean to cut you off you you said no please go ahead yes you said what do you think yes yes there yeah what do you yeah what do you think professor okay well what what i think is that the inflation genie has escaped it's out of the bottle the inflation rate in the united states now is more than double the target the target's two percent and the rate of inflation today as we speak here is at the end of june 4.2 so so it's hard to and it's hard to get your head around the idea that somehow the fed's going to cut raise plus the economy they revised the first quarter gdp number it's 2.1 real rate of growth so the economy's chugging along it's it's doing okay the labor market is more more or less okay the unemployment rate you know is is good actually if you if you only look at the unemployment number unemployment's low so so it's it's hard for the guy for the members of the federal open market committee to come in and say oh we got inflation double the target the economy is doing pretty well and and and and unemployment's quite low let's goose things some more you see what i mean yeah that's a hard pill to swallow it's pretty it's pretty damn hard hard to rationalize goosing the money supply even more than they are right now but and and what they do goosing to them as the federal funds rate that's not goosing to me the rate of growth the money supply is what counts which which they're not looking at but but at any rate given what they look at the fed funds rate i i which you just had up on the screen yes i i would i would say that the chances of them lowering that meaning goosing and in their eyes is pretty low well as you saw on the chart i think it's non-existent may i posit another [00:25:57] Speaker 2: theory to you professor you're thinking about this from the perspective of a rational economic actor as we've discussed for the last 15 minutes big players have given us some some consideration as to whether or not the markets are still rational in other words could it be possible professor that in a couple months trump would say look the iran war is still ongoing let's say the street of wamoos crisis is not resolved and americans really need a relief gas prices are even higher now as you predicted but instead of combating inflation by raising interest rates we're going to give relief to the regular worker in the form of lowering interest rates and making monetary policy looser and expanding the money supply to help alleviate the threat of a recession from higher prices would that make sense in other words avert a great depression as trump said we're going to avert a great depression [00:26:50] Speaker 1: that's what he said the g7 okay so right let's let's let's go with that scenario that that scenario means that the war drags on you know and it's not resolved the strait doesn't open and in that case by the way my my baseline price for oil is is too low it's going to go higher even higher than that and as trump said he doesn't want to be another her herbert hoover president president herbert hoover was the president when the great depression started and and he trump is implying that if the war continues if the strait remains closed if oil prices go to the moon that we'll have a great depression as he he used the word catastrophe economic catastrophe yes and and and and and that scenario obviously that changes everything so that would that would change what i think the fed the fed probably would goose things under under that scenario okay and we went and we would get a lowering we all this also plays into where where we can anticipate trump is going that the memorandum understanding was was was uh in in effect uh a surrender document where where the the u.s surrendered yeah and and and and and the why did trump frame the thing as as a surrender and and with all those points that were in there he he did it because he doesn't he he wants to get out of this thing he he wants to claim victory that no matter what he did what happens he's going to spin a victorious uh cry from the top of the roof of the white house there's no question about that but the reality is he just wants out and the reason he wants out he doesn't want to be herbert hoover he doesn't want an economic catastrophe he's smart enough to know if things continue we are going to have an economic content catastrophe he knows that and that's why he's doing everything possible to keep this thing on the rails and and get out of the thing as fast as he possibly can and see that straight of hormones open and and by the way that's why if it does open he'll probably put blinders on and look the other way when he realizes that iran controls it and they're [00:29:30] Speaker 2: they're charging a toll for ships to go through what is the way out how do we avoid this economic catastrophe [00:29:40] Speaker 1: well that actually the the agreement would the surrender agreement would would be implemented along the roughly the lines that it is with with the iranians being the victors and holding most of the cards and and ultimately controlling the strait opening the strait and charging a toll for the going through even even shippers in asia and greece ship owners said we don't have any problem with paying a toll as long as the strait's safe and it's open and so forth and this would be by the way this is another propaganda thing secretary rubio and and trump all the administration and as well as all the hawks they keep saying the right of free navigation is every place in the world it's illegal to charge tolls nobody charges tolls that's not true there is a treaty the the montreu treaty of 1936 that does allow and specify that turkey can charge tolls they call them management fees for going through the bosphorus and the dardanelles so so what they say in the propaganda it's not true there there is one international waterway in which tolls management fees are charged and i just gave it to you yes i'd like to talk to [00:31:11] Speaker 2: you about this interesting article about income inequality let's go back to the economy and what ultimately affects people people feel that they're not getting richer this article says this number helps explain why many americans are down on the economy american workers share of the economic pie has fallen to its lowest level since at least 1947 when the federal government began tracking the data according to an analyst by the federal reserve economist the measure known as labor share of income tracks how much of the nation's economic output flows to workers in the form of wages and salaries as opposed to the share that goes to investors and corporations through profits dividends and other capital income a shrinking labor share of income indicates that more economic gains are flowing to shareholders and business owners okay your response to what i just read well uh that's the number one that's that's [00:32:05] Speaker 1: true what you just read uh you know for the the if my my calculation i i i like to look at it in the following way because it's it's fairly easy to understand it's pretty spectacular actually and that is the billionaires wealth in the united states is a percent of gdp what what was that in december of 2019 right before covid it was 13.7 13.7 13.7 then the the fed goose the money supply and once they goose the money supply what happens asset prices go up with a lag which they did stock prices went up land prices went up real estate went up all all asset prices zoomed up after the fed goose the money supply and they're still going up and and we have now billionaires wealth as a percent of gdp it it's 26.3 percent it jumped from you know in in six years and not even six full years five and a half years it's jumped from 13.7 percent to 26.3 percent now that that's because of the fed goosing the money supply it always comes back to the money supply okay the money supply dictates all all of these things going on if you what you read were the symptoms but the cause was the fact that the money supply but if you put a chart of the money supply up there you'll see that m2 has just been zooming up [00:33:54] Speaker 2: let me overlay that yeah you're right um before i do that let me just comment on this chart this shares this shows the um share of total income uh sorry total share of total economic output that goes to workers so labor share of income as you can see in this graph it's been going down what happens if we let's say businesses tomorrow they're feeling good everyone starts raising with their wages and this share this chart goes the opposite way go goes back up in that scenario um let me just address the inflation front first will we would wage inflation necessarily mean goods inflation no no okay the [00:34:34] Speaker 1: data doesn't support that no that this there's a theory of inflation called cost push the cost push theory yes and the cost push says if if costs go up they they drive the overall price level to go up but but but in fact the the cost or what's happening with cost that that's a symptom only of what's happening to the money supply and and and the reason by the way that chart shows what what it does it's exactly what i told you about the billionaire's wealth as a percent of gdp you've had tremendous increase in asset prices as as a result of the money supply going up the the biggest distortion in the picture which by the way matt sukkerki and i go through this in our book making money work the the the distortion is the money supply is not neutral the monetary policy one one thing that the those who design monetary policy should be cognizant of and they should be trying to shoot at neutrality that the the changes in the money supply don't affect one group or another in some disproportionate way which has been happening since covet yes the the the the rich have made out the the rich and very rich have made out like bandits i mean the median the median in income level in the united states is about eighty three thousand dollars so the those above eighty three thousand have done pretty well by the way and by the way you see this by going on right now by the way if you look at retailers in the united states even lower end retailers like walmart are tilting into into more affluent kinds of products people with income over a hundred thousand dollars a year walmart is tilting into those sax fifth avenue sax fifth avenue now is going back to their old model of the luxury top end top end everyone's tilting in why because the top ten percent of wage earners in the united states account for fifty percent of the value of all consumption in the united states the the little guy isn't consuming much that's why the little guy is complaining about affordability and and there are lots of little guys and and that of course is one of the achilles heels that trump's got he has many achilles heels but one is affordability but let me just talk about billionaires [00:37:36] Speaker 2: uh ever since the spacex ipo and trump it's not trump uh elon musk became the world's first trillionaire at least on paper uh the internet exploded with two sides of the debate one people supporting him supporting free enterprise look at what the american dream can do for you if you work hard and on the other on the other point on the other hand the other side of the spectrum billionaires should not exist is the argument um a lot of people online have been making this argument for quite some time that by the way you nobody needs a billion dollars right that that money should be better off just distributed away and given away to people who actually need the money so let me just ask you the question should billionaires exist and if not do we how do we abolish billionaires this is a talking point from the left aoc has been saying this elizabeth warren has been saying this abolish billionaires well i [00:38:34] Speaker 1: i'm not i'm not on that side of the fence i i'm i'm for the spirit of the founders of the united states who now at july 4th will have our 250th year anniversary that's right and that the the declaration of independence of course was the the document that uh uh that is in 1776 uh that's why we got 250 years so uh that that that spirit is enshrined in the constitution which of course came a few years later and what what is the spirit the the main spirit is the spirit of liberty and freedom so how how can you how can you say you're going to abolish a class of wealth if if in fact liberty and freedom are the are the basis for the whole u.s constitution they're everything in the constitution is based on that idea so of course i'm i'm i'm i'm for i'm for liberty and freedom and and and that means i'm for the [00:39:51] Speaker 2: u.s constitution okay there's several videos can't okay this is let me just play for you um a minute of this logic here maybe you can just understand uh here we go when you have these systems [00:40:10] Speaker 4: when you have corporations when you have an economic elite they have not there's a certain level of wealth and accumulation that is unearned right you can't earn a billion dollars that's right you just can't earn that that's exactly correct you can you can get market power you can break rules you can do all sorts of things you can abuse labor laws you can pay people less than what they're worth yep but you can't earn that right and so you have to create a myth that since you didn't earn that you have to create a myth [00:40:53] Speaker 2: of earning it i've seen this before her argument is that um there comes a point where you're only this rich you only become a billionaire if you extort people and exploit your workers um and basically do bad things so to get ahead by a margin of thousands of times the ordinary workers income comes at the price of of other people's livelihoods i think it's a central argument here and again we'll play the clip [00:41:30] Speaker 1: um but your response i i i i would simply ask you you have a clip of you know one one of the great philosophers in washington dc aoc so i i take that with a grain of salt uh babbling on about things she doesn't know anything about and and i would simply ask well all of those assertions those are assertions or conjectures where where's the evidence where's the evidence you you said doing all kinds of bad things well haven't haven't they haven't they had federal prosecutors after him for doing bad things haven't they had trials etc etc etc so it's this this is it gets down to what you know where's the beef basically where's the evidence for all these things that you're claiming this this is a connecting rhetoric and reality what what is the reality why why why why why did jeff bezos become a billionaire he he was nothing [00:42:42] Speaker 2: he he he was nothing except i'll tell you i'll tell you how uh according to um the camp that believes what i just showed you jeff bezos became a billionaire off of the back of millions of underpaid workers [00:43:02] Speaker 1: whom he exploited well why do they work for him if they're underpaid and exploited they there there's no he he he they're they're not slaves he he doesn't own them they they can voluntarily leave if they want to he why why do you see all these amazon trucks that they're that are actually uh patented by amazon they kind of odd looking things uh running running all over the place why why every every week why why do mrs hankey and i receive things we have voluntarily purchased from amazon everybody likes amazon what what what about all the people bought what about all the consumers that's that are they getting screwed yeah no they say they they make a choice they go to amazon it's convenient they get they get what they think is a fair price and they buy something at least that's what mrs hankey and i do when we're buying stuff from amazon so how do you explain and and by and by the way yeah you you you get delivery we you you get delivery we do in less than 24 hours and and you don't have to get in your car you don't have to buy buy get that expensive gasoline to go to go to a shopping mall and screw around for hours trying to find a new stack you can it's very convenient so i i understand all that but just to play devil's [00:44:38] Speaker 2: advocate here professor because we don't have a aoc advocate to debate you what happens if we pay amazon workers hypothetically double their current wage wouldn't their livelihoods just be a lot better in other words let's move this chart back up increase the labor share of income here let's start with amazon [00:44:56] Speaker 1: and walmart and walmart and all those big big corporations okay one okay this you're you're throwing in a hypothetical i'll throw in a fact and and one one reason for the capital share increasing as it has and and workers share being shrunk is the operation of the federal reserve this money as monetary policy is behind this and and and by the way you can find out if you if you look at macroeconomics properly you you you you can look at two books that i've co-authored recently one is the jaeger hanky book capital interest in waiting that's capital theory and if you combine that with the book i co-authored sukerky and hanky making money work that's monetary economics you've got the macroeconomic picture and what what really calls the tune behind all of this is what's happening with monetary policy and and and and and and the quantity of money that's circulating in the economy so [00:46:09] Speaker 2: basically to solve income inequality we have to do what with monetary policy professor well you you you [00:46:18] Speaker 1: you can't have this zig zig zig and zag moves by the fed the fed has to embrace the quantity theory of money they have to keep the money supply growing at more or less a constant rate of around five or six percent per year measured by m2 and and and that that's a rate consistent with the two percent inflation target and that's consistent with a pretty steady growth and nominal gdp what and and and and and a policy not only of the growth rate in the money supply but a policy of neutrality try trying to design policies that allow for that stable rate of growth the money supply to be designed in such a way that they're they're neutral they don't favor some one group or another group and now now now the way it's designed now number one it's not stable and number two it's not neutral it's favoring different groups so so so we have so we have two we we have three things going on one the fed does not accept the quantity theory of money the fed does not admit that change substantial changes in the money supply cost substantial changes in asset prices and substantial changes in economic activity and substantial changes in inflation they don't they don't look at it that way they don't look at the money supply so that's what that's that's a big problem and as a result of that big problem what happens the money supply goes up and down up and down up and down and and that means that you don't have the stability factor number two that also means that the money supply that is supplied is is [00:48:22] Speaker 2: is not neutral okay so let me just ask you one final question before we close off uh the ordinary citizen the constituent of you know of the of america doesn't vote directly for the federal reserve and the monetary policy but we do vote for who gets to be in congress and ultimately who gets to be our president what i'm trying to say is wouldn't it be a lot easier to just vote for the people who want to raise the minimum wage wouldn't it be more direct to just again this is a hypothetical economic situation here let's raise let's double the minimum wage and the share of labor income goes up and [00:49:00] Speaker 1: everyone's happy right we're wrong wrong okay why you're wrong it's not going to work that way point number one because the the minimum wage by by imposing the minimum wage if it happens to be over what a what a normal market equilibrium wage would be for the type of employment that's involved you end up squeezing in particular low skilled workers out of the market because the minimum wage does exceed and in many cases it does exceed the the market what would be a market-based equilibrium wage for low skilled workers and if that's the case you you just pop low you get rid of low skilled workers they become unemployed then they go on welfare that's what you're going to end up with i i could put a lot of people i could put millions of people by the way on on welfare and and and knock off their jobs completely if i jacked up the minimum wage to let's say 50 an hour yeah that that would put that would put a hell of a lot of people out of work and put them on the welfare [00:50:20] Speaker 2: by the way i'd love to get your reaction uh next time the uk i don't know if we talked about this the the uk in the last quarter reported that they spent more money on social welfare than they did raising revenues through taxes in other words social welfare exceeded tax receipts for the first time [00:50:36] Speaker 1: in the uk's history um so the the uk is in trouble big time there's no question about it great let's end it [00:50:44] Speaker 2: here professor thank you so much uh let's uh follow your work uh tell us where we can follow you well [00:50:50] Speaker 1: you can follow me on x at steve underscore hanky or write me a note hanky at jhu.edu and indicate you'd like to be on my free weekly distribution list or if they wanted to get into the in-depth thing i've given two books that i've recently written the jaeger hanky book uh on capital on capital markets uh and the waiting book you can put that up and the other one is a security hank hanky book making money work [00:51:28] Speaker 2: okay excellent we'll put the links down below so that's it okay thank you professor please do email professor hanky or myself if you'd like to ask any questions for our next interview thank you very much professor we'll put the uh links below so people can follow you there and we'll speak next [00:51:44] Speaker 1: time take care for now okay thank you david great to see you thank you and thanks for watching don't [00:51:49] Speaker 2: forget to like and subscribe and don't forget to use my code lin when you sign up to use koushi new users who use my code lin can get ten dollars when you trade ten dollars link in the description or scan the qr code here [00:52:05] Speaker ?: you