Video Transcript: Are Profits Evil? - Panel Discussion

Speaker 1 Uh. Now we've done plenty of talking today, but we want to give you  guys a chance to talk as well. I know you have a lot of questions about things  that were said and maybe things that were weren't said that you would like to  know about. So please, let's, let's have some some questions from the  audience, yes, sir,  

Speaker 2 as most status believe they they use $2 a crisis as a an excuse for an increased state power. But I have, I would like to entertain one of the fences.  What is appropriate regulation and what is inappropriate regulation for say, to  not be too vague after or before a crisis.  

Speaker 1 Yeah, so I'm going to repeat, summarize the questions for our  audience listening on the internet. The question is about, instead of talking about regulation in general, are there specific regulations that would be appropriate in  particular to prevent, you know, financial contagion or something like that? Or  maybe another question, to put the question a different way, this is not what you  asked, but I'll but I'll add to your question anyway, if, if you put Bob Murphy and  Peter Klein in charge, and we were able to get rid of the most harmful  regulations today, but it would take us a while to get to some of the others. What would we what would we strike down first? I'll let you comment first. Okay, if I  just  

Speaker 3 speak, can you guys hear me? Is this amplifying? Yeah. Okay. So  one thing, let me just make this point, then I'll let him chime in. The problem  when you do things like this is that the government, right now is subsidizing  certain things. And so as some people put it, you've got this issue of what's  called moral hazard with the commercial banks, for example, where there's this  thing called FDIC, Federal Deposit Insurance. And so right now, consumers  don't have the incentive when you go and open a checking account with the  bank. You don't go and do a bunch of research to make sure, well, what do  these guys do with their money? Let me make sure this is a solid bank, because you know, if something were to happen this bank were to fail, I would get  reimbursed by FDIC. And so the there is. There are a lot of free market  economists who say maybe it is appropriate for the government to lay down  certain regulations about what investment firms can do with their money, given  that we have this sort of blanket subsidy and this escape hatch, as it were. So in other words, the best of all worlds would be, don't subsidize them, but and then  don't regulate them, just let the market regulate people. But it's not obvious.  Well, given that we do have all these subsidies, should we then let them do  whatever they want? Just to give a different example, Murray Rothbard  mentioned this one when it came to like this, the former Soviet republics  desocializing and and when we have what's called deregulation in the United 

States and elsewhere. And he said, Look, from one point of view, you know, I'm  against price controls. I'm against the government telling businesses what they  can charge for their product. But if we're going to give the post office a monopoly on the delivery of first class mail, I'm not sure I want to give them the freedom to  charge whatever the market will bear. It might be appropriate to say to the post  office, no, you can only charge such and such for a stamp, and if you want to  raise prices, you got to get permission from us, because we're giving you that  monopoly. And so Rothbard said it would be wrong to say, Oh, it's a move  towards Freer markets if we just lifted the ability of the post office to charge or to get price fixing from the government. So that's a kind of framework. And now I'll  let you be more  

Speaker 1 specific. I was going to I would give the same response. Another  example is, you think of the police department, right? So Mises wrote about the  appropriate way to manage a police department. Let's assume that you have a  government provided government funded police department. You know, a free  market economist wouldn't say, Well, you shouldn't impose any restrictions on  what policemen can do out on the street. You know, they should get there  should be a performance bonus based on number of arrests, and you give them  complete latitude to decide how they want to get their arrest rate up, right? And  then, and if I said, Gee, I don't think that sounds like a good idea. I think we  ought to have some restrictions on what police officers can do, you wouldn't say, Well, I thought you were in favor of the free market, right? So you're in favor of  regulation, then, well, I mean, that's not regulation, right now, where it becomes  more complicated is if you look at, you know, take Goldman Sachs. Okay,  Goldman Sachs is not nominally a branch of the federal government, like the  like the post office, or a branch of a local government, like a police department,  but a lot of times de facto. I think Goldman Sachs might as well be part of the  federal government. I mean, it's so closely tied to, so heavily protected by so so  strongly subsidized by, you know, I don't lose a lot of sleep over, you know,  regular. Regulations from the financial financial regulators, restricting what  Goldman Sachs can do. I mean, that feels like one set of distortions trying to  counteract another set of distortions. As Bob said, the best outcome would be to remove the distortions on all sides, right? But it is, you know, it has to be  determined on a very careful sort of case by case basis. If we can't repeal all of  the regulations, it's possible that changing one may actually lead to a net  increase in government intervention. Right again, if you're subsidizing a firm's  losses, but then allowing it to do whatever activities it wants, where the  taxpayers are on the bill foot the bill for the loss. It's not obvious that that's a  move in favor of a freer market. Okay, so it's a great question, though, what  else? Yes, sir, 

Speaker 4 my question was, in dealing with economics, you mentioned that the  main basically, the goal of an economist or businessman, or anybody in the  business sector, is to basically predict what people are going to want, or maybe  what a whole society is going to want, in a sense. So basically, my question is,  with all the different venues that companies, businesses have different forms of  statistics, whatnot, what do you think is the most reliable way of predicting what  people want and maybe tying it into the example I was just mentioned as far as  the computer with the housing industry, I guess, how to avoid such a situation  where one becomes so immersed in a statistic in number that are kind of  absence from the human element that you can see how the housing industry?  

Speaker 1 Okay? Thank you. So there's two parts to your question as I read it, a kind of a theoretical part, a theoretical issue and a practical one. The theoretical  one is to just to ask us to restate, is it the right way to think about what an  entrepreneur does as trying to predict or forecast what consumers will want to  buy? And second, if so, what's the right way to do that? And is it possible that  even private entrepreneurs nowadays are over reliant on quantitative statistical  models to try to predict the future, as opposed to using intuition or gut instinct or  something like that. It's really excellent question. Let me take a I'll take the first  stab this time. I think the way you characterized the situation is just right,  although I might the word predict is a little bit tricky in that case, because we use the word prediction in the philosophy of science, you know, to make you think  about, you know, predicting in a laboratory, the scientific sense of one molecule  interacting with another. I mean, I would tend to use language that's more about, you know, sort of intuition or understanding, or a word that Mises used  judgment, right? So maybe instead of saying that entrepreneurs try to predict  the future, or try to predict what consumers will want, we say, could say that  entrepreneurs exercise judgment or discretion about, you know, what they  imagine the future state of the market to be, right? And that includes not only  trying to anticipate how much consumers will be willing to pay for something, but also what competitors will do right, what other products will be available on the  market at that time, what the overall, you know, what macroeconomic conditions will be at that time, maybe consumers will really like this new phone I'm  producing. But if it comes out in the middle of a recession, and people don't, you know, they're not spending as much on electronics, that's something I have to  take into account as well. It's very complicated, right? And you're absolutely right that it isn't something that quantitative models can ultimately, or with any sort of  sense of finality, you know, predict the way that we think of science predicting.  Mises has a discussion of differences between the kind of scientific, quantitative  prediction that we usually have in mind and the more intuitive sort of notion of  business judgment he Mises uses the same kind of distinction with slightly  different language that is often associated with another famous American 

economist named Frank Knight. Frank Knight is not a member of the Austrian  school, but Frank Knight is famous for distinguishing between what he called  uncertainty and risk. So risk is where we don't know what is going to happen  

tomorrow, or we don't know what's going to happen in the future, but we know a  lot about the problem, and we can characterize it in a very formal way, like  throwing dice. Okay, if I have a six sided die, and I roll the die, I don't know what  number is going to come up, but I know there, if it's a normal die, you know, I  know there are six possible numbers, and the probability that any one number  will come up is 1/6 okay, but saying, you know, what is the likelihood that I will  be able to make money selling my new phone? That's a far greater level of  complexity. And Knight argued that what we, you know, we wouldn't characterize that as a risky situation, because we don't know the probability. Distribution.  Rather, that's a situation of kind of deep fundamental uncertainty. Now, the  entrepreneur can try to use quantitative tools. He can hire a marketing firm, he  can do surveys, he can do interviews, he can look at past buying trends and try  to anticipate. So statistical forecasting tools would be part of the entrepreneurs  they would be in the entrepreneurs toolkit. But successful entrepreneurs do not  rely exclusively on those kinds of approaches. Because the future in a, you  know, in a complex market economy full of human beings, right, is not it can't be  characterized like throwing dice. It's characterized by, you know, real  fundamental uncertainty rather than risk. And it may be that a lot of financial  market professionals were also seduced by the siren song of these quantitative  models, you know, constructed by the smartest the physicists with the highest  IQs and so forth. But you know, that may not be relevant for dealing with human  beings dealing with human problems? Yeah, just to  

Speaker 3 elaborate on that a little bit, it's people ask us that a lot question  being you Austrians, you know that you can't model human beings the way that  physicists model particles and so forth and so doesn't that? Doesn't that mean  you're against any any company that relies, you know, in terms of its marketing  or whatever, on these statistical approaches and and, no, I don't think that that  follows, like a Peter said. I mean, you can, they can do whatever they want. And  the ultimate proof would be, if it's profitable, because they're using those, those  methods of modeling their customers. Well, great, but if it turns on a dime, which it all, which we know it could, and it blows up in their face. Well, then, in  retrospect, we can say that wasn't a good idea. The other thing too is, if it really  were the case, that all you needed were to use the right statistical approach,  and then, boom, it would be obvious what the investment decisions would be.  Well, then you wouldn't be able to earn a profit from it, because everybody  would be doing that right. So the way you earn, what we mean by profit, an  above average return on something is is because you saw a possibility or an  opportunity that other people didn't see. 

Speaker 1 Other point is that the metaphor of you know that consumers and  consumer preferences are steering the ship, and that the entrepreneur is sort of  constrained by subject to the whim of the consumer in deciding what is, you  know, what will work or not. I mean, that is a metaphor, right? Remember,  remember what Steve Jobs famously said, you know, Steve Jobs said, Well, you know, consumers don't know what they want until I show it to them. In other  words, that you know, the entrepreneur is not just sort of a helpless slave of  consumer, you know, sort of random consumer passion. Now, of course,  entrepreneurs work with buyers. They work with consumers to try to shape, you  know, some kind of a shared vision of what the future and what the future could  look like. So entrepreneurs are, of course, active participants in trying to bring  about a future state of affairs that they want, not merely passive recipients of,  you know, things that just sort of randomly come down the pike. Okay? Great,  great questions. Let me Yes, Lady behind first and then in front. Thank you.  

Speaker 5 I'd like to bring up two subjects, only two, and get your reaction to  number one, I'm aware of the 50 to 100 year infiltration by Marxism all our  institutions, particularly education, the universities, the press, Hollywood  Foundation, to the point where I have zero trust in many of these institutions  zero. They're all corrupt, and they're being their lies are being perpetuated all  the time. And I don't know to what extent these young people have any  knowledgeable I live long enough to be aware of it. Now, let me so that's one  thing. It's very real. And you know, Mom was growing up, communism was the  Bugaboo, but they went underground, and they have succeeded, and I see our  main task is trying to bring this country back, or we will fail. Okay, so that's one  thing. The other thing is, take the financial crisis. I happen to have a Wall Street  background. I remember the hearings on this. I watched them on C span, there  was a minority the Democrats controlled wherever the juries were. The majority  report blamed all Wall Street companies. But there was a minority report that  brought out the government role in forcing banks to lend money to people who  could not pay. It was like reparations. Hey, we're going to give you the money  you never had. You do it or we won't regulate you properly. So so this leads to  the regulatory state, and in my lifetime, there is so much more regulation than  ever that ever existed. I don't even want to work because I'm not going to do it.  Something is going to get me in trouble. These regulations are written by  bureaucrats like hospitals. You don't know what they're going to come out with,  and no one checks it. The health care bill pages and the financial Bill pages and  pages of regulation written by nameless bureaucrats affecting every one of us.  We don't have we don't know what they are. We have no control. And this leads  to the crony capitalism. I don't know when you think that started, but it may  seem me, you have a citizen feel stupid. Oh, you mean, I didn't go to 

Washington to get my share of the government handout. What's wrong here? I  should have grown up thinking, I gotta go once you can get my hands on power  so I can get the taxpayer money for myself. That's not how I was taught when I  grew up, but that's how it is. So could you comment on the Marxist infiltration  and number two, yes, the law is taught by the crafts and the crony capitalism  that's emerged where business does not try get it shared, someone else  

Speaker 1 will get the money. Yes, thank you for your comments. Let me. Let me propose this. I'm, I'm sure that we both agree with with your comments. Let's  take one or two more questions, and then we can maybe respond to them to get all at the same time. Yes, ma'am, I wanted to know what you might be aware of  for teaching our children while entrepreneurship. Oh, great, yeah, great  question. Actually, the question is about resources for teaching entrepreneurship to young people. Why don't I? Let me address that Bob first and also the  previous set of comments, simply by saying that it's true that existing institutions, including our institutions of higher learning, established universities, colleges  and secondary schools and so forth, trying to transform them into the kinds of  institutions that we would desire, getting them to teach what we think should be  taught, that's a that's a pretty tough row to hoe. And so an alternative to trying to transform existing institutions is to bypass them, is to do an end run around  them by creating our own kind of alternative institutions. In a sense, that's what  the Mises Institute does. The from our Mises Academy program that I mentioned before, which offers things that are like college courses, right? To events like  this, to you know, all of our materials on our website, right? You can think of that  as an attempt to build up an alternative educational paradigm where students,  they're not enslaved to the ideas that come to them from the established  institutions, which are very, very hard to change. So rather than infiltrate the  government, the media, the established media and universities, it might be more profitable to set up our own alternative media, educational institutions and so on, which leads me to your question about business education. I mean, there, you  know, a number of good resources. Of course, you can, you can start by looking on mises.org Dr Murphy has authored one of the politically incorrect guides,  politically incorrect guide to capitalism, right? And also a set of lectures for high  school and beginning college students, lectures to the young economist. When I let Bob talk about those, and if he doesn't, then I might be able to add something about things specifically for business and entrepreneurship,  

Speaker 3 sure. So it's the book is lessons for the young economist, and all the  stuff that the Mises Institute is you can get the PDF if you want to look at it and  see what it is. And that just goes through giving a lot of free market lectures.  Because a lot of the problem I think that Peter and I have is when we get  students at the college level or older and they've learned a bunch of Keynesian 

economics, and then we're basically trying to undo that. And so here we were  thinking like, what if you just caught someone who hadn't heard that? So just  teach them what we think of as proper free market economics from the get go.  And then, as you say, the politically incorrect guide to capitalism isn't a textbook. That's more of a popular book, just taking a bunch of topics like  environmentalism and minimum wage laws, rent control, and just trying to give  you, know, two, three page analysis of why the conventional wisdom on that is  wrong and that government intervention actually gives the opposite outcome. So tying into what the earlier questions were there, I mean, it's it's true. I do a lot of  work in policy circles about what climate change issues and things like that, and  you do a lot of times, you know, I say to my colleagues, you know, these people  who want the government to do such and such because of climate change, you  get the sense that they're, you know, they're giving reasons they know will  resonate with the public. But. Really, they don't like the, you know, the American  way of life. They don't like Americans consuming so much like that just offends  them. They don't like that aesthetically. And so that, you know, and you get that  sense. Just to give you one quick example, talking about, you know, if you're  really concerned about carbon emissions, you should be a big booster of  nuclear power. But most of the groups who are totally for a big carbon tax, and  we got to have, you know, electric cars. They're not for power plant or they're not for nuclear power plants. Even those, those have zero carbon emissions, right?  So little things like that, where it looks like, wait a minute, if they really thought  about the thing that they're saying they care about, it would be such and such.  So, but what do you do? I think, unfortunately, we're in the minority, and the  public, you know, thinks that we're apologists for big business or whatever, and  so I think it's better if we just teach proper economics and hope that that gets  absorbed, as opposed to justifiably, in many cases, correctly pointing out, you  know, the motivations of the of our opponents, because that, you know, I think a  lot of people are just going to be turned off by that.  

Speaker 1 One other thing on books that we also have a textbook authored by  David Gordon that's available @mises.org called, I think it's called Introduction  to economic reasoning that is designed for high school students. Some of you  

might be interested in that, but there are a lot of other individuals and  organizations that have produced good curricula. One of my kids has really  enjoyed a series of comic books on entrepreneurship and management  authored by some business school professors. One is a associate of mine  named David Ketchen, k, e, T, C, H, E n, sorry. I think the correct term now is  graphic novels. So if they're graphic novels on entrepreneurship and  management aimed at a high school or college audience, and there are a  number of good resources out there that would that can help in this way. So  thank you. Other questions and comments, yes, sir, I 

Speaker 7 really like something that you touched on a little bit more about the  type of regulation that you want to give to government agencies. If you look at  our Bill of Rights, it's essentially a list of regulations government itself. But in  thinking about regulation, we've heard about some that can be stifling. The  question when I started learning about this that came up was, well, what about  regulations that would appear to be helpful? Regulations for employee safety, for patient safety, I'm a doctor, and one of the things I think about is, well, if  everybody's getting antibiotics over the counter whenever they want, well soon  we're going to start to have a bunch of infections that are resistant, and that's  not something that a market will necessarily take in place. So how do we sure?  

Speaker 1 So the question is about, well, you know, talking about some of these financial industry regulations, okay, sure, people understand that those might be  helping big banks or something, but what about more difficult cases like health  and safety regulation, government regulations on what kind of things can be in,  in food or use of medicine that, ostensibly, according to their proponents, are  designed to protect the public from harmful practices of businesses and other  people. How would we go about addressing what are some good arguments  that we would use to challenge those kind of assumptions. I'm going to ask Bob  to Sure, start with,  

Speaker 3 I don't know enough about medicine to talk about that, but let me I  have written about the FAA. All right, so the federal government's regulation of  airlines, because that's something where, you know, the general public advice,  you know, I don't think the federal government should be regulating air travel at  all. Let the market settle it. That sounds crazy. And people go, Oh, there'd be  planes dropping out of the sky. You say, Wait a minute, the planes cost a lot of  money for those airlines. Do you really think they're not going to take care of  them? They say, OK, no, they wouldn't be dropping out of the sky. But clearly we want the government. It can't hurt to have the government come in and lay  regulations on top of it, to do random spot checks to see if the pilots are drunk to just send in random people to check the equipment and make sure it's up to  date, and that sort of thing. But I can argue that, no, actually, I think it is harmful,  because it would displace what the market would do instead. And just the crucial thing here is to remember, just because the government has an official program  and hires a bunch of people and gives them a job to do doesn't mean they're  actually going to achieve it. So just because they have this agency devoted to  airline safety, by itself, doesn't prove air travel safer, safer. One example, what I  mean is, when there is a crash, you know, when I, when I was growing up, it  was a big thing in the Everglades, and it was, was it? Was it called Value jet?  Was that with the name? What's it now? Is it AirTran? So they changed their 

name, but, and that was a huge and it was a big deal because they violated all  of these regulations, right, all these FAA things that they didn't do, and the FAA  signed off on and they shouldn't have. Did the FAA get its budget cut in half? No, they got more money. And there's like, this proves. Look at how bad the market  is. The FAA needs more money because they're understaffed, so clearly we got  to give them. So it's this perverse thing where when a government, regulatory  body screws up, everyone just blames the free market and so like there's no  way it could ever be the case. A different example is the government, the Bureau of Land. And I forget they changed their name to the BLM, is what they used to  be called. More recently, the people who are supposed to be regulating bill. Oil,  and they got in trouble. They were literally letting oil representatives throw  parties where they were bringing in, like, cocaine and other things that are illegal and immoral, and having big party. And they had a cake that said, drill baby, drill  on it and stuff, you know. And so these are the guys regulating the oil industry.  And so the idea that we need big government to put a check on big bit. I mean,  that's very naive, that in reality, what happens is the big regulated corporations  co opt the people regulating them, and it's a nice, cozy relationship. And so the  one person people that don't benefit are the average consumers in the mom and pop shops. So I guess the quick answer would be, the market can regulate too.  So it's not that we're against third party oversight. So we're saying, when the  government comes in and does it, it performs as well as the government does  anything else that it tries.  

Speaker 1 Yeah. I mean, this leads to a important general point when we talk  about the free market and what a society would be like if we had a free market  without an interventionist state. We're not claiming that such a society would be  a utopia, right? It would be peace and love and Kumbaya, and everyone would  be nice to their neighbors. No. I mean, it would this society would still be  populated by fallible human beings that you know are subject to whims and  passion, and there would be bad people who want to do bad things and so forth. The question is, you know, what set of social arrangements is most likely to  minimize, will minimize the harm that's caused by all of the foibles that make us  human beings, including ignorance and malice and apathy and so forth. So  would you want the institutions that try to encourage safety, right? I mean,  government safety regulators do not eliminate harm, right? There are still plane  crashes. There are unsafe people get sick from food they eat. Medicine can do  harm to people who take government approved medicine. So there's certainly  no utopia. The government doesn't create a utopia. The question is, what kinds  of institutions, what kinds of individuals, what kinds of arrangements are going to mitigate best mitigate that kind of potential harm? Would it be independent third  party inspectors and certifiers who make a living from their reputation for doing  high quality work and for integrity and so forth. If you had a private market 

driven, you know, supervising authority that was throwing the kind of parties that Bob just described with the people supposedly inspected, what would happen to a private inspection company like that? They would go out of business  tomorrow, right? Because they could only make money by having a reputation  for integrity and honesty and, you know, and high quality and so on. But  government regulators have no incentives to be, you know, to do what they  ostensibly are charged to do. There's no connection between their performance  and their reputation in the eyes of the public and the resources they have to  control their salaries and so on, right? So we're not claiming that we can wave a  magic wand and make all bad things go away. We're saying that taking very  difficult situations and putting the government in charge of making them right  merely exacerbates the problem, rather than making the problem better. We  think we can minimize harm in other ways by relying on voluntary, peaceful  interaction among people rather than government coercion. I think we have time for maybe just one more question. Is there anyone who Yeah, okay, yes, sir. In  the back,  

Speaker 2 von Mises, this is a standard Austrian tenant that government can  distort prices and that a market, a free market, in order to work, would have to  honest prices or prices being true. However, a critique of this is that, what if, in a free market, businesses and corporations also distort prices and signals.  

Speaker 1 Okay, so the question is about price distortions. When government  distorts prices through price controls and subsidies and so forth, that has  harmful consequences to resource allocation. The question is, what about  private entities distorting prices? So you mean firms conspiring to raise prices or something like that? Yeah. I mean, it's a good question. The short answer, since  we're about out of time, is that the way Austrian economists typically think about  prices is a little bit different from the way a lot of mainstream economics  textbooks think about prices. So in the typical treatment that you get in the  average textbook, there's a certain kind of price which they might label as the  competitive price, or the perfectly competitive price, which is good and desirable and has all these properties that we've been talking about, giving signals to  entrepreneurs and so forth. But some prices can be off away from these  equilibrium prices because of monopolizing firms that have so called market  power, and they can charge prices that are higher than these competitive prices. Well, Austrian economists deny the legitimacy of that distinction between  competitive prices and monopoly prices, as long as there is no government  intervention in the market. So whatever prices obtain through the voluntary  interactions of individuals and firms are competitive in the sense that people are  free to pay them or not to pay them, and your business partner is free to agree  with you to charge the high price that you want, or to disagree with you and try 

to undercut your price and so forth, right? The only distinction that we would  typically recognize is between prices that come about on the free market and  prices like, you know, the price of a first class letter that's a price that is set by  the government, right? So a government enterprise that charges a price for its  services. That's not a market price, right? Or if the government passes a law  that says, if you are hired to work for a firm, the firm cannot pay you less than x  dollars per hour, right? That's not a free market price. That's a that's a  government price floor, right? So when government intervenes in prices. Prices  are different from what they would be on the market. But aside from that, any  kind of, you know, whatever, prices emerge from voluntary interactions among  individuals and firms, we would not call those distortionary, even if they're higher or lower than we might like or prefer, or instinctively, you know, be guided to,  okay, that's excellent question. All the questions have been, have been terrific.  We are out of time, so I want to thank all of you for coming and thank our  audience remotely for watching. Like to thank Dr Murphy for his talks. I guess I  can thank myself for my talk also. But we look forward to seeing all of you at a  future Institute event. Please look at our website, mises.org for resources,  information on other events, including the online courses that I mentioned. And  we look forward to seeing you all in person or on the net. Bye, bye,