Transcript
The Fed, Big Tech, and regulators say it’s all for your good…but is it? Ben Nadelstein sits down with Brian Albrecht to break down how power, policy, and prices really work.
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Additional Resources
How to Earn Passive Income in Gold and Silver
Transcript
Ben Nadelstein
Welcome back to the Gold Exchange podcast. My name is Benjamin Nadelstein. I am joined, as always with founder and CEO of Monetary Metals, Keith Weiner and our special guest for the day, Brian Albrecht. Brian is the chief economist at the International Center for Law and Economics. Brian, how are you doing today?
Brian Albrecht
I’m living the dream right now.
Ben Nadelstein
Brian, I want really quickly for you to tell our audience if they don’t follow your Substack or your Twitter, who you are, what you do and some of your expertise.
Brian Albrecht
Yeah. So I’m the chief economist at the International Center for Law and Economics. We work on law and economics related policies. I tend to work on competition policy, things like antitrust, mergers, things related to that. I, I’m an economist by training. I did a PhD in economics. I was a professor for a while now. I’ve kind of moved more into the online education space through the Substack, as you said, and then through I, policy, area still doing academic work, particularly around, economic theory, but a little things, a little bit around, market power, dynamism in the economy, things like that.
Brian Albrecht
But, but really kind of again, from an I’m, I’m the one bringing the, the econ heavy in the International Center for Law and Economics. That’s my role.
Ben Nadelstein
And Brian, I know we’re going to get into mergers, acquisitions, monopolies, antitrust, all that stuff. But I want to start with your Substack, because you guys kind of go to a basic, fundamental question and that is race theory. So I know a lot of people know what prices are. Okay. So stuff I pay for at the grocery store.
Ben Nadelstein
But what’s price theory.
Brian Albrecht
Yeah. So it’s, we’re we’re trying to carve out a niche for the way that we think about, basically microeconomics, a little bit of macroeconomics and trying to, you know, distill things down to very, very simple things. And we think that that’s the essence of price theory. So price theory, famously famous and nerdy circles that I’m in famously is the name of what, Chicago under Milton Friedman called their kind of first, microeconomics course all about prices, where the prices come from, our basic model of supply and demand.
Brian Albrecht
So if I say price theory, I’m thinking through things like supply and demand, other things that prices do that we kind of trace out, the things that we focus on, that makes us a little bit different than kind of pure, you know, like an intro to principles economics, textbook, let’s say, from a Greg Mankiw or something like that is we really are interested in trying to trace out our price is kind of filter through the economy.
Brian Albrecht
This is a very high action point that we can’t just look at this market in isolation. If this price goes up, that’s going to affect another market. And so really trying to trace that through through prices and we’ll talk about things related to, you know, overall prices, things like inflation. Inflation is just a you know, an aggregation of a bunch of different prices.
Brian Albrecht
And we need to think of that as, you know, what is happening at the kind of market by market level, the demand for money level, again, thinking through what’s happening to prices.
Ben Nadelstein
And Brian, you mentioned the Chicago school. So I know for dancers different types of schools. And is it true that economics has different schools as well? What made Chicago different? And I know you mentioned Milton Friedman, who is Thomas Sowell. I know he’s big in the Chicago school. Should we be reading more? Thomas over.
Brian Albrecht
So Chicago school. So in the mid 20th century, there was kind of a divergence of different schools of thought within within economics. There there were different schools of thought before that, for sure. But along a few lines, there’s kind of a brought together in the 30s around Keynes, 40s around Samuelson. And then there’s there’s a splitting up.
Brian Albrecht
One of them became known as the Chicago School. That term has a few meanings. Part of it that we push heavily is, is a really a focus on kind of microeconomics versus, at the time, kind of the Keynesian macroeconomics, a real focus on prices, things like that. It also kind of more in the popular narrative also has a different policy implication.
Brian Albrecht
Chicago Milton Friedman, George Stigler name like that, Nobel Prize winners, they were relatively free market, compared to the rest of the economics profession. So they’re kind of weird in, in the way that they approach the science, but also in kind of the policy implications from it. And so they got labeled as a Chicago school based out of Chicago.
Brian Albrecht
Now, there could be there are also people, based out of UCLA, which kind of we draw a little bit more on people like Almon Elkin, Harold Demme sets with both in Chicago and and in UCLA. They, they focus more on property rights, but then their analysis of property rights tended to lead them towards, again, kind of free market, policy implication.
Brian Albrecht
And so that’s kind of the overarching school. There’s lots of that’s been written by Friedman is the big name, but you could dig into a lot of different people from there. Now, one of the students that came out of the Chicago school, was actually it was actually George Stigler students was Thomas Sowell. So Thomas Sowell was a huge name within within in, kind of policy circles, within kind of intro to economics circles.
Brian Albrecht
Maybe people were kind of more free market as this popularizer of things like basic economics, which is somewhere got it right there. Which is a kind of an intro to economics book. It’s not a textbook, but it’s it’s very much an intro to economics book. And soul is a is a free market type. And so he’s kind of been associated with Chicago school that way.
Brian Albrecht
He’s not he’s a he’s a weird thing. He, he holds a weird position within economics. He’s a huge name. If you last time I looked on Amazon, you look at the top 100 econ books. Thomas Sowell has like eight of them, like a crazy number. But within academic circles, he’s not really, taken that seriously. Mostly because he transitioned out of pure academic work, into kind of more policy.
Brian Albrecht
He went to Hoover relatively early in his life to do policy work. He got out of academia pretty early. So he’s not taken so seriously. I have a piece in which on our Substack, which says that academic economists are people who are interested in the the real academic part of economics should take, so more seriously.
Brian Albrecht
It’s built on a paper that I’ve written with our cartoon that’s coming out and, the independent review, at some point, maybe this fall, I forget when it’s coming out, but it’s available online, arguing that Saul has real insights, academic insights, like, you know, technical into how we think about and theorize about economies, particularly around his book Knowledge and Decisions.
Brian Albrecht
That one, it was right next to it. It’s a gold one there. You gotta get you know, this is usually hidden. And now I actually get to talk about it. So there it’s called, but one of the things that knowledge and decisions is, is really like a let’s let’s take Hayek and was turn him up to 11 likes.
Brian Albrecht
Let’s take this idea that there’s dispersed knowledge that we we all know different things that that we should really think about the impacts of knowledge, like how is policy going to change that knowledge in decisions, takes that and just carries it to a bunch of different policy areas. Some of them he comes to policy conclusions that I, I completely disagree with, other ones I think are really good.
Brian Albrecht
But I think his framework was saying, okay, you know, we’re going to change this policy or we’re going to maybe consciously or not, consciously change this policy. Maybe it’s just an evolution, but what is it going to do to information, for example, you know, how and he points out in the like, the late to the middle to late part of the 20th century, more and more decisions were being taken away from local decision makers, kind of on the ground to, national level things like bureaucrats making more decisions, the Supreme Court making more decisions.
Brian Albrecht
Okay. And there’s costs and benefits. You know, we can argue about particulars, but one thing is it systematically changes the type of knowledge that the decision makers have. And this is a I can’t point, but I think soul really pushes it forward that for for all their wisdom, the Supreme Court just doesn’t know the types of things that people on the street know or or that local elected officials know.
Brian Albrecht
Some of that’s good, some of that’s bad, but it’s just different. And so we need, when we’re thinking about trade offs, when we’re thinking about, you know, how do we explain the transition in policy? We need to take that information side really, really seriously.
Ben Nadelstein
And, Keith, when I think about, knowledge and decisions and Thomas Sowell, I definitely think first about the interest rate, which a lot of people would say, well, we have a kind of centrally planned interest rate. We’ve kind of got a committee and a bunch of, you know, members of the FOMC and they decide, hey, you know, we checked our policy levers.
Ben Nadelstein
And with inflation and with unemployment, we decided that the interest rate is X versus one might say before let’s say 1971. And of course prior as well. Decisions were more based on marginal savers, marginal borrowers. And of course that decision tree and how those decisions were made were largely affected.
Keith Weiner
Yeah. I mean, you made my point for me. Thank you. So yeah, I think I mean, I certainly agree that, decentralized decision making is going to bring a lot more knowledge to bear and a lot more variety of knowledge. It’s not that any one participant is wrong, but each one is looking at their own context and obviously for their own self-interest.
Keith Weiner
The real problem begins. It’s one thing if a corporation is making decisions nationally, at least they’re not picking up a gun and forcing it. But when the federal government’s doing it now, it’s at gunpoint and they’re substituting force for reason. It’s a barrel of a gun for individual indecision making. And then you always end up with, worse out if they promise better outcomes.
Keith Weiner
That’s why they’re doing it. I just tweeted about, I don’t know if you saw my tweet, Brian, about, in the dry western states, they’re now saying, let’s not have water depleting the water tables. Therefore we’re going to pay farmers not to grow food, and we’re going to take money from the, so-called, Inflation Reduction Act to pay farmers not to grow food.
Keith Weiner
So what we’ve done is we’ve socialized all the water, and which means we’ve substituted a politicized process for any kind of individual knowledge based process for how decisions are made. We subsidize the cost of the water. It’s artificially cheap, which means you get too much consumption. And now, if a bunch of interest groups warring over who gets access to the water.
Keith Weiner
But suddenly, like everything else on the common greens, all the water suddenly, you know, over utilized and scarce and so, the net outcome of all this is going to be that, we’re paying farmers not to grow food. So now we’re adding more to the budget deficit, and, we’re going to, drive food prices up because, we’re going to take some food supply offline.
Keith Weiner
And so if we’re intending to do all of this in the name of helping the poor by giving them artificial access to cheaper water, we’ve ended up hiking their food cost, which people will call inflation and expect the fed to fix. Protecting the interest rate, which is the hurdle rate that any farmer outside of the arid West who would think, oh, I’m going to have production to make up for the production that’s going offline.
Keith Weiner
And the arrogance of these farmers are now being paid not to grow food. Oh, they’ve just hiked my costs. Therefore I can’t do it. I don’t have a business case. And so, you know.
Brian Albrecht
Yeah. So, so, so would you know the what I take from knowledge and decisions of how to, like, think through the different trade offs. And, you know, what’s happening is, you know, one thing that Saul really pushes and I think it’s really important is that at the local level, at the individual level, you can really do a good job of making incremental changes, produce a little bit more of that, buy a little bit less of this marginal in the econ jargon.
Brian Albrecht
Right. And you can kind of adapt to things, especially if prices are, you know, are allowed to fluctuate. You can adapt, to, you know, shortages exist all over the place, like, you know, supply and demand shift around, hurricanes come, things happen there. Shortages is bad stuff, but each individual can then respond, okay, I’m going to reduce my water by certain amount based on the prices.
Brian Albrecht
You’re going to reduce your water by a different amount. And that, that, in this in which individuals can respond means that we kind of smooth out things versus the way that feedback works in political systems in general, speaking very broad generalities is, you know, a problem boils up to a point that then you need like an overcorrection or some big step to deal with that and which another policy is brought in to place.
Brian Albrecht
Right. Because it takes so much effort for policymakers to to do anything good or bad, but it takes them so much. It’s, you know, when bad things are happening, they need to get sufficiently bad, and then you do something and maybe it’s just to make up for previous mistakes or whatnot, but it doesn’t have this kind of quick back.
Brian Albrecht
And forth that we just on, on normal functioning markets where prices fluctuate around, you know, this happens all the time. I buy less this week or more that way based on, you know what the prices are at the grocery store. What happened to the crop yield? You know, I have no clue why those prices change, but I just make decisions and things.
Brian Albrecht
They don’t work perfectly, but they it’s a miracle the ways that they do work.
Keith Weiner
I want to say that the way you describe down or abstracted slightly, that’s how a truck driver reacts to, what’s going on, whether he is he’s veering off because he’s not, you know, fully competent. It takes him too long to realize that he’s veering. And then what does he do when he finally responds? The overreact? Yeah.
Keith Weiner
Oscillation with a growing resonance until he’s finally upside down in the ditch. Yeah. The classic one car collision. You know, there’s no snow. Snow and no rain. How the heck did that happen?
Brian Albrecht
This is a real, going back to your point about interest rates and, and and and that it’s a real issue for any sort of monetary policy. It’s going to be centralized as you’re going to because of the lags that are built into the, you know, the overall way that the policy carries out. You know, the the fed is always going to be reacting to things with a leg there.
Brian Albrecht
Maybe take right now, maybe they’ve hiked too much relative to, you know, in 20 years what we would say would have been a better policy. But they don’t know in the moment. So they overcorrect because they were too slow on on when inflation was coming up. This kind of overcorrecting is a very common thing within the within monetary policy.
Brian Albrecht
If you look at the 60s and 70s of when you know, inflation spiked up, they overcorrected recession back up, it’s a real concern for any, any attempt to kind of centralize monetary policy. Now, again, there might be other reasons in which you want that to be the case. I’m not arguing for the let you guys do more of that policy type of stuff.
Brian Albrecht
But like, we should recognize that that is a difference than if we’d have a more decentralized monetary policy.
Keith Weiner
Yeah, absolutely.
Ben Nadelstein
So, Brian, I’ll I’ll be the, devil’s advocate. Okay. So I’m listening. You guys talk and you’re saying that, you know, markets are pretty good when prices are allowed to clear, you know, actors say, hey, I want a little more of this, a little less of that. And that’s actually really a unique way to get to the right price, the right supply, the right demand.
Ben Nadelstein
And people’s personal preferences actually move really quickly versus government policy can take ages. And by the time a problem really boils up, the solutions aren’t that great. They can overcorrect, that can lead to other problems, so on and so forth. So okay, so what are you saying that, you know, when market actors do all these things, the market is totally perfect always.
Ben Nadelstein
Then, nothing can go wrong. I’ve heard of something called a market failure. So doesn’t that mean that markets aren’t perfect?
Brian Albrecht
Yeah, I absolutely agree. Markets aren’t perfect. I believe everything in this world is imperfect, right? It’s a fallen world. We don’t need to get religious or anything. But yeah, there’s lots of imperfections all around. There’s constraints that are problems both the markets and and governments. I’ve always tried to avoid, haven’t been perfect. We try to avoid the idea of market failure and even government failure.
Brian Albrecht
We talk about, like, because I want to be explicit about kind of what is the comparison. So whether we’re comparing markets and government, if we compare them to some idealized form, yes, real world markets are always going to to have problems with that. So like, you know, so it takes, takes something like a common pool resource like fisheries.
Brian Albrecht
Okay. There’s a concern that that there’s overfishing and certain areas that don’t have well-defined property rights over fish. It’s kind of hard, especially in large, you know, large bodies of water to define any sort of property rights outside of farms. There’s a concern about there being overfishing relative to some sort of perfect outcome in which the, you know, the economist or the social planner imagines, I don’t think that any sort of market, outcomes live up to that.
Brian Albrecht
But the question is comparison of that between other centrally planned, other centrally planned ways of allocating fish. What happens? And sometimes it’s maybe going to be better, sometimes it’s going to be worse. I mean, the work of Elinor Ostrom tried to dig into that, especially around fisheries. It’s why I use a fishery example. Absolutely. The markets fail.
Brian Albrecht
I think policy can help, in lots of different places. Defining property rights is like a quintessential example of, you know, things that that policy can do that like lots of economists would agree, you know, further markets in an important way, you know, allocating spectrum auctions or giving property rights over land versus enforcing those, like, there’s lots of things government could do.
Brian Albrecht
But we need to be careful not to compare markets or government to some, some perfect thing that doesn’t exist. Again, we’re the following world.
Ben Nadelstein
Yeah.
Keith Weiner
And isn’t that one of the classic fallacies when people could interpret, capitalism, they’re comparing it to some, not just utopian version of socialism, but some fantasy land.
Brian Albrecht
And yeah, yeah, yeah.
Keith Weiner
Socialism. Where there are no there is no reality. It’s just one, 1232 close one eyes, ones eyes smoke. Whatever is your drug of choice. And just imagine how wonderful everything is going to be. And then that’s the baseline for socialism. And then capitalism doesn’t. So, there’s a, a funny, I guess it was a book published in the, 19th century by Ambrose Bierce called The Devil’s Dictionary.
Keith Weiner
And, he just has some very interesting that, you know, definitions of things and a perverse thing. It captures the perversity of society at that time. And I have a few candidates for words that should be added, you know, posthumously to his book, one of which would be exploitation, which is when somebody works for terms that I would not accept and market failure is when, free people making free choices in a free market with, you know, individual rights of life, liberty, property and contract produce an outcome that I didn’t I didn’t design or I don’t want the mass market failure.
Keith Weiner
And, you know what else? What else can you say about it? Yes. You get an outcome that some people don’t like, but, that was the freely chosen, outcomes of the of the participants who, who have the right to come in and say you all don’t have the right to choose that because you didn’t choose. Right now I’m going to force you to, you know, choose.
Keith Weiner
Right. Probably. But at gunpoint.
Brian Albrecht
Yeah. Yeah. I mean, I think it’s there’s a spectrum there of definitely the I’m going to force the decisions on you gets, you know, avoids that. You know, there are gray areas that are a little bit more, you know, I don’t know, I, I spent my time thinking about that I think are important about, you know. There I think there are ways in which policy, government policy, which at some point involves the government, gun maybe can like, can improve things.
Brian Albrecht
The question is, how likely is it ahead of time. The question is if it is not working, if it’s making things worse, how quick is the feedback mechanism on that? You know, like I think I think of, you know, local neighborhoods that are somewhere between a government and a voluntary organization. You know, it’s not we can come up with examples that are kind of in between.
Brian Albrecht
And I think those are interesting to think through of, like, you know what? Why do some neighborhoods, some local neighborhoods do a really good job at taking care of the streets collectively through this agreement versus other ones? That don’t mean that there’s lots, lots of I mean, it’s a big it’s a big question that we’re not going to answer here, but yeah, yeah, yeah, I, I’m absolutely with you on, the kind of imposing, especially the imposing with no feedback.
Brian Albrecht
This ties back to soul. I know it’s one thing for me to I mean, ideally, I propose something to you and then you, you know, I, I’m an outside observer, I propose something, I’m like a consultant for a company. Right. I’m proposing it. And then the person with decision making rights, the CEO, the managers, whatever they decide, you know, maybe, maybe I’m imposing it, but can I, can I retract that?
Brian Albrecht
Can you get out at some not terrible cost like it’s I’m imposing it on a very small neighborhood. But you can leave. You have the option of leaving. It’s a little bit different than imposing at the federal level. And the feedback coming to me is going to be different, at a local level that I’m imposing. You know, there’s just lots of lots of, interesting things there to, to, to, to sort through, I think soul to tie back.
Brian Albrecht
I think soul and economics help us think through what’s going on.
Ben Nadelstein
And Brian, you know, did pretty well.
Keith Weiner
Let me just interject one. At the risk of probably pissing off half the audience watching this right now, but, I’ll stick my neck out and take that risk. Yeah. We saw something with Covid and particularly with vaccines. And that is that, you can’t do good to somebody by forcing them. The moment that you put a gun at somebody had whatever claim it is to whatever good that is you’re trying to achieve goes out the window, and now you’re forcing somebody.
Keith Weiner
And I think that there’s an awful lot of people that probably would have been happy to take the vaccine, but then feeling forced, you know, became vaccine, you know, rebels or vaccine refuseniks and, I just think that that that example is clearer because first of all, the reason, but also because, you know, it became such a political issue, you know, and your loyalty to the team, rather than blue almost would go down to one of 2 or 3 issues.
Keith Weiner
And that was one of them, at least for a while. But I think it illustrates that point, that no good is going to come out of the barrel of a gun, even if you actually have the, the, I won’t say victim, but I’ll say the aim is you’re aiming the gun to somebody, even if you have that person’s interest genuinely at heart, which usually the bureaucrats don’t have.
Keith Weiner
Right. When the fed is saying we’re going to unemployed half the country to make the other to make, to render them unable to compete with you when you go to the grocery store. So the prices will go down for you because the other half can’t afford to be there anymore. They don’t have a good of, I exaggerate what they have, but they don’t have the good of whichever cohort they want to live off.
Keith Weiner
They’re not even having a good in mind now with the picking and choosing of which interest group to please, and which the interest group gets the short end of the stick, let alone when it’s just outright a crony corrupt, you know, situation. You know, for example, I don’t know if you knew this, but, so we have interest rates of five and 10%.
Keith Weiner
The ten year Treasury has lost, almost 25% of its value compared to its high, high price in the summer of 2020, which presents a real problem for banks that are holding a lot of, a balance sheet as results that can vary bank. So what what are the fed do is they said, okay, we will reverse repo, which means the bank and bringing the brand to the fed and pawn it and borrow dollars against it.
Keith Weiner
But unlike all you know, prior reverse repo facilities, the fed will take those bonds and pay out PA, which is the face value, which is what the bank paid back in 2020. So they’re funding these things way above market price. That is absolutely a crony sweetheart deal. If I’m holding a bond in my portfolio when I have a loss on it, where can I go to borrow the original amount of money that I paid in 2020?
Keith Weiner
Nowhere.
Brian Albrecht
Yeah. Yeah. And there’s, there’s, there’s a lot there’s a lot in there. But I. I would say absolutely. The second, the second point about interest rates, you know it’s, there’s, there’s not the good for the people right. There’s, there’s different people with different interests. And here you have a way of, of or take the unemployment one. Right.
Brian Albrecht
You’re, you’re, you’re effectively you have to consider some sort of trade off between, but between the people who gain from raising interest rates and the people who are going to lose from interest rates, just like any sort of price now, that could generate unemployment. So they could be the losers. That didn’t happen. I don’t think that necessarily needs to happen.
Brian Albrecht
You know, your example of, of of the banks getting, getting a little bit of extra money will then you know who’s swallowing losses. The fed is and then through, through taxpayers being held liable. You know, they’re always in these policy situations, going to you know to, to be some trade off about who’s going to be benefited.
Brian Albrecht
And so it’s you can’t say that you’re doing it for the good of the people is you got we got to be a little bit more, precise about that. But that’s true. I mean, that’s true for a private company to I mean, decision makers in a big private company are going to make decisions that will help some employees, some customers.
Brian Albrecht
We I’m not I’m not saying there’s not an asymmetry. There is an asymmetry when you have guns involved. Absolutely. That deals with the feedback and the knowledge of the world.
Keith Weiner
And the pretext that you’re doing it for the good of the people. When I want to for profit company is doing something that they they don’t have that pretext saying, we do this to make money. And,
Brian Albrecht
But they don’t. I mean, I mean, some do some, but some say they do it to help their employees. Maybe they don’t help their employees. Some say they do it to help their customers. Lots of companies say they’re doing it to help the customers. But that’s not I mean, sometimes that’s true. So there’s not I mean, there’s.
Ben Nadelstein
And Brian, I find that interesting, that it does seem that there is, at least for most people, the average person. There’s kind of a psychological bias. We discussed the nirvana fallacy. It pops up there often, which is, hey, I know the Jeff Bezos Amazon. They’re a big monopoly. They’re screwing me over. And it’s unfair that Jeff Bezos is a billionaire.
Ben Nadelstein
He’s you know, he’s a total greedy guy. He would do anything to get another dollar. But the people who are putting antitrust lawsuits against Jeff Bezos, those are angels who are working for the public good, who have no other side interests. They’re not self-interested in any way. And even though I couldn’t name them or the last three decisions that they did or whether they were good decisions or bad decisions, I know that they’re working for the public good, and I just trust them.
Ben Nadelstein
Now, you could point out, okay, they did, antitrust regulations on these guys when maybe they shouldn’t have gone. Okay. This was clearly a political bias, but okay. Those were mistakes, right? We got to trust them this time. But psychologically, it feels really weird because most people only take that same level of criticism and bias against corporations and the billionaires, and usually not towards government bureaucrats and monopolies that the government has, for example, the FDA.
Brian Albrecht
And not against themselves. Right. I mean, Friedman has this, this great quip about, you know, it’s always the other guy who’s greedy is that when I’m, you know, when I want a higher pay, you know, I’m not the greedy one is, you know, like I deserve it. The other people don’t. So there’s lots of lots of asymmetries.
Brian Albrecht
I don’t know if anyone has a good understanding of why there is at least, at least in countries like the US. It seems like the default is to start at the presumption that government action is for the good of the people. Private action is not. And then it’s like things are failures to live up to that. That’s what it always is.
Brian Albrecht
It’s always a deviation from that. All this time. This time is different, right? The look do a good job this time. I don’t have a good sense. Maybe it’s maybe it’s great that we have that. Maybe it’s great in the US that we have, like this faith in our government. And at some level. And, and it allows us to have a all things considered by global and historic standards, like a pretty well functioning government.
Brian Albrecht
But, I don’t know, I, I’m not, I’m not I’m not willing to go too far in that argument. But but there is something there about the bias of, yes, of course, these are good natured people who are these? These are good hearted, well intentioned, doing the best to the people, regulators who why would they do anything else?
Ben Nadelstein
Okay, Keith, I’ll bring it maybe to you. Is there a trade off? We have a high trust society, which means we trust the government maybe when we shouldn’t. And if we didn’t have that high society, yeah, we wouldn’t trust the government. But then maybe other things don’t happen, like markets and so forth.
Keith Weiner
Yeah. If you don’t, I mean, think about, health care, you know, if you have some sort of disease that requires a surgery, think about the level of trust you necessarily have to give as a surgeon. I mean, you’re lying down and saying, make me unconscious and take a knife to me. And, but don’t do anything I don’t want you to do.
Keith Weiner
Just, just do the one thing that we agreed on in advance, which, based on your advice, I trust this actually the real problem with me and necessary to, you know, cut this tumor out and, you know, I don’t know how many people do that every day. I’m going to guess at least tens of thousands, maybe hundreds of thousands.
Keith Weiner
And, you know, and rightfully, they trusted this every time they trusted the hospital, they don’t wake up in a bathtub of ice water in a hotel room, you know, with a sign that says, we took your kidney, or whatever. Trust is absolutely necessary to have a high level of civilization, and the trust collapses. So we’ll civilization down to some very rude, you know, low level or if there’s any civilization at all that isn’t just open, you know, killing in the streets.
Keith Weiner
But, yeah, to the other half of your question, then, you know, if you have a government that’s not worthy of that trust because everybody’s scheming to, you know, take something from you and, and, you know, give it to another special interest group or worse. They’re cheating. Right? Right. So my definition of inflation, Brian, is the counterfeiting of kind of that’s one the borrower has neither the means their intent through.
Keith Weiner
So they borrow they call it borrowing and the doling out welfare with it. There’s no productive asset that’s being financed. They have literally no means of paying it back other than taxing you more than their expenses next year. And if they had to borrow to dole out more than their, you know, taxes this year, they’ll never get to the A next year.
Keith Weiner
Well, they can have taxes greater than expenses and pay any of this back. So they call it borrowing. But it’s a fraud. It’s a monetary fraud. And when you not only allow but actually invite and encourage fraud at the top levels of society, everyone starts to think, yeah, why? If they if they can do all this crap, they get to lie and cheat and, you know, change the accounting rules that have been around for 600 years.
Keith Weiner
Why do I have to, you know, be a man of my word to be honest. And and, you know, the fish rots from the head, as the old expression goes. So, Yeah, it’s very dangerous.
Brian Albrecht
Yeah. I think that, you know, it’s there’s once it becomes a norm and particularly and places that you put trust in that gets degraded, that has lots of bad implications for the rest of society. There’s probably something I, I should stop talking because I don’t know anything about this. There’s probably something to the extent that, you know, you, you, you see, you know, the people in government is sort of like you in some way, and therefore the trust for them is sort of related to the trust for your, like, more intimate group that I don’t know anything about, that I, I would push back on calling that inflation perfectly fine with that is a
Brian Albrecht
the, you know, printing of money issuing of credit here for without any intent of, of giving a productive asset for just because that’s not the way that most people talk about inflation. So I don’t I see they’re obviously related. I see why that is a, you know, the way that you’re thinking about inflation is just most people when you say inflation mean something like, well, most people mean that gas prices are up or grocery prices are up.
Brian Albrecht
You know, more specialized economists mean some of some general price level. But it it’s something about prices, not about.
Keith Weiner
That area, which is the monitors. And Friedman, foremost among them would say inflation is the increase in the quantity of money and the the logical necessary out come of that is rising prices. But then even Friedman himself falls prey to this. You know, one is equivalent to the other because they’re causing effect. And there’s this famous quote where he says inflation is always and everywhere a monetary phenomenon.
Keith Weiner
And it’s clear from the context. He means rising prices is always an ever everywhere monetary phenomenon. But he uses the word inflation to describe that. And, I mean, you’re right. I’m very well aware of it. My definition is, is, I’m a, a maverick or worse, you know, in this regard. And I have my arguments for why I define it that way.
Keith Weiner
But regardless of quibbling over the definition, if they’re shooting at the top level, kind of getting back to Covid, there certainly, a lot of anger over how, you know, the government health authority said you have to lock down, you have to wear a mask, you have to do all these things that are, you know, at this point, pretty obviously ineffectual.
Keith Weiner
You know, living inside the vaccine, you know, wearing masks and social distancing and all these things. And, you know, people, people are pointing out that, okay, so if I’m walking into a restaurant, then, I’m a high risk of spreading the Covid as soon as I sit down at my table, then there’s an invisible cone of anti-Covid ness, and I can take my mask off and it’s fine.
Keith Weiner
And, you know, there’s just a lot of a lot of rubbish that our health authorities were promoting during that time. And, you know, I don’t want to focus on a fallacy or who said what or whatever, but rather sort of the general decline in trust in, not just the government, but in this case also the, the, health care professionals and health care intellectuals, you know, the thought leadership, as it were, of health care, you know, really, you know, threw a lot of mud on themselves through this.
Keith Weiner
And then, you know, what’s going to happen as a result of that, you know, we’ll all be feeling the consequences of that for decades. That doesn’t go away, you know, quickly or lightly.
Ben Nadelstein
Brian, I want as we kind of head towards the end of the interview here, I want to ask you a question about monopolies and antitrust. So most people go, okay, I’ve heard of monopolies, monopolies or companies like Google, Amazon, Facebook, Twitter. These are monopolies. They’re really big companies. They buy up all their competition and, you know, there’s nowhere else to go.
Ben Nadelstein
And they treat consumers really badly. So let’s go in order, I’ll ask you. Okay. Hey, is this company a monopoly? I’ll give you kind of some questions and you’ll fire back and say, no, man, you’re totally wrong. You’re missing it entirely. So let’s start with Google. Any time I want to look something up, it’s Google. So, Brian, that just has to be a monopoly.
Brian Albrecht
Well, again, getting back to definitions, you need to be careful about what we mean. I mean. Google is the only one that can run Google search. They’re the only ones that can run, you know, Google Photos and all their, you know, Google Cloud stuff. So they have a monopoly. They have through patents, through, trademarks, through these things.
Brian Albrecht
They have a monopoly on certain activities under the Google name. I have a monopoly on things that are, you know, on my things that come out of our subject, the last name drugs. I have a coauthor, but you get the idea. So we need it. We need to be a little bit more precise about what we mean in an antitrust.
Brian Albrecht
There are a few kind of rule of thumb for trying to sort these things out. There’s something called a hypothetical monopolies test. Like, basically, you don’t want to find the market. I don’t want it to. A monopolist is always relative to a market. I am a monopolist in this market. I am sufficiently close to like one seller in this market because there’s not one seller of all goods.
Brian Albrecht
There’s one seller in this market. So I need to find the market. Right. And antitrust has developed rules of thumb around hypothetical monopolies. That kind of try to try to, you know, not divide too narrowly, but also not too broadly that no one is a monopolist and these laws never have any bite. So, so.
Ben Nadelstein
So maybe just to summarize, for the average person, they go, okay, you can’t be a monopoly because then everything’s a monopoly. And that’s not really helpful. Like I’m the most attractive host of the Gold Exchange podcast. Okay. Well that’s not really that helpful. Right. Or you can say, yeah, you know, well, you’re competing with everyone and every form of entertainment.
Ben Nadelstein
Well, then of course this show is not a monopoly. So clearly there’s got to be some delineation. And then I think this might go to your question about the politicization of law economics. Because who gets to make the decision what counts as the market. Because it’s clearly not the consumers, because, you know, they’re going to Amazon and Uber and Google every single day.
Ben Nadelstein
So clearly not all of them are really hurting. And of course, there are some competitions. I mean, Amazon and eBay, right? Google and Yahoo and being in ChatGPT. So the question is, you know, this has now become a politicized question where lawmakers who hopefully have no self-interest of their own get to decide, hey, this is the market that we’re deciding that you’re a monopoly.
Brian Albrecht
Yeah, yeah. So there’s a back and forth. I mean, just as a non-normative just to like, explain how antitrust works. There’s a back and forth between the company who wants to make the market as big as possible so that they. Oh, you know, I sell groceries. I also compete for dollars versus, you know, televisions. And I’m very small relative to television.
Brian Albrecht
You know, they want to the companies want to make the cup the market very big. So it doesn’t look like they’re monopolies. And then the agencies are trying to bring these cases are trying to define really small. And there’s this back back and forth between that. So I think I mean by reasonable definitions of of online search, Google is a monopolist.
Brian Albrecht
I mean they’re 90% to that truly 100. But kind of close. But the question for antitrust or, you know, being a monopolist is not illegal in the US. There there are other jurisdictions I want to make it illegal. But like having, having a large market share on the merits, you know, competing for a large market share is not illegal.
Brian Albrecht
But the law is very clear. The court decisions are very clear on this. Like, how do you become a monopolist, make the best product. Right. For for a long time, Netflix was the monopolist in streaming, and that was perfectly okay from lots of different perspectives because they made a new thing. And yes, when you make a new, a new product, you are a monopolist, right?
Keith Weiner
If you want to be a monopolist on yield on gold and gold.
Brian Albrecht
What was that.
Keith Weiner
Then? Monetary metals is the monopolist. Yeah, we’ll pay it in gold.
Brian Albrecht
Exactly, exactly. And so there you’ve created a, market niche that becomes its own, its own market. And therefore, you know, we want to I think we I mean, I want to have policies that incentivize that, you know, in the same way that if, you know, we can we can argue about patent lengths and things like that. But very clearly, one of the purposes of a patent is to try to create monopolies, to give them people an incentive to make money and to bring, to bring, new products into the market.
Brian Albrecht
And I have a post on Substack that’s cheekily titled, something like monopolies don’t make Enough Money. And the basic idea is we want to because we want to encourage more innovation and innovators are, by definition, monopolists. You know, we we want to have systems in place that reward innovators like innovators in the market sense of like creating market value, not creating things that no one in the market cares about.
Ben Nadelstein
And Keith, I want to jump to you now. So you’ve written some interesting articles about the credit gradient. How do you think that applies to this kind of monopoly market share question? And of course we’ve now touched on interest rates. Do you see that kind of playing out differently now?
Keith Weiner
Yeah. So that was written during the long. And are you still we’re still in a falling interest rates trend. We’ll see how this the fed thinking they’re going to fight the trend. Who’s going to win in the end. But you know, the thesis is that, you know, even in a normal free market, which we are not certainly in the monetary system since anything normal or free market whatsoever, but even in a free market, obviously major corporations have better access to a lot more credit, much cheaper than, start ups and mom and pop companies.
Keith Weiner
That’s just normal. But as the fed, you know, pours in liquidity into the deep end of the pool pushes the interest rate down, that it ends up being a tilting function where the mom and pops and the startups get even more starved. It’s like the whole swimming pool, this installment, but now it’s sticking completely high and dry.
Keith Weiner
And these guys, on the other end, are just drowning in absolute excess of, you know, liquidity. And, every time you have more and more regulation, people don’t realize regulation means compliance. On the part of the business who’s trying to compete in the space. Compliance is expensive. Not only that, there’s friction, which means you move slower.
Keith Weiner
So, if you’re talking about something that saps a lot of capital away, who’s going to do better? The company that owns 90% market share, or the upstart that’s trying to change the rules or fighting the regulator at every step because the regulations are meant to, or least designed maybe with or without intent to cement and solidify the leaders business model as the right way to do things.
Keith Weiner
The startup is moving slower and and therefore rendered much less effective than it would be. And, you know, a lot of his capital that would go towards innovation. Innovations are so expensive. You’re sapping all the capital that would fund the innovation to go into compliance. And then then we said, geez, you know, why do all the big companies seem to be getting bigger and bigger?
Keith Weiner
And so the small ones are being starved for capital and they’re being, burdened down with friction. And, you know, they can’t move very fast and they don’t have enough scale to cover all the compliance cost. Meanwhile, the bigger guys have more and more capital, cheaper and cheaper. Why are the big guys buying the small guys?
Keith Weiner
Well, if you push the interest rate to zero and beyond, it’s logical that all assets in the world would end up on going one. The one biggest balance sheet in the world, and everybody else would be acquiring the end.
Brian Albrecht
That’s really interesting. I mean, I’ve heard the the regulation point a ton. I think that that makes a ton of sense. Not even just around regulation, traditional regulation, you know, tax, you know, complications in the tax code. The way that we expense R&D pushes things in favor of big companies. I think these are really important things. The interest rate one, I think is really interesting.
Brian Albrecht
I need to think a lot more about it. Talking with my Substack coauthor, Josh Hendrickson, a little bit about this, it seems to be some historical, some historical precedents, not just the current period of falling interest rates driving concentration. You know, the big companies able to acquire smaller companies. Part of the mechanism seems to be he’s digging into it more.
Brian Albrecht
I don’t know all the details, but some of the mechanism seems to be the the like pure. You have the resources to do it. I don’t know what else is involved, but it’s it’s definitely it’s plausible. I want to explore it more. It’s really interesting. I need to see what you wrote on it.
Ben Nadelstein
And I think.
Keith Weiner
The, the theory of it is that in order for a company headed by a company, be Trump, it has to be worth more to a company than be, make it worth more of a company because a lower cost of capital, therefore they have a lower discount rate. Therefore they put a higher multiple on it and all the sellers okay.
Keith Weiner
You want to pass that multiple. So all your money I mean one for the company is worth that multiple because it’s actually accretive to earnings given their lower implied cost of capital.
Brian Albrecht
Yeah. Yeah.
Keith Weiner
So perverse about mucking with the interest rate. A central planning perspective is you’re mucking with or, you know, you think you’re going to try to change inflation and maybe you do and maybe you don’t. And I have a lot of arguments why they have a sign backwards on their, the whole notion. But, even if that was rate, you’re mucking with the discount rate and I’m changing and the credit gradient, you’re changing the gradient of discount rates all across the economy with all sorts of perverse incentives, including, you know, so my my biggest argument with Thomas Piketty, and I realize a lot of people found fault with his data, that he was basically
Keith Weiner
just cheating and what he said. But, you know, my biggest fault is you’re looking at not capitalism and trying to formulate the problems of capitalism. And we have a centrally planned interest rate, and that is definitely not capitalism in the center of the planet. Interest rate. Yes. Everything is concentrating. It absolutely is pushing down wages and pushing up the balance sheets of the major corporations.
Keith Weiner
And then and then you have a Covid, which obviously further concentrates like each thing always seems to work out for the benefit of the major corporations and against, you know, the middle market and the small companies.
Ben Nadelstein
And I find that interesting too, which is that you have on one hand, let’s say, our small company, well, most people go, well, you know, Amazon should have to pay their workers a minimum wage. Well, Amazon probably could physically, you know, economically afford to pay, let’s say they’re workers $15 an hour. But you know, if you bring it to the other side, a mom and pop store, they’re like, it’s not even worth five bucks an hour to have, let’s say, my employee or people who are self-employed.
Ben Nadelstein
So wait, I have to pay myself $15 an hour unless my single employee business is illegal, right? It starts to make no sense. And so you can see well for Amazon, actually, more compliance, more regulatory issues are better because it makes their competition. The guy who was starting out in his basement really had to go. Well, I mean, I really can’t figure out how to do a 1099 form and pay myself 15 bucks an hour.
Ben Nadelstein
You know, maybe it’s not worth it. So on the margin, they’re really pushing out their competitors with each regulation.
Brian Albrecht
Yeah. I mean, you’re changing your. This is exactly what I think price theory comes in and how you want to think about your changing relative prices that my price relative to my competitors price and to Keith’s point about like the incumbents versus the challengers. I think of this in the context of calls by like OpenAI for AI regulation.
Brian Albrecht
Well, they’re in the you know, they’re in the driver’s seat right now. They have all the, to tie back. They have all the they have access to all the capital in the world through Microsoft and whatnot. They can they can deal with these compliance costs that are relative. It hurts them directly. You know, they have to pay the costs, but it raises the relative costs for the newcomers.
Brian Albrecht
And what matters for, you know, how much I can in a normal work, how much I could how much I could charge. It’s yes, it’s my cost, but it’s also how much the other guy is going to be able to to charge you and his costs. And so we can play around with that.
Keith Weiner
Sales tax on internet purchases was was the hot button issue. What is this, 20 something years ago, it blew my mind that Amazon was lobbying in favor that yes, all internet purchases should be subject to self tax. And I was like, I don’t get it. I don’t get this before it’s that big commitments. Now look at it and say, well, of course.
Keith Weiner
So most people don’t realize not only you know, if you want to sell nationally, you have 50 state sales tax rates, but the sales tax rates aren’t just varying by the state at every city, every town, every fire district, every municipal water district, how all have their overrides. And then each one has different tax rates for so-called things cigarets, alcohol, you know, that sort of thing.
Brian Albrecht
Food, clothing, everything.
Keith Weiner
Is exemptions for clothing. And so some jurisdictions exemptions for food. But certain things are defined as food but maybe not packaged food will so like a bag of 50 pound bag of rice would be deemed to be food. A salad from the salad bar that you put in the container, wouldn’t you know, it becomes very, very, very complicated.
Keith Weiner
Only Amazon or some company of that kind of scale would have the army of accountants and lawyers to get it right for all the jurisdictions of every, every category of good. You know, if you’re a mom and pop vendor and you’re like, look, I just want to do some wood carvings and sell them, there’s no way you have to become an Amazon vendor.
Keith Weiner
Amazon is probably. And then they take a 30% charge, you know, right out of your out of your top line, because you have to sell it on the Amazon market because only Amazon can, you know, comply with all the tax. And then people want antitrust to go bust them up or whatever. Meanwhile, what’s the root cause of it?
Keith Weiner
Is this crazy sales tax regime. And if you ended that, then all the little mom and pop vendors could do their little woodcarving business or the little, needlepoint or whatever on their own.
Brian Albrecht
Yeah, I do think there’s not enough conversation, within the antitrust competition policy space about non antitrust solutions to these concerns. Like if you’re concerned about big companies being too big, like what else can you do around compliance, around you know lots of different policy. There’s not enough I guess it’s the defenses. Like the FTC doesn’t get to choose the tax code like the FTC doesn’t.
Brian Albrecht
So they’re kind of taking this given that this other policy exists and they’re going to respond to it whether beneficial or not. But like that’s that’s where that’s where it is.
Keith Weiner
I well me if I may to go into my little rant. So I have quite a term that I wish to see in more popular usage than it is. And the term I call compensation and compensation is deliberately doing the wrong thing on purpose to eventually address something that you don’t want a property that will not or cannot properly fix.
Keith Weiner
So imagine you have a flat tire. Compensation is letting the air out of the other three. Imagine and you have a Byzantine sales tax code across 75,000 different micro jurisdictions across the country that only a major corporation would have, like compliant shops to be able to handle. Instead of fixing that, you say, well, now we want to bust them up.
Keith Weiner
Okay. That’s compensation.
Brian Albrecht
Yeah.
Keith Weiner
Our political system is just rife with compensation.
Ben Nadelstein
So Brian, as we end here I want to ask you one question and then I want to find out where people can find more about your work. So penultimate question Brian, what should I ask all future guests of the Gold Exchange podcast?
Brian Albrecht
Great. Great question. One, one broad one is what in the last five, ten years have you changed your mind about that kind of opens up to maybe going in a different direction relative to to where you were before? You know, and I think it’s an important thing for all of us to, to think about, you know, how are we constantly learning?
Brian Albrecht
Obviously, as you learn more and more, you’re maybe not changing your mind all the time. We don’t most of us don’t, you know, have big revelations later in life. But, you know, I think that that’s a really helpful thing. If you want to ask him an econ question, ask him what causes inflation, and then you can get to talking about greed and profits and, and monetary phenomena and all that.
Brian Albrecht
Yeah, yeah. And then you can really sort out the wheat from the, you know.
Keith Weiner
The we just think it’s great.
Ben Nadelstein
Yeah. We’ll, we’ll, we’ll answer for them. Okay. Brian, where can people find more of your work and of course Substack. And then of course the center as well.
Brian Albrecht
Yeah. So law econ center.org. Great site for searching around. It’s been updated just recently. Great site for searching around on like any sort of policy stuff related to antitrust, competition policy, regulation around like telecommunications. That’s one areas I don’t work on, but other people do. So like I said for the Substack is economic forces that xyzzy the fancy.
Brian Albrecht
It’s not com anymore. It’s too expensive XYZ economic forces at XYZ and I met on Twitter at Brian C is in Charlie Albrecht. And I spend too much time on there. So if you want to get me quickly, that’s that’s where to find me.
Ben Nadelstein
Brian, I want to thank you so much for coming on to the Gold Exchange podcast. We’ll be watching your Twitter, reading your Substack, and of course, we’ll see you out on the interwebs. Thanks so much.
Brian Albrecht
Thanks for having me.
