Crisis and Leviathan: An interview with Robert Higgs

EPISODES / WEEKLY COMMENTARY
Weekly Commentary • Apr 18 2012
Crisis and Leviathan: An interview with Robert Higgs
David McAlvany Posted on April 18, 2012

A Look At This Week’s Show:

  • U.S. Government can and will continue to grow
  • Exponential government growth requires exponential economic growth
  • Government growth hits critical mass when it’s people can no longer afford it

About the Guest: Robert Higgs is Senior Fellow in Political Economy for The Independent Institute and Editor of the Institute’s quarterly journal The Independent Review. He received his Ph.D. in economics from Johns Hopkins University, and he has taught at the University of Washington, Lafayette College, Seattle University, and the University of Economics, Prague

The McAlvany Weekly Commentary
with David McAlvany and Kevin Orrick

Kevin: David, today we talk to Robert Higgs, who continues the discussion about this punctuated growth in government. But I think something that really hit me more when I read his book, Crisis and Leviathan, was that he pointed out that 100 years ago the federal government virtually had no presence in people’s lives, but now, it is the new norm. He talks about ideology, the ideology of the people, and how it changes as this leviathan grows, to the point where we accept something that is unsustainable in the long run.

David: Kevin, that is very reminiscent of the period from 2008 to the present, when we have seen a transition in ideology. I think people are very open today to the idea of a ratcheting forward of government. We need more, not less, because they haven’t done enough to “keep us safe.”

What is interesting, from just a purely economic perspective, is that the government has gone from being 7% of GDP, again, just an economic measure of the size of government relative to our economy. It made up 7% of GDP 100 years ago, and today, it makes up over 40%, so it is not as if it is uninvolved in our lives. It’s not as if the postman is the only person that we see on a rare occasion. It is a pervasive presence, and as I think we will find in talking with Robert Higgs, there is this ability to ratchet forward on the basis of economic crisis, and on the basis of war.

Just a little background on Robert. He received his Ph.D. in Economics from Johns Hopkins, then taught at a variety of universities, Seattle University, University of Washington, Lafayette College, University of Economics in Prague, a visiting scholar at both Oxford and Stanford. So when he is talking about this, he is usually talking to a very academic audience. We have some questions that I think will dig into some of the economic and political meat of the changes that are afoot here in the U.S.

Kevin: You would highly recommend to the listener, I am sure, to read at least Crisis and Leviathan, and probably the book that you are holding right now, Depression, War, and Cold War, for a person to understand how this actually affects them and their lives right now.

David: Absolutely. As many of our listeners are probably familiar with by now, we like to take a very interdisciplinary approach, and when an author can bridge the gaps between fields, in this case politics and economics, it is a great benefit. We would do that work ourselves, but here it has been done and served up on a silver platter, as it were. I look at the book, Crisis and Leviathan, as a critical contribution, something you probably do want on your library shelves.

Kevin: David, let’s go ahead and listen in on that conversation that you had with Robert Higgs right now.

David: In the context of 20th century history, there is an unsustainable trend of government growing more or less on an exponential basis, and that is at the expense of private sector interests. This is economic in nature. It is also political in nature. It includes things like the welfare state, eventually squeezing out privately directed associations and charities that 100 years ago, on a voluntary basis, did those same things. Now the state does that. Private initiatives are less important than state initiatives, and ultimately federal initiatives, in the areas of welfare relief, training, medical care, and these things.

Business and industry have likewise been squeezed to the margins of the economy, and this has happened on an aggressive basis at particular points in history. Our conversation today centers on the ratcheting higher of government involvement as a share of the total economy. It is essentially the footprint of government in this great land of ours.

We have discussed some of these issues between ourselves, Kevin and I, and I also want to bring Robert Higgs into this conversation. He has studied on these issues, taught on these issues, written on these issues, for many years, for many decades, in fact.

Robert, welcome.

Robert Higgs: Thank you.

David: Knowing that you have taught courses lasting months on the issues that we want to discuss today, maybe you can distill the essence of the issues that you think are important, the nature of the state, and what we can expect to see as it operates, and perhaps grows, in this particular period of crisis.

Robert: What I have discovered in studying, especially the past century or century-and-a-half, particularly in the United States, but not only in the United States, is that the growth of the state is not a smooth, gradual process. If we look back at some time in the past, say 100 years ago, we will see that the dimensions of the state were vastly smaller than they are now, in almost every way we could imagine.

The state, of course, is a multi-dimensional entity. It has all kinds of functions and operations and attributes, but regardless of how we think about the state, we find it much smaller a century ago than it is now, in the United States, and in all the advanced industrial economies of the world, for that matter. When we ask how it got from A to B, how it got from its much smaller condition to its present condition, we find that it experienced a number of discrete lurches, rather than simply following a smooth growth curve, and these lurches are all associated with well-known periods of national emergencies. Those emergencies have taken various forms, but the two predominant ones are economic emergencies such as the Great Depression of the 1930s, and wars, especially the World Wars, which were overwhelmingly the most important events in this process.

We can see a similar pattern of national emergencies first in the growth of government associated with a number of other major emergency episodes in our history, and in the histories of other countries, when similar growth of the state took place. This is the process by which we have arrived at our present condition. What I have found is that although some students of the growth of government tend to think about these emergencies first as abnormal – they are like outliers in some statistical pattern and not to be ignored – I believe that it is just the other way around, that in fact, they were decisive because, when they occurred, they all passed away. Of course, we are in one right now which has yet to pass away, but we can fairly assume that sooner or later it will subside, and we will no long be in a recognizable period of crisis.

Whenever these crisis periods subside, they do not leave things the way they were before. They, particularly, leave conditions for the state different than they were before, and in the past century, the net result has always been to leave the state larger, more powerful, with a bigger scope than it had before, and, in the process, changing people’s ways of thinking about the state.

One of the things that is a little different about my study of the state from other people’s studies, is that I have put a lot of work into understanding the role of ideology of people’s belief systems about social and political affairs and how the changes in ideology have acted to constrain the state in a way, but also gradually to give more and more scope for the operation of the state.

David: Robert, maybe you could describe the ideological changes which have made the acceptance of a larger government easier to come into play.

Robert: If we went back a century, we would find the state, in this country, as I said, very small. Government spending at all levels was about 7-8% of GDP. It is now in the neighborhood of 40%. By that one measure, the government has grown 7 or 8 fold. I think that actually understates the extent to which government has grown.

100 years ago, a normal person had virtually no contact with the federal government. You saw the post delivery man, and that was about it. You didn’t have any social security check in your mail. You didn’t have to obey wages and hours laws if you ran a business. You didn’t have to even pay income tax, because there was no federal income tax in 1912.

The role of the state was much less, so people thought about the federal government very differently, and they also thought about the state and local government somewhat differently, too. In general, their way of thinking about it was that it is good to keep government small because politicians are crooks, and you can’t trust them, and if they said they were going to do something, they wouldn’t know how.

People thought about the government, not as a horrible thing – most people thought there ought to be a government, and it ought to do certain essential tasks – but at the same time they thought it was very dangerous to let the government get much bigger than it was, because you would be handing affairs over to crooks and incompetents.

David: That seems to be something that softened during periods of crisis, with the invitation to the government to do something, wherein, as you describe, the normal ideology is that we can pretty much take care ourselves, and we don’t need the government involved, except in a crisis. Maybe there is sort of a pain threshold, in that you reach a certain degree, or intensity, of pain, and all of a sudden it is out of control and you just want someone or something to restore control. Is that it, more or less?

Robert: In a way, I relate it mainly to fear. Periods of great national emergency are periods in which the general population becomes extremely afraid of something that they weren’t so afraid of before. Suddenly, a foreign enemy poses a great threat in wartime, or in an economic breakdown, suddenly people are very fearful about their livelihoods, the survival of their businesses, and their ability to support their families, in a way that they weren’t fearful about before. When people are very afraid, they get panicky, they don’t know quite what to do because conditions are unusual. They are not sure how to cope. They look for a savior. Politicians always, at the end, rush into this situation, offering themselves as saviors.

David: Let me just make a comment about this particular area in Crisis and Leviathan. I would recommend to any of our listeners with an interest in the topic to order a copy, and maybe you can tell folks where they should be able to do that – maybe just Amazon. There is a section on ideology as an analytical concept, where you go into the power of words and the use of rhetoric, and the change in emotional tenor.

There is a very subtle, but powerful, manipulative tool used by folks in political power to be that savior, to cast themselves as the enabler of great change, positive change. Lenin said, “My words were calculated to evoke hatred, aversion, contempt. Not to convince, but to break up the ranks of the opponent. Not to correct an opponent’s mistake, but to destroy him.” You get to that ideological side where language becomes an effective tool, if you are casting yourself as a savior, for example, but there is an openness, and the language is very important. I just can’t say highly enough how important some of these sections are in your book, and I think very important for our listeners to key into.

Robert: We all know that politicians speak a lingo of their own, and that political talk, in general, is a peculiar kind of talk. You could never, for example, conduct business if you talked to your suppliers and your customers the way politicians talk to people, and in public, the way that they talk to each other. Of course, in private, they speak very differently. They use this odd political language, for a very good reason – to serve their own purposes – and to basically misrepresent what they are actually doing. People need to understand it.

It has been the nature of the state as a coercive organization that preys upon the public, and lives at the expense of the public, that functionaries cannot be honest about what they are doing. They have to always twist their attempts to serve their own purposes into a language of public service, and of helping us. Over the centuries, a whole rhetoric of this kind has developed, and we hear it every time politicians open their mouths, but once we become sensitive to this use of language as a kind of weapon, or device, to deceive the listeners, we can, to some extent, shield ourselves from the effects of it.

People do get used to it. In a way, they tend to think of politicians as blowhards, but nonetheless, they still pay attention to them, and they don’t disregard everything they say or really believe, in most cases, that everything they say is a lie, so they are still vulnerable to deception by state functionaries.

David: Let me ask you this. In the current context, I think everyone remembers Rahm Emanuel’s statement a few years ago, that you should never let a crisis go to waste. Where do you see the growth of government today, if crisis provides an extension of governmental powers, new powers in the fundamental sense, never being merely transitory, as you’ve said in your book? Where do you see the growth of government, and what do you think the implications are? From a fiscal standpoint, now being 40% of DGP, if there is to be greater growth in government over the next 5-10 years, how exactly do we afford that?

Robert: Of course, there is some limit. We can’t continually increase the size, scope, and power of government, because the predator will overwhelm the prey, at some point. What this will do, in economic terms, is crush the productive power of the private sector to create wealth and to increase wealth, to the point that it becomes a crisis for the state to extract additional wealth for its own purposes.

So there are limits, and we can perhaps see what some of them are by looking at European countries, such as the Nordic countries, where government got very large. In the case of Sweden, for example, which has probably the biggest state of any modern country, the Swedes have actually retrenched. They have had to back away from some of their state activities and cut down the size of their state, a little bit, at least, so they may have been a kind of canary in the coal mine to tell us that you can get as big as Sweden did, with your state, but probably not much bigger.

If we look at countries where the state was all-encompassing, like the centrally planned economies in the Soviet Union and China, we see that those were not viable. They imploded. They broke down and collapsed under their own weight, because of their inability to generate enough wealth to provide a growing income for people and improve the level of living of the masses.

We do know that the state can’t grow forever, but right now, I am fairly confident that the state can get bigger in this country, and will. It has certainly grown abruptly in the past four years, and I don’t think it is going to give back all of that growth. The ratchet will operate here, in the same way it has operated in previous crises, I am sure, because every time you increase the size of the state, you not only make the state, itself, more powerful, and give a greater advantage to state functionaries in fending off resistance, but you also co-opt various people in the private sector by cutting into benefits that the government doles out.

This means that they feel that they have a stake in this enlarged government, and they will fight retrenchment. It is very difficult to reduce the size of the state after it has abruptly grown a great deal, and that explains what I call the ratchet phenomenon, in past national emergencies.

David: There is an issue here with some confusion as to a pure market economy and capitalism, which is perhaps in conflict with the business community at certain junctures. I know that sounds even contradictory to say it, but in these periods of crisis where there has been greater regulation, it is not as if all business owners mind there being greater regulation. Maybe you can explore that, where in fact, big business, and something almost akin to corporatism, can be a part of this growth of the state.

Robert: I would say that if you look at all the groups and the types of actors and interests that have contributed to the growth of the state over the past century-and-a-half, big business is the most important in causing the state to grow. There is a kind of myth that you have government on one side, and you have the private sector on the other, and they are at war. But in fact, many of the actors in the seemingly private economy are far from pure private actors. They are people who receive all sorts of privileges, subsidies, and assistance from the state, and constantly seek to get more advantage from their connections with the state.

We have had, in this country, the development of a kind of participatory fascism, I call it. I borrowed that term from Charlotte Twight, and I have been using it for 40 years. Participatory fascism is like corporatism, in an economic sense. It cuts a great many business interests into the deal. It gives them a stake. It encourages them to continually resort to the state, rather than resorting to improving their products, or their marketing, or some other aspect of their private dealings.

By this time, the U.S. economy, and most other modern economies, for that matter, are all corporatist systems. They are systems to which the state and many business interests are interpenetrated in ways that are so vast and hard to track down that it is hard to even appreciate this web of interrelationships that has developed.

David: That idea of participatory fascism, the notion that somehow there is someone benefiting alongside the growth in government (regulations are often difficult for a small business to comply with, given a very limited budget – typically small businesses are not the kinds of organizations that have the wherewithal to look at a massive regulatory regime and embrace it); the greater the amount of regulation there is in the system, the less competition there is, and the more you move toward almost a monopoly status – what we had 100 years ago with the breaking up of trusts and massive companies.

Where do we go from here? This is a unique period in history. We see the growth of government yet again in the context of crisis. We see, at least in the financial sector, the assets under management of the largest banks are now much larger than they were, anywhere from 20% to 60% bigger than they were at the beginning of the crisis, a massive consolidation of influence. The too-big-to-fails are now even bigger.

This is interesting because we don’t have government pounding the pavement like it did 100 years ago with the anti-trust legislation to sort of equalize and create opportunity for small enterprises. Breaking up the trusts obviously was not just about giving entrepreneurs opportunity, but this is interesting. We have fascism, major businesses – maybe you can explore some of these ideas. Where do you see us going from here? Greater cooperation, greater participatory fascism, or ultimately a breaking up and fractionalizing, if you will, of the system?

Robert: My best guess, and that is all it can be, frankly, because no one knows the future. I will just state that flatly – no one knows the future. We all consider our understanding of the past to help us make rough guesses about the future, but in doing that my best guess is that in this country, and probably in European countries, as well, we will see a continued development of this corporatist arrangement. We will probably see further consolidation.

Certainly, as you said, we have had a substantial financial consolidation as a result of this crisis. I would add that even antitrust law, historically, was in large part, a device businesses used to shield themselves from competition. Very often big firms could be highly competitive and have grown big because they were good competitors, and their rivals and markets could use anti-trust law against them sometimes, just as a way of knocking them down, when they couldn’t beat them in the market.

But in all events, what we have right now is a system that, in large part, is on autopilot because of the entitlements part of the government’s budget, at all levels of government. We have this looming crisis which anybody who knows arithmetic can see, because the government has promised more future benefits to people than can possibly be paid, and what can’t be done, will not be done.

The question is how the government will wiggle out of these obligations and what kind of havoc they will wreak in the process of doing so, because of course, politicians are extremely loathe to give up any kind of power, and they get power, in large part, from trading the promise of benefits to people in exchange for political support. So they will be very reluctant to cut back the benefits under Medicare, Medicaid, Social Security, and other elements of the big state.

At the same time, in this country, there is a strong set of interests that coalesce in favoring a gigantic military apparatus and U.S. military political involvement all over the world, which is very expensive and also gets this country into trouble in every dimension – economic, political, you name it.

If you combine these two, the welfare state end of the big state, and the warfare state end of it, you get an apparatus that is sucking resources out of the private sector and weakening the private sector by doing so. It is sufficiently beholden to the private sector through fascism and cozy capitalism that it continually protects big, entrenched, incumbent firms against up-and-coming innovative rivals in markets. My guess is that we are most likely to see a kind of stagflation developing in the future.

We will probably have, because of government unwillingness to tax enough to pay its bills, this continued borrowing and buildup of state debt, and we will continue to see too much government involvement in every market. There is going to be, ultimately, and there has already been, in fact, a resort to the Federal Reserve System to make up the difference when the government finds it difficult to market its debt.

David: In other words, the Fed is just providing liquidity.

Robert: Yes, it is monetizing directly, in fact, now, because the Fed is just outright buying long-term government bonds. It bought a huge amount of them in the past three years. This is like the government basically printing cash and paying its bills. That is what it amounts to. So far we have been fortunate that this hasn’t generated a high rate of inflation because there has been so much apprehension in the past three or four years about economic and financial conditions, that people have greatly increased their demand to hold money, instead of spending it at the same rate they were previously. But when people get past their fear sufficiently that they don’t want to hold so much cash as they are right now, then we will start to see more pressures for price increases across the board.

David: You are really talking about the velocity of money, wherein the footprint of the dollar, whether regarding individuals or banks, they are just keeping liquidity on the sidelines and it is not going through the economy.

Robert: We have $1.5 trillion sitting in excess reserves in the banking system right now. If you had told somebody five years ago this was going to happen, they would have thought you were nuts, but that is what we have, and yet, we haven’t had hyperinflation.

David: You have done the math on this, I am sure. It is always interesting to me – I don’t have a Ph.D. in Economics from Johns Hopkins, it would be an interesting course of study – look at that one figure, $1.5 trillion in excess reserves. If you put that into the economy, and assumed a healthy velocity, not an extreme velocity, what is the inflationary impact of 1.5 trillion into the economy, as it gets turned over at least a few times?

Robert: It’s enormous. I don’t have a precise workout of that, but it would certainly result in hyperinflation. We would have at least 100% rate of inflation, there’s no doubt about it, if you just suddenly threw that amount of additional purchasing power at the available goods and services.

David: This is precisely where our conversation has gone in the past. It’s like the Hoover Dam. The liquidity exists behind the dam. Because the water is only coming out at a trickle, we are counting on the integrity of the dam. We are counting on that liquidity being held back. And yet, frankly, that’s not why the liquidity, in the case of the $1.5 trillion, was created. It was created to be in the system, and it is not there yet. So what appears to be very tame inflation can change very rapidly. How rapidly do you think it can change?

Robert: I really don’t know, because we have never been in this situation before. If you listen to Chairman Bernanke explain how he imagines his exit strategy working, he speaks very calmly as if this were no big deal, that we will be able to handle this by using reverse repos, and by open market operations, and by just letting some of our portfolio mature, and what have you.

But this is all whistling past the graveyard, in my view. If the banks really decide to start lending seriously, I don’t think there is anything the Fed can do that would contain it, that wouldn’t result in drastically raising interest rates. That, of course, is not going to be politically viable, because the politicians will scream bloody murder if the Fed allows interest rates to run up very much.

David: It is not only not politically viable, it is also not economically viable.

Robert: Well, that too.

David: Our average interest rate right now is 2.18% on the national debt and we are shrinking our maturities. We are now at less than 60 months, in terms of the average maturity, and facing what could be, not tomorrow, but certainly within the next 24-36 months, the same kind of point of crisis that we saw in Europe this last fall, with an inability for national interests, sovereign entities, to roll over their debt – the introduction of the LTRO, the Long Term Refinancing Operation, to smooth that over. No one thinks of the Treasury market as being anything but the definition of strength.

Robert: Those days are over, I think. In fact, I’m sure they are, and if we had our little bug inside the board rooms in China when they are talking about the fact that they are holding $1 trillion in Treasuries, we would see that they are not letting a day pass without thinking about how they can pressure the U.S. to behave more responsibly. If you think about what I just said, that is rather extraordinary. We have got ourselves into a situation where the Chinese are very worried about the irresponsibility of the U.S. government.

David: And here is the interesting thing. It is often said, when talking about creditor and debtor relationships, if you have a little loan, the bank is in control, and if you have a big loan, you are in control. The problem is, it is not just the existing debt that we have with the Chinese, it is the need to continually finance our operations, because as you said, we have promised too much, and in the name of politics, we have over-promised constituency groups their part of the tax take. That has to be financed every year by someone else. We would like to think that because of this massive stock of loans that have been given to us from the Chinese, maybe we are in control, because if we default, it could kill them, when in fact, we still need them, because we’re not done with the financing.

Robert: And they still need us. The reason they got all that debt was by manipulating their currency to stimulate their exports, which they still want to do. So, everybody is sort of tied in a Gordian knot together here, between the Chinese, the Japanese, the U.S., and some of the Arab states, which, financially, are the big boys on the block, that are rolling over debt constantly, in huge amounts, and keeping the Treasury going and allowing it to increase its debt. What I think is going to happen, because it is happening now, is that the Fed is going to have to ride in, in a bigger and bigger way, to rescue the Treasury, and I don’t think it can continue to do that very much longer and still contain price inflation.

David: Let’s go back to our original topic, and that is of concern, because obviously we do have that knot that you are describing. Will it be untied, or will it have to be cut, and who will cut it? The Chinese? Will it be a petrodollar crisis this summer? We don’t know. When we go back to the current administration, this is just a thought experiment. No one knows who will win the next election, but if Obama were to have an extra four years, does he reflect, for you, comparatively, Roosevelt, LBJ, or Truman? How does he stand up, and what would you expect?

We have seen two pieces of legislation, certainly not the 40 pieces of legislation that were enacted between 1933 and 1940, but actually, we burned a lot of paper, just with those two pieces of legislation. It may have actually been the equivalent of the 40. What do you think the next four years looks like? It is a Roosevelt style? Is it a Truman style? Give us some historical perspective.

Robert: I know that Obama would like to be FDR in his first term, but it’s not going to happen. As you say, he did manage to get Obamacare and the Dodd-Frank law, which by themselves create enormous mischief and uncertainty in the economy because of their requirements for so much administrative rule-making. But it is still not comparable to what happened during Roosevelt’s first term.

I think what we might expect to see, if Obama is re-elected, is something more akin to Roosevelt’s second term, in which the New Deal played out, opposition arose, there was more difficulty in the economy. We had the depression of 1937 and 1938, when we weren’t yet recovered from the depression that started in 1929. I really think that my best guess is for something like the 1970s – stagflation, slow real growth, probably enough inflation to be troublesome and possibly much more than that. But, as I said, we have never been in a situation truly comparable to the one we are in now, so as far as making economic forecasts, I really believe that we are in uncharted waters.

David: Any suggestions, sage advice, as an academic, but also just as a man who has to look to his own balance sheet, and take care of his own family? What is your sense of things? How would you conduct your affairs in this environment? It is uncharted territory, but we still have to make choices.

Robert: Absolutely. Everybody has to make his best guess and act on the basis of it. I never give financial advice, and I wouldn’t want anyone to think I am doing that now, and that is because I really don’t know. What I’m doing is trying to protect myself against possible high inflation. I have some inflation-protected assets, but I think a lot of people, and I am doing the same thing, are holding real assets.

Land is one of the things that may be some insurance. Commodities, of course, have attracted a lot of interest in the last few years for the same reason. People are looking for someplace to get a positive real return, which most of the financial instruments right now are not offering. I am also planning to leave this country, because I think it is rapidly becoming a police state and I don’t want to be a victim of that state when it grows worse than it is already.

David: I just heard the question ring in a thousand listeners’ minds, “And where do you go?”

Robert: Well, where I am going wouldn’t be a good place for everybody. I am going to a very remote village in Mexico, hoping that once there, I will be off of everybody’s radar screen.

David: My folks live in the Philippines much of the year. It is not unfamiliar to us. Out of the way places.

Thank you so much for sharing your thoughts and your comments. Let me come back around to these two books, which comprise my exposure to you: Crisis and Leviathan, and Depression, War, and Cold War. Where should people find your works? How can they be more familiar with your thinking and your writing? You have done a tremendous service to us in terms of your scholarship and the distillation of information. Where can they find you?

Robert: If you go to independent.org, which is the website for the Independent Institute, you will find, with a couple of clicks, the page for me there, and it has links to many of my writings over the past 30 years or so, and links to my books. Many of my books are for sale there, and they can also be purchased from normal outlets such as Amazon.

David: What I found is that I started with what I thought were the most important chapters of your book, I had selected about half of them, and I couldn’t stop reading, they were all too important to leave out. I really enjoyed Crisis and Leviathan – some very, very thoughtful reflections. I gravitate, I think, toward people who think on an interdisciplinary basis, and your formal training in economics does not limit the dialogue to something as boring, for instance, as econometric modeling. You are going well beyond that, and I appreciate it.

Robert: Thank you very much, and I will just add that I do have a new book coming out right now called Delusions of Power, and this reflects my latest thinking. It has been put together in the past few years, so if someone wants to get past my previous work, which in some cases goes back for some years, they can dip into Delusions of Power.

David: I would encourage folks to do that, and there is probably a conversation we need to have in the future, unpacking some of its contents.

Robert: Very well.

David: Robert, thanks for joining us.

Robert: Thank you.

Kevin: David, just as I thought, that was a fascinating interview. When you listen to guys like Robert Higgs, who are well accepted in the academic community, the first book that you had me read was published by Oxford University Press. They don’t publish just anybody’s books. This is a book full of excellent research. What I thought was interesting was that after all this research, he is coming to a lot of the same conclusions that we have, and that is, hold onto your assets, and maybe get something out of the country. What is your thought on what he was saying to do to protect yourself?

David: Kevin, looking at stagflation and slow growth, looking at the high probability of inflation, if not super-inflation, or hyper-inflation, on the basis of those released excess reserves from the central banking system, these things have been a part of our conversations now for several years, but it is nice as market practitioners to see the academic community say, “We don’t see it any other way.” The calculus is such that it is almost a foregone conclusion. I think probably most sobering to me is someone who is very measured in their decisions and very reasoned in their decisions, leaving the country – frankly, that’s a staggering conclusion to come to.

Kevin: Sort of sobering, wasn’t it?

David: Kevin, I personally would probably come to a different conclusion on that front. But I think there are ways in which you can have other options, and a part of that is diversifying your holdings outside of the United States.

Kevin: So, you don’t have to live outside of the United States, but having something outside of the borders, like we talked about last week. Whatever country you live in, you need to have a little bit of something elsewhere so that if you have to do a restart, you can.

David: Exactly. Of course, compliance, and dotting your I’s and crossing your T’s is utterly vital, but we think that having up to 25% of your liquid assets outside of your home country, and that can be any home country, just makes practical sense. As we look at a fiscal train wreck ahead of us, even more so, and as we see this natural propensity for the state to become coercive, and by nature, that is the nature of the state, as Robert Higgs has pointed out, we think, yes, it makes sense to be smart about where you have your assets.

Kevin: I am looking forward to reading his new book, Delusions of Power, as well. That will be probably much more current than Crisis and Leviathan, which was written well over a decade ago.

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