[PMR118] Jeffrey Tucker | The Market Loves You[PMR118] Jeffrey Tucker | The Market Loves You

Recorded: March 31, 2020

Webinar: April 2, 2020 “A Rational Response to COVID-19: A Webinar Discussion” with Edward Stringham, Jeffrey Tucker, & Gordon Charlop Register: https://zoom.us/webinar/register/WN_AZHKwUMwSxWVFF6nb9EbKA

Jeffrey Tucker is the editorial director of AIER. Contact: http://aier.org Twitter: @JeffreyATucker

Jeffrey Tucker – The Market Loves You

INTERVIEW TRANSCRIPT (EDITED)

Albert Lu: I’m joined now by Jeffrey Tucker, the editorial director of the American Institute for Economic Research. He’s the author of “The Market Loves You: Why You Should Love It Back” and one of my favorites, “Bourbon for Breakfast.” Jeffrey, welcome back. It’s good to see you again. How are you?

Jeffrey Tucker: Good, and just hearing the names of the two books just kind of put a smile on my face. So, my first thought was when you said, “The Market Loves You.” I thought, yeah, this is the greatest time to discover the market truly loves you. If it weren’t for the market, we’d all be in this state of desperate poverty and suffering; we’d all be dead by now. As for “Bourbon for Breakfast,” that’s come in handy recently.

AL: For many of us, indeed, Jeffrey. I wanted to have you on specifically to talk about the market, entrepreneurs and their response to what’s going on now….

JT: There’s a lot of uncertainties, you know, Albert. And I’m not sure I know any more than anybody else does. In fact, one of the things I’ve said throughout this crisis — I heard this two weeks ago—is that ultimately this is an epistemic crisis. Epistemic, which is a fancy word for what you know. And what’s been shocking is how little we’ve known. We’ve known very little about, well, COVID[-19] and who has it, what are the rates of infection, how fatal is it. And it’s been shocking how little we’ve known. And I think what’s happened is we’ve replaced knowledge with power. And so, as scientists debate and people dispute and dig through data and every day the data changes and we try to figure out ratios of the infected versus the dead and so on. And that information is rolling in, as versus normal seasonal fatality rates, for example. You know, scientists are getting more information and professionals are dealing with on-the-ground reality.

Meanwhile, the political class, under the presumption that they already know everything and they know the right answers to everything, has completely locked down the economic world. Well, I shouldn’t say completely. Maybe it’s 40, 50 percent locked down at this point. And only allowing essential businesses to function and thank goodness our lord and masters have permitted that. But I’m gravely offended by their presumption to know what’s essential and what’s not. It’s almost as though the political order doesn’t understand the economy is an interconnected web of network. You know? There’s no way to delineate what’s essential and what’s not. Nonetheless, what’s been essential here is groceries and pharmaceuticals. And apparently, if Massachusetts is a representative case, apparently liquor [is] too. So that’s been deemed an essential business. And office supplies and that sort of thing. Every time I go into stores, I say, “Hey, isn’t it great that the government agreed to call you essential?” And they look at me like thank God, yeah right, I still have a job. Yeah, if it weren’t for the essential businesses it would’ve been remarkable. It would’ve been catastrophic.

The market has responded very, very well even under these truncated conditions, even despite being bludgeoned. I think about the shortages in the grocery stores. There’s no need for that. The price system could’ve easily responded, but all of the medieval style controls over prices under these anti-gouging laws have caused mass shortages and for irrational items. You know, I mean, toilet paper. Okay there’s more than enough toilet paper. You don’t have to raid all the toilet paper. Now we know what people really care about. But other irrational things go on in the stores. People go to the chicken and say, oh, I need a chicken. Someone sees someone else buy chicken and, oh, I better buy a chicken. And then it multiplies and next thing you know everybody in that section of the store has bought all the chicken. Then people start having a chicken panic. I think the same thing could happen over cranberry juice and band-aids. It’s random. And because the prices are not adjusting properly, people are just pillaging everything and hoarding everything.

AL: Those are all very good points. The price system not at work … But what I want to talk about today is what you started talking about, which is the market, entrepreneurs. The whole purpose of entrepreneurs is to react to a changing environment and here they’ve really been put on display. Don’t you think? This is a rapidly changing environment, as you said, where information and knowledge coming in day to day and people responding on the fly. And I’ve been impressed by a lot of what I’ve seen in the market and that’s what I want to talk to you about. What are some of the things that you’ve seen in the market that have really impressed you?

JT: Well, it happens every single day, Albert. And these are great for the times for millions of people—I should say for billions of people—so there’s a tendency to hole up inside your house and not look outside. That’s psychologically depressing because I’m more convinced and I’m trying to write about this. Maybe I’ll get around to it by the end of the day.

But I’m more convinced than ever that there’s two critical factors that are associated with human psychological health. One is freedom to choose. There’s the belief that you have volition and your choices will be respected so long as you don’t hurt others. That’s really important. The second thing is to be valuable to other people, you know? And so, [in] every commercial exchange we get that sense of reinforcement, that I’m valuable to another person. It sounds like a trivial matter, but it’s really not. It does matter. I don’t have too many examples because there’s not too many places open. But when I go to the grocery store and when I go to the flower shop — I have to keep fresh flowers in my room all the time (I mean it’s a pathology, it’s just what I have to do) —  so when I go in every few days to buy fresh flowers, I mean, just to look at the florist and see her smiling at me and I smile back at her and she gives me my lilies and I hand her money. We have this mutual exchange of value. I’m saying to her, in a sense, I love you because you’re giving me something that’s important to me. And she’s saying, I love you because I’m giving something important to her which is these pieces of paper that are proxies for what I own. So we’re exchanging in a sense ownership rights with her because we’re both better off in a sense.

It is an act of love and it’s very beautiful.

I would say to the billion people sitting out there wondering what they’re doing with their life to figure out some way to involve themselves in a commercial transaction of some sort. To call it commerce reduces it. It’s actually human interaction and exchange and the act of discovering the value of others and offering yourself so they can discover your value. We have to have this going on or else we die as human beings. We psychologically, emotionally die. We have to be integrated with others. We have to be part of this network. It has wildly inspired me just how quickly markets have responded to outrageously fast-changing conditions.

I mean, when you’ve had a panic like we’ve had for the last two or three weeks in this country, where you have just random people who happen to occupy positions of power, however temporarily that may be. Sending out orders you can only gather in groups of 50, actually it’s 20, actually 15, actually three. Oh, I’m at two. You run an essential store. You don’t run an essential store. You can’t be out and about. We’re going to send a drone to find you. You’re going to jail. You can’t get a haircut. When you have these kind of outrageously random, random draconian actions taking place, you’d think the market would just collapse. Like maybe that’s why we think of markets as being extremely vulnerable.

What we’ve seen over the last two weeks is not true. Markets are unbelievably robust and strong and powerful and adaptive. They’ve taken every bit of information and, so far as allowed, continued to function as normally as possible. I mean, there are some stores I go into. I love to go into stores because it’s proof of life. You know that old expression, “That’s proof of life.” You get a sense that maybe life is a little bit normal. To go to the hardware stores, to go to the art supply, to go to the grocery store, the liquor store. To go to the service providers.

Look at restaurants. They went from serving, making money and serving people on a nightly basis inside a nice environment, and they’ve all gone takeout now. I mean, and so they had to get takeout boxes. They didn’t previously have takeout boxes. Well, there are people who make takeout boxes and they’ve been ready to supply them. And those truckers who ship them in. The entire world has gone through this astonishingly fast transformation, all driven by market incentives and signaling. It’s remarkable.

And if you will permit this one final comment on this little riff. This is what’s frustrated me about the political response to this. The underlying presumption is that society doesn’t work. Markets don’t work. People will not do the right thing. People will not understand what to do in light of the pandemic, so we have to issue orders from above. At the same time, those orders from above have presumed the capacity and ability of society to be malleable and to turn on a dime. Do something brand new.

So there’s a weird intellectual contradiction. On the one hand, all these political actions are based on the belief that markets don’t work, that society doesn’t function, that people are stupid and they won’t figure out how to avoid disease. They won’t figure out how to cure disease, how to treat people. On the other hand, all their orders have depended fundamentally on the presumption that society can adapt to new information. Do you see what I mean? There’s something funny about that. And, I think, ultimately after this crisis goes away, we’re gonna have to resolve this inner contradiction. Do we believe in the capacity of people to adapt to new information or don’t we? There’s been a contradiction at the heart of this response.

AL: Yeah, and another contradiction, Jeffrey, is the idea that this thing is changing so quickly. None of us really know what’s really going on, yet [we] presume that people in Washington know what’s going and know what’s best. It’s full of contradictions.

I wanted to focus for a second on some of these vendors. I think what’s happened [is that] all of us have come to appreciate our customers more and our service providers. And these are not classes of people. These are roles we play. We jump in and out of being consumers and producers and suppliers and what not. We are all appreciating each other a lot more. And another thing I noticed is if you look at small entrepreneurs, meaning the ones who don’t have lobbyists in Washington, the ones that if they get any of this $2T that they’re going to dish out, it’ll be maybe too little too late. Those people are not waiting. These people are making changes and that’s what I find most impressive. Not the people that are sitting back and waiting for the bailout. But people like you said. The restaurants who are on a dime becoming takeout establishments. The dance instructor who’s figuring out how to deliver classes online. The yoga instructor. The personal trainer. All these people who have slim-to-no chances of getting a bailout, Jeff, are adapting to the new circumstances. And one thing that is sort of fundamental about human action is that we always go from a state of less satisfaction to a state of higher satisfaction. And a lot of these changes people are making are changes that, sort of, the economy was moving to anyway: delivering services at home. They may not have had the reason to do it before, but they certainly do now and I see them getting after it. That I find very impressive.

JT: It is interesting how much a kick this is giving us towards the complete digitization of society. How many school teachers I’ve talked to, many teachers who’ve discussed with me what it’s like to learn Zoom for the first time, to figure out how the camera works, and how microphones work. They’ve never had to do this before. So people are learning very, very quickly.

Another very interesting thing, Albert, is the job market has gone through an immense shift. Something like a third of American workers are currently unemployed. But, meanwhile, delivery systems and supermarkets and pharmacies and online retailers certainly are hiring by the thousands and tens of thousands, desperate for workers. Before this whole thing hit, there was a job shortage in this country because of the crackdown on immigration and because of a variety of factors. Well, there’s not a job shortage right now – and thank goodness, right? So, a lot of the people who are unemployed or became unemployed a week ago or two weeks or three weeks ago [and] are now trying to think about how long they can stay this way. But meanwhile you’ve got local grocery stores and Amazon and everyone’s begging for delivery people and truck drivers and baggers and fishmongers and you name it. So we’re going to see a huge shift. And, yeah, it’s very impressive, you know, how quickly and radically and dramatically the markets have worked here. There’s a real story to tell. I mean there’s a real story to tell and I’ve been trying to write about this, you know, almost every day, but even I haven’t written the article that really seems to capture the beautiful, the miraculous job that markets have done in times of extraordinary crisis. If we had a brain, we’d look at this and say, OK, what has worked? The political order — not so well. The market? Unbelievably, phenomenally well. Better than anybody could’ve expected, even me.

AL: One of the bad things that tends to happen during a crisis like this is the government ratchets its control of some sector of the economy or some service up. Example, TSA. But one of the good things that happens sometimes is that government has no chance but to get out of the way because the need is so great. An example here is the FDA. So, I’m wondering, for example, Johnson & Johnson and other companies making great strides as well in developing a vaccine, maybe saying they can deliver it by next year because they’re going to be fast tracked. Do you think that we’ll get stuck with some of the good things that came as a result of the crisis —  meaning, maybe the FDA for example helping us develop medicines quicker?

JT: I think this is an excellent question. I like the tone and tenor of the question. I tend to be a contrarian about these things and right now you know the level of public despair about everything is just overwhelming. About people’s lives and the future of government and the debt. You name it. Sometimes, people start adopting conventional wisdom that may be actually wrong.

We’ve actually seen, as you mentioned, a lot of decontrol. I mean in New York State, under Andrew Cuomo, he passed what Tyler Cowen considered to be the most libertarian in the law ever, basically almost completely liberalized medical service provision so if you’re a medical student or an RN, we no longer have this feudal system of medical service delivery in New York thanks to this one edict. So a huge liberalization took place. And the scandal of the testing from the FDA and CDC that pervaded throughout January and February, where they were cracking down on private research and private institutions from developing tests and things has been all over the press, from the New York Times to the Atlantic, you name it. There’s been a lot documentation about it. That will be definitely liberalized.

There will be a ton of liberalization after this, not to mention, but I think will mention. These restrictions on association are so egregious, so appalling, so ridiculous. Look, I’m not advocating. I’m just telling you. People are going to get used to living a speakeasy life. There’s no way human beings can be kept in cages this long. People have already figured out, you know, how to develop friends, how to be around people. How to give services like haircuts. How to meet essential needs with or without government. So there’s gonna be huge pressure on liberalization there.

Let me tell you something else really quickly about this in terms of liberalization. Since about the 1960s, we’ve had this growing movement to attack, on environmental grounds, what they considered to be consumerism. And there’s kind of this love-of-nature and against-capitalism thing that they’ve had going on forever. So it’s been against. There’s pesticides. Against functioning showers. Faucets that don’t move. Hot water heaters that are not hot. Toilets that don’t work. And we’ve got movements against soap. Oh, your shower’s too long. We should be composting everything and eating out of trash cans and so on and so on down [to] the plastic bags at the grocery stores.

Albert, in the last two weeks, that entire movement, which has a long history and has done devastating damage to our country in many ways in dirtying the place. Trash collection can’t be every day; it must be once a week and so on. That whole thing is gone. It’s just been completely wiped out. And so fast [that] it takes my breath away. I’ll give one example. Where I live, a year ago the local city government, in addition to turning Columbus Day into Indigenous Peoples Day, banned plastic bags in grocery stores. Right, so you have to take in your own bag to the grocery store to shop. Well, when coronavirus hit and it became clear that, of course, these are extremely nasty to have people bringing their own bags and grocery stores filling them up with groceries time after time after time. It’s actually a disease spread. Not only did they ban bringing in your own bags even though [it had] previously been mandatory. So everything is either mandatory or forbidden, right? It used to be mandatory. In one day they were banned. And guess what? [They] reappeared at the checkout counters. Plastic bags. This is overnight. I mean I never thought I would see the day. So we’re going through a dramatic transformation right now. So that’s gonna be one of the restrictionist ideologies that’s just doomed in light of coronavirus.

This sort of pro-dirt, pro-dirtiness, unsanitary environmental movement that’s made such progress.

AL: Jeffrey, it’s just amazing when something of very high value — as an example, health and well-being — is threatened, how quickly the shallow and superficial values get tossed to the side. I have also noticed that. I noticed the plastic has reappeared. I noticed that they‘re not charging for it. And I still insist on bringing my bag in just to remind them. I mean it took me this long to get in the habit. So might as well just remind them. I don’t use it but it’s there and it’s making them very uncomfortable.

JT: Well, good for you. I never got used to using those bags. I always showed up to the grocery store without bags, so I always end up carrying out groceries, balancing them on my arms. You know those vegetables, the meat.

AL: It’s ridiculous. Jeffrey, when you start to lose hope, that’s when I get worried. I like to check in on you once in a while to make sure you’re still the same optimistic person.

JT: Let me tell you something else. The markets have dropped dramatically, of course. And, by the way, I’m not even slightly worried about the decline of oil prices. I think this is actually all good, and probably another hilarious thing, it’s probably going to massively increase the movement for internal combustion and fossil fuels after this. I’m not worried about that. The market dropped by a third. It’s been devastating for a lot of people. It’s very sad.

On the other hand, it is now where it was about four years ago. We can rebuild this back, I think, very quickly. Gold has not responded as well as one would’ve expected. Bitcoin has been pretty much lame throughout I think for specific reasons we can talk about another time. But I’m guessing that depending on the choices of our political leaders that the markets are gonna bounce back very quickly. Let us remember that there’s no precedent for this. We don’t have anything to look at in the past. I think markets suppressed on this much of a global basis I would’ve expected financial markets to have been more devastated than they have been and so I’m actually encouraged by that. And I don’t want to make a prediction because there’s so many ifs, ands, and buts about this.

But let me just check my phone. I’m talking about my speakeasy haircut person.

AL: I was gonna ask you if you have a good lead on that, please text that over. We’re all suffering over here.

JT: I hope this doesn’t go to the federal barber control board or whatever.

AL: Fortunately, they have other priorities. Otherwise, they would.

JT: But again, this is conditional upon a relatively liberal political response. And I’ll say something about that in a sec. But let’s say that in a few weeks’ time, everybody’s allowed to reassociate. We gradually get back to normal. I think right now we probably have the biggest buy-in opportunity on the planet Earth. Because the joy, exuberance, confidence that’s gonna come from emancipation after all this is over is going to be out of control. Now that depends on a couple of things. I’ll say the thing I’m worried about the most and then the thing I’m worried about the least in that order.

What I’m worried about the most is that this is going to change people’s expectations about certainties of the future. You know? I think we’re gonna see a lot more people go into the essential lines of business and eschewing unessential ones. Worried that they can have their jobs just suddenly taken from them. I think there’s going to be a problem with developing global supply chain, which has been an essential source of prosperity over the last half century. People are going to be a little cautious of that so long as we have a nationalist and protectionist in office. I think it’s going to be a serious problem. So regime uncertainty is going to be factored into market evaluations going forward. That’s the bad news.

The good news, I think, and I’m getting increasingly confident about this, is that everything that’s happened over the last two weeks has exposed so many failings of the existing system. The command, the control, the rules, regulations of everything. Let’s face it. The government has not been there. All it can do is order you around. I think it’s going to prompt a dramatic ideological shift of some sort. And I suspect that freedom is going to come out the winner. And if that’s true, I think the new investment opportunities and freedom that’s going to be associated with what’s going to amount to a kind of I don’t want to say collapse of political order but an extremely disruptive political order could actually be a glorious opportunity for everyone. In other words, I’m tremendously optimistic about our future freedom and liberty.

I base this in part on Mancur Olson’s theory. He wrote a book. God, I don’t remember the name of it right now. But it was a theory based on the disruption of the Japanese economy after WWII — and Germany too. Why did they come back so quickly? The thesis was that the war, as egregious, as horrifying as they were, actually had the advantage of disrupting existing networks and establishments and special interest relationships that had previously tangled up society into a miasmic nonfunctioning state. And the trauma of the war was so great that it actually shattered the old status quo that had been in charge and offered new opportunities for freedom and flourishing. OK? This is Mancur Olson’s theory. “Logic of Collective Action.” Can’t remember the actual name of the book. Really influential book. That seems to be what’s happening in the U.S. now. It’s not a war, as such, but it’s a trauma on the level of a war that Japan faced, that Germany faced, and just the devastation associated with it. And so in that Olsonian sense we could have tremendous opportunities to rebuild and live a better life than we’ve had in the past. I think that’s really true. In fact, thanks for dragging that thought out of me. I might write that up as an article.

AL: That’s the Jeffrey Tucker that I was looking for. And by the way, a great example of the point that you made is what happened after WWII, as the Japanese, the Germans, the Italians sort of remade the whole motorcycle industry with companies that were not in that business before. But society showed they needed that type of transportation, so these companies retooled and ended up dominating the industry. It’s a really great story.

JT: It’s a weird and slightly perverse thing to say, but sometimes disruption on this level can actually lead to really good results. The discrediting of the existing political establishment, I think, is overwhelming really. And all my friends are just moping around: Oh, totalitarianism is coming. I actually don’t believe that. I really don’t.

AL: Not us, Jeffrey. We’re all positive here.

JT: Here’s the thing, Albert. I mean, a lot of people. Millions of people, hundreds of millions of people did not know that the state was capable of doing this: shutting down international travel, telling your business to close, forcing you to hang around and languish inside. People didn’t know that states were this powerful. Now, you and I knew that, right? Because we’re students of liberty and we’ve been studying states for a long time. But I had friends of mine telling me, highly educated, coming out of Ivy league universities with advanced degrees, that told me recently that in their entire lives they never once took the existence and power of the state seriously until now. They didn’t even know.

Here’s the thing. They thought it was just another institution, like a church or a grocery store or a something else. Now they understand it’s a unique institution and actually is extremely dangerous. They’re seeing this for the very first time. So we’re not shocked about this. But a lot of people are getting this education right now and how dangerous it is to have these all powerful states lurking around. I mean, not just federal government. I mean, your local mayor. Your city council. State governors and so on. It’s been a terrible thing of just the way they’ve used their risk averse personalities to clamp down on everyone’s freedom this way and not let us function like normal human beings. There’s no way this lesson is going to be lost on people. There is a trauma for the ages and I think it’s going to take some work but I think we can learn the right lessons from this and rebuild toward the ultimate goal of peace and prosperity and universal human flourishing. And I think we can do this.

AL: I’ve been speaking with Jeffrey Tucker, the editorial director for the American Institute for Economic Research. … Jeffrey, thanks for coming on the program. And I hope that we can have a discussion when we both get through to the other side of it and joke and laugh about some of the silliness that went on. But hopefully by then everything will be fine.

JT: Well, you know, Albert, you’ve been very important to me professionally and personally for so long, and it’s such a pleasure that you asked me on and such a pleasure to be here. I could also just encourage people to go to AIER.org. I work that [web]site every day. It’s my life. I pour my heart into it and hope to do some good. Thank you, Albert.

The Show: Albert Lu is the creator and host of The Power & Market Report, a market news and opinion videocast. Send your comments and questions to Albert on social media:

Twitter: @albertklu

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