SPP: Dr. Woods before we get into your new book I first want to ask you to give our listeners a little insight into your background. What it is that you do and how you got to where you are?
Dr. Woods: Ah okay. Well I could mention that I have degrees from Harvard and Columbia but that I think would make people question me more than respect me.
SPP: Smart people.
Dr. Woods: Yeah we got to leave that out. My background is in history. “Rollback” is my 11th book. I’ve had a couple of New York Times Bestsellers in that list. One of them was called “Meltdown” about the financial crisis in which I gave a non Paul Krugman overview of what actually happened there. It’s not a matter of oh my goodness we had deregulation and then the earth broke free of its axis and went spinning towards the sun. I gave a different overview, free market point of view, and then the politically incorrect guide to American history is sort of what put me on the map in 2004.
I wish I could take credit for such a brilliant title from a marketing standpoint. The politically incorrect guide to American History that title alone made people say “I got to see what’s in this thing. I never would have thought of that in a million years.” So basically now I’ve been a college professor for a number years, and basically I write and I smack down the bad guys and I go after sacred cows and this is somehow my living. All my stuff is linked at www.TomWoods.com.
SPP: Great. Well correct me if I’m wrong but the majority of your studies are in History, is that correct? Dr. Woods: Yes that’s right.
SPP: Okay. Then you tied in politics later on.
Dr. Woods: Well I mean like anybody I’m interested in current events, but my scholarly expertise is in US History.
SPP: Given your extensive studies in history and politics, do you find that we tend to make the same mistakes over and over again? I mean they say that the reason we study history is to try to learn from our mistakes, but sometimes I don’t think we do that as a society.
Dr. Woods: Yeah well I think the major mistake is that it’s the expectation that we’re going to learn from the mistakes. But I think what really happens is that that mistakes are portrayed really as wisdom, because what normally happens is I mean most people are educated in an environment in which you walk into the classroom when you’re in the sixth grade, you look up on the wall, and all these US presidents are looking down at you from up there. You’ve all these great men like Chester A. Arthur and Benjamin Harrison looking down upon you. You’re basically given a version of American life in which really all the things the government has done in the past, basically they’re almost all brilliant. I mean there’re hardly any mistakes at all. This is all pure brilliance and it’s been carried out by wonderful selfless public servants who are merely innocently pursuing the public good. If it weren’t for them we’d all be dead in a ditch somewhere. We wouldn’t have any art or science. All our lens would be blown off by exploding consumer products. We’d all be working for a $1 dollar a day in a mine somewhere.
So basically people sort of conclude that gosh I’d better give this institution the benefit of the doubt, because good Heavens where would I be without President this, this and so. We’d all be a bunch of helpless and pathetic boobs. So what I find in other words is that we get a version of history that makes it impossible for us to perceive mistakes. Because we’re basically told that in the old days everybody was poor and worked in terrible conditions. Today people are richer and working in better conditions, therefore the government is responsible of this. If it weren’t for these we would all still be dead, dying in a ditch and all that.
I’m arguing in “Rollback” that this is, as superficially plausible as all that sounds this is a completely erroneous way of thinking about the relationship between governments the standard of living, freedom and so on and on. I’m basically arguing that practically everything the federal government has been doing has been a gross mistake. It’s not something to be celebrated as the sixth grade textbook would have it.
SPP: I know you coauthored a book titled “Who Killed the Constitution” where you call for a literal interpretation of Americas’ founding documents. You talk about how the United States government today is restrained, not by the Constitution, but simply by a sense of what it can get away with. What I’m wondering is don’t you think it’s necessary to allow some interpretation and modification of these documents as we evolve and grow and change?
Dr. Woods: Yeah I have no objection to that. The objection I have is what form do the changes take? I mean do we just have unelected judges wake up one day and say “Well today is April such and such 2011. We’ve suddenly decided the following clauses of the Constitution no longer really apply or the words that they employ have to be interpreted in exactly the opposite sense from that people believe they meant when they ratified the documents. That’s just dangerous. I mean then you might as well have no Constitution.
So my point is if you do want to change the Constitution, and obviously there are aspects of it that needed to be changed and it was good that it were changed, we have a process for doing that. The Constitution includes an amendment process. That was Thomas Jefferson by the way, if you want to change the Constitution go ahead and do it genius, go ahead. Knock yourself out. The way you do it is not by just simply saying “Well gosh it would be too clumsy to go to all the trouble amending the Constitution, let’s just go ahead and do whatever it is anyway.
Even Alexander Hamilton who favored a broad interpretation of the Constitution, he said in the Federalist or some simplest papers that, I mean almost speaking today; almost like he was speaking to law professors today. He was saying it’s not enough to say “Well you know times have changed or people’s opinions have changed, so let’s just act as if the Constitution is inoperative in this or that area.” He said “No, no until the people have gone through the solemn formality of amending the Constitution nothing short of that is sufficient to change the way the Constitution is interpreted.” You wouldn’t say “Oh gosh don’t the rules of poker need to change with the times.” Maybe they do, maybe they do need to change with the times, but they don’t change in the middle of a game.
Like in the middle of me playing poker with you what would you say if I suddenly said “Look my two pair beats your full house, you’re living in the past man these are the new rules.” Clearly there’s got to be some way to change the rules other than the middle of the game. There’s got to be some process. That’s what the amending process is.
SPP: Okay so as I mentioned earlier in the episode, you have a brand new book that just came out a little over a month ago titled “Rollback: Repealing Big Government Before the Coming Fiscal Collapse”. Before I get into some specific questions about this book, could you give our listeners a general overview of what it’s about?
Dr. Woods: Okay sure. I mean I think this is stuff that Americans have got to understand because of the unfortunately pretty grave situation that’s about to confront us. I say this not as somebody who is a natural pessimist, it’s not like I take delight in this situation, I’m none of those things, but facts are facts and we’ve got to face them. Rollback is basically doing two things 10% of the book is saying this. We are on a path that’s going to lead us down the road to complete bankruptcy.
So that is to say yeah the federal government will still send out checks to people but the checks aren’t going to buy anything. Because it’s not just the deficits are really high a lot of people feel like well deficits have been high for a long time, big deal. I haven’t seen any really negative consequences from it so maybe this is all a lot of scare talk. No because even if interest rates stay super low, which they almost surely won’t, by 2020 we’ll still be paying almost a $1 trillion dollars a year just in interest payments on the national debt, just in interest a $1 trillion dollars a year in the best case scenario.
Then we have the problem of the entitlement programs which are underfunded by more than $100 trillion dollars, which is larger than the GDP of the whole world. I mean at some point you have to say changes need to be made, and no you can’t simply say, “Well we’ll just raise taxes and get ourselves out of this.” Because even if that weren’t immoral, even if just seizing people’s stuff were not immoral, from a practical point of view the problem is that every since 1950 it just happens to be the case that no matter what the tax rate is, rates have gone up, rates have gone down. But the federal government has never really been able to grab more than about 20% of GDP from the population. We got people just modify their behavior and avoid the taxes one way or another.
So the point is that there is no way to tax your way out of that and there’s certainly no way to borrow and print your way out of it. So we’ve got wrenching changes facing us and meanwhile a $61 billion dollar cut, which is like 10 cents off the trip to the moon, is sending people into hysteria.
SPP: Right.
Dr. Woods: So basically the book is saying this is the situation we’re in and then 90% of the book is saying now giving that we’re going to have to cutback I want to go through all the major claims that government has been making for itself and show that, 1) these are false, and 2) not only will not die instantly in the absence of all of these government programs we would flourish.
SPP: One topic I did want to discuss seeing how you brought it up was taxes. Given that today we have perhaps the largest disparity between the rich and the poor of all time, while at the same time the rich are being taxed at one of the lowest tax rates of all time, shouldn’t we be taxing the rich at a slightly higher tax bracket perhaps a rate that’s more in line with historical standards?
Dr. Woods: Well I just feel like I don’t see how that’s morally justifiable. I’d like to just eliminate as much tax burden from the poor as I possibly could.
SPP: Okay.
Dr. Woods: Unless people are acquiring their wealth in ways that are morally or legally objectionable, in that case I’m all for going after them. There are plenty of people who get rich through the military industrial complex, or whatever who have a very morally dubious sources of income, or their income is partly thanks to so some government privilege that they get, or whatever it is well then that’s certainly a different matter. But somebody who honestly earns his income, well okay so he’s improved. He’s done something that we obviously liked or we wouldn’t have given him our money in the first place.
So no I don’t think that’s a morally acceptable view. The fact that there’s a disparity between rich and poor I think it’s largely due to the fact that thanks to globalization we have a huge, huge, huge marketplace now. So if I’m the CEO of some corporation and now I’m catering to two billion people and I’m one of the people who help feed two billion people. Well that means that the value of my work is much greater than it was when I was dealing with feeding 20 million people. Whereas a guy who’s a janitor in an office building the value of his work has not changed as a result of it, he’s still just sweeping a floor. But a guy who now caters to a whole world market is suddenly now dealing with the value product of his labor having increased very significantly.
So that is one reason anyway for the disparity. But the fact is we have a poor population in the western world that lives at a material standard that would have been beyond the wildest dreams of the greatest monarchs of European history. Could you imagine an 18th Century King who didn’t even have flush toilets. I mean they didn’t even have flush toilets. The Hashbergs did not have flush toilets in the 18th Century the greatest monarchs in the whole world.
Meanwhile we’ve got people who have cell phones where they can have Skype conversations walking down the street. I mean the Jetsons didn’t even have that, the Jetsons. Here this is like supposed to be unthinkable science fiction miracles and Mr. Jetson had to sit in a chair and stare at a screen to be seen. We don’t even need that. Multiply that by a million the amenities that people enjoy and absolutely take for granted nobody, not even the wealthiest people in the world enjoyed a standard of living like that.
So when you’re talking about disparities you mean, okay a rich guy drives a Ferrari and a poor guy drives a beat up Ford. But two centuries ago what was the disparity? A rich guy gets to ride in a carriage and a poor guy with no shoes has to walk. I would say that is a much, much bigger disparity, wouldn’t you. One guy has a fancy car, one guy has a beat up car, both of them have cars, that’s an amazing diminishment of the disparity between rich and poor in my book.
SPP: Well in that sense I might agree but what about essentials such as food. Many of today’s poor can’t even afford food to feed their families, which is a problem we shouldn’t even have to worry about today.
Dr. Woods: Food prices are definitely going up but there are a lot of possible reasons for that. It would not surprise me at all; I mean that was one of the reasons that Ron Paul’s monetary policy subcommittee just had a hearing on the relationship between the policies of the Federal Reserve System pouring all this money into our economy, and the growth in food prices. This has not helped the common person.
Before we had this supposedly indispensible institution in the 19th Century prices consistently fell in peace time, they consistently fell so that your dollar that you saved would buy you more and more over time. People kind of liked that the same way computers, your dollar in the computer market buys more and more over time even today. Whereas, now people even think that it’s just like part of the natural order of things that things get more expensive over time. They just think that’s the way the world works. It wasn’t that way from the beginning of the US all the way up to about 1914, prices fell consistently. You could buy more with your dollar in a hundred years than you could now, whereas today only an idiot would save for his retirement by piling up dollar bills, because we all know they’re not going to be worth anything by the time he retires.
That was not the case in the 19th Century you didn’t live with that kind of uncertainty that the poor have to live with today. So I think it’s another example of the elites getting fat on the backs of the poor. It’s not the honest industrious rich person that the poor has adjust grievance with it’s the supposedly selfless public servants who are sucking up the resources of society and blowing them on pointless bureaucracies and six figure salaries for people whose jobs we wouldn’t even notice if they were taken away that they have their just grievance with.
SPP: With the subtitle of the book being “Repealing Big Government Before the Coming Fiscal Collapse”, people are going to get the sense that you’re recommending sort of as you mentioned earlier a deregulation getting the government’s hands out of so many arenas. I think the worry when it comes to that is as a result we end up having events such as the recent financial collapse. When we deregulated the banks and allowed them to take on more risks than they had been allowed to since the Great Depression they collapsed, largely in part because of this risk. Where do you recommend we do put the power or how do we solve these problems if we don’t have this regulating entity, albeit the government might not be the perfect solution?
Dr. Woods: Well this unfortunately is hard to give a quick answer I’ve got probably seven or eight pages in “Rollback” about deregulation, what it really was, what its connection, if any, to the financial crisis. In fact I do talk about this n a speech on YouTube you just type in “Rollback” and Woods.
SPP: Okay.
Dr. Woods: You can get a little bit of it. By and large my view of this is that I don’t see no one has been able to tell me which repealed regulation would have prevented the financial crisis. I don’t see that there was one. One thing that we had before that they got rid of and then we had the financial crisis. So normally what they’ll say is “Okay that’s true. There wasn’t any regulation we got rid of, and then all hell broke loose.” So usually then the response is “Well we weren’t proactive enough. We didn’t think of the regulations in time. We should have done that.”
Basically my answer to that is the whole system is screwed up. The whole system is a non free market system. The banking system is a cartel arrangement with the Federal Reserve at the center. That is not a free market arrangement. That encourages these institutions to take greater risk because they know there’s a gigantic bailout agency standing by to help them. But more than that when we consider who the regulators are, I mean we had a 115 regulatory bodies for the financial system, their budgets have increased by three times over the past few decades correcting for inflation. That’s exactly the opposite of I’m sure what most people assume.
Would we have been better off if we had 116 agencies? I mean if the regulators thing nothing’s wrong, and indeed they didn’t. I mean Ben Bernanke and Allen Greenspan they have regulatory powers at the head of the Fed. They were telling us lending standards are perfectly robust, you should take out adjustable rate mortgages. The fundamentals of the housing market are sound. So okay I’m to believe that if I hired a 1000 more people who were going to spew pabulum like this we’d be better off. No the problems of the system are many but it was not that there were existing regulations that were repealed and then we had the crisis.
We had a Federal Reserve that got the economy drunk on cheap money and this money found its way into the mortgage market, and then everybody got five investment properties, interest only mortgages and no job. I mean there’s something wrong with that economy. That is not an outcome that a genuine free market would have created. So I say let people stand or fall on their own merits. Let there not be an implicit standby bailout policy that encourages moral hazard. This would do more to clean up the market than all the regulations that can be gained by the major players anyway put together.
SPP: All right. Well I now you have to get going. I really appreciate your time. It was great talking to you. Again your book “Rollback: Repealing Big Government Before the Coming Fiscal Collapse” is available now. We will provide a link on our Web site so people can purchase that at www.smartpeoplepodcast.com.
Dr. Woods: Thanks a lot. I appreciate it. People can even read a free chapter, which even if you’re inclined to disagree with, in fact maybe more so if you are inclined to disagree with me, read this free chapter. You can find it at www.tomwoods.com and see what you think.
SPP: All right great. Thank you very much Dr. Woods.