In Jason Hartman’s introduction portion of the show, he answers a listener question about the due on sale clause and transferring your property into a single member LLC. Jason also welcomes guest John Michael Greer to the show. He is the author of several books with the most recent one being The Wealth of Nature. In the show today, Jason and John talk about the US economy and some of the key issues that it currently has in today’s market.
Key Takeaways:
1:40 – A listener question is played about quick claim deeds.
6:50 – Would a judge even uphold a due on sale clause for single member LLCs?
13:45 – Jason touches on rent to value ratios and talks about $415 rents around the country.
19:50 – Jason introduces his guest John.
29:20 – John and Jason explain what externalities are.
40:30 – We tax the wrong things, we shouldn’t be taxing earned income.
48:00 – People are smart and they will always find a way to game the system.
Tweetables:
“What does government spending always lead to? It leads to inflationary pressures.”
“Whenever anybody talks about a new economic era, oh man, get out of the market.”
Mentioned In This Episode:
HotPads.com
VisualCapitalist.com
The Great Crash, 1929 by John Kenneth Galbraith
The Wealth of Nature by John Michael Greer
http://thearchdruidreport.blogspot.com/
Transcript
Jason Hartman:
Welcome to the Creating Wealth show. This is your host Jason Hartman. This is episode 488. 488. Thank you so much for joining me today and I’ve made a promise to our producer who is doing a great job for us that I will not ramble on too long in this intro, so we can actually fit the guest in today, but I know many of you listeners like my ramblings, which I so much appreciate because it’s a stream of consciousness kind of mindset sometimes. Anyway, I’m not apologizing for it. So, today’s guest, John Michael Greer, The Nature, and we will be with him in a few minutes. First of all, why don’t we start off with a listener question.
Audio Recording:
Hi Jason, my question is about quick claim deeds. I’m using a 30 conventional consumer loans through Fannie Mae to close some properties. On my lender is telling me my policy they do not allow transfer of a deed into a LLC and further to that, even if they did allow it, there’s a cause in the loan that says they can – the note would be due on sale if I were to transfer the deed that could initiate them asking for acceleration of the loan payment.
So, my question is have you run across this before, other of your clients run across this, and what do you do? Do you just have to go with a different lender? I did ask question up front to this lender and they gave me vague, but positive responsive indicating that it wouldn’t be a problem, but now that I’m trying to do it, it seems to be a problem. So, question, how do I get my properties transferred into my LLC? Thanks, bye.
Jason:
Okay. So thank you for that good question and that is absolutely true. Yes, I have definitely run into that kind of thing. So, as we peel back the onion here. Of course, the due on sale clause was upheld by the supreme court and I believe that was in the early 80s if I’m not mistaken. Just looking here, I just looked on Wikipedia real quick and it says, “However, in 1982 congress passed the Garn-St Germain Depository Institutions Act. That’s section 3-41a by the way of the act, which codified in Title 12, the US code, section 1701j-3.” You like that? “Makes the enforceability of due-on-sale provisions a federal issue and provides that if real estate loan documents contain a due-on-sale provision, that provision is enforceable if the property securing the loan is transferred without the lender’s consent.”
Okay, so yes. There is a due on sale clause. The due on sale clause is definitely enforceable, but let’s peel back the onion in a few weeks, because of course nothing is as simple as it might seem. The first question I would ask you is do you need or want to even transfer your property into an LLC in the first place? That is the first question. If you’re concerned about liability stemming out of the property, that’s know as the internal threat, right, liability stemming outside of the property then you can insure around that pretty easily, so I don’t think that’s too much of an asset protection concern and remember, even if you have liability from the property, the property is liable for itself.
So, if the tenant slips and falls and they sue the LLC, they can get the LLC’s assets, they just can’t move beyond the LLC’s assets. So, if the LLC owns the property, they can get the property. I do need to, of course, make the disclaimer I’m not an attorney, I’m not qualified to advise on legal manners, I’m just tell you what I’ve heard, what I know, and what I experienced. That’s all I’m ever talking about on the show. In every individual case is more complicated than giving public group advice, of course, and the same goes for taxes too, right.
So, that’s the first thing and insuring around that liability is not very difficult to do in real estate. Insurance for real estate is pretty good. The next thing is, in terms of what the lender can do and what they have the right to do versus what they actually will do. Now, I have heard many, many times over the years of people transferring their properties into an entity they own like a single member LLC and I have never, ever, ever, not even one time, heard of a lender trying to enforce the due on sale clause, trying to call the loan due or anything like that. That doesn’t mean it hasn’t happened, I’m sure it probably has happened, I just haven’t heard of it happening.
I would certainty say from a practical standpoint, lenders have much bigger problems to deal with right now than – assuming that you’re paying your loan, they’re not likely, I don’t think, to call the loan due on sale if you transfer it into your own LLC and the other thing is I wonder and I’m sure this has been litigated, that’s the nice thing about living in the modern world you know, everything that you can conceive of has probably happened to somebody at sometime, somewhere.
So, if that actually were litigated and say the owner of the property transferred the property into a single member LLC, not an LLC owned by a bunch of people or anything like that, but say they did that and the lender said, hey, pay off the loan right now. It’s due on sale, because you had a transfer. I bet you if the owner fought that and they went to court over it, as long as there was no, you know, no practical difference; remember, you’re still liable for the loan, it doesn’t reduce your liability. You as the individual who signed the loan documents are still liable. I wonder if a judge would actually even uphold the due on sale clause.
Now, that’s only as it applies to a single member LLC, but if you have multiple members or that LLC is owned by somebody else, of course, the due on sale clause is going to be enforceable. I would just wonder if it’s single member, if it’s the same basic person that owns the LLC versus the person being an individual. I can’t imagine a court would actually enforce that, but again, I don’t know.
It could happen, but I think the thing you really got to watch out for here is a lot of lawyers and a lot of asset protection promoters that aren’t even attorneys go around promoting, you know, get an LLC, get five LLCs, make your life really complex just like Jason Hartman’s life, which my life is so complex with all these entities I’ve got nowadays that I can’t even keep track of it, honestly. It’s just really confusing after awhile. You know, you gotta keep everything separate, you’ve got to have separate bank accounts, you got to do many tax returns and the other problem when you transfer your property into the LLC may well be within insurance.
Remember, that property, if you transfer it, there’s a different owner, so you got to tell your insurance agent and some insurance companies don’t want to provide coverage for residential properties in the name of a LLC. So, these things do get a little bit murky. The other thing that I’ve head about that can happen is there was a rule awhile, a few years ago and I’m not sure it’s still around, it may well have changed where Fannie Mae said that a property must be out of an LLC for at least six months prior to doing any refinance of that property. So in the future if you decide to refinance the property, remember, hopefully you love my great plan, which I must say is great, everybody tells me it’s great, it’s great; my refi till you die plan and if you want to refinance that property later and it’s held by an LLC, at that point the lender could give you a problem.
So, these are all kind of the complexities and there may will be other things that you want to think about when you think about this stuff. There are lenders who, of course, a private lender, a hard money lender, they probably won’t mind or have an issue with the LLC and also some of this what we call middle market alternative financing offered by companies that are our investment counselors, who you can find at JasonHartman.com, can put you in touch with. They also can really do some good stuff for you in terms of being very flexible about having entities and LLCs and so forth, okay. So, those are some of the questions really rather than the answers to your question, but just some things to make you think.
Okay, a couple of other quick things before we get to our guest. $415 a month. What will $415 per month rent you across the United States? Well, on hotpads.com, they had an interesting little story about this. It’s just really interesting to look at this as a relativistic point of view, because, of course, real estate markets differ dramatically that’s why all real estate is local, that’s why you should follow my ten commandments, you should be area agnostic, you should diversify in the most historically proven asset class geographically, okay, because all real estate is local and look at the difference here and I want to bring this conversation back after we go over these to the RV ratio. The rent to value ratio and why it’s so important that we don’t let our thinking get all muddy up and murky about this stuff, okay.
SO, here’s just a couple of interesting examples, okay. You can rent in Rochester, New York, which I did live there when I was a little kid. In Rochester, New York, you can rent a studio apartment for $415 per month. In Lansing, Michigan, you can rent a room, not a whole house, a room, and this is, I believe this is college housing, yeah, this is student housing, but you can rent a room in a really nice place for $415 per month.
In Tucson, Arizona, not too far from me, you can rent a studio on Irvington road for $415 per month and in Detroit, Michigan you can also rent a studio apartment for $415 per month. In Wichita, Kansas, a studio for $415 per month and last but not least, in San Francisco, California; sorry, the socialist republic of San Francisco, you can rent a private garage for $415 per month. So, you see how real estate values obviously differ. You can only get a garage in San Francisco for $415 per month, but anywhere else you can get a pretty decent place.
Here’s the thing I want you to consider, if you ever run into a problem renting one of your houses and you invariably will, look it, this is not perfect, it’s just better than everything else. That’s the only way I view income property. It’s not perfect, it’s just better than all the alternatives as far as I know. If you ever run into a problem renting one of your units, just look at the rent to value ratio. If you were owning a property in an expensive market like any of the expensive markets in California and you had a $1 million property, you would probably get about $4,000 per month for it.
If you had a $100,000 property in oh, let’s say that was in Little Rock or it was in Memphis or it was in Atlanta or any of the markets we like and recommend or even Chicago, you can barely do it in Chicago, but you can get close. If it was in one of those markets and you rented it for the same ratio. Let’s just assume that California or that million dollar property wherever in the world it is, it doesn’t even matter, because the ratios pretty much apply world wide I’ve noticed, if you rented it for $4,150 per month, that’s the exact same as $415 per month in the example I just gave you.
So, now you take your $100,000 property and rent it for $415 for month and people will be lining up around the block to rent that property for a .4, basically a little better than a .4 RV ratio. Okay, a .4% RV ratio. So, that’s the point I’m making here. If you ever have a problem renting a property, just keep it in perspective. If you can’t the $1,000 per month, the 1% ideal number, the 1% RV or rent to value ratio, if you go way down to .4, you will rent your property in a New York minute.
I mean, I’ll just tell you, people will be lining up around the block to rent that property from you. So, what if you were to rent it at a .6 and you were to get $600 per month for the $100,000 property or what about .7 or a .8, $700 or $800 per month for that property? You’d probably rent it pretty darn fast. So, just keep that in perspective.
Remember when I had one of our video and podcast producers on the show a while back? We talked about his rent controlled apartment in San Francisco and how he was living in a property that, I can’t remember the exact numbers, but it’s in the intro portion of one of the shows, oh, several months back. You can go to JasonHartman.com and type San Francisco on the website and you’ll see a bunch of references, but you can find that one pretty quickly I’m sure and you can hear him talk about it and he rents his rent controlled apartment for like, I don’t know what did he say, for like $2,300 or $2,500 per month or something and it’s worth over a million dollars. I think he said it’s worth like a million two or a million four. So, you know? Keep it in perspective. I mean, he’s basically got a .2% RV ratio. Pretty darn awesome if you ask me. So, just having that in perspective is very, very important.
Well, this some good news, little side note here not about real estate but about liberty and justice and government intrusion. So, the NSA, the government agency that is totally spying on us is now getting sued by a whole bunch of different groups including Wikimedia, the ACLU, Amnesty International, and they are getting sued by a bunch of people, so hopefully this will keep them, restrain them somewhat, but you know where this is going and this is something we talk a lot about on the Holistic Survival show. This government spying is beyond absurd. I just did a really interesting show on that that won’t be on the Creating Wealth show, but it’ll be on some of the others where I talk to an expert who runs a company that deals with radio surveillance and we talked about how people can hack into your cellphones and use drone planes to do that and all sorts of crazy, crazy stuff.
The last thing I want to talk about before we get to our guest is the issue of water and you may not be reading anything about this, but it is becoming more and more of a pressing world issue and that is water. I’ve got an interesting infographic I’m looking at that I found at Visual Capitalist. I have them on the show as well. You can go find this infographic there at VisualCapitalist.com. It’s about the water shortage in America and you know, at first glance, I would think, okay, what I want to do is I want to go and invest in companies that are going to solve this problem, but the problem with that is you leave yourself susceptible to the three major problems, right, that we always have. You might be investing with a crook, you might be investing with an idiot, assuming the company is host and competent, they take a huge management fee off the top for managing the deal.
So, I don’t like any of that stuff, but really what this means is this mean there will be a lot of government spending to solve the water crisis that is not just in the US, but it’s around the world and that government spending, what does it always lead to? It leads to inflationary pressures. So, that’s the game I take on that tact and follow my investment philosophy of inflation induced debt destruction benefits is a very, very good thing.
Okay, Coco is barking, because the house keeper has arrived, so let’s get to our guest and let’s talk about The Wealth of Nature. Go to JasonHartman.com, check out some of our great products there. We’ve got a few, just a few literally, of our Meet the Master home study courses there for ya. You can get those supremely discounted. I just shipped out a big batch of those and we are quite literally down to the last few of those courses, so if you want the physical product, take advantage of that, JasonHartman.com, and let’s get to our guest and talk about The Wealth of Nature.
It’s my pleasure to welcome John Michael Greer to the show. He is the author of many books including his latest The Wealth of Nature: Economics as if Survival Mattered. I like that title, it harkens back to Adam Smith and The Wealth of Nations and John, welcome, how are you today?
John Michael Greer:
Thank you. I’m doing very well. It’s a pleasure to be on the show.
Jason:
Good to have you. Give our listeners a sense of geography, where are you located?
John:
I’m located up in the far Western-end of Maryland. Maryland is the weirdest shaped state in the country. It has that paled stickup into the Appalachians. Go into it, you’re about to fall into West Virginia and there you’ll find me.
Jason:
And there you are, good. So, tell us about The Wealth of Nature. This is really kind of a critique of mainstream economics. Is that a proper description?
John:
Yeah, basically. I think most people at this point realize that the sort of economic mainstream that guides our governments, our corporations, our economies generally, there’s something very wrong there. There’s a joke that does the rounds these days, what do you call an economist who makes a prediction? The answer of course is wrong. No matter what they say, they’re wrong. I am reminded, not that long ago in the run to the, actually right after, the 2008 bust in the real estate bubble, people were talking about why didn’t anybody in the economic profession see this coming? There were few, there were a handful of economists. They were few, but the vast majority of them did not see this coming and the amazing thing was there were literally thousands of people out there in the blogsphere outside of the economic profession who looked at it’s a business speculative bubble that’s going to crash catastrophically and there were even people that got the date right.
Jason:
Before you move on I want to just dissect that for a moment, I would say there were really two economic crises. One, I”m going to pat myself on the back that I rightly predicted and that was that toward the end of 2005 I predicted and, you know, it’s on tape, it’s a live seminars and so forth, I predicted there would be a real estate bubble in the high priced markets because, you know, the lending criteria, it was just lend. You fogged a mirror one day out of prison, you’re getting a loan with no job. I mean, it’s absurd. Anyone could see that coming. I mean, you’d have to be crazy not to, right, but you are right, many didn’t because they were all paid not to see it. So, that’s one.
John:
It’s a little more complex than that, but yeah, that’s part of it. Go ahead.
Jason:
But just let me finish the point. So, one part of it is we’ll call that the sub-prime stupid mortgage lending and that was just like obvious. I don’t know how anybody couldn’t see that and I saw that and I the reason I predicted end of 2005 is because I just look back, you know, I’ve been investing in real estate for many, many years and I saw that if you just back up three years, you see these adjustable rate mortgages with these three year teasers coming due in late 2005.
That was like the bulk of the moving through the pipe and all you had to do is go back three years and you could see that that was going to happen, but then there was a whole another financial bubble, which of course affected real estate and that’s the wall street, the vast wall street conspiracy, the modern version of organized crime I call Wall Street, affectionately by the way. That whole thing, like, I didn’t know they were doing all these crazy things with, you know, collateralize debt obligations, you know, that part was much more opaque. So, I kind of divided into two parts, you know, I didn’t know that second part was going on.
John:
There were certainly the two parts. The only reason that I found out about the second part in the process is that, actually, right around 2005. So, just before I started my blog, I had started reading some of the blogs. I was watching real estate prices begin to head toward the (23:08?) and look at that and going, “This is nuts. What’s going on?” Found some blogs and started finding out about things like collateralize debt obligations and asset backed securities and all of this kind of nonsense and going, “Oh my.”
The book to read, the book I recommend everybody, other than mine of course, but everybody who is into investing needs to pick up a copy of John Kenneth Galbraith’s book The Great Crash, 1929, which is the most hilarious side splitting intensely readable book of serious economic history you’ll ever read and here’s the thing, if you read that book and you notice all the slogans that we use to pump the market in the 1929 before it crashed, they’re still in use. Whenever anybody talks about a new economic era, oh man, get out of the market.
Jason:
Or another I say is the real signs you should run for the hills, whenever someone talks about financial innovation.
John:
Yes, yes.
Jason:
Watch out.
John:
Very much so. Anytime that that word, that phrase, corps up, grab your money and run.
Jason:
Exactly, good point, good point.
John:
Economists didn’t get that. Now, partly you’re right that you’re were paid not to get that, but partly economics has become so detached from the real world that people with advance degrees from really good economic schools and people who are being taken seriously by the media are spouting the most absolute nonsense. My favorite example and I’m not going to name the person who said this, I don’t want to be unnecessarily cruel, was the person who was going around saying that geology doesn’t create crude oil, capital creates crude oil. If you have enough money..
Jason:
Oh c’mon, who was saying that? I’m dying to know who was saying that.
John:
You can look it, there’s actually half a dozen people who have made that claim.
Jason:
We do controversial things on the show.
John:
I’d have to chase up the guy’s name, but at any rate, people are insisting the only limits to resources, to anything, is how much money you have. Now, what is money? Money is a system of tokens. They have, I mean, a $1,000 bill has no value what so ever except possibly as toilet tissue except that it’s the token that we use in our society to exchange wealth, actual goods and services.
Jason:
I call the Wall Street and the central banking cartel, that’s the smoke and mirrors economy. The real economy is in real things and that, by the way, is why I have my love for real estate. The first word is real.
John:
Yeah, actual land is kind of a real wealth. Now, it’s interesting you should talk about the whole smoke and mirrors thing. One of the major points of my book The Wealth of Nation. It’s in there we talk about the economy and there are actually three economies. I’m going to start from the abstract and then go on. Tertiary economy, if money and everything that has to do with it, that means credit, that means the various fiat currencies, it means everything that has only exchange value, the only thing you can do with it is trade it for someone else. I hope I won’t insult or offend any of the gold bugs in our audience by saying that gold, however useful it is compare to other forms of currency, gold has only exchange value unless you need some really good dental work done. It’s a medium of exchange. All mediums of exchange belong to the tertiary economy and that’s one thing. That’s the thing that economists generally study.
Jason:
It’s tertiary unless it has intrinsic value and the gold bugs say gold has intrinsic value. I would argue with them no it does, because it’s not an industrial metal anymore. So, things like a store of food has intrinsic value. If you’re a survivalist, bullets have intrinsic value, walk has intrinsic value, and a place to live has intrinsic value, you know?
John:
Exactly. Goods, actual goods and services that have a – these exchange value and there’s use value. That’s a good thing to keep in mind. Something that just has exchange value, all you can do with it is trade it for something else. That’s the tertiary economy. The things that are of use value, the things that are goods and services produced by human labor and exchanged with or without a medium of exchange like money. I mean, there’s barter and all kinds of things like that. There’s also the household economy where things are produced and consumed. That’s the secondary economy. That’s where we…well, that’s where those of us who actually do physical work and produce goods and services, that’s where you do it. The primary economy is nonhuman nature. Everything, every bit of wealth we have is actually produced by natural process. Your real estate, let’s say it’s a farm land, okay, the soil on that farmland can only grow crops because of the natural process to turn a bunch bare rock dust into nice black soil, because of the natural process is to provide rain, because of the natural processes that produce the cycle of the seasons. The natural world is the ultimate store of value. It’s the ultimate source of value.
Jason:
I used to say and I think it kind of goes along with what you’re talking about, John, all wealth comes from the land. That’s where all wealth is, whether it’s agriculture, whether it’s oil, whether it’s the utility of using the land to have a manufacturing plant on it or a runaway for an aircraft. It all comes from the land.
John:
You can take that even further if you’re going to have your manufacturing plant. Okay, you need to build a manufacturing plant, where are you getting the raw materials? Where did the concrete and the steal, everything, everything comes from nature. So, the first priority of our same economy is to maintain the stability of natural systems and that’s what we don’t. Main stream economics has this notion called externalities. I love that word.
Jason:
Yes, externalities, I love talking about that and this is really important for people to understand that there’s a cost to things outside of the actual cost. There’s an externality cost, because when your widget is made and that widget manufacture hurts the environment, there’s an externality cost or that manufacture, the widgets uses the roads to deliver their widget, there’s an externality cost, but in fairness, I mean, the widget manufacturer is governed by environmental laws. They have to pay taxes. So, how big is the externality, you know, if they have to get rid of their trash, they got to pay for waste disposal, don’t they pay the externality cost or does the public bare the cost of that?
John:
It varies. Generally speaking these days, the public pairs the costs, because it’s a standard, one of the standard competitive actions that companies take in order to compete to maximize their profits and the usual economic sense is to maximize the number of costs they can push off on everyone else by, they externalize their costs and internal profits and this is something everybody does. The point of having the kind of economy that America has traditionally had and doesn’t really have, it has kind of the scraps of these days is that we have government to keep an eye on that and make sure that it doesn’t run riot so the costs that are externalized don’t just build up and cost everybody else to the point that it damages the economy and the problem is that in a lot of ways we stopped doing that.
Jason:
Okay, so, let me ask you about and this isn’t an environmental thing, but it’s probably fair to talk about, because Walmart. A lot of people say Walmart has big external costs that is being shoveled over to the tax, because they don’t pay a lot of benefits and things, right?
John:
They don’t pay a living wage.
Jason:
I know, but can you blame them? All the shoppers want the low prices.
John:
How many billion dollars a year is Walton family ranking in? They can afford it.
Jason:
That’s such a hard thing to deal with.
John:
I understand what you’re saying. I understand what you’re saying, but the thing is here, what’s happening is that their cost of their profit is being pushed off on to everybody else. On to the tax payer, by paying people starvation wages and limiting them in many cases to part time employment so they can hardly make, they basically can’t make a living. You’ve got the tax payer paying for food stables to keep Walmart employees able to eat. That’s an external cost.
Jason:
Okay, so fair enough. I’m not disagreeing with that, but my question is this and you can give another example, we got time, don’t worry. So corporations are passed through entities in my opinion. So, if we tell, you know, Walmart, we make a new and say, look it, even if they’re not in Seattle, you gotta pay everybody $15 an hour because your wages are too low and you got to give them 30 hours a week minimum work, right.
Well, then that means they’re just going to either hire less people, replace them with robots or they’re going to raise their prices. Corporations are past through entities. As soon as you put another law on them, they just pass the burden of that law through to the people. People talk about corporations welfare and I think they’re out of their mind. Yes, corporations do have corporate welfare, but guess what? If they don’t get it, they’re just going to pass the cost to the consumer and that causes inflation. So, it’s a very hard topic to wrestle with.
John:
It’s a complicated topic, but the important thing is to, I mean, everybody produces externalities, okay, everybody passes some costs onto everyone else. That’s called, that’s an economy. We exchange goods and services and in the process of dealing with our various externalities. That’s okay. The problem comes in when you have somebody like whether Walmart or Goldman Sachs or someone. Goldman Sachs is a great example of externalities for example. They basically, they say, if our bets come out in our favor, we keep it, if our bets fail, the government bails us out. That’s what too big to fail amounts to. If we, no big investor can ever be allowed to lose money, even if it wreaks the economy.
The point is to stop the abuse of the system. Walmart is producing low prices, yes, absolutely, it’s doing it by pushing off as many costs to everybody whether it’s workers, whether the environment by the way of doing all its manufacturing in China in terms of the capacity of America to have an industrial economy, it’s only offshore event. That’s another externalization. So, we don’t have the good old working class jobs anymore.
Jason:
I want to ask you this, I agree with you completely that there are a million problems here like this and I think part of the problem is and maybe you’ll agree with this is that, you know, I like to think myself as a libertarian and a capitalist and the problem with these big companies is they don’t exist in a capitalist free market system. They’ve got lobbyists, they’ve got PR firms, they got lawyers, they don’t exist in the free market. If anybody confuses Goldman Sachs and Walmart for free market economics, they’re freaking out of their mind. They are not in the free market. They are coddled by government and that’s why, you know, these companies, they love the liberal left. They love the conservative right. It doesn’t matter. They are agnostic. They just want their money and, you know, they’re going to find a way to get it. They’re not capitalists at all. It’s a complete perversion, you know?
John:
In fact, they are kind of one step short of the Soviet model. I think the Soviet model is being the sort of corporate model taken to exchange. You may have one big corporation which makes all the decisions, whether it’s called Goldman Sachs or the communist party, what’s the difference?
Jason:
Here you’ve got 500 of them on the SNP. It’s fascism.
John:
All they have to do is buy each other out and so you finally have the one corporation. It can then declare itself the glorious proletarian party of, you know, and start flying the handle and sickle.
Jason:
You do that well by the way. Good accent.
John:
I actually took Russian in highschool. All I remember is the accent and some swear words.
Jason:
Really, it’s not communism, it’s fascism. It’s big company fascism, right?
John:
Well, we could get into a long conversation about the difference between what fascism was and what it’s been turned into largely by left wing propaganda. I really think it deserves to be compared to, I mean, what was going on in the Soviet Union wasn’t communism in terms of what was in Karl Marx, okay. So, I think it is very much a sort of corporate Soviet model and complete with news media that sounds more and more like Pravda every single day. I’ve occasionally wondered when the Soviet Union crashed all those propaganda from Pravda and (#36:50?) were out of work, what did they do? I think we hired them and they run Fox news and so on.
Jason:
Yeah, they, listen, don’t blame Fox, they run CNN – the Communist News Network, they run CNBC, I mean, Wall Street runs CNBC, that’s just a big mouth piece for Wall Street.
John:
I mentioned Fox news only because, you know, they’re in their the pack with everyone else. I’m not a great fan as you can probably guess, but I’m no more interested in CNN.
Jason:
MSNBC, you know, it’s all the corporate media. It’s like the only free, truthful media you have is you have the blogsphere, you have podcast, I mean, no one has bought that out yet. It’s fragmented for them to buy out.
John:
So, basically the point, the point that I was trying to make in The Wealth of Nature is the first requirement for a sustainable economy, for an economy that can keep going indefinitely without running itself and civilization into the ground is that you have to maintain the productive capacity of the land of the natural world and if somebody, if economy activity is dumping externalities on nature, in a way that’s going to interfere with the capacity of farm land to grow crops, rain to fall, things like that, you need to stop that. You can’t just say, oh well, it’s just the cost of doing business. It’s something that could bring down civilization.
We need to wrestle with the fact that what we know from the geological record is this is not a stable planet. We can not afford to behave stupidly with the natural systems that support all our lives. That doesn’t mean, you know, that doesn’t mean vast government bureaucracies. It doesn’t mean significant changes in the way we do certain things. One of the things that has to happen here is prying this discussion loose from the sort of Tweedledum argument of the two main parties where one party claims to protecting the environment and one part claims we not protecting the environment and they are both pushing the same policies.
Jason:
Of course they are. It’s such a fake wrestling match.
John:
Exactly, exactly. So you’ve got this, we need to start – there’s actually a book, I’m forgetting the name of the author right now, but the title was TANSTAAFL. Now, all the Robert Heinlein’s fans in our audience immediately know what that means. For everyone else, it’s acronym for There Ain’t No Such Thing As A Free Lunch. He was a libertarian conservative and he was talking about the environment and what he was arguing is what you need to do to keep the environment stable, to keep that primary economy of nature from crashing. It just makes it so that people have to pay adequate user fees to deal with the cost of the burden they place on the environment.
Jason:
So, the problem is that’ll create a whole other corrupt entity and then everybody will be on the take just like Al Gore with his carbon credit business.
John:
I’m not arguing with that.
Jason:
Yeah, I knew you wouldn’t and you just create these entities and who gets to decide what the fee is and what the price is and, you know, you see how many, it’s a very complicated issues.
John:
It is. There are some ways, there are some trade-offs that can be done. One of the things that I argue in The Wealth of Nature is, for example, how many jump to tax policy, because that’s what we’re talking about here. We tax the wrong things. We should not be taxing earned income. We want people to make money, right? We want people to work and earn.
Jason:
Should we tax just consumption?
John:
No, what I’m suggesting, we should not be taxing the secondary economy at all. So, your wages, your salaries, any money that is earned royalties, any money like that that’s earned by doing stuff, by producing goods and services should be tax free. What do you want to tax? Money making money. Interest, okay, basically any situation where money is used to make money, because you’re not actually producing any wealth, you’re just manufacturing tokens.
Jason:
But look, you know, is that really true? Because isn’t capital formation the key to wealth? Look it, if people didn’t save and invest, then who was going to create big ventures like Boeing and Airbus and Intel, you know?
John:
No one is saying that people shouldn’t save and invest, but there’s a difference between investing and speculating. When you invest you’re putting money into, you know, if you want to build a factory, okay, you’re investing money in the factory, that’s an investment. If you’re buying stock in the stock market, but you think it’s going to go up 10%. That’s speculation and Wall Street has been incredibly busy for more than century trying to confuse the difference between those two, so people say investment and mean speculation. The capacity for money to just generate money the way, again, the Goldman Sachs kind of trick, that doesn’t need to be eliminated, but it needs to be placed under a certain degree of restraint, so that we don’t get uncontrolled inflation and some of the various other destructing consequences of money producing money in the kind of feedback loop. That’s why you don’t tax income from productive activity, you tax interest income and you take use of natural resources.
Jason:
Okay, so you tax speculation. It’s not really investing in my book, but people think of it as investing. I don’t know. So, you tax speculation. How do you know what’s speculative and what’s not? I mean, how can that ever be determined?
John:
It’s actually not hard to figure out. If the money is actually going into a productive, into the generation of productive activities, okay. The first person who buys a new share of stock, okay, is investing in it, because that stock. My widget company is going to build a new widget factory. I’m going to issue 10,00 shares of stock out of the market. We’re going to do the public offering here to raise the money to build that factory. Anybody who buys that share from me as I offer it, that’s the investment. They’re hoping to build that factory. Everyone else who then comes along and says, “I think that stock is going to up in price.” Any time you’re focusing not on the actual development, whether it’s productive…well, here’s another way to look at it, are you owning the stock for the dividends or because you’re hoping for price appreciation? That’s the difference in investment and speculation.
Jason:
I agree. It’s just hard to tell though. I mean, that’s hard to determine sometimes.
John:
It’s not hard. It’s actually not that hard and it could be made much easier. As I say, Wall Street has gone out of its way to obscure this.
Jason:
Of course they have.
John:
So, you tax money making money and you tax extraction of the actual resources using natural services. You don’t tax productive activities. So, yes, there’s going to be some complexity involved in working out the tax code for natural resources.
Jason:
There’s already enough complexity now.
John:
Ah, but you see, you’re eliminating the entire income tax. All that complexity, that’s gone.
Jason:
Tons of everything.
John:
Bring in the industrial great shredders because they’re going to have a lot of paperwork to get rid of. So, there’s a trade-offs here and I would argue a sane society would do that, because do we want to maximize money making money speculatively? No. Do we want to maximize extraction of the natural world? No. We want to maximize people creating, people doing work, producing goods and services by combing capital labor and ingenuity. That’s what makes an economy thrive. So, we want to reward that. How do we reward that? Don’t tax it. In the same way, do we want companies to hire people? Of course we do. Why do we want, I mean, we want the unemployment rate to go down, right? Presumably. We have an incredible range of perverse government incentives that make it cost an employer..
Jason:
I’m going to tell you something, John. When I had my businesses in California and I had employees in the socialist republic of California, okay. Look, you’re in Maryland, so you probably know what that is like, okay. I swear, for all the years I employed people it felt like the state of California definitely did not want me to employ anybody. So, I finally just did what they wanted. I didn’t employ anybody there. I just moved.
John:
Exactly, exactly. We have incentives supporting automation. We shouldn’t have that. We need to hire people.
Jason:
Isn’t automation, doesn’t that create more wealth ultimately? Create a better life style for people because it’ll create lower prices and progress?
John:
Or has it instead proceed a two tier society where you have an ever smaller number of very rich people and an ever larger number of very poor ones? I would like to suggestion, you know, people seek progress as though it means something. Progress for what? I would suggest instead that, I mean, you don’t want to have like incentives, you don’t want to outlaw automation, but you want to have economic incentives so that employers are encouraged to hire. To have as big a payroll as their business will permit, because that means you have consumers who have money in their pockets who are out there wanting to spend, to buy goods and services, producing a market, and your economy thrives.
The economy does not thrive when 15 people have half the wealth of a country. The economy thrives when lots of little guys, lots of ordinary working class men and women have dollars in their wallet that they can spend. By removing those perverse regulatory incentives that keep employers from hiring and hiring at a decent wage. We could do a huge amount of good, but you have to look at the economy as a whole system. You can’t just say, you can’t just buy into the current concept that passes for economics.
Jason:
I would agree with you that we have to re-define the concept of progress and growth when we talk about economics, growth should not be for growth’s sake. There’s a different between advancement and growth, so you make some good points. I think they’re, some of them, I think you could really implement and do in a society, but others, you know, it’s just really, these are very complex issues. There are fine to talk about in theory, but when you actually to legislate them and then, you know, people start to react to them and, you know, entrepreneurs are so darn clever, they always find a workaround. That’s on maybe the right side of the equation and on the left side of the equation all of the entitlement people, they always find their workarounds too and they find away to game the system People are pretty smart.
John:
Of course, but the point, there’s no way to generate a perfect society. The point is to look, as Edmund Burke used to point out, you look at specific problems that help you fix this, and in particular you start with misunderstanding. You start with the frozen inaccurate mindset that for example pervades modern economics and you say, okay, we change this. The thing is, things like, people think, okay, the way things are done now is fixed in stone, it won’t change.
In fact, it will. The economy we have now didn’t exist, the kind of economy we have now didn’t exist 40 years ago. The kind of economy now won’t exist 40 years from now. It may not exist 20 years from now. So, getting these ideas out there, getting them into the minds and into the hands of people who are thinking about what’s wrong with society as we now have it, how might it be fixed, this is important. Things like podcasts like this are very important because they allow this kind of independent thought to get going.
Jason:
Yeah, no question about it. Let’s us it while we have it, because it may not last forever. John, give out your website, tell people where they can find out more about you, all your books are on Amazon with great reviews. What’s your website though?
John:
Website for these issues is TheArchdruidReport.blogspot.com
Jason:
You better explain what a druid is real quickly, because I know everybody’s thinking that. I know the answer now, but..
John:
It’s a small religious movement focused on nature and it’s been going for 300 years and has older traces beyond that – we can get into that, but the thing is I have plenty of friends, readers, people I argue with belonging to every religion and no religion and so I don’t want anyone to think that what I’ve been talking about is some kind of official druid economic policy. We don’t have those.
Jason:
Good stuff. Well, this has been a very fascinating and enlightening conversation. John Michael Greer, thank you so much for joining us today.
John:
Thank you for having me on.
Announcer:
This show is produced by the Hartman Media Company, all rights reserved. For distribution or publication rights and media interviews, please visit www.hartmanmedia.com or email [email protected]. Nothing on this show should be considered specific personal or professional advice. Please consult an appropriate tax, legal, real estate or business professional for individualized advice. Opinions of guests are their own and the host is acting on behalf of Empowered Investor Network Inc. exclusively.
