[jeff deist] earlier this week i sat down with john o'donnell, host of the power trading radio show, to discuss not only the stateof the economy, but also the state of economics the profession, itself. so, ifyou enjoyed last week's show with joe salerno on this same topic, stay tuned fora great discussion with john o'donnell on power trading radio. [john o'donnell] jeff, welcome to our show. [jeff] thanks so much, john. good to talk to you. [john] you know, i had the opportunity to sit in on — listen in on — your mises weekendsshow with joe salerno, and i thought you asked and broght up a very interestingtopic i'd like to explore a bit today,
which is "is economics broken?" why don't you take us through the themeof that topic that you all discovered, because i think it's very relevant inwhat seems to be going on in our world economy today. [jeff] yes, it's a huge topic. it is really onewe could scarcely do justice to, but when i say "economics is broken," i mean thatthe profession. you know, there was professional economists — academiceconomists — are no longer doing what, in my opinion anyway, the profession ought tobe doing. and, as a result of that, lay people like you and me who are interested inthis stuff, especially if it affects our
lives our job prospects or our investmentsor purchasing power... we get led astray. we've been taught for, you know severaldecades now, this wasn't common a hundred years ago, but with the last many decadeswe've been taught that economics is technocratic mathematical science thatreally is almost a form of physical sciences that requires creatinghypotheses and testing them to see if they're true. and, as a result of that, ithink the average guy or gal, john, has become somewhat afraid of economics, and "well, gosh, i'm not really qualified to understand this it's so complex, andglobal markets are so interconnected, and there's so many variables, how can ipossibly piece all this together, and i
better just listen, to these really smart ivy-league-degreedpeople who work at the fed, because gee whiz: they study this stuff all day long,and i don't. i have a regular job." and i think that's been a very dangerouspattern — a very dangerous assumption — for us that: we have let economics become thepurview of technocratic elites, rather than a subject that's vital to all of usand can be — and ought to be — understood like other social sciences. so when i say "economics is broken," i mean that a) professional economists have lost a lot of credibility, because allthey've really got now as a schtick is
predictions. we're using mathematicalmodels to predict the future. well, they didn't predict the housing crisis, theydidn't predict the lehman brothers collapsed, they didn't predict the techstock bubble of '01, they didn't predict the crash of '08, and as a resultthe profession has — from my view as a layman — it has egg on its face. and, when we get into academia, i think the profession is equally broken, because academic economics has just become like calculus. it's become this series ofupper very high level math classes. american econ phd programs areincreasingly filled with asian students, by the way, who are adept atmastering these higher level mathematics
courses when coming to the u.s. tojoin programs. so, it's really just teaching modeling and mathematics,which is almost a form of history, right? we're looking at data. data is somethingthat occurred in the past by definition. so, it's a very strange time. i don'tthink economists a hundred years ago would really recognize the profession today.and, i think that it's a profession that's really not serving humanity. it's not doing anything beneficial for the majority of us, and that seems like an odd thing to say, but thereit is. that's how i see things, right now. [john] you know, you know there's an industry that
has recently developed called "big data"where dramatically large datasets around our behavior are being accumulated bylots of online sources, and it even drives us more to this economicphenomenon of taking excerpts of big data, putting it in long, complicated formulas, and then attempting to come to some kind of solution or perspective forecast. you know, i forget who it was — but it mighthave been murray rothbard, as far as i know — but, someone announced one time —at least i recall, it went along something like this — an economist spends the first half of hiscareer learning how to make these long formulas and forecasts, and he spends thesecond half of his career justifying why
they didn't come true. and, i think that'sthe era that we're in. is it even possible today to get a phd in economicswithout being totally overrun with mathematics? [jeff] it's very difficult, and i think anyoneis interested in becoming a phd economist ought to be able to handle themath, if for no other reason than to be able to refute the dominant modeling approach that is found in universities today. so, you know, i don'tthink austrians or free market economists should be anti-math, but, you know, economics is not mathematics. we cannot reduce human action in the economicrealm to formulas, and we can't
reduce it to hypotheses to be tested. so, it's very difficult. now, in european and asian econ programs, ironically, math is far less prevalent.there's still a lot more emphasis on theory, but in the u.s. and in thewest — well in some of the west and in the u.s. — math is really the dominant measureof whether you can obtain a phd, and then once you've got one. whether you canpublish, because publishing increasingly means doingstudies, not writing an abstract paper based on theory. and, what's soironic here is that, you know, we've almost lost the ability to performtheoretical economics. that's almost a
dying subject. and, part of the reason forthat is that young people today... well, first of all, john, they're turnedoff towards economics, because of all this mathiness — if that's a word.and, second of all, they're obtaining phds withno understanding of their place in the history of economic thought. they don'tstudy past economists. as i told joe salerno: it's almost like we take bright young people and drop them on the island — a phd island —and they have no idea how they arrived there. they have no idea what historians or what economiststhought in the 1700s, 1800s, 20th century, and so they live in this bubble of data, but theydon't have any context. they don't have
any historical context in which to placeit. and, that's really dangerous. i think that's how bubbles happen. i thinkthat's how a lot of companies and a lot of industries and a lot of stock marketsget themselves into big trouble. [john] well, the mises institute, with yourleadership, has done an incredible job of identifying bright young people, bringingthem to auburn, being it also for mises weekends, and learning experiencesperiodically through the year, on a very very affordable basis, and exposing themto the austrian tradition with some of the masters that we have alive todaythat do such a great job of teaching these principles. but, i've noticedrecently that you've launched a new
online learning division, and i want tocompliment you and your team for making it very user-friendly. i noticed that it's some of the same courseware i've taken through mises onother platforms, but you've really made it frictionless and affordable for anymember of the general public that wants to learn about the austrian tradition to do so. can you tell us a little bit about the new program? [jeff] well, we found that a lot of people don't take economics at all in high school or undergraduate. and those who do, unless they're an econ major, it's generally some sort of micro and then some sort ofmacro class, and there's a textbook
written by paul samuelson, which is stillvery widely asigned, and this textbook is full of errors and misconceptions — atleast from our perspective — that's a matter of opinion, of course — and, so wesaid, well, you know, there's a need for people who want to take online classes,but they don't want to do it through a regular universitywhere they're going to get this sort of balderized version of macro and micro —that they needed an actual rigorous grounding in austrian economics, and, so,you know, there's an audience out there for this. that it's not everybody. a lot ofpeople, you know, prefer to spend their free time on facebook or playing sportsor going to a bar or something like that,
but the people who really want to learnthe stuff and want to do it for free, we decided to to build out, and makemore robust, our online learning platform. and it's tough, because, as you know, imean, you're deeply involved in this with your trading platforms: online learningis really still in its infancy, and what worked in 2010 is completely gone today, and what works in 2020, you know, willprobably make today's platforms obsolete. so, it's really an interestingexercise in finding what the market is. i mean, people clearly want to learn athome, they clearly want to learn on their own time at their own pace, they clearlydon't want the traditional
brick-and-mortar model — the 15-weeksemester and buying books and going and physically sitting in a one-directional lecture for an hour and then going home and doing homework and taking tests — we know that the traditional model is broken, and it doesn't serve the needsof people today, because basically the same model that has been used for athousand years, which is ironic, but beyond that, we're very much tryingto figure out what people want and some people would like to consume just a tiny amount of economics education. they just want to have maybe a twitter feed, andoccasionally read an article that
broadens their understanding. and somepeople want a whole lot of economics education. they'd like to come to theinstitute and use our library and spend 3 months here as a fellow, and thenmaybe go on and get a phd in economics. so, there's people on each extreme, and there's a lot more people in the middle. so, we're trying to reach somemore of those people in the middle, and we're trying to gauge where the interestis. but, i will say this: a lot of young people are disillusioned or bored by theeconomics that they're taught in their undergraduate settings. so, we want to bethere as a non-traditional school — a 21st century school — that's accessible toanybody. that's not just for young people, not
just for traditional students, but reallyfor anybody. so, we're working on it, and and we're modernizing it, and it's a work-in-progress. it's a lot of fun, because, as you know, in thepre-digital age all this stuff had to be done with physical books, and you had to know somebody, or you have a professor who was good, and now with a couple ofclicks we can we can post something and 40 or 50,000 people can see immediately.so, it's a great leveler. [john] i think it's very important and i thinkthe great mission to educate all ages, as a matter of fact, a lot of — as you know —we serve an investor-trader audience here at power trading radio and online tradingacademy, and we have a very substantial
audience who come in here at all agegroups who have virtually no economic grounding, whatsoever, and we do our best to integrate austrian economic principles into our teaching in our courses, both inour classrooms and forty markets across the world and online. we attempted to do the online education work, but — believe it or not, way back in1998 — and we were all geared to deliver online coaching, mentoring. but the problem was there was nobandwidth to the home. i mean, 56k modems were hardly out, and the platforms werevery expensive, and not very stable, so we kind of abandoned that for several years.but, it's now the biggest division and
the most... our online support divisionboth before classes and after class, to carry on a continuing experience andbranding right into the home of our adult learner is the most prolificexperience in our education. so we like to blend the best practices of thephysical classroom experience with online learning techniques, and ithink it's 2 + 2 = 6, and i certainly it's got a great future. nowthey're coming out with software, i understand, where you can almost doforeign language translation on the fly. so, can you imagine speaking into acamera in english and delivering your content, and on-the-fly your powerpointand voice is converted into spanish or
german or french? [jeff] well, it is amazingand we've never had more information so available to us our fingertips. theproblem is not a lack of information like 30-40 years ago. the problem's toomuch. and it's cultivating it and siftingthrough it, and figuring out what's important and what isn't it. so, we've got more information, john, but seems like we have less wisdom, in many ways. [john] i know you're very close to ron paul and his organization with private education, as well, jeff. i'd like to get youropinion or thoughts on two very large for-profit education entities in theeducation space: corinthian college and
itt just went out of business, simplybecause they apparently were abusing — or allegedly abusing — college loans sponsored by the us government. do you have any thoughts on, you know, the stateof the college finance programs that are goingon out there? [jeff] yeah, those were sad, because i very much like the idea of trade school: schools that teach people practical, applicableskills through for those who don't necessarily want a broad liberal artseducation and a bunch of mandatory classes that they have to take in a four-year undergraduate setting. so, you know, the itt tech the corinthians, i applaudthem for for teaching direct skills. now,
unfortunately, they were provided with a very perverse incentive by the federal government, which is taxpayer-backed student loansthat are easily obtainable, even by someone with little or no credit. and, you know,they could... in other words, no one's loaning eighteen-year-olds $60,000 to buy a corvette, but lots of people will loan — lots oforganizations will loan — eighteen-year-olds $60,000to go get in debt in college, because it's backed by the federal government. so,in a sense, these colleges that... although, look, they may be, on anindividual basis, they may be scammy.
they may have a very hard sell. they mayfudge their employment statistics, all kinds of things. i mean, i'm nothere to say that they were angels, but the mother's milk of the problem isfederally-subsidized student loans. if it wasn't possible for studentswith little or no credit to so easily obtain these loans, then theseschools have to drop their tuition. it's just that simple. you could say thatof four-year schools, as well. so, you know, people respond to incentives, and whenuncle sam creates incentives for people to spend a bunch of money now going to school, even when there's an uncertain outcome at the end, you know, that'swhat people are going to do it. and, these
schools that either exploited or preyed onthese young people as result or they offered, you know, a market service thatgot out of hand... i guess you could look at it either way... but it really is ashame, because i think technical education is something that america issorely lacking, and i think this push that every kid has to go to college... it'sjust resulted in diluting the value of the standards of college. that's all it'sdone. so, tough situation, and i gotta tell you — moral hazard aside— as a40-something, i do have some sympathy for the argument that we ought to forgive student loans. i think a lot of these millennials are really soldsomething that... now, they bear some
responsibility, don't get me wrong. but, you know, i do have some sympathy for that argument. it's a very toughsituation to have all these young people starting out heavily in debt. it'sa terrible way to start out life. [john] but, it seems to me, the government — i'm sure there were abuses — but on the other hand, it seems to me the government, asmeasured by the department of education, has really targeted the for-profit space.they haven't seemed to take in to task the potential abuses that very well — ofthe same allegations — maybe taking place in the traditional state university.you know, at the university of alabama or auburn or university of georgia. imean, why is it that they have seemed to
have taken on such a target on the backof the for-profit space? [jeff] well, first of all, they hate for-profiteducation. they view it as something like healthcare that ought to be provided bythe state, or it's not legitimate. they want to promote theirfour-year universities, you know, for one. and, there's lots of kids who have gonethrough those and come out with little or no job prospects. at least a lot ofthe for-profit schools or shorter two-year degrees — the culinary schoolsand art schools, heating and hvac schools, that sort of thing — at least they'reshorter in duration and you get a degree fast and it costs less. auburn university, which sits across the
street from my office — about fortythousand dollars a year for in-state tuition. so, that's that's quite a lot ofmoney, potentially $160,000 to obtain an undergraduate bachelor's degree. if i was going to school under those kind ofcircumstances boy, i would hope, as a young person, i would have enough foresight to think long and hard againstit, about it, but ii think you're right. i think that there's a bias againstfor-profit schools. i think that's why the government... they're viewed assomehow predatory by their very nature, that anyone who makes moneyteaching kids how to do something is
somehow immoral. that's absurd. you know, for-profit education soundsto me like how education ought to operate. [john] well, our organization is a for-profiteducation entity — it's unaccredited — but, at the end of the day, there areadult learners come here. we have our own self-financing program throughthird-party finance companies. but the student has a substantial down paymentto make for the tuition. we have a broad menu of courseware that they canchoose from, but they're not here to get a job. most of them are here to learn avery specific skill: to use our core strategy to time the market, takeresponsibility for their own pension
plan, be self-directed to the market, anduse our support, which is unending lifetime support. so, when somebody becomes a member of our family we're committing to serve them for the rest of their life in givingthem a community to find entries and exits that will help them, you know, beatthe market versus the traditional buy-and-hold snp model and are take it away from wall street. we give them a lot of motivation and they aspireto take responsibility for their own financial affairs, but we don't take anickel for the government money. as a matter of fact, we're net render of taxes tothe government.
we don't have any government support,whatsoever, for our students. nor do they want it. nor do they necessarily need it. there areprivate sources of credit out there for creditworthy individuals, especially ifthey have a significant down payment toward the, you know, full contract value.[jeff] absolutely, and your students are also probably not always 18 yearsold. and that's the twist here. of course a hundred years, it would be considered absurd that an eighteen-year-old wasn'tresponsible for understanding the debt situation that he or she was gettinghimself into.
but, today, an 18-year-old's not the samething as a hundred years ago. so, that kind of adds a twist when theseyoung people are told throughout their childhood: education isthe key to a brighter future. go to college. go to college. go to college. and, then,when they turn 18, well, they say "i don't have the money for college. my parents don't have the money, but here's uncle sam offering these loans, and all i have todo is sign." you can see how that's extremely enticing. [john] yes. it is. jeff, i understand you're getting readyto launch your new funding campaign for mises institute, but you, through yourleadership, have provided a terrific scorecard
on beating the big dc thinktanks. you runa very efficient operation out there. why don't you tell our listeners a littlebit about the mises institute. i'm a member of it. i love it. i can't thinkof a day... what my day would be like if i didn't have mises.org as a primarysource of income for what's going on in the world economically. but, how haveyou been so efficient in beating out some of these very well capitalized thinktanks in dc on a relatively spartan budget there in auburn? [jeff] well, i think the internet is the answer. the digital revolution has been, as imentioned earlier, the great leveler. we operate on a few million dollars a year.we have about 23 or 24 staffers at any
given time. there's a lot of organizations in washington dc that have hundreds of employees and bring in50 or 75 or a hundred million dollars a year in donations. now, a lot of thosedonations are from corporations or larger donors, family foundations, etc., whereas our donations are virtually all individual. so, we just usethe internet. we put as much on our website as we can. we try to... we spendquite a bit of time with our outside vendor trying to fiddle with our websiteand make it a little more user-friendly. and, we just generally try to make thingsavailable for free, because we find that that actually... like,for instance, when we sell a book in our
bookstore we also try to make an html orpdf version available for free, and we find that actually increase the sales. itdoesn't decrease them. so, we try to be a free resource and use our status, use ourwebsite traffic, and our social media traffic to convince people to give usdonations. to convince them that what we're doing is worthwhile, and that issomething they ought to support. so, while, you know, we have lots and lots of peoplegive us ten or twenty or fifty or hundred dollars a year, and that's how we get by. and, look, don't cry me a river. we have a great time. welove what we do. we're excited about our mission, and when the day comes thatwe're not, then we'll will close up shop
and go home. and, i look forward to thatday. i look forward to the day that austrian economics is so acceptedon wall street and in academia that we're not needed anymore. but, until thatday comes, we'll be here in some form or another, and hopefully that form isincreasingly digital, because that's the cheapest way to reach the most peoplequickest. [john] well, from your mouth to god's ear. i recall, matter of fact, lastnight, and was reading an excerpt from one of your pdfs. i think it was misestalking about freedom in crisis, or something like that i believe was thetitle, but, any rate, he was talking about how keynes really... before keynescame about in 1936 with his book, the
austrian approach was very well acceptedand was then considered mainstream, and of course, that britain had been runningthe equivalent of keynesian policies before keynes even wrote his book, andthen what what keynes did was really give a license or a pass to theeconomists to fund deficit spending and create... attempt to create demand,and he really gave the economists a pass and the politicians love this, becausethey now had several phds endorse their deficitspending, demand creation, money manipulation, cheap liberal creditprograms, to the point that... and even discredited say's law.
i mean. he never disproved say's law. hejust announced it that he discredited it, and all of a sudden, mainstream economics moves to the forefront, austrian economic-type principles kind of moves to the back of the bus, and it hasn't lost any momentum since. it just keeps gettingbigger and bigger and bigger, and, you know, what a disservice this man did. henever disproved any of the austrian principles that that mises and hayekand so many others so... and menger so well articulated, but the fact that themainstream politicians, mainstream economists and the politicians, inessence sold out, and it's that simple. but they never disproved the principlesof austrian economics.
wouldn't you say that's accurate? [jeff] no, it is. and i would say moderneconomics operate not so much on a well identified set of principles, but insteadon a very murky set of principles that that almost guide economists subconsciously. in other words, a lot of what keynes said or believe... heactually changed later life. but, a lot of what he said he believed isn't somuch followed today explicitly. it's followed implicitly. we have thissort of general sense — and we can call it "neoliberalism" — this general sense it isthe role of government and the role of central banks to create demand. thatthat's the number one job of growing and
sustaining an economy to create demand. well, we all have infinite demand. we're human beings. we all have unlimited wants anddesires. the question is not what we demand. it's what we can produce. that's the hallmark of a civilized society, of the society that's healthy, andgrowing and creating for the next generation is how productive it is. does a society consume more than itcreates? or, does it create more than it consumes? because the whole history ofhuman development is capital accumulation. now, that might sound... that might sound trite, but it's true. that healthy societies accumulate capital, andunhealthy societies consume more capital
than the accumulate. and, unfortunately,modern economics pushes endless consumption — endless stimulus of demand — as the way to create a healthy economy. it just isn't true, and we're seeingit. we have mountains of debt since 2008. we have mountains of qe, and you don'thave anything to show for it. we don't have any real substantive increases in gdp. wedon't have new markets. we don't have real sustained growth in us companies.what we mostly have is accounting gimmicks and stock buybacks and thatsort of thing. so, it's getting very very hard to fool reality, and wehave so much more debt around the world than we did in 2008. and, it's reallypretty scary, if you worry about that
sort of thing, because the next crisiscould be far more painful than '08.
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