This is interview #5 in JohnsonForAmerica.com’s “Important Voices” series, where we talk with key figures, such as elected officials, candidates, authors, commentators, and policy experts, about the issues of the day. A new interview is released every Monday and every Thursday, so check back often!
Our guest for today’s Important Voices interview is Robert P. Murphy. Robert got his B.A. in economics from Hillsdale College in 1998, and his Ph.D. in economics from NYU in 2003. After earning his doctorate, he served as Visiting Assistant Professor of Economics at Hillsdale College in Michigan, and from 2006 until early 2007, he was employed as a research and portfolio analyst with Laffer Associates. Robert is a senior fellow at the Pacific Research Institute, an economist for the Institute for Energy Research, and is an adjunct scholar at the Ludwig von Mises Institute and the Mackinac Center for Public Policy. He writes for Townhall.com and LewRockwell.com. Dr. Murphy wrote The Politically Incorrect Guide to Capitalism and The Politically Incorrect Guide to the Great Depression and the New Deal.
Josiah Schmidt: Thanks for talking with us, Dr. Murphy. So, how did you come to hold such a liberty-oriented philosophy?
Robert Murphy: When I was in high school my dad used to listen to Rush Limbaugh and that got me interested in free-market ideas. I started reading Milton Friedman, Thomas Sowell, and Walter Williams. Then I discovered Henry Hazlitt, who praised Ludwig von Mises, and by that point I knew I wanted to go to school for economics.
Josiah Schmidt: You wrote the book, The Politically Incorrect Guide to Capitalism. What does capitalism mean, and why is it the only system that works?
Robert Murphy: The way I use the term, capitalism is the system of private property. Everything tangible is owned by someone or some group of people, and people then go about their business by engaging in voluntary exchanges of this property. It’s the only system that works because it gives people the right incentives and the proper amount of information to be able to coordinate their activities, leading to an efficient outcome. In contrast, under pure socialism the government planners don’t have enough information to know what to do with all the resources at their disposal, and the incentives are all messed up for the workers and factory managers.
Josiah Schmidt: Why are we in this recession?
Robert Murphy: I think the Federal Reserve cut interest rates too much following the dot-com crash, which helped fuel the housing bubble. Then after it popped, the government and Fed made things far far worse by flooding the economy with cheap money and implementing a New Deal II. The last time the government and Fed engaged in such measures, we had a Depression for 10 years. People shouldn’t be surprised that the same policies today will yield a similar result.
Josiah Schmidt: You also wrote the book, The Politically Incorrect Guide to the Great Depression and the New Deal. What similarities do you see between Bush-Obama’s policies, and Hoover-Roosevelt’s policies?
Robert Murphy: The stock market was pushed up in the late 1920s because of easy-Fed policies, just like the housing bubble in our time. After the 1929 crash, Herbert Hoover departed from the traditional role of the US president and actively intervened in order to “help.” It is a complete myth that Hoover was a do-nothing president; he was in fact the most interventionist up until that point in US history. Hoover tried to keep wage rates up, and he engaged in massive budget deficits. He spent money on public works projects, including the Hoover Dam. When Roosevelt came into office, he merely upped the ante on measures that Hoover had pioneered. At the same time, the Fed cut interest rates to (then) record low levels following the 1929 crash, for the same reasons the Fed has done so in our time following the housing collapse.
The media constantly remind us of the similarities, because every time a new policy is introduced nowadays, the story will say, “Not since the New Deal has the federal government…” So in the face of these assaults on the market economy, no one should be surprised that our economy is in the worst shape since the original New Deal.
Josiah Schmidt: Who is your biggest inspiration in writing your books and articles?
Robert Murphy: It’s a tie between Mises and his (unofficial) student Murray Rothbard. Mises was the greatest economist of the 20th century, but Rothbard was the best writer who could take these difficult ideas and teach the average reader.
Josiah Schmidt: Why, in your opinion, is the concept of a government stimulus a fundamentally flawed way to truly restore economic health to the country?
Robert Murphy: The government doesn’t create resources, it simply moves them around. The economy was in an unsustainable configuration in 2006, and workers and resources needed to move out of housing (and Wall Street) and go elsewhere. The government should have sat back and let this happen, instead of trying to prop up unsound enterprises. The longer the “stimulus” drags on, the longer the slump.
Josiah Schmidt: What is wrong with the notion that the correct response to a “liquidity crisis” is for the Federal Reserve to simply inject new credit?
Robert Murphy: The Fed doesn’t make us richer by printing up more green pieces of paper (or by adding numbers to someone’s checking account balance). Interest rates are prices that communicate important information to investors and entrepreneurs. When the Fed effectively wipes out that signal by pushing interest rates to zero, it makes it harder for people in the economy to recalibrate after the housing bust. It would be as if the Fed disabled everyone’s internet access and expected that to help the economy.
Josiah Schmidt: Do you think we’ll see another big spike in unemployment in the not-too-distant future?
Robert Murphy: I think the economy will definitely fall into a “double dip” in the near future, if we’re not in it already. But I also think prices will start rising, perhaps quickly. The price inflation will at least help moderate the high unemployment, because it’s easier for businesses to hire new workers (at a given wage) when their product prices are rising.
I certainly don’t think unemployment rates will officially ever get to 25% as they did in the Great Depression, but only because the Fed will cause rampant price inflation before letting that happen.
Josiah Schmidt: What can we, as private citizens, do to help put our country back on the right track?
Robert Murphy: People need to understand what got us into this mess, and they really need to understand that the politicians won’t “fix” things by taking more money and more power. Individual households should hunker down by buying gold and silver, saving as much as possible, and trying to develop alternate forms of income that they can expand if they lose their normal jobs.
Josiah Schmidt: Sound advice. Got any new books coming out any time soon?
Robert Murphy: I am working on an economics curriculum for junior high / high school students right now. The student textbook will probably be available from the Mises Institute by the summer.
Josiah Schmidt: Fantastic! Your study guides to Mises’s “Human Action” and Rothbard’s “Man Economy And State” were invaluable to me when I was going through those books. I look forward to seeing your new study books. Anything else you’d like to say to our readers?
Robert Murphy: People who are intrigued by the analysis I’ve offered above should visit the site Mises.org for their daily commentaries on the news of the day. It is a perspective on economics and current poltical events that more people need to see.
Josiah Schmidt: Absolutely. Mises.org is one of the most important sites on the web. Thanks again for answering our questions, Dr. Murphy!