The Problem With Jon Stewart - Why Does Fighting Inflation Have to Hurt So Much?

Episode Date: October 19, 2022

Jon is joined by Steve Hanke, a professor of applied economics at Johns Hopkins University, for a chat about why we find ourselves in this current inflation disaster and how we might get out of it. They get into whether the Fed is blowing it, the role of money supply, and whether anyone is looking out for the little guy in all of this monetary maneuvering. They don’t always agree, but Jon manages to score a passing grade from the professor! Plus, staff writers Kasaun Wilson and Henrik Blix are here talking about Kanye’s anti-Semitism and, of course, the Mets.Stream our newest episode, “Globalization: Made in America,” starting October 21 on Apple TV+.CREDITSHosted by: Jon StewartFeaturing, in order of appearance: Kasaun Wilson, Henrik Blix, Steve HankeExecutive Produced by Jon Stewart, Brinda Adhikari, James Dixon, Chris McShane, and Richard PleplerLead Producer: Sophie EricksonProducers: Zach Goldbaum, Caity GrayAssoc. Producer: Andrea BetanzosSound Engineer & Editor: Miguel CarrascalSenior Digital Producer: Freddie MorganDigital Coordinator: Norma HernandezSupervising Producer: Lorrie BaranekHead Writer: Kris AcimovicElements: Kenneth Hull, Daniella PhilipsonTalent: Brittany Mehmedovic, Margorie McCurry, Lukas ThimmResearch: Susan Helvenston, Andy Crystal, Cassie Murdoch, Deniz Cam, Harjyot Ron SinghTheme Music by: Gary Clark Jr.The Problem with Jon Stewart podcast is an Apple TV+ podcast, produced by Busboy Productions. https://apple.co/-JonStewart

Kason, how uncomfortable is it to hear two Jews complain about all this? Wait, I'm not Jewish. Oh, really? I've been sneaking in the meetings just because I like hanging out. I thought you were in there. Well, then it's just me. All right. Would you like to make a reveal to the world right now? I'm kind of, uh, if you created a heat map of which countries in the world are most vulnerable to sunburn, that's me.

Hey, everybody, welcome to the podcast. It's the problem with me, John Stewart. The show is back on Apple TV Plus for season two. Got ourselves our first episode on gender. It's available right now for free, for free on Apple TV Plus. On Apple TV Plus, the second episode is about taxes and how many of us are getting screwed. And that is also available, but it costs a million dollars, a million. We're going to have a very, very nice show tonight. We're going to be talking to Steve Hankey, who is an economist from Johns Hopkins University about what the Fed gets wrong about inflation. And as always, we're going to have our writers around today. It's Henrik Glicks and Kason Wilson, gentlemen's welcome.

I don't have a ton of time today because I have a Jewish media mafia meeting. Oh, what time is that? Oh, it's so it's it's at one o'clock, but in 53 67, which is the obviously that's the Jewish media mafia calendar that we go on, which is which is a different year. But I'm hoping we've just got a lot of stuff to talk about in terms of censorship and what we have to control. A lot of stuff's been sneaking through the cracks. I'm learning so much today. Oh my God, Kason is on. I forgot we've given away all the secrets quick to the Rothschild machine, to the banking mobile.

It's crazy how much anti-Semitic stuff has been getting through the filters. Can I tell you something was wild to me? Trump came out with like some crazy statement about like the evangelicals get it. Jews don't get it in America. Our great evangelicals do. They Jews better wake up before it's too late. It's one of the most explicit expressions of just pure Jews have only loyalty to Israel. And it I don't even know that it made the top 10 anti-Semitic bullshit of the week.

In fact, the word anti-Semitic just doesn't even carry it anymore. It's just just weird Jew paranoia bullshit that I just it's mind blowing to me how easily it flows from people's mouths and fucking. Everybody's just like, wow, that was weird. It's insane to me. What is up for debate? Like we started at like global warming. Is it like 20, 30 years ago? Is it man made or not?

And like this scientific thing that's like, well, 99% of people agree. And now someone can come out and be like, whites are doing great, but the Jews have got to get it together. And we're like, what does he mean by that? Is that anti-Semitic to say? Who's to say? You know what I love about it though is like with the Jewish stuff, it's always like that is so wrong and they should never be happening. But you know, a lot of executives are. I mean, if you really, if you really look at like, I think Connie said something like, you know, the Jew Disney company.

I'm like, boy, he doesn't really know the history of Disney. He really take a look at some of these things. But it's all like, if you are Jewish, then then it's part of the Jewish mafia. But if you're not, you're just a guy that is a dick to him in business. But if you're a Jewish guy with him in business, it's part of the cabal. It's fucking wild. But at least we know now what Candace Owens says in private. I mean, I think it's pretty clear that that's the shit that's flying around.

So what what do you guys make of someone whose work is is beloved who just decides in the middle of this to be like, and if I wasn't getting fucked over by the Jews, everything would be working out fine. And you're like, you're a billionaire who was married to the Kardashians. Like, how bad have we been fucking you? All right. On one end, it's like you love it's it's hard to talk about this person and the person who was like George Bush doesn't care about black people. During Hurricane Katrina, like it's the same person. And I love Kanye.

I love Kanye's music. I want nothing but the best form. But listening to old Kanye is like watching OJ Simpson bills highlight. Yeah, it's like it's like, wow, he really he's great. But yeah, he was the best. He can run like the wind. But then you like hear stuff and now you then now you go back and listen like watch OJ Simpson highlights and he's like, he's killing the Giants. Like, oh, I wish you didn't say that.

So I mean, Kanye is there's a lot going on. I think there are a lot of conversations to be had. He just bought parlor parlors owned by Candice Owens husband apparently who looks like me. Oh, really? Yeah. Candice Owens husband looks like what I look like in 99 out of 100 universes where I'm just like a guy with slick back hair. That's like, you know, the gardener's Catholic. I think maybe something should be done about that.

Kanye has had such a long week that Trump had to come out and be like, I think Kanye needs to find help. But I don't know. So here's the thing. You can get help and and and you can get and I understand that he has issues of mental health. But but I don't know what mental health drug like Jewelax, like I don't know what drug you can get. That would make you not think there's a cabal of Jews controlling the flow of information from your mouth to the public. Like no matter what happens, ultimately everybody always ends up at that final square on the board, which is I think it might be the Jews. To your point, nobody is like these New England Protestants and their cabal of wealthy businessmen.

Like it's just it's like when it's anyone else. It's just like that's a random business guy. We have got to do something about this white on white crime. It is destroying our neighborhoods. I couldn't agree anymore. I didn't even know that there was white people beef. You know what white people beef would be a really good show. It's very similar to Yankees and Mets fans.

You know, generally they believe almost the same thing. John, I'm so glad you said that because Henrik and I wanted to offer our sincere condolences. What what went on about the Mets and wanted to give you what are you talking about? They're they're in the NLC. They're about to go to the World Series. They're going to win the World Series. I mean, oh, John, you don't know to be quite frank. I feel a little bit bad for the Yankees and Astros this year because the Mets are no one can match up.

And so I'm so excited to celebrate. But what what is it you guys are talking about? No, that's exactly right. We were just talking about it's too bad that you haven't been getting TV in your house to watch them. Well, I'm on I'm on Apple TV Plus, so I don't I no longer watch any of the terrestrial stations that that you believe in. The first step is denial term. You have a problem. What's that?

I don't I don't understand. Do you have teams that you hold on to in that way? Like have you had painful experiences with your teams? Jesus. Oh, all right. Let me hear it. I'll start. I'm from Jersey.

I'm a Yankees fan. Oh, I'm a Jets fan. I was I was I watched the butt fumble live. For those who don't know, Mark Sanchez was the quarterback of the New York Jets. He took the snap. The pressure came. He tried to escape the pressure and ran right into the ass of one of his offensive linemen. And the ass was apparently so taught that the ball popped out.

And the Jets lost possession. It was it was pure 100% jet moment. Yeah. Yeah, I'm a Nets fan. I was the only kid at school like, no, guys, don't forget about Keith Van Horn. Like, carry kiddles, guys. Come on, man. Carry kiddles.

I'm a Nick fan. We're never good. Can I take this full circle then? Please. So the one chance that the Nicks really had because Jordan basically, they were great in the 90s, but you had, you know, those those great Miami teams. And then you had the Chicago teams. I believe it was 94 lockouts where Jordan was retired.

And so they went up against the Rockets in the finals. And it really did look like they were going to take it. And I remember sitting and I was watching the game and all of a sudden they broke into the broadcast. And who was it that they broke into the broadcast for? O.J. Simpson. That was the white Bronco Chase during the 1994 NBA Finals Rockets. And that, my friends, is what we call a callback. That contextualizes what big news that they were like, stop.

We're going to stop broadcasting the finals. We're watching it. And just in the corner, you're just watching this white car just driving around. And you're like, what the fuck is happening? But we do have, gentlemen, a lovely show also about monetary theory. Today's interview, Steve Hankey, Professor of Applied Economics at Johns Hopkins University. Professor Hankey, vocal critic of the Fed, as I am, but I think from different directions. He thinks they're doing a bad job of taming inflation because they're not dealing with the money supply.

He'll explain it, I don't. Let's bring him in. All right, our guest today, very exciting. Steve Hankey, he served on President Reagan's Council of Economic Advisors. You're on today. You are the inflation whisperer. Inflation, obviously, is probably the foremost economic issue facing the country right now. You are the Indiana Jones of bringing down hyperinflation.

They call you in countries that are experiencing it. But your philosophy is inflation is more a function of monetary supply. Is that accurate? Yes, that is accurate, John. And actually, that's the real place to start. The question is what causes inflation? Yes. Everyone's very upset about inflation in the United States.

Now the headline inflation, the consumer price index is 8.2%. Most of the inflation started showing up with goods, commodities that you buy. And now it's morphing into services like hospitality, your haircut, all of those things are services. Is that a typical arc for inflation to take that it starts out in commodities like oil and gas and energy sectors and then switches over to services? Yes. And it was very pronounced this time because the money supply started growing when COVID hit in February of 2020. And what happened? We were all locked down.

So you couldn't buy a lot of services. The stores were all closed. Right. At any rate, that is a typical pattern. It starts with the commodities. And after you get an increase in the money supply, you have commodity prices and asset prices start going up with a lag of about one to nine months, John. Right. And what happened this time?

The money supply starts going up in February of 2020. Of course, the stock market started booming. The oil prices went up. Soybean prices, corn prices, all the grains went up, livestock prices went up, housing went up right away, started zooming. And then we have another lag and all of a sudden the real economic activity kicks in. That takes about six to 18 months after the sustained increase in the money supply. Ultimately, we're talking about inflation today. That comes with a lag of about 12 to 24 months.

It's very long, the lag. So any change in money supply or any change in interest rates is really not going to be felt for another year or two. That's correct. And this is what throws people off. Things don't happen instantly. They look at what's going on with the money supply today. And there's a lag between that and changes in asset prices, changes in real economic activity, and ultimately changes in inflation. So that's the transmission mechanism.

And that's a tricky thing because of these lags that we're speaking about. Now, you mentioned hyperinflation. This also gets back to the cause of things. The Minneapolis Federal Reserve Bank has done a couple of studies. They're a little bit dated, but very revealing. They looked at 110 countries, John, and tried to see if there was a relationship between changes in the money supply and changes in inflation. And from 1960 to 1990, the relationship is one to one. If you increase the money supply one, you get a one increase in the consumer price index, 110 countries.

In anticipation of speaking to you, John, I wanted to update this. So we have a bigger data set. I just got the results this morning, actually. John, this is breaking news. What? I don't even have a graphic for that, sir. I got nothing.

I'm not prepared. I'm glad you're seated. We have 157 countries that we looked at from 1990 to 2021. And again, that relationship is almost perfect, one to one. Increase money supply by 10%. You increase inflation by 10%. Decrease the money supply if that should happen. And you decrease in a one-to-one relationship.

So that's the key. So the Fed has been increasing money supply, I don't know, since 1960 maybe, but after the 2008 financial crisis. And they went into that QE period where they were just increasing money supply. They were keeping interest rates down at zero. Haven't they been pumping money into this economy for many years? And yet inflation has only reared its head right after this pandemic period. So I'm wondering, is it not necessarily just money supply?

Is it also the war in Ukraine and wheat prices? Is it OPEC deciding to restrict production? Corporations have kind of been suckling at the teat of easy money for a very long time without this real increase in inflation. It seems as though it's when the money went directly to people who needed it that this has reared its head. What do you make of that? That's probably a lot to unpack.

It is, but you put your finger on three key things. Yes. You said inflation is global. No, inflation is not global. It's homegrown. It's always local created by changes in the money supply in a particular central bank. For example, we have the Federal Reserve, the United States. That is the epicenter of what's happening with changes in the money supply created by the Fed

and the commercial banking system in the United States. The Bank of England determines that. The European Central Bank does that. Let me give you the examples. These are important. Right now, we have inflation in the United States, 8.2%. It's a little higher in both the Eurozone and the United Kingdom. It's 9.9 in Great Britain right now.

Look at this. Japan, what's the inflation rate? 3%. It's not global. It's not global. That's because of the Bank of Japan's controlling the money supply. They haven't exploded the thing like they have in the United States, Great Britain and Europe. Switzerland, inflation is now 3.5% per year.

Swiss National Bank controls the thing. Of course, the winner out of the whole thing is China. China is following the quantity theory of money. They know the changes in the money supply affect inflation. Their inflation in China is 2.5%. But don't they manipulate their currency as well? They control their own currency and manipulate that to their benefit. They try to.

They are different than the United States in the sense that they have exchange control. That is a big impediment. They don't have a freely floating exchange rate because they have exchange controls. One reason, by the way, that the Chinese won is really not an international currency like the US dollars because they have exchange controls. Yes, but in the context of inflation, John, it's irrelevant. What you said is true, but it's irrelevant. Why would it be irrelevant if it's money supply? Is it that if quantitative easing is going to higher income, generally that money won't be spent as quickly because there's large reserves and they're already consuming a lot.

If you give money to middle income, lower income directly, they're going to spend it right away and there's going to be a flood of demand. Is that why the stimulus spending was more inflationary than when we're pumping a lot of money into the more corporate arena or the higher incomes? No, the reason that the stimulus in the United States was inflationary is because we had increased government spending. That's a stimulus and the revenues to finance that weren't sufficient. So we had a bigger government deficit and who financed the deficit? Over 90% of that was monetized. The bonds that were sold by the Treasury to finance the deficit were sold to the central bank, the Fed. And when the Fed creates credit to pay for those bonds, that increases the money supply.

That's why the money supply exploded in the United States. That was one reason. The other reason, and most people don't realize this, most of the money created in the United States is created by the commercial banks, the commercial banking system. So at the time of COVID, commercial banks were pumping out a lot of credit. They were contributing to the increase in the money supply. But then the Fed jumped in. They piled in by monetizing the deficit, the government spending, and that really goose the thing tremendously. Now, that gets back to your key point you raised earlier about 2008.

Remember, you said, well, what happened in 2008? You said we had this quantitative easing one. We had quantitative easing two. We had quantitative easing three even. And everybody said, you know, the sky's going to fall in. We're going to have hyperinflation. Some people did. That didn't happen.

And if you understand 2008, you're going to understand the whole ballgame. We had Lehman go under. We had a financial crisis. And the smart folks in Washington, I almost said the smart Alex in Washington, decided close enough. The bankers were bad guys. The banks caused all of this. And we had something called the Dodd-Frank legislation that was passed. And that was to squeeze the banks because they were the bad guys.

And at the same time. You seem to not believe that they were the bad guys in this? Well, I don't have any view about it. I'm just trying to explain what happened. We're doing what I'm calling positive economics, not normative economics. I'm down with that. By the way, just as a footnote, Lehman was not bankrupt, by the way. One of my colleagues at Johns Hopkins, Lawrence Ball wrote a great book on this.

It's clear the government shouldn't have let Lehman go under. It was solvent at the time. And letting it go, by the way, just created a bigger crisis. That's another story. Another day we'll take up that topic. But let's get back to the inflation thing. So what happened when Washington started squeezing the commercial banks? The commercial banks, which at the time were producing about 90% of the money in the United States.

Most people don't realize money is produced privately. It's not really produced by the Fed. The Fed in 2008. It's not mentioned by the Treasury. It's not minted by the Treasury. Some is, some is, but not the bulk in normal times. So in 2008, the commercial banks were contributing about 90% to the money supply as we went into 2008. Then they got squeezed and they started going negative.

They started withdrawing credit lines and so forth. And the contribution of the commercial banks went negative. It went south. So what Ben Bernanke and the Fed did, Bernanke was the chairman of the Fed at the time, they did quantitative easing one to try to offset and mitigate the damage that was being done by Dodd-Frank and all the over-regulation that was taking place. And then they did quantitative easing two and quantitative easing three. The net result of that was that the money supply never grew very fast.

It was only growing at about four and a half to five and a half percent. But if it's a one-to-one on growth, why didn't we have five and a half percent inflation? Well, no, that gets into my monetary bathtub and the reason. I don't want to get into your monetary bathtub. I don't know who's been in there. Right now, there's a lot of excess money in there. Maybe you would want to get in it. But what happens, think of a bathtub.

This is a metaphor and it's a pretty good one. So the money goes through the faucet into the tub and the tub essentially has two drains. One drains the money out to accommodate real economic activity, the growth in the economy. That's usually normally around two percent of that increase in the money supply coming in goes out that drain. Another two percent goes out because as the economy improves, people demand more money. And that increased demand for money is accommodated by another drain of about two percent out. Now, if your inflation target is two percent, which ours is, that's an overflow that goes out of the tub into inflation. You're saying that you're saying the velocity, the water, then how fast the water is coming out of the spigot is what changes the amount of inflation because the drains can only do two percent each at each drain.

Right. So if you overflow it, you're going to have an excess. It's going to it's going to flood. I'm just staying with the bathtub here. I'm a shower man myself, but I'm still going with you. You got it exactly. That's that's exactly a plus. So here's what here's what happened.

Here's what happened. Go back to 2008. Remember, I said four and a half or five percent. Yes. Now, do you understand why we had low inflation and they never could get the inflation up to two percent target. So but sector to sector, then you would expect that the inflationary pressures on each sector would be similar. No, but we see a wide variance in terms of what sectors. Yeah.

This is this is another important point because if you look at the consumer price index, you have a basket and the basket has roughly about 300 items in it. Okay. And those change that what they call relative price changes, John, the prices are moving up and down in the basket up and down in the basket. And and and maybe if they're moving up some and some are moving down, maybe the basket doesn't even move. The overall thing maybe doesn't move. Now what's happened, of course, is that we have relative price changes. Early on, I said we had commodity prices going up much faster than service prices. Now service prices are taking over.

But but the thing is out of those 300 items, they're all going up. So that the the overall aggregate basket level is going up. And that's why we have inflation. That's the the basic idea. So we've had some catastrophic events. So you have a war in Ukraine that changes, you know, the wheat supply, you have supply chain issues from the pandemic, which slow down everything. You've got OPEC deciding to restrict production in terms of, you know, the amount of oil and gas, and then you've got record breaking profits. And so it seems like a very complicated mix that money supply itself or interest rates itself wouldn't necessarily address.

And those seem like very blunt tools for something that appears to be more complex. Okay, now this is a lesson in what I call signal and noise. You've just emitted a lot of noise. That's my can I tell you something? Go ahead. That's my signature move. A lot of noise is the name of my biography. Okay, well, well, I'm a signal man.

Let's cut the noise and get to the signal. And the signal is the money supply changes what's causing this. Let me give an example, because you mentioned the oil earlier, and now you just mentioned it again. Let's go back to the Arab oil embargo of 1973. I think given the color of your hair, you're probably old enough to even remember that. Oh, baby, I was there. I was in the, you know, Monday, Tuesday went the even license plate, odd license plate, all the embargoes. I remember all of it.

Oh, yeah. You participated in Jerry Ford's win campaign. Sure. I wanted to whip inflation now. Didn't we all? Yeah. Of course I did. I had the button and everything.

That's another point, by the way. These wage and price controls never work. And a win was a big flop. But let's go back to the Arab oil embargo of 1973. And we will then go to the second oil crisis in 79. Let me take you all the way to Japan. All right, because this is what they call a natural experiment. The first embargo in 73, the price, the relative price of oil went way up.

And the Bank of Japan decided, well, we better accommodate that so people aren't so stuck with the thing. And they increased the money supply to so-called accommodation of the oil price increase. So it wouldn't be as damaging. They got inflation because the money supply went up. Not because the oil price, the relative price of oil went up compared to everything else. Let me go to 79 in Japan. The Bank of Japan learned their lesson. Prices of oil went up relative to everything else.

But the Bank of Japan held steady with the money supply growth. And they didn't get much inflation out of the thing. Right. That's the lesson in these relative price changes create a lot of noise in the system. They're moving all over the place. And if you cherry pick one of those things and you say, oh, the price of wheat, you know, has gone way up because of the war in Ukraine. And that's causing inflation. No, that's not causing inflation.

The money supply going up causes inflation because if the money supply hadn't gone up and the price of wheat had gone up, you'd be spending money on wheat but not on something else. And the price of the something else would be going down, actually. I'm trying to figure out a way to mitigate discomfort because what we're being told is because inflation is now higher, we have to create pain that the only way to stop this is to slow our economy so that there is less demand. So people are going to lose jobs. We're about to face economic pain. And yet we're also seeing record corporate profit.

So I'm trying to figure out how is there a way to take in all the complexity. Still think about the central monetary policy, but not make regular people feel the pain of a period of I think we can all agree that zero interest rates for all those years and quantitative easing did very well by Wall Street and corporate America. And now that direct stimulus money came in. Well, then we're all going to have to face some pain now. I guess my point is, isn't there a more complex way of attacking this problem without causing widespread poverty? No, no. Wait, that's it?

Just no? Yeah. That's not right. John, that's that's a short answer. May I explain? Yes, explain. Okay, okay. That's the worst answer I've heard yet today.

Okay, well, I thought your conclusion was the worst one I'd heard today. Really? All right, come on. Tell me why. Your conclusion was this. I think we might be more on the same page than you think. You had a laundry list of pain problems created by inflation. Okay.

And this gets to the signal and noise thing. He said, this seems very complex. So you need some complex solution. No, you need a simple solution. And the simple solution is the quantity theory of money. And the Fed is not following the quantity theory of money. That would be its M, the money supply times V, its velocity equals P, the price level times Y. That's my license plate.

I have that. That's my that's on my car. That was on Milton Friedman had that on his CAD out in California. Mv equals PY. That's the quantity theory of money. That says the following that if you want to hit the Fed's inflation target at 2%, you should be growing the money supply around 5%. Something like that. Right.

So what did they do? What did the Fed do? The Fed has increased the money supply cumulative since February of 2020 by 41%. Now, that's roughly an annual rate of around 15%. That is a rate that's three times higher than a rate consistent with hitting the Fed's inflation target at 2%. Now, who gets screwed by that? But the Fed is also trying to keep employment up. And we were in a pandemic.

We were in a crisis. I guess the point is, why is it when we're in a crisis for corporate America, they can get a fire hose of money, but when people are in a crisis, they can't. Well, this, this is a whole deal with the quantity theory of money. The Fed was flying blind. They don't look at the money supply. Chairman Paul has said repeatedly that the money supply doesn't affect economic activity and has no reliable relationship between changes in the money supply and inflation, utter nonsense. In fact, he said on September 8th, I'm going to quote here, monetary aggregates don't play an important role in our formulation of monetary policy. We don't think they are generally a good way to think about policy on inflation.

Well, this is just absolute rubbish. And we've been told, no, let me go back because we've got a lot of topics here. I don't want to get too noisy myself. So they increase the money supply. Yeah. And they're not because they're not looking at it. Paul admits they're not paying any attention to it. They boost the money supply. Now, why did they goose the money supply?

They goose the money supply to finance the federal deficit. That's how the deficit was financed. And they, they grew the money supply about three times faster than it should. Now, who, who wins and who loses? Who loses the little guy gets screwed in inflation. The little guy is the guy who's spending all of these money. If you spend a hundred percent of your money that you're earning, you, you have a problem because you're facing inflation.

Every time you're spending a dollar, you're earning, you're facing inflation. What the formulation can occur here where the little guy doesn't get screwed. So the little guy gets screwed in inflation. The little guy gets screwed in the remedy for inflation. The little guy gets screwed during the pandemic. So the little guy always gets screwed in any economic formulation. I mean, not really God bless, but supply side economics has created a tremendous amount of inequality. Has it not?

No, no, no. Come on. Come on. Let's go. That's another note. Let me, let me give you the formulation where the little guy does not get screwed. All right. Come with that.

That is following the quantity theory of money and Milton Friedman. Now, in 2020, actually, President Biden said, fortunately, Milton Friedman isn't running the show anymore. Well, that was, that was a bad deal for the little guy because the little guy would not have been facing inflation like this. If the Fed would be paying attention to the money supply and growing at about 5% per annum, we would have Milton Friedman was running the show. Inequality did increase dramatically. I mean, I think it's, is that a controversial statement? Well, yes, that is a controversial statement.

You can't have it both ways. You just said when he's not running the show, meaning recently that inequalities increased, then you go back. No, no, no, no. I'm saying that inequality increased during the Reagan era. I thought that the direct stimulation actually finally provided the little guy some relief. I actually thought that the stimulus checks and the earned basic tax income credit, all those things actually provided the little guy some safety and relief. So I would say the opposite, that when we didn't do that, the little guy always suffered. And now we're going back to making the little guy suffer.

I think, John, John, you've been reading, you've been reading the advertisements and not paying attention to the facts, but. Am I failing the class now? I was getting like an A plus earlier. You've dropped down a little bit. Oh my God. I'm not going to graduate. You're still hanging in there. No, you're still passable, but.

All right. But at any rate, let's go back to the Fed now. So the Fed produces all this money. They create all this inflation and a partner in that has been the Congress, by the way. Remember, when this all started, if Trump was the president, Biden wasn't the president. Trump was. So it started in 2020, February of 2020. You know what?

I think I might have blacked those years out. I don't remember now, but I think the name sounds familiar, but I may have blacked it out. So I don't quite remember it. At any rate, I'm just reminding you a little history had never heard anyone, but isn't. So you're saying supply and demand has no real issue on inflation. It has a big issue on relative price changes, but that's still noise. Relative price changes are not an aggregate overall inflation. And so what did the Fed and what does the White House said?

They said inflation is caused by supply chain glitches and it's going to be temporary. Well, we all know that was ridiculous. Even though it's still in the press all the time, they still talk about supply chain problems. Then COVID, that was a problem. You've mentioned monopoly pricing and gouging. That's a problem. Well, that isn't a problem. So none of those things are a problem.

Those are all. Let's talk about the price gouging. That agitates you. Obviously you had to buy a car or something. No, but I see when people are suffering and you see at gas prices and then Exxon post profits, it does get to a certain feeling that depending on the variances of these pricings that they never seem to suffer, that if they go down, like the airline industry goes down, we bail them out with a lot of money.

And when we're facing inflationary pressures, they just make record profits. That does seem unfair. Now, you may say that's noise, but to the layman, that seems very unfair. Okay. Oil prices are determined to international markets. Unfortunately, the United States is a cartel. There is an OPEC cartel, true, but there are also a lot of potential entrants. Are the shale producers part of the cartel?

And are the shale producers maxing out and being encouraged to produce oil in the United States? No, they're not. The current administration has tried to shut that down. So the current administration has done a lot of things to try to restrict supply. The current administration is basically operating like a cartel itself. They're trying to restrict supply. They don't want any...

No carbon fuels. But isn't that based on the idea that it wasn't profitable for them to keep their refineries over these past 20 years? I guess they've shut down a lot of our refining capacity as we've moved on. I mean, I'm just suggesting that perhaps the solution isn't always through the Fed that maybe there are solutions through... You're talking about other issues, other problems. Let's stick with the topic that we started the program with, inflation.

Inflation is always and everywhere caused by one thing, too much money, period. That's the end of the story. It is simpler than you think. But I have read studies that have said that in 50 cases of monetary supply, increasing 5% inflation was not increasing 5% over five years. And listen, you're the expert and I've read studies that contradict that, but I don't know... Whatever you're reading is rubbish. Oh, you know what?

It is from Rubbish Magazine. Let me ask you this. Who would push back on you? What school of thought would push back on you? Let me just make... I'll get to that in a second. Let me make a statement. There has never been a sustained inflation, any place in the world that hasn't been caused

by a preceding sustained increase in the money supply. Never. Now, let me define that. A sustained inflation would be over 4% per year. That's about half of what we have now. I'm defining that as a sustained inflation and it would have to last two years. So I've looked at the record and the facts and all countries, if you have a 4% or greater inflation for over two years, that has been preceded by sustained increases in the money

supply always. So who is pushing back on me? Yeah. Well, meaning I don't take this personally. It's a quantity theory of money that's been around since the 16th century, MV equals PY. And the people pushing back, I already gave one, Chairman Powell, the Fed has canceled it. And the reason why is they don't want the noose around their neck as being the culprits that created the mess we're in with inflation right now that everyone's so mad about.

That's why they're trying to convince you, John, that the supply chains did it, that Putin did it, oil prices did it, wheat prices, and burgos. You name it. So you're saying if it was just those factors, it would have been a transitory inflationary period, but it would not have been the factors. So how would you have handled the pandemic like when people were out of work and they needed money to sustain? How would you have handled it so that it didn't increase the money supply in the same way?

Okay. Number one, we had the government mandate that we couldn't work. But it was mandated. So let's not go back and re-litigate what they did. No, I'm not going to re-litigate it. I'm going to litigate it now. I'm not going to re-litigate it. I'm litigating it now.

But it's in the past. It's the past. It happened. All right. So what happens if the government tells me and they tell John Stuart that we can't work, Kanki and Stuart can't work, don't they owe us something? Yes. So they should be paying us because they've outlawed work.

So the question is, how do you finance that liability that the government is imposed on itself? And the way to do that without inflation, the only way, the government spends money, they have a deficit, and the Treasury sells bonds to the general public, not the Fed. And if that happens, there's no money supply increase. You keep the money supply growing at about 5%. So by the fact that they were buying their own money supply meant that it was just a magic trick.

Is that sort of what you're saying? Yeah. Unless they're selling off the excess supply that they're making, it's then going to put that inflationary pressure. But if they had sold those bonds elsewhere... If they'd sold the bonds to the public, if they sold the bonds to Kanki and Stuart, Kanki and Stuart, we'd have bonds, we'd have an asset. We sound like a terrible Baudeville team, Kanki and Stuart.

We'd probably be a pretty good dog and pony show, actually. Yeah, we'd probably be a pretty good dog and pony show. So if that was the case, Kanki and Stuart wouldn't have as much money. We probably wouldn't be spending as much money. We'd have bonds, we'd have assets. Our assets would have remained the same. But our cash position would be diminished relative to where we would normally want it to be.

And in those cases, what would we do? We tend to hunker down and get that cash balance increased. And if we hunker down, we're not spending as much money and we're not causing inflation because, of course, we don't have the money, we have the bond instead. So the reason that the Fed is so adamant and pushing back against the quantity theory of money is that if you look at the quantity theory of money and money is a cause of inflation and the Fed is causing inflation, they're the bad guys. They don't want to be fingered as the bad guys.

That's what the big lie is all about. Well, so here's the thing. At least we agree the Fed is wrong. I think you and I both agree that the Fed is taking the wrong position in the sledgehammer. The final question, which is critical, and that is what would I do? What would I do? That's the final question is what would you do? And what I would do is the last six months, the Fed, by not looking at the money supply,

the money supply has not grown, John. This is the hurting part. This is what's bothering you. How is the little guy going to get screwed eventually? He's going to get screwed again because the Fed isn't paying attention to the quantity theory of money. The money supply hasn't grown for six months. We're going to have one whopper of a recession as a result.

And of course, the little guy is going to be the first guy to be thrown out of work when that happens. You don't have to do that. If they were watching the money supply and managing it properly, they'd be growing it. What I would do, about 5%, and we would not have a whopper of recession. We would drag out the inflation, that excess money in the tub, remember, would still come out eventually. It would take it a little longer to get out.

But we would never... Let me ask you this then, because this is what I would do within this. Let's say we do manage the money supply better, but everything you said was that the actions that the Fed, whether through money supply or interest rates take, we don't really feel the effects of for 12 to 18 months as it goes through the system. In that interim, is there anything to the idea of going sector to sector and having some corporate cooperation that can ease us into a smarter monetary policy without having this deep culling of the economy?

And is there a way for them to partner in this with government, with people? I mean, the EU just did a windfall profit tax. I've heard consumption taxes. Is there anything that can happen that can help us along that 12 to 18-month period of getting this under control that can ease the pain? Because 2008, corporate America got away and people lost their homes, and I just... I can't believe we're about to repeat something like that. Well, again, the short answer is no, the government would screw the thing up.

They are screwing it up. In Europe, by the way, the government policies, whether they be by individual countries or the European Commission, are destroying the economies in Europe. What usually happens is we go back to Jerry Ford's whip inflation now thing, what they call an incomes policy where you have wage and price controls. They don't work. They create lots of distortions in the economy, shortages in the economy, black markets in the economy.

We've gone through this starting basically in 1796, the French Revolution. That's what they did. You know what would happen to you, John, if you were French during the revolution and you raised... Yes, I read it. Yeah, right. Yeah, yeah, yeah. You'd be shortened a little bit.

Yes, no. I think that's right. So all of these things, their ideas that unfortunately are floating around in Washington, DC and Brussels as well as London, and they simply don't work. Well, Professor... Remember the Beatles' tune back in the USSR? Sure. That was a great tune.

It's still a good tune. Oldie Booty, I guess, and that's what the Soviet Union was doing. They had this thing... Wage and price controls. If we could have one sector cooperating with Moscow and the central planners, we could diddle all this, turn all the dials, and this comes back to actually your noise thing. The economy is very complex, and it's all interconnected. If you start screwing around with one dial, believe me, you're going to have ripple effects

all over the place that you never anticipate, and you're going to have all kinds of problems, a lot of those problems are going to land on the back of the little guy. That's the whole point, I guess, is that we're just going to use one big dial. And the government, for the most part, interferes all the time in little ways, with subsidies and this and picks, winners and losers. So I guess my point is, it always feels like the government is interfering, whether it be the Fed or through subsidy policy or tax policy. We don't really have a free market economy.

They're making their picks of winners and losers all throughout, but then when it comes to us feeling the pain, they step out and just use the big dial. And I guess that's my concern. Your point here, and this is a very critical one, we don't have a free market economy. We have an interventionist, what I call an interventionist economy, and it's being more intervened all the time. I agree with that. And that's bad.

Look at us. We just came to a detente at the very end, you and I came full circle. I'm just making a grade change. Are you serious? Yeah. I'm in the 80s, baby. Thank you, Professor, for spending so much time on this. I truly do appreciate it.

It's fascinating to talk about these different theories. I have a feeling this podcast, there are going to be a lot of economists that are now going to be calling me and going, you have to put me on your program to rebut. I think this is going to end up being an ongoing discussion, if you're willing. Oh, I'm willing. This has just been great. Good, I'm glad. John, I'm just getting warmed up.

Oh, God, how long is your class? My God, Professor. Look at my notes. That was the problem. I didn't bring any notes, but so appreciate you taking the time, and your students are lucky to have you, sir. Thank you, John. We had a pretty good role.

Awesome. Thank you so much, sir. Man, if you guys don't have a giant erection right now, 45 minutes of just pure monetary policy, Fed talk, as he said, good role. I think I just wanted him to lay out as clearly and concisely as possible what that school of thought is, that Milton Friedman, because Lord knows, in my mind, Milton Friedman is not the hero of the economic story. He's one of those that helped enable this crazy supply side trickle down, but I think

is nonsense. But so now I think we just sit and we wait, and we figure out who's going to come out of the woodwork and go, nonsense, the man spoke nonsense. I kind of liked you at the end, opening up the floor to a hanky versus all comers economic throwdown in the future, and he seemed game for it. That conversation got me so hot and bothered, I'm going to go home. I'm going to treat myself to a nice glass of wine. What?

I'm going to draw up a bubble bath and get into my monetary bathtub and enjoy it. Can I tell you though, that metaphor did help me understand. He was a very effective communicator in that, because it is a complex thing. I think the hardest thing for me to understand is he's just so black and white about its money supply, and that's the end of it. If you get that, and when you watch a crisis in 2008 and have him say, yeah, that was done right, except for Lehman, that was done right, and everything was getting you like, shit ton of people lost their houses.

It reminds me of that good fellas thing, fuck you, pay me, you remember that, no matter what happens. Fuck you, pay me. It can't always be that no matter what the conditions are, the people who are most vulnerable always lose. Well, when you said, what do we do? Just create poverty, and he was like, yeah. It's like this incredibly macro view that the macro economy is sacred, and the micro

economics of families and people are simply a tool that we use to take care of the macro. That's right. It's noise and clarity, and the noise is supply and demand, and OPEC restricting flow, and all those things. Today, aren't we talking about people being able to live and afford food and buy medicine for their children, and if we're just only focused on this big picture economy, it's like, well, but at the end of the day, these are people. Yeah, so that high demand in times of low supply inflation, and who's inflation hurt

most, them, and who does the remedy hurt most, them, and who does, it's like you just get fucked from every angle. He's the one professor in college who you know, it's like every other professor would give you like a syllabus on the first day, and he's the one who's like, four-page paper due on Monday. You're like, come on, man, we just got here, bro, like I didn't even have your email yet. You already kind of know. Right, right.

And he's the kind of guy who literally changed your grade on your paper mid-class, depending on something he said. Just in the middle of it, he would just be like, yeah, no, that's not going to fly here. It seems like you netted out at around high, B, low, A, though, so that's pretty good. Yeah, I think he was actually grading on the car. I think I was probably lower than that, I was probably CD. I think he was, he humored me at the end, but lovely conversation. And thank you guys.

What a show. Thank you to Professor Steve Hankey from Johns Hopkins University for joining us on the podcast. Make sure to check out the problem. It's airing right now on Apple TV Plus. You can, you can see it on, it's on television, the, you know, the box that you stare on there. All right, till next time. Best Boy Production.