Michael Casey is the author of The Unfair Trade and talks to Jason on how we can make international trade fair. Jason and Michael talk on how saving financially can hurt the economy as a whole, China’s economy, job creation, and much more on today’s episode. Jason would also like to remind his listeners that if you’d like to join the Venture Alliance, you can by going to http://venturealliancemastermind.com/.
Key Takeaways:
[4:10] Always have an inspection in your properties.
[13:20] Check out http://venturealliancemastermind.com/ if you’d like to join Jason’s mastermind.
[14:18] Jason welcomes Michael Casey to the show.
[25:00] Saving excessively can be destructive to a nation.
[34:05] China is very far away from creating a middle class economy.
[38:15] Technology is moving so fast that we can not keep up with creating new job opportunities.
[46:30] The problem with ObamaCare is that we already have socialized health care by default.
[49:20] We have nationally-focused governments, but we need international organization for fair trade to work properly.
Mentioned In This Episode:
http://venturealliancemastermind.com/
JasonHartman.com
michaeljcasey.com/
Tweetables:
“Yes, you should always have an inspection when you buy a property. It’s worth it.”
“Do Americans want low prices or do they want jobs? Can we have both?”
“Globalization has lifted about 275 million people around the world out of poverty.”
Transcript:
Jason Hartman:
Welcome, welcome, welcome to the Creating Wealth show. This is episode number 515. This is your host Jason Hartman and I wanna start off this show by saying thank you, thank you so much, business could not be better. Well, it can always be better, right? But it is shaping up to be our best year ever. You know, here we are not even half way through the year and I think we’ve probably shattered every prior record for business volume, so all of you out there are getting the message so congratulations.
Income property is the most historically proven asset class in American, I’m not going with in the entire world. I’m going to go with in the entire solar system, in the galaxy in the universe and you’re obviously getting the message, so we appreciate your business and we appreciate your faith in us and we will do the best we can to take care of you and help you overcome all of the little challenges presented by having a real estate portfolio, but you know, overall, I would have to say it’s got to be the best thing going, not question about it.
Anyway, welcome to the show, today our guest will be, who is our guest, where did he go. I had him up on the screen, I’ll get back to that in a moment. Anyway, we’re going to be talking about – oh, Michael Casey, Unfair Trade, that’s right. So, we like to switch back and forth on the episodes and sometimes you regular listeners all know this, but if you’re new to the show you may not know this or even a regular person may not have sensed this necessarily, but what we like to do is we like to talk about big, heavy, broad, macro economic issues, sometimes, and then other times we like to talk about specific real estate investing topics, you know, how to buy a property, how to evaluate a deal, how to evaluate a market, what to do in the deal, all that kind of stuff, how to do a 1031 exchange, how to finance and structure your deals.
We go and try to cover both topic areas on the show. The big picture economics, macro economics, and the vary specific picture, what are you doing, what are you doing with your investments, what are you doing with your portfolio, so today’s one of those days where we’re going to kind of look at some of the big picture issues. We’re going to take about trade, how it all plays out around the world, what it means to us as investors, what it means in terms of the three basic economic scenarios, inflation, deflation, and stagnation, and we’re going to broach that subject today. Talk about a few bigger issues, but on the smaller side of issues, I kind of can’t believe people really even ask me this question, but I want to just go on the record here and say, yes, you should always have an inspection when you buy a property. It’s worth it! The few hundred bucks that it costs is well worth the money.
If you’re thinking you’re going to be buying properties without having an inspector, do an inspector and provide you with a report, you are making a bad decision, my friend. Do not be a foolish investor. Caveat emptor, let the buyer beware. Always have an inspection on your properties whether they be residential properties or bigger apartment complex deals or whatever like that, so do that. I gotta just comment on my transactions, you know, I’m just amazed at how my real estate portfolio is growing and growing in to these bigger and bigger areas.
So, first of all, on the small side of it, I recently completed a 1031 tax deferred exchange, because income property is the most tax favorite asset in America. I couldn’t believe really how easy it was, honestly. I sold a property I had in North Carolina, you know, I did this under one of my entities, whenever I say I, it doesn’t mean me personally always, sometimes it’s one of my entities, then did a 1031 tax deferred exchange into two properties, yes, I traded one for two and I made my cash flow a whole bunch better. By the way, I should get all the specifics and report back on that, because this is what you get to do with real estate investing, it’s so exciting.
So, I traded the one property for two properties in Memphis and, of course, we just completed our Memphis property tour, a lot of you have been buying properties there and these properties in Memphis were pre-rented, I just couldn’t believe how smooth and easy, knock on wood, yes, did you hear me knocking on wood? I was knocking on my wooden height adjustable desk. I would highly recommend a height adjustable desk if you don’t have one already.
Anyway, completed this, properties were pre-rented. I mean, it’s almost like a paper transactions, really, where it was just so seamless and so easy to do, just loved it, but on the more challenging side, my partner and I sold that property, that big apartment complex we owed in Scottsdale. Sold that. It’s a 125 unit complex. Have been looking and looking, because of course we’re doing a 1031 tax deferred exchange on that one.
We had a general partner on that one and we just didn’t really like what they were doing there very much, so wanted to get out of that and do our own direct management, it wasn’t like a big syndication or anything like that, but we did have a general on that and you know what I say about limited partners and general partners, right? They are always taking too much off the top and that doesn’t make me feel good. I want to be a direct investor. I want to be direct as possible, so anyway, we have been frantically looking at so many deals to try and meet our 1031 exchange identification deadline.
Remember, the rule is you have to identify your new upleg property purchases or purchase, it could be one or multiple properties within 45 days of closing the last one, the relinquished property, or the downleg property as some people call it and you gotta identify that and we’re just now identify. Yes, we’re right up against the 11th hour deadline and then it looks like we’re going to be buying some exciting properties. I think we’re going to buy three properties, yes, another apartment complex and then two much more unique properties that I am going to tell you about on a future episode. I just don’t want to jinx anything. I don’t want to give away too much information, because you gotta be a little careful with these real estate deal.
You talk about them and, I remember a big time real estate investor friend of mine in Orange County. We used to be members of this cool private club in Orange County called the Pacific Club. It kind of a country club without golf, a social club or a city social club type thing. He said to me one day, he said, Jason, you know, it’s happen to me too many times, I’ve been sitting at the table at the Pacific Club, they called it the Pac Club, at the Pac Club, I be having a drink or a lunch or dinner with someone and I’d be talking about a deal and then the guy at the table next to me would overhear that and he would go and get that deal for himself and snake it right out from other him. It’s a cut throat world out there sometimes, for sure, but anyway. I will tell you more about that soon, but I gotta tell ya, I just love real estate investing. Can you tell? Yes, I bet you can, okay. Okay, enough of my silly enthusiasm here.
Okay, a couple of listener questions before we get to our guest today. Okay, one comes from Steve. Steve asked me and by the way folks, thank you so much, please use the voice mail. I want to play your message on the air, so the other listeners can hear it and I can get a better sense of your question, but this one is kind of easy, so I’m going to address it right on the air here. Jason, you have spoken out negatively about Bitcoin and other virtual currencies, can you compare and contrast Bitcoin, a fiat currency, versus the US dollar and the Euro also fiat currencies?
Sure, I’ve done this many times Steve, so I’m not going to go into it in detail in the interest of time, but I will simply say this and if you want to hear all the other stuff I’ve said about it, just go to Jasonhartman.com and in the upper left of the website, there’s a little Google search bar there, just type Bitcoin or virtual currency or crypto currency or cyber currency, those are all the interchangeable words, but if you go with Bitcoin, I’m sure you’ll find all the occurrences in the show transcripts where we’ve talked about that and you can read or listen to me talking about it before.
Here’s the main difference, just to really simply sum up the answer to your question, Bitcoin is an idea and I think it’s a pretty great idea, actually, okay, so I don’t want to completely bash it, but it’s an idea that basically has a piece of software code and a very, on a global scale, a very small member of people who believe in it, so it’s got some followers, right, the dollar has about seven billion people who believe in it and it has the largest military the human race has ever known backing it. So, I would hardly call it a fiat currency. The Euro has less of those same things I just mentioned about the dollar, so how’s that for a quick short answer? I’m actually going to shut up and move on. Can you imagine?
I got another listener question here and it is, it says, Jason Hartman, question for the economist, China is constructing a series of sand islands in the China sea, potentially for defensive purposes, what would happen if China cut off exports or threaten to to the United States or other countries to force some kind of concession, maybe force debt payments. Why would they be building all of these islands?
Well, first of all, this is really a question for a geo-political military strategist. It’s way above my pay grade, but you know? I’m going to take a stab at it anyway. In fact, I talk a lot about things I don’t know anything about on the show, right? Okay, so I don’t know about these sand islands. I haven’t heard about it, but it’s interesting, maybe it is for military defense, but I hardly think you have to worry about China cutting off exports because here’s what I think would happen if they did that.
Number one, their economy would fail apart. It is already in a very, very, very tenuous position, I am not bullish on China at all. I used to be. I changed my position on that over the years. I think they would experience civil unrest, something their communist governments or sudo communist government is very, very worried about. So, don’t think China would do that in a zillion years. I think it would be, it would basically be like a suicide pact, okay.
So, if they have suicidal tendencies, I think there’s a band by that name, isn’t there? If they have suicidal tendencies, then sure, cut off trade and watch your economy collapse. Watch civil unrest break out and watch the communist party be de-thrown. They’re not going to do that. I think they’d be absolutely, I think they’d be absolutely nuts to do that, but it’s a great question, because our talk today is about trade. That’s what our guest is talking about.
Go check out some of the properties at JasonHartman.com and by the way, I want to welcome a new member to our Venture Alliance mastermind. It’s our client Ramen. Thank you so much for joining. We will see you in San Diego in June and if you want to check out Venture Alliance mastermind, go to VentureAllianceMastermind.com. You can also go to the store section of JasonHartman.com, find a little bit of information out there.
I tell ya, I am so excited about the Venture Alliance. It is going to be, I think, really, one of the best things I have done ultimately. It’s probably going to take awhile to ramp it up. I am fine with that. We’re going to have a lot of fun in San Diego. We’ve charter a gorgeous yacht, so we’re going to go out on the yacht, we’re going to mastermind, we’re going to have hot seats. Investors who are members are already jotting down their list of questions and challenges that they want the other members. A group of highly qualified high-end investors to help them overcome, so just some phenomenal stuff coming up.
So, check that out at VentureAllianceMastermind.com or at JasonHartman.com, of course, and check out some of the properties there too. Let’s get to our guest today and talk about unfair trade.
It’s my pleasure to welcome Michael Casey back to the show. He is a senior columnist with the Wall Street Journal. He’s author of a couple of books including the one I really want to focus on today and that is the Unfair Trade: How our Broken Global Financial System Destroys the Middle Case. Michael, welcome, how are you?
Michael Casey:
I’m very well, Jason. Thanks for having me again.
Jason:
It’s good to have you and you’re coming to us I assume from New York city, right?
Michael:
I am indeed. Cold and covered in snow at the moment.
Jason:
Take us into this whole issue of the unfair trade and frankly, you know, I can’t really decide where I stand on this issue. You know, you’ve got, it’s such a complex of melding of so many issues. I mean, I guess the basic question is, do Americans want low prices or do they want jobs? Can we have both? Should we have protectionist policies? There are many issues here. Let’s just dive into it and I’ll let you start where you want.
Michael:
Right. Well, I think they are very important questions and they are very thorny issues. I actually come down on the side of globalization. That might not sound like it if you read the title along the lines of the pure free trade angle. I’m actually in favor of free trade. I’m just trying to point out that the way it’s being designed under a kind of, a nation state lend model that is just not working in the face of the reality of our globalized world is that you end up with very unfair imbalances and these imbalances actually lead to the crisis that we had back in 2008, but the solution isn’t tariff barriers per say, it’s to really come up with a coordinated approach so that we don’t perpetuate these imbalances and much of it involves around currency policies both on the US and Chinese sides as well as other nations as well.
Jason:
Maybe distinguish this from, if there is a distinction, by the way, you know, you see marketers marketing the concept of fair trade. I think Starbucks is in on that. I have never been able to get my head around that. You know, this concept of workers working off shore for very low wages. You know, I hear both sides of that argument, I hear some people say, oh, well, this is just so wrong. These sweatshops, well, this is not slavery, okay. This is not, I mean, people have a choice and before these big companies moved into these areas, they didn’t have any jobs at all.
Now, granted, they could make an argument is civilization and the definition of progress valid and I think that’s a very valid question, by the way, but if you just look at it from a simple economic standpoint. I don’t know, isn’t it supply and demand, whatever the market will bare? Who gets to decide what a fair wage is, you know?
Michael:
I think there’s really two ways to look at it. Again, my book is not as concerned about fair trade per say. It’s broad financial issues, but I do address some of it. I go, for example, to an Indonesian, a big factory in Indonesian in the book where they are working on making Adidas shoes and I explore their kind of vulnerability that Indonesian producers and therefore Indonesian workers face in this very a fleet thwarted world of international capital that we invest and the globalized system.
So, as much as my general views as kind of, you know, if I look bad at the history of free market capitalism and what it’s delivered to the world, I mean, it’s generally delivered increase in property to the extent to which implemented in a reasonable way, so the broad take on it is look, this is just the money will go to these places, people will have a choice, their wages will increase or bit it to tiny levels and then they’ll hopefully build a better life on top of that, the counter point though is that in a world where there is an imbalance of power and that’s kind of one of the biggest things in my book where there’s the capacity to move capital from one country to another at a rapid pace and there’s no mechanism for a kind of insuring that the rules of the game, the playing field is leveled, if you will, then unfortunately you end up with is kind of a bonded servitude sometimes in these scenarios, because there’s nothing that, you know, Indonesian workers in the case I gave, can do to lobby for better wages, which is what you’d expect the normal process of improvement, because that might all go to Vietnam or somewhere.
Jason:
Right, right. Maybe what a lot of these places need is they need to have the movement America had many years ago, which is the labor union movement, which is largely invalid today in my opinion, but you know, there was a time where you really needed these unions. It was very legit years ago.
Michael:
Absolutely. The problem again is though and this is the key thing, is how do you implement that in a globalized environment, right? So, when we draw lessons from history sometimes we forget that the circumstances that existed at a certain time did not necessarily apply now and the most important thing is the mobility of global capital.
So, we didn’t have that mobility, not anywhere near sort of the speed and the capacity. You could just threaten a union in the US that you’re going to outsource their jobs to India back a century ago. You can now and so one solution would be one that the Marxians often talked about was the internationalization of labor itself and that’s really not particular viable, we don’t have the mechanism to do that, but we do have this imbalance because we have this nation states being the kind of the form in which these issues get hashed out when in fact that the reality is capital is global.
So, you got to some how work out the rules of the game where that the kind of losses that are in occurred, the burdens that have born and not born by the little and somehow shared everywhere on an international basis and that’s why my book I come down to, you know, really big macro questions about how do we manage our currencies, who has, you know, who has the right to set a currency at a certain level because those currencies are as much a factor in the competitiveness of one country over another and can do enormous damage to the employee ability of people in these place.
So, the key is, yes, unions have and should be an important time of which these people’s lives can be improved, but their bargaining power is fundamentally undermined for the next day this next to side that they’re just going to shift their production to Vietnam.
Jason:
Yeah, okay. So, talk to me about China, what’s going on in the news with China and what is your overall view on our major, I guess, outsourcing or offshoring partner.
Michael:
Yeah, well the important thing is to thing about the way China created this rather remarkable expansion of the last three decades and to China’s credit, actually, managed to pull more people out of poverty than ever has been since in history and as a result we’ve actually accelerated the improvement of prosperity world wide just simply going off China’s number. So, Chinese has had some successes, but the problem is they built that model on a kind of structure that was inevitably, kind of, had a life span that would end. It depended upon the US in particular, but the West more generally to sell its manufactured goods.
It depended on a perpetually weak currency to do that and it depended on a centrally controlled financial system that artificially lowered the weight of interest and blocked money from coming in from outside to compete with that financial system so that you would actually make it very cheap to build the kind of product and facilities that were needed to be build sort of this big exporting boom and what they did was they ended up taking the savings of Chinese people who kind of had this very excessive saving pattern and turned it into cheap finance. Some of it went into producing all these factories that make all the goods that we buy, but a huge amount of it, also, went off over shore and ended up here in the United States itself.
So, the big build up in foreign debt that the US had before the crisis was very much driven by Chinese central bank money that was the excess savings of that country that had been deliberately setup because of a weak currency and a policy to build this competitive model. All of that money flooded into the United States, drove down interest rates as a result and lend to the burrowing binge that helped us not only buy houses, but also pay for all the Chinese goods we are buying, so you had this co-dependent relationship between an excessively indebted, you know, I would argue an excessive savings model in China. Fast forward now and that model simply couldn’t go on forever because the West is not going to keep buying your goods and also because you need, if you’re just constantly building all this equipment and not actually building a base of consumer of demand, which is what China has failed to do, then ultimately you can’t keep deriving a return on that investment.
Jason:
Hang on, just before you move on, I want to just make sure I ask about a couple of things. Number one, excessive savings, isn’t that interesting that anyone would think you could save excessively. I mean, that’s an interesting comment.
Michael:
Well, it is, but it’s also a naive one to imagine a country should be behave like an individual household. This is one of the fundamental mistakes that people who try to analyze debt misunderstand.
Jason:
I can’t wait to hear this, go for it.
Michael:
No, this is a common, most economists would actually agree with this. It comes from the concept of the paradox of thrift, right, so what is good for a household, to save, to look after your finances, is fundamentally, can be, can be, fundamentally destructive for a nation, because if everybody is saving, there’s no body spending, you know, have no growth. So, that is really in a nut shell a very simplistic way China’s problem, great for every individual, great for people to have this nest egg of savings, but as a country what they’ve done is to basically deffer any kind of consumptive capacity as their own domestic market, so they’re dependent on the rest of the world to buy all their goods. That’s what savings is, savings is deferred expenditure, right, so what you’re doing if you still need – but you need income, so if you need income and your whole country is not actually spending, somebody else has to do the spending for you, so you rely on the United States. The United States can’t do it forever, so you’re stuck. You need to build your own spending money.
People need to spend, you can’t have an economy without spending and if you excessively save, you are ultimately driving that economy into the ground, so China did a wonderful job of building it out, building this info structure based upon that savings model, funneling all that excess savings into building roads to no where, buildings to no where, all of that was of great source of growth for many, many years, but ultimately you have to pay the piper at some point and right now they’re stuck in that situation, because they didn’t have the basic consumer demand that was needed to perpetuate for the long term.
Jason:
I mean look, had China been able to create enough of, you know, there was a crazy talk years ago and Peter Schiff was sort of the leader of it and he’s been massive wrong, of course, but talked about the decoupling and how China will just go create their own middle class, decouple from America, they won’t need us anymore, we’ll have massive inflation because no body will buy our bonds, you know, the complete opposite has happened, of course. What do you think about that? Was there really a chance that China could have ever created enough of a middle class to be its own, you know, consumption economy and not rely so heavily on exports to the US and other countries?
Michael:
Oh, in the long run that’s what has to happen, but I think it was naive to think it would happen quickly, yeah, there’s no way you’re gong to continue growing unless you build your own domestic market place, right, so big economies are able to do this. The Euros are, in some respect, was created for this purpose, to create one domestic market place, but China is, that is the goal, I mean, absolutely. They’ve go to get there..
Jason:
I know it’s the goal, I just don’t know if they, was it ever realistic was my question.
Michael:
Well, the key word is ever, right, I just want to focus on, you know, right now, yes, I think Peter Schiff’s notion that somehow China was now going to immediately decouple and was in a position to shut itself off to the rest of the world, no, that is a very sort of short sighted view of what could happen because their entire structure was dependent upon sort of the manufacturing juggernaut that emerged out of Southern China that was an entirely export driven model, so you can’t just turn that off overnight and suddenly hope you’re going to give up on the US expenditure and turn on domestic expenditure, so no, but over time, that’s precisely what the whole world needs China to do. We would all be better off if China builds up its own domestic base.
Jason:
Okay, so why would we be better off though?
Michael:
Well, because they’ll also buy our stuff. We’re not – it’s not really decoupling..
Jason:
Then it won’t be so imbalanced as it is now by current accounts.
Michael:
Right, exactly. That’s exactly right. So, the decoupling is also the wrong word to use in that, but the idea of building a consumer base is correct. What you want is a integrated world where everybody is buying everybody else’s stuff, but you also have, you know, strong, robust demand in every part of the world. China had robust growth, it didn’t have robust domestic demand, not relative to home much it was pouring into its exports and its infrastructure buildup.
Jason:
What else did you want to say about that? I mean, you believe in free trade. Like, I had Pat Buchanan on the show years ago and he talked about how we should charge for access to our market. We’ve got the biggest consumer market in the world, we should charge. To me, that means, that’s just hieroglyphics for tariffs and protectionism. What is really the solution to this? You know, I mean, all these American jobs being offshored, that can’t be good, but heck, low prices at Walmart, that’s great. How do we reconcile this?
Michael:
It’s a good question, it’s a tough one, but again, this is some of the things I try to address in the book. I actually believe we need to embrace a multilateral solution to these things, because the question again is not whether or not we should have free trade but how much. The rules of the game should be fair, because ultimately the free market, whether it’s in trade or anything, is never free if there are privileges that some sectors of the economy have over the others.
You can never obviously achieve complete freedom, it’s a myth to think that’s fair, because there’s always going to be somebody with a privilege position, but to the degree to which, you know, these biases have existed, we have problem now. What I do in the book is I go all around the world, but for the most part, again, I focus on China and the US and in China it would be get off the system of manipulating your currency, because that creates massive distortions [Cuts out]. Right, absolutely. It’s alright now because China is actually not following other currencies, it’s weaker, but it’s more than that and it’s to do with the way they manage their entire financial system, which is to sort of have it closed and managed through these – they’re trying to do it, they are trying to open up their system. That’s China’s fault in the manner.
In the United States, the opposite problem was that we kind of privileged the import of cheap capital from overseas by building up our financial sector and we propped up the financial sector with too big to fail policies, you know, where by there was an inability to proper charge banks for the cost of society would have to bare in bailing them out, which allowed them to build out this debt driven model. So, the excessive debt of the pre-crisis era and sometimes I worry we’re going to return to it with the dollar raising as it is now, was a function of, the capacity of Wall Street to absorb all of that debt, precisely because tax payers will always going to be on the hope for it.
There’s a lot of talk too big to fail, of course, and that’s a big factor to what happened in the financial crisis, but people don’t think quite as much as how that was the corollary of China’s flawed model and between those two, you end up with a very unfair trade. The unfair trade being the exporters excessively privileged in China and banks are excessively privileged in the United States and the little guy in the middle gets lost in this.
My argument in this is, look, try to embrace free trade, create rules of the game that everyone can follow. Embrace systems like the WTO, the world trade organization, have these bodies properly empowered to ensure countries abide by these rules and create multilateral agreements that let everyone do so. A lot of people call that globalist and some sort of new world order stuff and bring out some conspiracy ideas about it, but ultimately the reality is we live in a very globalized world when it comes to the fleet footed nature of capital and you just have to have rules that are global in nature to deal with that otherwise you’re just going to have these imbalances and unfair situations. That’s really my view. It’s a more sophisticated – it’s certainty a more complex way of thinking about it than just do we or don’t we have tariffs and unfortunately the debate gets down to that because we have a very domestically focused political structure.
Jason:
What does this all mean to people in the US and other Western countries where – I mean, our audience is in a 164 countries, but they are mostly western countries, euro zone, US, Australia, New Zealand, those kinds of places. You know, South East Asia areas. What does it really mean, like what does it mean to our real estate market? China is not going to succeed, in my opinion, in creating their middle class because see the problem is even if, granted, they’ve said that globalization has lifted about 275 million people around the world out of poverty and that’s awesome.
Just China alone has to do a lot more than that to create its own middle class, whatever everybody decides that means, but you know, they are certainty very fair away from it and the next thing is it’s like a one, two, punch. The thing coming up for China is probably some instability and a huge demographic problem that is only ten or 15 years away, you know? That is not, not good news for China and then you look at technology kind of bringing some of these jobs back on shore to the states, now, granted, maybe they’re not actually jobs, they’re just jobs fixing and operating robots, but you know, and 3D printers, but certainty this all – this does not bode well for China in my opinion.
Michael:
I agree, I think that they again, have run and exhausted the kind of easy money model that they had. I don’t think it was necessarily flawed to start with, but they probably pushed it too far and now with all these other things coming on board, not least the demographic challenges, but also, I think you’re right, the robotics revolution, the technological challenges that they face. Absolutely. China has a really hard job now transitioning from one to the other. It would be all very well if they could do this on a gradual basis, but because of these kind of very powerful structural changes that are happening in the global economy, they can’t afford to wait and that’s where it becomes really, really difficult to manage. So, absolutely, I think that’s a concern.
As for what it means for those of us here though, to the extent of which we sort of perpetuating that model where we’re still depending on foreign creditors and cheap foreign goods and propping up banks that are just bigger than they ever were. The risk is, to me, we go back to another cycle crisis. We haven’t resolved the problems that came with that in 2008.
Jason:
I would agree with you by the way.
Michael:
Yeah, I don’t know if it manifests as a housing crisis again. Clearly there are some parts of the country that are probably going through yet another real estate bubble, but I don’t know – there’s nothing like the excessive kind of build up that we saw before the crisis. Will it happen again? Who knows. The thing is – what we’ve done is we’ve depended on this model to kind of generate liquidity and capital all around the world and we really double down on it. We tried to build protections. There was the Dodd Frank laws and various other things that try to reign in the power of banks, but for the most part..
Jason:
That will never work.
Michael:
Well, the first one was so dependent upon – because of the model that we’ve built, it’s kind of a dependance like a co-dependence. We continue to double down on it and so, these banks are bigger than they ever were and there’s nothing to say that at some point we don’t end up in another systemic risk problem where we’re going to have to bail one of them out and that all comes back in one way or another whether it’s in your pension fund or your 401k or in some other form of stress to the system where there are job losses and so forth, it’s that volatility and that uncertainty that I think is the defining feature of what life in the west is about.
These other factors that you alluded to are also part of that, right. As you say, there’s jobs going to technology and it’s not the same replacement we used to have. Back in the 20th century there was, you know, there was a period of great innovation, but it was also a period of great job creation, because even though the existing businesses whether it’s the horse and buggy and, you know, the book would be replaced by some other new technology that we would see people moving into those new fields and gaining jobs. Now, the sense is that technology is so fast that we’re just not creating the same opportunities on the other side of that equation, so we’re certainty laying people off.
Jason:
As much as I wrestle with the fair trade issue and you’ve enlighten a lot of it for me, so thank you for doing that. I also wrestle with robotics issue. I mean, every technology has displaced people at least temporary, but then suddenly there’s whole new industries created. I mean, we didn’t have an IT industry, information technology industry, before we had computers, obviously, right. We didn’t have automobile repair people before we had automobiles, so obviously new jobs are created, but the famous last words of any investors, ‘this time is different’ you know, and those are the famous last words, but maybe this time it really is different. I mean, some of these robotics predictions say that 47% – well, gosh, it parallels Mitt Romney I guess in his comment, which was probably pretty valid, actually. I’m sorry the media jumped on him for it, but you know, it says about 47% of American jobs are really subject to take over by robotics. I mean, wow. If all the cars are self-driving and the whole huge transportation industry is gone, I mean, what are the truckers and cab drivers going to do? I mean, it’s not like they are going to repair self-driving cars or program them.
Michael:
That is the fundamental problem and even then, the thing that’s interesting about that is like, it’s not as if it was easy getting work in new industries or being re-trained in the past either, so that’s – there’s two ways to think of this, one is that what would the trucker driver do, because the truck driver is not necessarily be able to, as you say, repair the software behind a self-driving car, but that’s always been something of a problem here, retraining people for jobs that are nothing like what they were.
The bigger, the additional problem now is that not only the people who lose their jobs not finding work, but the kind of new comers who would then on an aggregate basis make sure that everybody, you know, we got a job. Their finding that they can’t get work, because it’s just not the same needs for labor, so we’ve always had displacement where we had ghost towns and rough belt areas that would be disrupted, but those jobs would end up going somewhere else in the country where something innovative happened.
Now, you’re losing jobs on the one hand to some area, but you’re not even having the young graduates being able to find work, so that is a challenge and it may be we’ll eventually get through it and the pace of growth and innovation is so fast that we end up, you know, just growing the volume factor becomes big enough that jobs get created, but sadly, I mean, as much as a lot of this stuff happening, recent measures of productivity are actually declining, so we’re not actually growing the economy that well here and yet we are displacing a lot of workers. So, you’re getting a lot of change, but not necessarily the kind of broad base economic gains that would normally help to ensure that we can employ people and keep inflation down, which is what productivity is all about.
Jason:
I wonder if really all of this technological revolution. I mean, technology has always made broad society more prosperous. It’s always been a benefit. I mean, it’s just always has except for war technology, you know, that destroys things.
Michael:
Yeah, but even that in the long run, we actually benefited from some of that technology.
Jason:
Well, fair enough, absolutely. The GPS system came from the military and so did the internet and all of that, but I’m not talking about it in that way, I’m talking about like direct warfare, of course, but maybe we’ll just, we’ll lift the entire global population and everybody will just be more prosperous and people will only have to work three days a week as they predicted in the early 70s and that didn’t happened so far.
Michael:
That’s the utopian solution, absolutely.
Jason:
Maybe it’ll really be that way, you know?
Michael:
But the problem is, Jason, if you talk like that, you’re going to have to start talking like a socialist, which I don’t think is something that would fit your profile, right, because..
Jason:
You know me too well.
Michael:
Because that is the challenge. How do we, that’ll be great, I mean, ultimately, that would be, that should be the goal of technology that everybody, human beings in general get to live left better off, but we don’t, we have a model that’s built around work. People are working longer hours than ever and earning less. So, we’re not, we haven’t resolved that. What’s going to be very, very interesting to the extent to which this ultimately does displace so many people that they become a political force in their own right, I do think the political equation starts to change. We start talking about a welfare state. We start talking about somehow a safety net for these people, because most of them are just not going to be employable. I mean, not most, but a very large group of people a much larger than ever before are going to be unemployable in a world that is lead by coders.
So, teach people how to code, that’s what we hear for everybody right now, because that’s the future, but that’s not – anybody our age, I don’t know your age, but our age of, you know, that’s just not a solution, so there’s a lot of people who simply won’t get work, what do you do with them? You really need to think about this from a perspective, how the spoils of society somehow shared without actually undermining the free market capitalist model that we believe is the most constructive one. So, it’s about safety nets, it’s about re-training, it’s about refocusing, but ultimately, it’s about sharing and that is – and finding the right balance between sharing in a way that is constructive and one that we generally think might be destructive if it’s disincentives to productivity.
Jason:
I think technology may actually allow a more, gosh, I’m probably going to get some hate mail on this one, a more socialist type of environment. It may actually be okay to lean a little bit more to the left and I can’t believe these words are actually coming out of my mouth, because I’m such a libertarian, but you know, because technology, it just, I don’t know, it changes the game in so many ways. I mean, look at the sharing economy, you know. I was in San Diego a few weeks ago an it’s like my whole day was involved in the sharing economy. I signed up for Cars2Go where I could just jump in a car I see on a street corner found with my iPhone app. I used the community bicycle. I took Uber and Lyft and I thought, this is great! It really does work, you know? And technology does enable this stuff pretty well, you know?
Michael:
Right, right, it does. I think the other question is what happens to, you know, you could use – I think prices do come down in that environment, which is great as well, so that’s the kind of balancing thing of it. Incomes go down, work opportunities go down, but so do prices and hopefully that thing balances itself out, but unfortunately I don’t think it does very well. So, the bigger question is what happens to the political force that is potentially an ever growing number of disenfranchised workers. Do they end up changing the thinking of the traditional party elites that have run this country for so many years. Do they actually, it seems unlikely now, because as much as people might think President Obama is some sort of socialist. I mean, the records show that he guy – incidentally the kind of government intervention that exists in this country compared to others is so much smaller, but the thing is…
Jason:
Well, I think they are commenting on a direction its moving, right? I mean, you know.
Michael:
Right, but not because of – yeah, although I don’t think that even then the direction has moved very far, to be honest. I’ve come from Australia where we have universal healthcare and everybody thinks that’s just the normal great thing to have. It certainty worked fine for me, so the idea that ObamaCare is anywhere near close to that is ridiculous, but anyway.
Jason:
The problem with the healthcare thing and we don’t need to get off on a big tangent, but I just want to make a comment, but the problem with the healthcare thing is we already have socialized healthcare by default, because you have to care for people. Doctors in hospitals can not turn people done, that would be like saying, okay, we don’t have a national food program, but any restaurant you walk into if you say you’re hungry, they have to feed you, you know, I mean, that’s what we have anyway.
Michael:
No, I agree with that, which is I think why a lot of countries have just decided true universal healthcare, which is one, controlled by the government is the only way to resolve that dilemma, because you can’t tell people, you can’t turn people away. So, that is the thing is that ultimately, the one way to manage this particular industry, not necessarily other, but is to face up to that reality and build a single payer, government lead system, but we are going down a different tangent here, but what it does is it speaks to, I think, I’m just simply saying that over time technological change we’re going through now potentially large disruption to the traditional labor force is going to mean that people’s priorities are going to change and therefore their political demand is going to change and it may be things like a welfare state become, you know, something like a government mandated unemployment benefits forever.
We’ll apparently have a system that’s run by companies and it’s sort of a temporary system designed incentivize people to get back to work, but there is no work at all, what do you do about people who just have no choice because they simply don’t have the skill set that is needed. That’s a big, big question.
Jason:
Yeah, it sure is. It’s a tough question. Well, just getting back to kind of wrap up here, because I know you’ve gotta run, but just getting back here on the focus of the subject. What in closing do you want people to take away from this discussion about fair trade.
Michael:
Well, again, my definition of what fairness is is not probably what most people use when they think it’s about, you know, making sure that workers are paid a serious amount of money, a proper amount of money. Obviously, I think that’s good, but I’m talking about the fairness of the international system at large. I think people, I want people to try to get their head around concepts like the international monetary fund like, you know, how our international currency system works, how international trade system works.
Unfortunately, they are not hot button issues for politicians, yet they have a profound impact on our way of life, so I think that is the biggest challenge we face is we have very domestically focused politics and very domestically focused professional priorities when in fact there’s this large thing called the global capital system that needs to be managed in some way such that the rules of the game are fair and that the playing field is level and we don’t have that in place. We have nationally-focused governments. We need more international coordination to ensure we truly do get a free and fair trading system.
Jason:
Yeah, yeah. Good stuff. Michael, give out your website, tell people where they can find out more and get the book.
Michael:
Yeah, the MichaelJCasey.com is – currently actually needs to be revived because the latest has been the priority, but they can certainty buy the Unfair Trade on Amazon likewise you can buy the new book that you had us talk about just recently, The Age of Cryptocurrency and I’m glad we didn’t get to talk about it because talked about it a lot lately, but that’s all about Bitcoin, certainty those, Amazon is the best place to go. People can pick up either of those books at that site.
Jason:
Excellent. Good stuff. Well, Michael Casey, thank you so much for joining us today.
Michael:
Thank you, Jason. It was a great pleasure.
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