On this Flashback Friday episode, Jason Hartman interviews American economist Thomas Sowell to discuss how “the current economic crisis grew out of policies based on good intentions and mushy thinking.” They also talk about Community Reinvestment Act, inflation, and his book The Housing Boom and Bust.
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Jason Hartman 0:09
Hey, this is Jason Hartman, thank you so much for joining me. Do you know what day it is? Yes, it is flashback Friday, where you hear the best of the creating wealth show and you hear some good prior episodes, some good review. Remember, we’ve got almost 500 episodes out. And you know what? iTunes doesn’t even hold them all if you’re an iTunes listener, if you are listening on Stitcher, thank you for joining us. So we want to bring you some good review stuff. Now. What’s interesting about flashback Friday, it’s a little scary for me. I got to be very, very candid with you on that. Because you the listener, you get the chance to hold my feet to the fire. Did I make any predictions? Was I right? Was I wrong? I’ve been right about a lot of things, but I’ve been wrong about a few. So you can give me a hard time about that if you wish. But it’s flashback Friday, and we will give you the uncensored Best of the creating wealth show with a prior episode. So let’s dive in. Here we go. Remember, this is not current. It’s flashback Friday.
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Welcome to the creating wealth show with Jason Hartman. You’re about to learn a new slant on investing some exciting techniques and fresh new approaches to the world’s most historically proven asset class that will enable you to create more wealth and freedom than you ever thought possible. Jason is a genuine self made multi millionaire who’s actually been there and done it. He’s a successful investor, lender, developer and entrepreneur whose own properties in 11 states had hundreds of tenants and been involved in thousands of real estate transactions. This program will help you follow in Jason’s footsteps on the road to your financial independence day, you really can do it on now. here’s your host, Jason Hartman with the complete solution for real estate investors.
Jason Hartman 2:11
Hey, welcome to another edition of the creating wealth show. This is Jason Hartman, where we talk about creating wealth through the most historically proven wealth creator income properties, yes, income properties and diverse markets purchased correctly, at or below the cost of actual construction can make you very, very wealthy, make sure you check out a whole bunch of our new properties at Jason Hartman.com slash properties. We have a lot of new inventory in Dallas that you might find particularly interesting, that is a new relationship, a new vendor that we just brought on board who is doing some excellent rehab properties. I was out to visit them a couple of weeks ago, as I mentioned before, and I think you’ll really like what they have, there’s some good product there. And we will have them on the show very soon. I actually recorded an interview with them when I was in Dallas. And we will air that very soon. Today we’re going to interview Thomas Sewell, the author of basic economics and many other books. We’re talking to him today mostly about his latest book, the housing boom and bust. And Thomas Sowell is a consummate academic, I used to read him in Forbes magazine years ago and really always liked what he had to say he was very reasonable and logical and interesting and did a great interview for us. Before we get to the interview, though, I want to mention that the creating wealth event on the day before my birthday, October 3, I just had to throw that in there is going to be canceled, we are probably not going to do the creating wealth seminar anymore. What we’ve decided is that it’s just not long enough. And we need a bigger event, a more robust event. So we’re probably going to turn that into sort of a boot camp, if you will, more to come on this. But our big event which is only twice a year is coming up and you must attend this one. It is the master’s weekend very special event where we have guest speakers flying in from all over the country on many different aspects of investing, asset protection, etc. Here’s a little info about it right now. Good morning, everyone.
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This is the Masters weekend gathering of experts where we fly in experts from all over the country. We have guests here today from as far away as North Carolina and Colorado. And then we have experts flying in from many states all over the USA
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By the most interesting thing that I’ve learned so far is about the 1031 exchanges. I thought that was an excellent presentation answered questions I didn’t really even know I had.
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and yes, we are planning to invest with Empowered Investor. And probably in the gozone, but perhaps not exclusively, can be greatly impressed with the, the surroundings and the glamour and the style, but also the information,
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and Quran and Sarah and all the folks who are Platinum have helped us tremendously so. I think we’re on the road to success.
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Don’t wait to buy real estate. Buy real estate and then wait.
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Remember, you’re listening to flashback Friday. Our new episodes are published every Monday and Wednesday.
So as you can see, the Masters weekend has been a highly acclaimed event. And you must join us for it. It is a fantastic event. We had a comment also on our prior show about Greenhill. And I just wanted to mention it to you, because one of our listeners who said that he very much enjoys the show, but didn’t really like that one that much, because he thought it was a little bit unrelated and lacks specificity to some extent. And a couple things I want to say about that. Number one, I appreciate the comment. Number two is that on the show, when I interview these guests, and I talked to them, we don’t have time to go into a whole bunch of detail. We’re talking many times on a kind of a conceptual level, as you’ve noticed, especially about a topic, this broad as environmental policy, and so forth. But I really want to mention this to you with these fires that we’re having today in California. And as I was thinking about it today, I went to bed last night, and this huge, huge fire that’s burnt, I guess about 42,000 acres just in the time I was sleeping doubled in size to where it’s about 85,000 acres now. And that was when I woke up this morning. Hopefully they’ve gotten a little more under control now, but who knows, I haven’t listened to the news all day. And part of the reason and I’m not saying that’s the reason for this fire, but many fires have occurred because of environmental policy, because of green hell. That was the name of the author, the the book that I interviewed Steve Malloy on on the last show. And the cost of these kind of radical environmental policies are in every aspect of our lives, they influence the price of gas that we pay at the pump, they influence these wildfires that are happening constantly in California and other places around the nation around the world. One of the reasons I remember years ago, one of the big fires we had where I had to evacuate my own house, the time I lived in Irvine in an area called Turtle Rock and had to evacuate. And part of the reason that fire occurred is because the environmental movement would not let people clear brush. And the reason they wouldn’t let people clear brush, which is the fuel for these fires is because it would disturb the habitat of some little rodent or some bug or something like that. And I’m not saying this is all bad, everybody, I’m taking a middle ground on it. But I you must understand that most of the stuff we hear seems like this harmless, kind hearted kind of thing. And it really is not always couched with the best agenda. One of the comments on my Facebook page after airing the show I thought was really applicable. It was a tunes our broker here at Empowered Investor investor network made a comment something to the effect of in the dying days of the Soviet Union, when they were looking for a way to keep things under control. There was a movement within the Soviet Union and environmental movement. And they were thinking that they could exert a lot of policy and a lot of control over people through the green movement. And another saying came out of that saying that green trees have red roots, okay, red meaning communism or socialism. So I just really encourage you to whenever people talk about the environmental movement to really, really think beyond what is on the surface, there’s a lot more to it than that. It affects real estate, it affects your financial life, and it is related to creating wealth. Okay, one of the things you’re going to hear on this show is when Thomas Sewell and I discuss how people in wealthy neighborhoods and that’s true in my own neighborhood, right here in Orange County, in Irvine and Newport coast and these beautiful kind of upper end areas. They use environmentalism as a way to exclude people. They use it as a way to keep people out. You know, it’s kind of like that concept of we used to have these bumper stickers you’d see in California back in the 80s. That said, welcome to California now go home. And it’s kind of like that old riddle that I say in my creating wealth seminar. What do you call a developer, someone who wants to build a house in the woods, or someone who wants to build a house at the beach. What do you call it environmentalist? Someone who already has a house in the woods or at the beach. Okay. And there’s a lot more to this than I think most people think about. And that’s why I wanted to do that show, because I just want you to see both sides of that issue. And Thomas soul discusses that how in Northern California, they use this as a way to exclude people from living in their areas. You’ll you’ll hear him talk about it here. So let’s go to the interview with Thomas Sowell, enough of my pontificating. I apologize if you don’t like that, but occasionally, I just want to bring it to your attention. Thomas Sowell, as I said before, is the consummate academic. He has taught economics at Cornell, UCLA, Amherst, and other highly acclaimed academic institutions, and his basic economics book has been translated into six languages. He is currently a scholar in residence at the Hoover Institution at Stanford University. He is published in both academic journals and such popular media as the Wall Street Journal, Forbes magazine, and Fortune and writes a syndicated column that appears in newspapers across the country. So here’s the interview with Thomas Sowell. Just a reminder, you’re listening to flashback Friday. Our new episodes are published every Monday and every Wednesday.
It’s my pleasure to welcome Thomas Sowell to the show. He is the author of the housing boom and bust, just listed on the New York Times expanded bestseller lists. Thomas, thank you for joining us today.
Thomas Sowell 11:28
Thank you for having me.
Jason Hartman 11:30
Tell us a little bit about your perspective. It looks like from the book, you are saying that both parties are to blame. So this is a pretty bipartisan effort it sounds like.
Thomas Sowell 11:39
Oh, yes, in fact, I’ve often said long before this, this crisis that things that a bipartisan usually twice as bad as things than a partisan. The Democrats did take the lead in this, but the republicans contributed too much to it for them to try to blame what democrats alone. The fundamental problem with all of this is, it’s a very complicated story when you get into all the derivatives and Wall Street and this and that. But the fundamental problem is that the money that financed all the fancy Wall Street derivatives and so on, all came from people, millions of people paying their monthly mortgage bills. And when that monthly mortgage money started not coming in, when people started being delinquent and defaulting on their loans, then it really didn’t matter what the clever people in Wall Street were doing if the money wasn’t coming in, it just wasn’t coming in. So the real question is, why was this suddenly all this delinquency and default and the mortgage market? And the answer to that is that banks and others were pressured into lending to people who did not meet the standards that had been in use for decades, you know, things like the 20% down payment and verified income and so on. And under pressure from the government and more than pressure, there were actual quotas set up for Fannie Mae, Freddie Mac.
Jason Hartman 13:00
Now, when you talk about that pressure, are you referring to the CRA, the Community Reinvestment Act?
Thomas Sowell 13:05
Yes, but not by itself, because that act was passed in 1977. And it really didn’t do an awful lot until the 1990s. And what happened then was that people began to use that act as the criterion for deciding whether the regulator’s would allow banks to make business decisions of a sort that unregulated businesses make all the time. For example, the bank wants to acquire another bank, or a bank wants to go into some other sell sell securities, for example, as the later law is allowed that only those banks whose lending practices and other practices under the Community Reinvestment Act met, the government approval would then be approved to make acquisitions, mergers and other kinds of transactions.
Jason Hartman 13:50
These banks were under an enormous amount of pressure, would you say? To to make bad loans for political correctness reasons?
Thomas Sowell 13:57
Yeah, well, yes. For example, there are a number of banks who were accused of discrimination, they were accused, they were not proven anything. And on that basis alone, the regulators could simply hold up any decision that they had until the legal case was disposed of, well, you can imagine running a business where you’re not allowed to make the decisions that your competitors are making until such time as a legal cases settle, which can be yours, and which in some cases can be more than a decade, obviously, is a crippling power. And so UK,
Jason Hartman 14:31
It’s just amazing to me how people throw around words like racism, you know, I was talking about this on my show, just saying that, you know, look, these banks made such imprudent loans. And someone sent me a question saying, you know, well, I, you know, I don’t want to think you’re being racist by saying that certain people didn’t deserve to own a home and I’m thinking like, that is the most ridiculous statement. Why would you even ask me such a question? The determination should be whether or not you can afford the property, and whether or not you have good character in making payments in your past, I mean
Thomas Sowell 15:08
Yes, well, of course that it seems so obvious that you wonder why people don’t don’t see it. But but many don’t in the media doing very little to clarify the situation once the accusation is made, it’s tantamount to conviction. Right. And many of the many of the studies that have been done, I’ve looked at the studies in some detail. And if you are serious, you wouldn’t convict somebody of jaywalking on the basis of this kind of evidence, right. One of the one of the problems that’s not been mentioned at all, I think, is that there are interest rate ceilings. Now, the lower the interest rate ceiling, the higher the credit rating of the people that you’re going to lend to. I mean, if you bring this interest rate ceiling down low enough, you will lend only to millionaires, and you bring it below that you’ll then only the billionaires. So the very fact there’s a ceiling means that there’ll be a disparate impact on people of different income levels. And if you’re talking about low income minorities, that virtually guarantees that there will be differences in loan approval rates under those under those conditions. I’m not saying that was the only reason it was by no means the only reason. But when you look at the borrowers who discovered that credit scores vary by by group, that is blacks, and Hispanics don’t have as high a credit score of scores, on average, just whites and whites don’t have as high an average credit score as Asian American. And in fact, what was fascinating to me, was how the press and pushing the case that this was a question of white racism, causing blacks not to be approved as often, even though blacks like whites were most of them were approved. Anyway, if you look at the very same data, in the very same studies, you’ll find white for it approved as often as Asian Americans. So now it says most of the loan people are white, you’re gonna tell me that they are discriminating, yes, whites in favor of Asian American. They’re in the business of making money. And many of the very people who are forever talking about corporate greed don’t seem to understand the implications of that. That is, if you’re in business to make money, you’re certainly not going to turn away people who are going to pay you back with interest.
Jason Hartman 17:08
You know, one of the radio show hosts that used to be here in the LA market, he was very popular, and he endorsed us on on our radio advertising our commercials, he was, you know, reading our commercials a lot. And one of the things he said when I saw him speak was, is he said, Can you imagine the conversation that would happen when when people accuse companies of discrimination, some executive is sitting at the breakfast table, who runs a huge company talking to their spouse, and their spouse is saying, you know, let’s get a bigger, better, nicer home. And the executive would be thinking, well, gee, I don’t want to sell to people of a certain race. Can you imagine they would turn down money? I mean,
Thomas Sowell 17:47
They never have, yeah, I Morrow, whether this is not a question of Person of the bank, or the lender, the agency is probably going to see this applicant one time,
Jason Hartman 17:57
Right. Or maybe they never see them at all. I mean,
Thomas Sowell 18:00
That’s right, that in many cases, you don’t even see them. Because you do it over the phone, and their contact with them in the future will just be checks arriving in the mail. And the idea that this guy’s gonna be sitting as the Oh, I know, this guy is black and I hate to see us check coming in this month. Yeah. I mean, yes, well,
Jason Hartman 18:16
Just on the face of it, just doesn’t make any sense. Because everybody goes for the green. You know, everybody likes the money. Well, besides the Community Reinvestment Act and other similar pressures, what else went on with the housing boom and bust? I mean, in your book, you break it up into the economics, the politics, and then some mystique and housing mistakes. Tell us about that
Thomas Sowell 18:39
In addition to the pressures on on the banks to lend, there was also the pressure on Fannie Mae, to purchase mortgages, from people of low to moderate income, as they put it, and in all the ways consistent with a Community Reinvestment Act. And so the bank can then lend really to people, or whatever race they might be of low credit rating that they would never lend to if they were themselves going to collect this money. What the banks do in this case, can they can make the law mortgage, sell the mortgage to Fannie Mae collect the money, the money now on a 30 year loan, and let Fannie Mae worry about what’s going to happen? Well, these people will pay this thing off for 30 years. And so you, it was government subsidized moral hazard. And Fannie Mae, of course, had the taxpayers to back them up. So risky mortgages carry higher interest rates. Fannie Mae has every incentive to buy these risky mortgages. Because if they make a profit, then Fannie Mae profits, if they make a loss, again, they have the taxpayers to fall back on.
Jason Hartman 19:41
Yeah. And then they also have the printing press to fall back on to the Federal Reserve, right?
Thomas Sowell 19:46
Yes. Now the policy, the politics of it was just unbelievable. Because all sorts of people, not only in the United States, but even overseas, the Economist magazine started wanting some years ago that they’re all All these risky mortgages out there on American houses, people overseas were buying securities based on those mortgages. And the whole thing looked very shaky. So they did not lack for warning, the head of the Federal Deposit Insurance Corporation, one Secretary of the Treasury, snow one, Alan Greenspan, one of them about Fannie Mae, I even did a piece in The Wall Street Journal, it is joining the mob. I mean, you could just name a barons of fortune. All sorts of people want them? And the answer was always the same, that to the extent that you emphasize safety. And they poopoo the danger, totally said that you emphasize safety, you’re going to reduce the ability of the banking system to make housing affordable. There was just no no no telling them anything until until the whole thing burst.
Jason Hartman 20:51
Yeah, it was a big house of cards and moral hazard. And you know, this is the problem, Thomas, when government gets involved, it becomes a special interest nightmare if the government just stays out of the way, all of these special interests and all of these people that have their own agendas that are contrary to really the public good in most cases, at least on the long term public goods, sometimes in the temporary, you know, they slap a bandaid on problems, but they never really seem to cure them. They create dependency, they create animosity, they create class hatred. You know, it seems to me like when you’re talking about this issue, we started off on of CRA and race and underserved populations and things. It seems to me that if the government really wanted to be neutral, they’d stop counting and stop asking. I’ve sort of always wondered why they even asked what race I am on the census form and and on a loan application. I know on the loan application, you don’t have to answer it. But why do they even count this stuff?
Thomas Sowell 21:47
Because there’s political mileage? One of the other aspects of government here in this case would be state and local government. That was a very false premise. Quite aside from the racial aspect, there was a fundamentally false premise behind this whole drive for creating more affordable housing. And that was that there was a national problem of unaffordable housing. It’s just clear beyond words I do. I cite all the sources of work and the book The housing boom and bust, but there was never there was not a national problem of housing becoming unaffordable what that was, were particular areas of the country, Calif, coastal California being the classic example, where housing was indeed, enormously expensive. average house in California sold for some multiple of the national average, I happen to live in one of the areas where, at one time, the San Mateo County the average cost of a house during the boom reached over a million dollars. And the average size of the house was less than 2000 square feet. We’re not talking mansion.
Jason Hartman 22:54
Yeah, no, these are these are $500 a square foot. I mean, it got worse than that. high rises in Miami and Las Vegas at the peak, were were $1,000 a square foot, I mean, at least asked you know, some people bought them. It was just crazy. It was so out of sync and and one of the things I always say to people is that in in a country as large and diverse as the United States of America, there is no such thing as a national housing market. Yeah, are about 400 distinct markets. And they really are quite different, aren’t they?
Thomas Sowell 23:21
They are and the places where housing was very expensive. For example, in California, many places where the average person taking out a new mortgage would pay one half the family income, just to put a roof over their head now, but those were very few places it and you can see that when the when this is where the housing prices shot through the roof. This is where the housing profits fell down through the basement after the bust, or I saw a statistic recently, something like I think it’s five states where over 60%, or about 60% of all the defaults occurred in five states. And I think if you looked at it more closely, you’d see that they incurred in particular areas within those five states. Even in California, there’s some places further inland where housing prices are not astronomical, the government was determined that there was a national problem, and therefore they created this national program, which then created a very real problem that we’re still living with.
Jason Hartman 24:14
So when you say they created the national program, to what are you referring? Fanie Mae?
Thomas Sowell 24:18
I’m referring to the affordable housing schemes, the fact that banks were under pressure. So they had they had to pay, they had to submit those statistics that you mentioned about race, income and all that kind of stuff, and are in order to get permission to do the ordinary things that businesses do, because they are regulated industry.
Jason Hartman 24:40
Yeah. You know, Thomas, it just seems to me like the whole concept of Fannie Mae or Freddie Mac is acting contrary to its supposed goal, because if you think about it, it’s the whole concept. I mean, it’s right and Fannie Mae’s mission statement. Their goal is to promote housing and homeownership. Well buy obvious result is that whenever you promote anything, it becomes more popular. And by the basic rule of economics supply and demand, it becomes more expensive, doesn’t it?
Thomas Sowell 25:12
It does. In the case of housing, I think the Federal Reserve’s got a little bit more blame, it should have in the sense that they did create the the expanded credits that allow this to happen. Prior to this happening, the fact is, when has been in places where there’s been an increased demand for housing, even when you double or triple the number of houses, within say, a decade or so, the housing prices do not rise, if the suppliers are allowed to supply the housing. The key to the California situation is you have all these open space laws, historical preservation laws, farmland preservation laws, and then not allowed to expand the housing. And so therefore, the most modest increase in demand for housing was shoot their prices up through the roof.
Jason Hartman 25:53
Right. And and that’s the old concept of, of that riddle. You know, what do you call a developer, someone who wants to build a house in the woods or at the beach? What do you call a environmentalist, someone who already has a house in the woods or at the beach, right?
Thomas Sowell 26:07
Oh, it really does sit my blood pressure through the roof, because the prices are just out of all proportion. There’s no reason why any family have to have to pay half of the income just to have a house. If you look at the places in the country, where the politicians have not intervene in the market, a places like Dallas and Houston, those are the places where the housing is most affordable. And back, they’ve been International Studies saying the showing the same thing that you need to look at the most expensive housing markets around the world. In almost every case, it was because there are severe limitations on building. And when you cut back on this on a supply, fall on demand, then you’re going to have prices shooting up. So
Jason Hartman 26:48
a couple great examples of that. First of all, I’m here in Orange County in California, which is completely overpriced. And that’s a very unhealthy market. You know, we have something here called the Coastal Commission. Oh, yeah, the Coastal Commission is like the Gestapo, you cannot build anything on this coastline, it is if you can see it from the ocean, in the ocean, and you want to build it, it is very, very difficult. And it really bugs the heck out of me, because here, I pay for this enormous cost to live in this supposedly beautiful place, which you know, it’s beautiful in many ways. But there’s no good restaurants on the ocean, we’ve got this gorgeous ocean out here. And you go down to Mexico, and there’s all kinds of beautiful dining on the ocean. And but here in Orange County, there’s about three places where you can dine on the ocean, you know, yeah, I want to sit there and have a beer and have dinner and overlook the sea and the sunset, and just can’t do it. It’s ridiculous.
Thomas Sowell 27:47
I twice have gone to actual meetings of Planning Commission. And I just wish that I’d been able to tape it because it is like Alice in Wonderland. I mean, you find people as members of the Commission saying thank you. So the developer like, Well, you know, this landscaping could be nicer. Of course, it could be nicer. And after you’ve made it nicer, it could be nicer than that still. It’s just that he’s trying to build what people are willing to pay for. And you know, it’s easy to sit on the Planning Commission, and what all kinds of things I must say, I got so upset, I almost walked out to the back of the auditorium. I said, No, no, I’m doing this for my research. I need to sit down and just suffer through it. And I did. But I certainly wish that this stuff had been had been taped. You are so right about that. The hypocrisy is amazing. You’ve got all these armchair bureaucrats that dictate things under the guise of let’s preserve the beauty of the of the land and so forth. And certainly there’s something to be said for planning and prudent things here. Obviously, there’s a there’s a place for that I’m sure you would agree to but you look at a place like Aspen, Colorado, right, under the guise of preserving the environment, housing has become so expensive. All of the service people that work in the restaurants that clean the homes of these zillionaires who already have their home there, they have to live down the valley and commute in I mean, and they talk about the environment. How good is all that that road traffic for the environment, we have exactly the same problem here in Palo Alto, or we’d like right near Stanford University. So only 7% of the Palo Alto policemen live in Palo Alto. And they’re probably chasing, you know, officials who bought their home was 30 or 40 years ago. But you’re right. And the other thing is this especially ironic, and you have all the emphasis on race and low income and so forth, these are precisely the people who are forced out of these areas. Because of these restrictions on building. The black population of San Francisco today is less than half of what it was in 1970. Even though the population of the city as a whole is going up right and that’s true of a number of counties in in California. Another group that gets pushed out are low income people San Francisco and appeared about two years, they lost about something like, Oh, I think just 16,000 families earning less than 150,000 a year moved out of San Francisco and 17,000 earning more than 150,000 move in. And so you’re you’re making it impossible for the very people that these places say they are interested in another group that gets very hot hit people with children, small children, school aged children. So constantly closing schools, because the FDA if you’re old enough, if you’re young enough rather to have school aged children, chances are you have not yet reached your peak earning years. And only people who reached their peak earning years can afford to buy the kind of housing that you have, after all these restrictions.
Jason Hartman 30:44
Do you think Thomas that the people, the powers that be here, do they know that this is happening? Do they know that their designs are either corrupt or have unintended consequences as they do? Or are they just oblivious to it,
Thomas Sowell 30:59
I suspect they’re oblivious at best, because they have no incentive to find out that one or the other hypocrisy and all of this is that the environmentalist who push this stuff up constantly talking as if they’re trying to save the last few patches of greenery from being paved over. In point of fact, over 90% of the land area of the United States of America is undeveloped. So all the histrionics they go through is an utter farce. San Mateo County, for example, over half the land in the county has nothing built on it. And yet they’re constantly say, Oh, we need more open space. And what they really mean is they want a cordon sanitaire around these affluent communities. So the only other affluent people can move into them. That’s called it’s called, you know, preserving the character of the community. And it’s a farce in the housing market. Because housing turns over areas that used to be for the rich are now working class neighborhoods Harlem, forget, for example, we use with one say a middle class Jewish neighborhood, it became a working class black neighborhood, many places the opposite occurs, places that were once rundown have not been gentrified. It happens with commercial properties, the original Waldorf Astoria Hotel was torn down so that the Empire State Building could be built on that site. I mean, housing turns over what what happens is that affluent people who liked the way things are now use the law to freeze that and deprive other people of the rights that they themselves exercise earlier.
Jason Hartman 32:30
You know, what you could not possibly be making more sense when you say that, that is so true. It reminds me of the the bumper stickers you used to see in California, welcome to California now go home. Yeah, when the state was getting inundated with so much immigration, and I live in an area, right here in Orange County, where there’s a State Beach, Crystal Cove State Beach, and it is completely undeveloped. And there are all these people who want to save Crystal Cove State Beach and make sure nobody could ever build there. And the fact is, nobody ever goes there. It’s just weeds. And if you do go down there, you know, it’s beautiful. There’s sand and no, you know, waves crashing and rock formations and stuff. And it’s very nice. But it would seem to me that all of these so called inclusive, tolerant, fair minded environmental, liberal type people would want to let that land be at least somewhat, and I’m saying prudently. I’m not saying let it run amok, let it be prudently and smartly developed. So more people could have access to it rather than the way it is. Now because there is less supply. You have multi zillion dollar homes on either end of Crystal Cove. And because there’s there’s they don’t let any more supply be created. They just wall off the community, just like you said. So it is theirs and they keep other people out under the guise of what is best for the environment.
Thomas Sowell 34:01
They don’t want to face that some years ago, my wife who did a local column, wrote wrote about how you can’t be keeping everything off limits to building without at the same time think that you are helping the poor or for that matter in Palo Alto, even the middle class can’t live there where the prices have gone up so high.
Jason Hartman 34:19
Yeah. It really is just another example of restraint of trade. And it’s a it’s a it’s sort of a trust in a way, isn’t it? It’s an antitrust violation.
Thomas Sowell 34:27
Oh, absolutely. But there are certain kinds of anti trust violations that the government is not interested in and dealing with.
Jason Hartman 34:34
Yeah, that’s true. Well, what what is your prediction of what is the future look like? And what is a strategy for our listeners?
Thomas Sowell 34:42
Oh, heavens, I I avoid giving personal financial advice. And I am making predictions, but the general trend seems to me to be a sort of a replay of the New Deal. That is this enormous sums of money that being spent really don’t show much promise of getting us out of the recession quickly. And I don’t believe that’s their purpose. I think as with a new deal, a white white president Rahm Emanuel, the president’s chief of staff put it very clearly, you don’t want to let a crisis go to waste, meaning that while people have panicked in a crisis, the federal government can do things they couldn’t get away with politically otherwise.
Jason Hartman 35:24
Yeah, that’s the old concept of the false flag. I mean, even even if the crisis is legitimate, which says on various levels, but sometimes the crisis is created, so they can then go in and implement all their new policies. And I mean, that statement of Rama manual right at the beginning of the Obama administration was very scary to me.
Thomas Sowell 35:43
It was, but the media typically didn’t, didn’t say much about it. Well, I think the tip off was this huge spending bill that was rushed through in two days, thousand pages that no one could have read it
Jason Hartman 35:54
You’re talking about the Paulson one or the Obama one?
Thomas Sowell 35:57
No, the one new during the Obama administration two days, and then it’s set on the President’s desk for three days while he was off in the holiday. So the question becomes, why is it necessary to rush such a bill through, particularly since everyone agrees that the actual money will not even be spent by the end of next year? And the answer is, you have to rush it through, not in order to get out of the recession, but to get the government more power, before people have time to think about and have hearings, and any opposition to develop for right and so that they accomplish they accomplish their purpose. Similarly, with the General Motors things, someone asked if your animal is going to go bankrupt, why did why does the federal government need for 10s of billions of dollars into General Motors? And then they still go bankrupt? Why Why not let them go bankrupt without the 10s of billions of dollars? And the question is, while the 10s of billions of dollars, do not buy a Tesla for General Motors, or how or or for the economy, what that buys, is the power of the federal government to tell General Motors what to do, as exemplified by the president getting out of the head of General Motors fired.
Jason Hartman 37:02
Sure. And now, at the end of this, the government will loan 60% of the company.
Thomas Sowell 37:07
Moreover, the government will also subsidize your motors and other less visible ways, such as buying these kinds of cars, if they’re gonna tell General Motors to bill if nobody else buys them, which which is a very likely thing that they will not be public, publicly popular.
Jason Hartman 37:21
And we are really on a socialist tract, aren’t we, in the good old USA,
Thomas Sowell 37:26
We’re on a fascist track. And so they’re the socialist want government ownership of the means of production, the fascists would allow the law the owners to stay owners, but the politicians would dictate to them and that’s much, much better politically for them. And a sense that when something goes wrong in General Motors now, Obama can say, well, although the General Motors didn’t have bad good management practices, and so so you, you can keep it from the sidelines forced them to do things, but when things when they don’t work out, then you can dump the blame on the on the owners.
Jason Hartman 37:58
And that’s a good idea rather than a it’s still a centrally planned economy. But it’s there’s like one step removed with fascism, because then you have the corporatocracy indirectly or well, directly, but they’re just a puppet of the government. Right?
Thomas Sowell 38:11
Right.
Jason Hartman 38:11
Yeah. Very interesting. Well, so what is coming up? You don’t give predictions, but give me some broad thoughts that you have, you know, we won’t hold you to it. But do you think inflation is coming?
Thomas Sowell 38:21
Oh, I, I would bet the rent money on it. I mean, I don’t know, when governments have run, the US levels will go up. But it’s never run these levels of deficits, except in one time. And you can’t just keep doing that. Without inflation. I mean, you you you’re conjuring up money out of thin air one way or another, and somewhere down the road, somebody’s gonna pay for it, and who’s gonna pay for what will be posterity? And as long as the politicians like a certain that’s fine, because posterity doesn’t vote,
Jason Hartman 38:48
Right. It seems like we’re going to have a big attack on our assets. And inflation is such an efficient means of wealth redistribution, because it takes an anybody who is holding assets, their assets become devalued in, you know, in real dollar value, you know, so if they have equity in real estate, if they have stocks, bonds, mutual funds, and on the other side of it, all of those who owe money, the debtors, they benefit because their debt becomes cheaper to repay, doesn’t it?
Thomas Sowell 39:17
It does. But I think that I think there’s a real redistribution is from the private sector to the government. President Obama has said that, you know, there’s not going to be any tax increase except for those rich, how would I define what inflation is the broadest base tax of all, the poorest person in America will find the value of his paycheck or his welfare jack reduced as a result of inflation?
Jason Hartman 39:39
Yeah, no question about it. And, and if the government maligns the numbers by which they report inflation, you know, they can say that the CPI only increased at 4% when maybe it really was 12 or 15%. I’m talking about the future now. They’re essentially making the spread on that, aren’t they?
Thomas Sowell 39:56
Well, the that’s gonna be very hard to to convince people There’s been no inflation when they pay more for everything they buy, right? Because a lot of a lot of the taxation will come through putting prices or raising costs really low private businesses, and those costs will be passed on to the to the people who buy that product.
Jason Hartman 40:14
Sure. Any thoughts on China? Visa vis the US in terms of China buying our debt or objecting to buying our debt, and their fears about us destroying the value of our currency?
Thomas Sowell 40:26
Oh, well, China has already expressed those fears. And they hold a very large amount of debt. They’re the old the old Keynesian notion that we owe it to ourselves as long since going by the board, because more than 40% of the privately held national debt is held overseas. So that means that our children and grandchildren will end up having to produce billions of dollars worth of products that will be sent overseas free of charge as repayment for this debt that this generation is running up. It’s one of the most irresponsible things imaginable. You run up huge deficits during something like World War Two, they cause you don’t want to be close to posterity, not to the government. But the posterity is gaining nothing out of this stuff, who’s gaining his existing administration, which gains tremendous amounts of power and tremendous amounts of good publicity by handing out goodies to all sorts of groups, many of whom have nothing to do with the general health of the economy. And then this will be left to be paid for by other people who have no vote right now.
Jason Hartman 41:27
Yeah, that’s so unfair, isn’t it?
Thomas Sowell 41:30
It is
Jason Hartman 41:31
You look at the state of California. And I mean, I am so grateful that the smart people finally voted a couple of weeks ago, and they didn’t go for any of these stupid tax increases. But this state is so broke, I mean, decades and decades of irresponsible dependency creating spending,
Thomas Sowell 41:47
Yes.
Jason Hartman 41:48
Are we looking at a federal bailout pretty soon? Is Obama going to be running California too?
Thomas Sowell 41:54
More than likely I can remember, it wasn’t that many years ago, the California had a multi billion dollar surplus, but as you say, they they they they had to hand out goodies to people, and particularly in the form of low electricity rates. And so they they then ran the electricity industry into the ground, we had blackouts and so forth. And they ended up having to dump billions of dollars to rescue that situation. Many people seem to think that if they don’t pay for it in case right now, they’re not paying for it. But of course, you’re paying for it and higher taxes, though. So yeah, what do you pay in one form or another really doesn’t matter? Except politically
Jason Hartman 42:31
Right. Or you might be paying not just in higher taxes, but in devaluation of your currency.
Thomas Sowell 42:36
Yeah, what in case the state the state can again issue its own currency. I shudder to think what what happened in California, but they were allowed to issue its own currency.
Jason Hartman 42:44
Can you imagine if each state had a federal reserve of its own and
Thomas Sowell 42:46
Oh my gosh. Oh, it would make the inflation in the Weimar Republic look like child’s play.
Jason Hartman 42:52
I saw an article. It was interesting. I think it was just last week, it ran in Bloomberg, that inflation in the US may approach Zimbabwe levels. I mean, I
Thomas Sowell 43:01
Oh my God,
Jason Hartman 43:02
I don’t even think it’s going to get that bad, though. I got a lot on the horizon. But, you know, any thoughts on what the rate of inflation might be? When it might start to hit? I think we’re about two years out.
Thomas Sowell 43:14
Oh, heavens, I I’d be surprised if sometime in the next decade. Oh, that doesn’t get into double digits.
Jason Hartman 43:22
Yeah, at least past what we saw in the 70s probably, I think, and I think that’s going to increase pressure on it on mortgage rates. We’re gonna see much higher mortgage rates in the future, aren’t we?
Thomas Sowell 43:31
There is that. But also with inflation? I I don’t think the Federal Reserve with what little independence is still has gonna let the inflation go on forever. And you end up at diving into what Volcker did when he was head of the Federal Reserve in the 80s have this very sharp cutting back on the money supply, which in turn forced all kinds of people into bankruptcy. It just occurred to me, you know, probably the average American has no memory of what happened in the 80s and fighting inflation, because half of them were probably weren’t born
Jason Hartman 44:03
Volker now historically looks kind of good, in my opinion. I mean, he’s the guy who broke the back of inflation. He, he made the country take the tough medicine. But you know, I’m sure if you were one of those that had to file bankruptcy because of his policies, you weren’t very happy.
Thomas Sowell 44:18
Well, he was one of the most hated men in America. And even though Ronald Reagan had been elected, he was a very popular president. At first when he said what Volcker was doing. Reagan is a Piper loud, he dropped like a rock. But I greatly respect Volcker. I think Federal Reserve Chairman should not try to be popular. I think it was McChesney Martin said, you know, my job is to go to the party. And just when people are starting to enjoy the punch, take the joy, the spike drinks, take the Punchbowl away.
Jason Hartman 44:45
That’s exactly what a Federal Reserve is supposed to do. You’re right. Yeah. So it’s odd to me that Volcker is advising Obama
Thomas Sowell 44:52
That’s odd to me, too.
Jason Hartman 44:54
They would seem completely contrary in my opinion. You know, Obama needs loose money to pay for all of his social programs and bailouts. And Volker is sort of a tight money guy.
Thomas Sowell 45:04
Well, someone has pointed out that the policies followed by this government are the opposite of the policies advocated by summers when he was outside of government. So I’m not sure to what extent these people are really people whose advice the president is seeking, whether they’re simply window dressing to make make his administration more palatable. So it’s sort of like john was shocked in the early days of the Hitler regime that people say, well, Xiao Mei Shaka is a very sound man, and therefore we can rest assure that they’re not going to do any crazy thing. Well, they do crazy thing.
Jason Hartman 45:37
Yeah. Well, I say to listeners, watch what they do, not what they say and and watch what they do not with whom they affiliate.
Thomas Sowell 45:45
Yes. Especially with this administration, because Obama is really a very smooth talker. And he knows what people want to hear. And he says it and even if it is totally contrary. You know, when he introduced this Sonia Sotomayor, by talking about what he’s for the rule of law.
Jason Hartman 46:03
She’s an activist judge, she rules from the bench?
Thomas Sowell 46:06
Oh, absolutely. It really does take a certain amount of talent, a certain kind of person to say things like that. I mean, you have to be able to look up at the sky and say it’s orange instead of blue, and say it with conviction.
Jason Hartman 46:16
I guess that’s the definition of a con artist, isn’t it?
Thomas Sowell 46:19
It is. It is.
Jason Hartman 46:21
Yeah. Well, thank you so much for joining us today. The book is called the housing boom and bust by Thomas Sowell, anything you’d like to say in conclusion for our listeners?
Thomas Sowell 46:30
No. I think that it’s hard to hard to summarize a book that’s very compact as it is. But I think you’ll find out that there was I say at the beginning, there was plenty of blame to go around. So there’s no point that also all the finger pointing, especially the finger pointing outside of Washington is just a charade.
Jason Hartman 46:50
Yeah, sure is. A special interest have taken over that’s for sure. Thank you so much for joining us today. We really appreciate your words of wisdom and your insights.
Thomas Sowell 46:57
Thank you. Bye bye.
Announcer 47:11
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