How Can I Sign Nebraska Banking Living Will

How to industry sign banking nebraska living will

welcome to the aier's authors corners podcast i'm your host ethan yang and today we have a great guest professor john wood who's a professor of economics at wake forest university uh he served in positions on various federal reserve boards in cities across the country as well as taught at a multitude of different schools such as the wharton school at the university of pennsylvania dr wood has also been a scholar with the american institute for economic research so we are happy to be having them back on this podcast and today we'll be talking about a pretty relevant topic uh today given all the various things in the news regarding monetary policy banking the federal reserve you name it he's written a book that was published a little around two thousand it's called monetary policy in democracies um which is going to share very very relevant information that dates back hundreds of years but is so much more relevant today given all the things in the news so without further ado dr wood how are you very good thank you thank you for having me some of my most enjoyable times has been spent i spent about a dozen summers at aier in uh 1998 sort of to 2010. and it's definitely great uh to be working with you today as well um so let's get right into it you spent many years studying a topic of sound money that's a topic of tremendous importance obviously at aier we have something called the sound money project but the average person probably hasn't really given this a second thought even though it affects our lives every single day so just to start off can you explain what sound money is i think of it and i think generally people think of it as stable money money with stable value but uh if if it's worth something if a dollar is worth something today it'll be worth about the same tomorrow or next year stable money i think that's what it's meant and it's associated with i guess with conservatism inflation has a large effect on the wealth of a lot of people and a stable society has a hard time with changes in the value of money that is with the lack of sound money i think that's about a very simple concept i i think that people don't pay much attention to that because in the united states anyway in western democracies it hasn't made a lot of difference i try to get my students excited about inflation eating into their cursing public i don't think they lose any sleep it's been made up for in our productive society by wages going up faster than prices so that in general we've done well your grandfather tells you that a quarter milk was 10 cents when he was a boy but he hasn't been hurt but it does hurt parts of society business people because inflation doesn't proceed at a steady rate among all goods and services so some people are hurt by the function so in your you talk about how monetary policy and money has always been closely watched by the state you know going back hundreds of years even when we were on the gold standard and even during like the imperial area when european countries were using gold um the government's always been watching the money very closely has always kept a close hand on the policy so can you explain um why that's something we should be concerned about and what are some shortcomings to that approach well i guess the short answer is we would all like money and governments have the power to take the silver mines outside athens were controlled by the government the athens had a stable currency for hundreds of years as long as the silver peddled it out um we're all short of money i mean we all have money problems now i i i start with my own understanding of democracy in a democracy the people more or less run things they're supposed to run and we want and i'm a free kind of free market kind of guy most things are done and can be done without government but government may provide services different people want different services roads whatever and we tax ourselves to provide those services we pay for them we agree we argue about what services we want and how we're going to pay for it through taxes but we don't like to pay taxes basically americans like other people want more from the government than we're willing to pay for so we provide our congress our democratic congress spends more than it takes in we're unwilling to pay them like these stimulus packages which are going on now they should be there there should if it's a good idea and these stimulus that we should be paying for actually it should be in our bill it should be added to our taxes this year but it's not it's not we're not really concerned with that so the government's it starts with fiscal calls governments have a hard time raising money so they borrow it or maybe they even print money and adam smith's book the wealth of nations was to a large extent a criticism of mercantilism people were trying to accumulate gold gold is power it's purchasing power [Music] governments are short of cash especially in emergency especially in wartime they're always short of money uh and they have the power to take it and we let them tell my students when i say they i refer to i'm always criticizing that but it's really we governments can do what we like to do and money is money is power and in the middle things sometimes were worse most inflations most financial crises most deplacements of money have taken place during wartime uh they print money to pay their soldiers uh and we it doesn't always happen there are groups that want stable prices and it's a contest now between uh balanced budgets and printing money so i it's been a it's been a continual continual battle and you are an opinion that we should decentralize all this decision making we should give more power um take it away from the central government and spread it out over society and then obviously the perfect system would be a market-based system um where everything would be basically managed through market transactions and rather than a central governing agency so can you give an example of what that would look like because we are so far away from that sort of system can you give example what that would look like and why would that be a preferable system okay um to tell you what it would look like if uh the monetary system for many many years had a lot of the trappings of free markets the government would uh issue a basic currency that would define like in the united states for many years an ounce of gold was 20 so money was gold and but we don't deal actually dealing gold we're dealing claims on gold we could get it if we wanted it maybe uh so if if if the government stands ready to uh meant you know gold to make coins out of gold so they'll make a shilling in england they would make a gold pound or sovereign was called and it had a particular weight and it prevented other people from doing that it had a monopoly on minting money just like today it's a criminal act to reproduce even the equivalent of the dollar bill you can you can't you can you can't spend money on it but once that gold is out there it's a good it's a free market good and i can borrow that some people have more than they want need some people have less there are savers and investors and financial intermediaries and the savers will invest involved promises which businessmen and other people want them we'll borrow that and if these are dollars say 20 but that's an ounce of gold in the 19th century before we went off the gold standard basically in 1933 so so banks can arise they need charters but really the system was pretty competitive people saved invested there was this piece of gold pieces of gold that had a particular value but that wouldn't government's not necessary for that government government's not necessary for that but the value of money under this gold standard was determined by the cost of producing gold so the gold standard is consumption of completely a free market and in fact it was to a large extent three months and you wouldn't even know actually people who live under the gold standard dealt in dollar bills they were converted you know people would sometimes carry around a silver dollar or a gold coin and so forth but by and large they live just like we do they wrote checks they borrowed land and it was cash and and there were problems from time to time um i i would i would set up a bank and i'd have people deposit money with me and then i would lend it out and hope to make money on a difference and maybe uh i would lend out more than people deposited with me and maybe people want their money back maybe they want their goal so you can have financial crisis i think under any system you're going to have some the future is uncertain people want to take a chance in fact i hesitate to complain about speculators because americans think i'm really i'm i'm really a free writer i mean there are people out there taking chances from me sometimes they fail i'm i uh i'm just a college professor with 10 years i don't invest in anything risky so i've been taking advantage of people who have taken risks but fundamentally uh you wouldn't even know except you wouldn't be having inflation the value of money would be tied because now you've gone now if we just if the government just shut down my own principle public policy position is to close down washington and take off from there sometimes i'll ask my students what are the posts it's not no longer a relevant question but before uh fedex and all that stuff i said what will happen to mail the government shuts down there might be a day's delay in your first letter but that would be filled up that service would be filled immediately and and so in money we would deal with the gold standard there would be competition in terms of the best forms of money basically i'm going to print some currency you know the john wood first national bank currency in the old days that banks had you know currency varied from bank to bank then uh i'm going to print some currency which you'll maybe find useful in transacting but it will be backed by something in the 19th century years before it's backed by gold or silver and some money would be market determined i'm a fan of milton friedman in many respects but he's he come with lots of people he wrote books about the benefits of uh markets free enterprise except money we don't want money to be determined by the market when we wanted to grow at a particular rate uh maybe it's an attempt to make up for fiat money but uh he sort of laid other pete hayek and one of the clients larry white wrote books about uh the benefits and the possibilities of uh free market money and we wouldn't but we would just get up in the morning do our usual thing and life would be simpler because prices would probably be more stable and then you so you just went over how the market would make things more efficient and also more competent but there's also another problem that you outline when it comes to central central banking controlled by the government and that's political issues and you've mentioned how banks throughout history have always been closely connected to politics so can you explain why politics plays a role in central banking and why that's a bad thing yeah well of course it's inevitable every all of our institutions are affected by politics they're they're established with political frameworks the federal reserve in particular though people talk about the independence of the federal reserve which is probably an impossibility uh it's a government agency it's really part of the administrative state which uh really gone well accelerated under the new deal you know we we really don't have much of a democracy sometimes when congress doesn't they pass very very general laws with all the details filled in by separate agencies we're pretty far from the wishes of the elect of the electorate um the we we don't need a federation we don't need a central bank and the united states did not have a central bank or anything like a central bank between the end of the second bank and andrew jackson did away with them second bank of the united states chartered lasted 1836 and uh they some people tried because it's an issue uh but the united states could not get a central bank it was the new york new york one of the central bank the rest of the country didn't trust jp morgan to run the banking system so uh the federal reserve was then founded in uh end of 1913 so this 97 years without a central bank really the the biggest influence on money the biggest influence on money was the biggest trader in money and that was the u.s treasury the government was smaller in those days than today but it's it was still the biggest actor and uh it dealt by and large and gold and silver the treasury held a lot of gold uh and people paid taxes and lots of money was engulfed in gold so the treasury's activities affected what we call the monetary base gold is the monetary base or high powered money because other kinds of money demand deposits and so forth have reserves of gold so if if if i pay taxes in gold that takes money out of the system that's a problem and and the u.s government ran a surplus most of the time in the 19th century only during a couple small wars in the civil war we ran large deficits we mostly ran surpluses so the treasury accumulating gold and this problem was to get it back out there not to disrupt the monetary system the center so and and gold was dug up from the ground i mean gold the production of gold determined by market forces the calif people were looking for gold it wasn't completely uh luck like in any enterprise there's a there's a lot of love but but after a period of deflation like over the first 50 years of the 19th century when prices were falling gold was becoming more valuable the people were looking for gold it's not an accident that the california gold rush and the south australian probably happened at the same time or that the south african technological developments in my ankle happen after a period of deflation so that's another advantage of the gold standard it tends to be stabilizing not not pretty much um perfectly now a central bank can be helpful okay you just want here's why we one of the reasons why we might have central banks the bank of england was a true central bank the federal reserve's not even a bank a bank takes monetary authorities tend to be called central banks but the bank of england was had a charter from the government and i let money to the government it was truly a central bank it had special privileges it was located in london and banks around the country had deposits in the bank of england just like it performed much of the same function that new york that chicago performed in the 19th century because banks smaller banks keep reserves on deposit with central banks chicago or new york uh and the bank of england developed a practice of helping the other banks people lend too much and a problem with banks although i think it's exaggerated is you know this sort of systemic rate if one bank fails another bank might fail if people get worried about their banks for whatever reason they start to hoard cash and henry thornton and other people have written great books about the money markets centered on the money markets a pays b b pays c c plays a and they better pay in a hurry because think debts are coming due all the time and and if people worry about banks or if there are failures people have a hard time raising cash and maybe people withdraw their cash from financial institutions keep it under the mattress they they hoard the the beginnings of the shortage of cash like anything else toilet paper whatever the ordinance and uh the bank of england gradually developed a system reluctantly and then completely of help if it's called lenders last reason maybe if the banking systems will be easier the lending to help you guys out and and so it may be that a central bank or a principal bank or more than one will be useful in stabilizing the system because if banks banks fail business doesn't get down any other industry can fail that's target but if the banks fail business can be done half of every transaction is cash and uh the the england developed the reputation became very stable unstable in the early years larry white talks about this in scotland compares they had unregulated banking ystem in scholar which was stable but the uh english system was working very well at the end of the 19th century it was kind of the envy and we were having bank panics uh those i don't know i don't know another long period of time to just discuss those so a lender of last resort someone who stabilizes the financial system uh might be a good idea and uh it it was a very tough sale in the united states there was a lot of local antagonism toward the financial sector and you you know the era of william jennings brian and so forth the uh the finance the two principal political controversies at the end of the 19th century were money and tariffs and uh and we had well in 1920 we had 20 000 banks nebraska i can remember nebraska with a million people had a thousand banks these are a thousand separate banking companies and if the price of wheat falls and all your customers grow wheat basically grow free or deal with people who eat so the price of wheat falls you're in trouble you're undiversified mostly so really what we should have gotten was to have followed england and everybody else and allowing branch bank although i have i have to kind of stop think about that a little bit so now we have branch banking which seems to have brought other problems but in but but no way are we going to have depressions or no way what was congress going to allow transplant even after the great depression and failures of facts fdr liberally we're going to have match banking we've now we we're we're getting it after the crisis of the 1980s but a central bank can help stabilize the system uh but it doesn't have to be an official central bank but the bank of england is it's hard to say that they had they had official responsibilities they were a private bank but they had a government charge and they had some government responsibilities so it can it can provide a function uh but it doesn't have to be official and political with political problems uh it's a government agency okay uh like if if you reconsider but we're going to have changes now with the change in administration if you consider the epa or the sec or or just about any government agency it's it's going to be affected by the politics of the group in power maybe not enough because they we should be running things congress is not doing its job its effect our effect and government's effect on money and other government projects are complicated because of the of the administrative state but there's always this pressure people keep saying that trump was new in fighting with the fed no president has ever seen an interest rate that's too low especially when an election is coming up so linda was taking lyndon but a good example is uh lyndon johnson well the vietnam war this is a fairly unpopular war getting more unpopular he wanted the administration wanted to continue the war and they were lying to the american public day by day about the progress of the war that they have taught kenya for the revolution and congress has this tendency it's pro-military as obama said this town has you know has a tendency toward war in the military i'm not i'm not anti-military i'm not opposed to the united states having a powerful it depends on your goals of course but it has a lot of political backing but in vietnam or afghanistan congress is willing to sort of support troops you know support the troops but but we don't want to expand the war but johnson wanted to expand the war so he wanted money but congress wouldn't raise taxes so he had to borrow and he didn't want to pay a high interest rate so it was a continuous battle between the fed martin the chairman of the federation the stable money guy uh constantly fighting and even in the 50s just one example here now ike mike was not a big money guy but he did he you know he was uh he he wanted economic prosperity been running for an election uh and the fed had a policy okay they're not supposed to stable stabilize the economy when they were formed that wasn't thought you know that's what the fed were originally it was to provide an elastic currency we want to support banks and the money supply the idea of phillips curves and so forth like what but that's a post keynesian idea so for the fed was leaning what should we do leaning against the wind so the economy is not doing well we'll pump up the money supply if it's doing very well we'll hold it back and that was sort of the fed's policy but but it was asymmetric see the keynesian idea of supporting the economy is not necessarily inflationary you're supposed to run a deficit um during bad times attacks and a surplus during good times and keynesianism is not inconsistent with the long-term balance but it's asymmetric when ties are bad we're worried so we pump the money in we spend money when times are good we don't actually cut back that much and it's interesting if you read the minutes of the fmc you can see these arguments and martin always losing the argument well okay that's what you want but we should cut back constant pressure and and remember the fed the fed is an agency of the federal government and they can if they make congress their bet their best defense is disagreement in congress there's some tight money guys some easy money guys but you won't don't want to get congress as a whole they can change you they can do away with you and um the the pressure and it varies because there are guys the banking system as a whole i think wants stable money i mean if you're a bank and you lend money to somebody you you want conditions to be the same during that time of that loan so he'll be able to pay you back some some people like the stable system and some people don't congress just spend but they they do it because of that it's not it's not congress it's you and me at that press that and the fed worries about it's not independent you can't well no the word is meaningless independent of what using the independent of the treasury which uh begins with this constant pressure and and i don't yeah others don't there okay and i've saved the juiciest and most existential question for last and that is as a monetary expert with decades of experience right now we're seeing quantitative easing like we've never seen before we've seen interest rates stable to the floor uh cryptocurrencies are now you know worth tens of thousands of dollars so just looking at all of this i the question on my mind and probably many others is that has does this have any precedent history at least from your investigation and what's happening like what what do you make of all this is this the end is this a new beginning what's going on well i'm an unrepentant optimist there was a joke in the 19th century that god looks after drunks and americans somehow things will work out and if you have a society as as productive as we are i mean people i mean our economy is just taking off getting richer all the time so so can what adam smith said uh the relationship of the public to his government is the same as that of the patient to the doctor it gets well in spite of it now we could pay in that another uh quote from adam smith he knows of no case in history there's a lot of history in wealth of nations in which a substantial debt was ever paid it was usually well often repudiated more often by inflation you know the we had a i think maybe a bigger debt in 1945 relative to gmp than we have now and uh we inflated it away basically so historically and we could pay it off if if we wanted they have that thing in new york where the on the building which shows the size of the deficit and in the 1990s the peace the peace dividend we were running surpluses under clinton because of the decline and uh cut back in government spending and they were worried about what the federal reserve going to do when their new government securities left to buy and sell even though the bank of england dealt in private securities uh i i just but but i i don't know if in the past they've inflated the dead away but uh people don't seem to buy for a while for several like people would say something about the deficit in any election ask people what are your concerns and the deficit would be mentioned now they don't even mention they don't even pretend to be concerned with the i guess that's basically saying that uh i don't know and and actually our debt is un greatly understated the uh if you look at the statement of the debt the big part to the debt if these guys are private they'd be in jail like the medic in the looming medicare and social security obligations aren't even counted because they're not written then they're not like bonds but they're claims that are going uh i mean we could represent the chinese and japanese have bought about a lot of our debt there will be some crisis gonna be something that won't be thought out people can think about it but anyway i don't know but i well i think we'll still be rich uh the bondholders historically and his cane said the rontier he kind of liked inflation it takes money away from those people who have too much i that's not something there's no view i share but inflation has yeah it's an age-old thing even if you go from uh babylonian time to well recorded history from the times of age of ancient greece um even up to the end of the gold standard prices had a tendency to come up a little bit now the dollar is worth a nickel if you don't but how's the fed done there's a bias toward institutions people bow down before institutions i try to persuade my students not to do if it's an institution it must be okay but dollars worth a nickel compared to what it was worth and the federal reserve was created so it's clearly not doing its job but then it's been crashed and it's an agent of the uh of the government the federal government and we we get along as the public gets along as well as it can inspire in spite of the government and things are worse other places i suppose that's just justification but as far as if if we were just willing to pay for what we wanted the government to do uh that's got to be the basis i mean we've been buying sort of buying services like like okay let's finish look with a couple examples in the civil war and world war ones and world war ii we're going to spend a lot of money and we raised taxes the marginal tax rate was more than 90 percent during world war ii during the vietnam war where we we had the kennedy tax cut just before the war started uh basically taxes were reduced before and during the vietnam bush uh the younger bush and his tax cut practically at the same time we went to it so we spend more money and reduce revenue taxes have been falling almost continuously since 1945. it's just been uh like we call it the kennedy the kennedy tax cut was to promote demand the reagan tax cut was a supply-side tax cut it doesn't matter if there were tax cuts with the american which we which we like and obviously that that has to change we could pay it off there could be uh a long-term plan but as i tell my finisher tell my students congressmen are different from you and me if if i save money today it promotes my well-being tomorrow i saved the money we want to have it tomorrow if a congressman doesn't spend the day well i mean that goes to somebody else he needs it for the election now they have no we did it during the 19th century when people say we could we could do the gold standard worked worked fine there was plenty of gold uh the the gold supply grew during the 19th century before it did it grew at about the same rate as the populist world's population of course there's a shortage of gold in the sense that we're all short of cash we wish we had more but it it would take and i think it's democracy we're not willing to pay in taxes for what we want the government to do for us yeah thank you for that answer and thanks again for a fascinating conversation on this very relevant topic to our audience uh professor wood's book is called monetary policy in democracies it's been published by aier and available on amazon or wherever you get your books thanks again for tuning in and please look out for our next guest thank you thank you