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Jason discusses different economic theories on this episode. They look at the US economy and Jason talks about how the nation’s spending is 70% consumer. While frugality should be viewed as a virtue it seems it is a vice. Jason has a discussion with Rabbi Evan Moffic about the Paradox of Thrift and how we should approach money during the pandemic. They go on to discuss capitalism, communism, socialism, and Marxism.
Welcome to the creating wealth show with Jason Hartman. You’re about to learn a new slant on investing some exciting techniques and fresh new approaches to the world’s most historically proven asset class that will enable you to create more wealth and freedom than you ever thought possible. Jason is a genuine self made multi millionaire who’s actually been there and done it. He’s a successful investor, lender, developer and entrepreneur who’s owned properties in 11 states had hundreds of tenants and been involved in thousands of real estate transactions. This program will help you follow in Jason’s footsteps on the road to your financial independence day. You really can do it on now. here’s your host, Jason Hartman with the complete solution for real estate investors.
Jason Hartman 0:54
Welcome to Episode 1501 1005 Hundred and One. Wow, we’re getting up there a lot of episodes. Our investment counselor and client and Rabbi to Evan morphic is here with us today, Evan, how are you? I’m
Rabbi Evan Moffic 1:12
great, Jason. It’s amazing. 1501 podcast. That’s it’s an inspiration. I mean, really, it’s there. So much material. So much material. I’m probably one of the few people I know there are others who have listened to every single one
Jason Hartman 1:27
of them. Oh, yes. There are many others. By the way, I think we ought to give an award to those people. You know, and, and some have listened to every episode more than once. That’s what they’ve told me. I
Rabbi Evan Moffic 1:43
should do a cruise but no cruising now, not for a long time. Yeah,
Jason Hartman 1:46
exactly. Exactly. But yeah, we ought to have a prize for the people listening so long. It is appreciated, and I’m glad the work is valuable to you and everybody else. So today you brought a good topic, Evan, and I’ve alluded to it before. But I haven’t said it in so many words. But it’s what economists call the paradox of Thrift, the paradox of Thrift. And you were so kind as to look up the investopedia entry, and find a little clip on it that will play. But, you know, basically, this reminds me of the post 911 world when george bush was telling everybody to go out and go shopping. And, and the idea being that, you know, we got to prop up the economy. And in the United States, we have an economy that is basically 70% consumer spending. So it is vital. Now, other economies around the world don’t really work that way. The US is a consumption culture. And it’s not just consumptions of goods, but it’s also services and you know, we have a special service economy, we used to have an industrial economy. And everybody can argue until the cows come home as to what’s good or bad or right or wrong with that. And, you know, that’s a complex topic. But one of the things I said to you before we started today is I mentioned the name that you knew all about. And I was I was impressed. That is the name I’ve mentioned on the show before Edward Bernays. Many people credit Edward Bernays. And by the way, if you don’t know who that is, listeners, I didn’t mention him before a few times over the years. Look that name up because it’s an important person in history. He’s got a couple of books, Noam Chomsky, who’s been on the show, talks about him a little bit. And there are some good things online you can find out about this very interesting person. But he during I believe it was the Macy’s parade. Got a bunch of group of women in the parade to pull out cigarettes. And, and I didn’t tell this story before on the show, but I just tell it again quickly. And that was sort of the first wave of feminism, which was suffrage. It was being talked about. And it was a big deal in those days. And I think it was, I think women already have the right to vote, but you know, they were still I don’t know exactly when that happened. I can’t remember the year do you know, you probably do know, and you’re like, in the 20s?
Rabbi Evan Moffic 4:25
Yeah, I think it was shortly after,
Jason Hartman 4:27
yeah, shortly after. Okay. And so, you know, this was a big deal. Right. And, and the tobacco companies were concerned, because it really wasn’t socially acceptable for women to smoke that, you know, it was sort of not it was looked down upon, but it was cool for men to do it. So to have men get cancer and heart disease and die young. That was okay, but it wasn’t okay for women. So they weren’t they figured they were losing half their market share. And so if we could associate Ate cigarettes with the feminist movement, and would female empowerment Bernays reasoned, this would be a very powerful thing. So we had the woman in the parade, and he had them hide cigarettes on their person, like in a pocket or something. And they, when they were marching, they pulled them out. And he branded them torches of freedom. And it was like, hugely successful or you could argue unsuccessful because it destroyed the health of many people, obviously. And you know, what, what else do you have to say about Edward Bernays, of course, Sigmund Freud was his what was he his uncle, his uncle, his uncle? Yeah. Okay. Tell us more
Rabbi Evan Moffic 5:50
through marriage. Yeah. Sigmund Freud essentially invented modern psychoanalysis, so an understanding of the brain and Edward Bernays essentially invented modern advertising, which is also really An understanding of the
Jason Hartman 6:00
brain in modern public relations to which is, you know, a little different than advertising, obviously. But
Rabbi Evan Moffic 6:07
yes, it really is stoking desire for consumption. And understanding that the more we buy that the buying is an act of, of satisfaction. It’s not just meeting our basic needs, but it’s meeting our desires. And really, the interesting thing is only a wealthy society can do that. So Bernays was kind of coming in just as you know that the 20th century was the century of America where our economy is really beginning to grow large and people can spend money on leisure goods can spend money on consumption, and he really helped Stoke that desire. And now, as you said, 70% of our economy depends on consumption. So if people stop spending money, it hurts everybody. And yet, when we get laid off when there’s economic threats, what are we on a personal level? I mean, this goes back to what you’ve said many times. You said the most influential economist is Karl Marx. And perhaps One of the second or third most influential is john Maynard Keynes. And this was all about paradox. Right?
Jason Hartman 7:06
Right. Yeah, right. Yeah. Yeah. So just to dovetail on that number one about Bernays before Bernays came along the typical American was quite frugal, and we simply spend money on the necessities, and they would save and they would create wealth through savings, and frugality was looked at as a virtue. Now, it’s looked at as advice Oh, you cheapskate and if you read Marcus Aurelius and study stoicism at all, you see that frugality was a virtue. That was a good thing to be frugal, but it’s changed nowadays. And by the way, I am not very frugal, and my mom, you know, always got on my case about it. When I was growing up, and when I was younger, she doesn’t as much nowadays. But I’m a spender. But that that’s not looked at as a bad thing anymore. That’s looked at as a good thing now, because that’s the fuel for the economy. And then Bernays Oh, and then the economist, I just wanted to, like, explain my thoughts on that, again, Karl Marx, I’ve talked about that many times. You know, he is, I think, the most influential economist ever. And by the way, I do not like Karl Marx, or the application of Karl Marx ideals. I’m not in favor of that at all. I’m the furthest thing from a Marxist. But we aren’t going to have a Marxist Professor on the show here. Coming up. Some would argue that Adam Smith, you know, in the Wealth of Nations was the most influential economist and here’s why I don’t give Adam Smith credit for that. Even though I think Adam Smith’s ideas are much more valid than Karl Marx. The reason is, and this is maybe kind of interesting to some is that capitalism, which Adam Smith endorse is totally natural, right? capitalism is human nature, okay? You don’t even need a label for it. It happens all the time, it’s the most natural thing for people to do is to trade and have the invisible hand and, and so forth. Communism or Marxism, it’s a little different, is not at all natural. Okay? And that’s why Karl Marx I still I say he was the most influential economist, because he got people to do an unnatural thing. No, 10s of millions, hundreds of millions of people. That’s huge.
Rabbi Evan Moffic 9:38
So although on the other hand, you could say, I agree 100%. But you could say that socialism is really just all about power. It’s about consolidating power in a small group of people, right. And it’s just human nature,
Jason Hartman 9:51
right. The elitist always want to grab power, and they found that a method to do that since monarchies lost popularity. The way they would do it is through socialism and communism. And and you know, communism is just socialism is big ugly brother. So that’s kind of my explanation there. But Keynes, okay. Now, when you come to Keynes, you need to contrast him with hyack. And the Austrian School, okay. And Keynes was hugely successful, I would say he was the third most significant economist ever, maybe, john Maynard Keynes. And his idea was Keynesian economics prime, the pump, you got to spend first to get things flowing. You know, he’s not completely wrong about that. And mostly, it’s used in the context of government spending, that the government needs to spend to kind of launch an industry and, you know, listen, I don’t like big government. I like small government, but occasionally, there are some things where the government can kind of push it to start, for example, in the 60s, there wouldn’t have been any Space Program. If it wasn’t for the government, there was no way you were going to have a SpaceX or a Virgin Galactic or a Blue Origin. Those are the three space programs by the three hypocrite billionaires, Bezos, and musk and Branson. You would have never had that in the six, they would have taken decades to develop, okay, if it wasn’t for Russia putting Sputnik up on my birthday. But before I was born, interestingly, that would have never happened. That hadn’t happened from government initially. So, you know, that could be considered a Keynesian idea. Anyway,
Rabbi Evan Moffic 11:39
he was so influential because he captured these sort of paradoxes right that when a government is in a depression and money isn’t coming in, the last thing we think about is that the government should be spending money, but that’s what he said. He said, in fact, that really helps it can push you out of the depression. And then he says when an economy is suffering and people are losing In their jobs as individuals, it makes sense for us to save money, but the economy depends on us spending money. So he was also, by the way, a very successful stock trader, which of course we never recommend. But he was a really brilliant guy. He made millions and millions of dollars in the 1920s trading stocks in the British stock. Oh, yeah.
Jason Hartman 12:19
Yeah. No, I know. He was. He was a very influential very bright person, no question about it. And here’s the thing. Here’s my Keynesianism keeps working. Remember with all of this with everything I said today, okay. My last comments, and with Evans comments, and with political and economic philosophies, with everything in life, the thing we rarely know or pretty never know is you know what I’m going to say, compared to what? Yep, and the tie into compared to what is you can’t hear the dogs that don’t bark, see Keynesianism. keeps working in the US because the US has the reserve currency for the military to keep it that way, the biggest economy in the world, all of these artificial things that allow Keynesianism to work. Now, Keynesianism really should only work in very small doses in the real world. But we don’t live in the real world. Our economy isn’t a real world thing. It’s a game of smoke and mirrors and might and might vs. Right. It’s not completely logic.
Rabbi Evan Moffic 13:36
We’re now addicted to credit. I mean, you said this a recent podcast, you’re talking about how credit is like coffee. And once you start drinking coffee or debt, I think you said once you are drinking coffee, it’s very hard to break. You become addicted to it and you wake up. Now our economy runs on debt and credit and we can’t push away from it. So we’re not living in the real world.
Jason Hartman 13:55
Yeah, no, we’re not we’re not but Keynesianism really kind of keeps going working now what it ultimately does, though, ultimately, eventually, and this could take longer than any of us will be living, okay? It could take decades. You know, if you listen to the people that are always wrong, like Peter Schiff, you know, they’ll say, well, it’s over the sky is falling and you know, go listen to Jim Rickards, who’s super bright. I love reading Jim Rickards stuff, and I have not interviewed him on the show. But you know, these guys are just always wrong. Now, maybe they’ll be right. Eventually, they will be right eventually. It’s just that I think it could take longer than any of us will live for them to be right. But what it does this spending this debt this Keynesianism is it ultimately just sort of slows growth. It ultimately creates a zombie economy now they like to use Japan is the comparison but Japan’s not a comparison. Japan is a totally different set of circuitry. stances. It’s complicated, very complicated it is. But the paradox of Thrift is the idea that we’ve got to spend money to keep the economy going. But at the same time, we got to save money to ultimately create wealth as a society. Right? That’s right.
Rabbi Evan Moffic 15:17
And since it’s a constant mix, a constant mix, and and you know, what you just said reminded me of something else you said is that it’s not really good to be an optimist or a pessimist be an opportunist, you know, yes, this is, eventually we’ll slow growth and hurt our economy that the government spend some money right now, while they’re spending lots of money. Let’s invest in some income property to take advantage of inflation.
Jason Hartman 15:38
Now, we don’t have to agree with the policy to take advantage of it. Right. And you know, you just reminded me, speaking of spending, this is not spending this is investing. That’s when we’re talking about properties. But wait, you don’t know what I’m going to say. The next investment I want you to make is super low. I want you to go to Jason hartman.com slash magic. masters, and register for upcoming virtual meet the Masters conference, our first time virtual, and it’s going to be really fun. We’ve got just an awesome curriculum lined up for you over a Friday evening, July 31. And then Saturday and Sunday, August 1. And second, it’s just gonna be a great event. That’s our first virtual event. And we are so excited about it. There’s a lot of stuff you can do with a virtual event that you cannot do with live event. Namely, really get access to really talented, really bright, insightful people. And so we’ll be announcing more of those as we go along, but really exciting. So Jason hartman.com, slash masters. And then let’s listen to a little clip that you found. And this is from the open learn channel. And it’s about the paradox of Thrift. It’s very short, and I just wanted you to hear a part of this before we go on.
Rabbi Evan Moffic 17:00
Better to save or spend. Free marketeers like Hayek and Milton Friedman say that even in difficult times, it’s best to be thrifty and save. Banks then channel the savings into investment in new plants, skills and techniques that let us produce more. And even if this new technology destroys jobs, wages will drop and businesses hire more people. So unemployment falls again. Simple, at least in the long run. But then a live fast die young kind of chap called john Maynard Keynes cheerfully pointed out that in the long run, we’re
Rabbi Evan Moffic 17:31
Jason Hartman 17:33
I love how they put him on the motorcycle past and he’s basically saying, Yeah, go into debt. It’s no problem, you know, tomorrow will take care of itself. That’s the Keynesian idea that they’re trying to portray. Keynes was so quotable. You know, in the long run, we’re all dead. Yeah. He also didn’t come up with the phrase animal spirits. I think he did. I think that was a Keynesianism. I can’t remember though. But yeah. Very interesting.
Rabbi Evan Moffic 18:01
The misery of unemployment, the government should instead spend money to create jobs. Whereas the government tightens its belt when people in businesses are doing the same. Less is spent. So unemployment gets even worse. That is the paradox of Thrift. So instead they should spend now in tax later when everyone’s happy to pay.
Rabbi Evan Moffic 18:20
pay tax was
Jason Hartman 18:24
so interesting, yes, he did not solve making people happy to pay tax, but it never quite works out that way. Because the opposite of Keynes, of course would be hyack and Milton Friedman, and by the way, if you have not read Friedman’s Well, I don’t know which is his most famous book, but the one I read and I only read one of them is free to choose. It is a masterpiece in economics, Milton Friedman, brilliant. You can find all kinds of great old interviews with him and the talk show host Donahue on And also ein Rand with Donna here. Really good stuff. But the quote he has, that’s awesome. That really debunks Keynes is Keynes was kind of thinking that this stuff would be temporary. Yeah, we’ll spend now we’ll tax later. But the government never gets smaller. It only grows law. It then that’s the fatal flaw, because it only only grows and Milton Friedman said it brilliantly. He said, I never saw anything. So permanent is a temporary government program. Really good stuff that
Rabbi Evan Moffic 19:34
even in good times, I guess we will shouldn’t make up for the spending that we do in bad times. We should make up for it with some taxes in good times. Well, that never happens. No one who ever wants to raise taxes, some people want to raise taxes, but even rich people we don’t. Nobody wants to pay higher taxes. So it’s politically unpalatable. So it just grows and the debt just accumulates more and more and more. You need some sense of responsibility, which I think we’ve lost as you I’ve said many times, all the candidates are spenders Trump spender Sanders spend is a spender. You know, there’s really no fiscally conservative people anymore. You know. And you know, Ron Paul,
Jason Hartman 20:11
who has been on the show and of course spoke at our meet the Masters event two years ago. He is the only one who wouldn’t be it wouldn’t have been a spender how he became president. Okay, couple things to wrap this up. Just looking at the investopedia entry that you shared key takeaways. The paradox of Thrift is the economic theory that argues that personal savings can be detrimental to overall economic growth, we explored that it’s based on a circular flow of the economy in which current spending drives future spending. So growth in other words, it calls for a lowering of interest rates to boost spending levels during an economic recession. Well, we certainly have that. And the last time we didn’t have that we’ve talked about before, and then During Paul Volcker’s reign as Federal Reserve Chair, his short reign when he broke the back of that 70s inflation, and did the very unpopular thing of just raising interest rates to insane levels. And ultimately remember, folks, it’s some point that the chickens do have to come home to roost. And I’m just saying that could be 100 years from now, it could be 50 years, it could be 10 or 20 years.
Rabbi Evan Moffic 21:31
In the long run. We’re all dead though.
Jason Hartman 21:35
Yes, like Keynes said so aptly. But remember, the ultimate thing is that the US has to create a treasury bill. It has to create a debt instrument to finance spending, and in order to get other investors mostly countries by Japan and China etc. to buy that debt, we have to pay a good interest rate for them to buy the debt right for them to buy the bond. And that means higher interest rates. So one theory says that spending must lead to higher interest rates. So far, we’ve been defying gravity on that we’ve been kicking the can down the road quite a long time, much longer than the doom and gloom er say it was possible. And who knows how long it can go. One other thing it says here critics of the theory state that it ignores Say’s Law. Oh, that’s so interesting. I was just studying Say’s Law yesterday actually, which calls for investment in capital goods before any level of spending can be achieved and does not take into account inflation or deflation in prices. Okay. Now, Evan, if you want to look at that circular economic model paragraph I think that’s kind of interesting here. And then maybe some of the problems and we’ll wrap this up. I mean, the circular
Rabbi Evan Moffic 23:06
flow economic model really relies on something we’ve also talked about, which is the velocity of money that we have to spend to keep spending. And the more we spend now, we allow future spending to happen. So when people stop spending, that the whole model is destroyed. That’s the paradox of Thrift. When there’s a flaw in the system. It destroys the future as well. So that’s where the balance of government that’s that’s where he came up with the idea of government spending, deficit spending, because he says the paradox is that people shouldn’t start saving and stop spending during a downturn, but because they do, we need the government stepped in.
Jason Hartman 23:46
And you know, why this is such a huge concern to the powers that be the government, the central banks, or governments and central banks plural for both of those is that this could create the deflationary spiral. You don’t want to get people saving too much money. It’s a balance. It’s like the Phillips Curve being a balance between the unemployment rate and the inflation rate. You do need people to save a little bit because that’s the future. capital formation is the future of wealth creation and to use a cliche, the Wealth of Nations. Okay, from Adam Smith.
Rabbi Evan Moffic 24:28
I have a philosophical question. Do you really think we could ever become savers again? You know, like, I don’t know about your grandparents or my grandparents were like depression era people. They saved money, even though they had it. My grandpa would take home the ketchups from McDonald’s. Yeah. Could we ever get back to
Jason Hartman 24:46
that again? Or are we too far gone? I think we’re probably too far gone to get back to that. But remember, they were savers when savings made sense. When when savings paid a good interest rate. When it wasn’t debased by inflation, they were savings prior to savers prior to 1971. On the gold standard, they were actually operating out of the right game plan at the time. I mean, my grandparents lived terribly frugally. They worried about spending on anything. You know, when I would go in the summers, my mom would send me from Los Angeles to New York, upstate New York, where I would stay with my grandparents sometimes. And, you know, they lived on a farm, and it was decrepit, I mean, it was terrible, okay. It was not luxurious by any means. But my grandfather saved everything, every scrap of paper, he would write notes on the back of envelopes. I mean, save, save, save, he wouldn’t throw a pen or a paper away. You know, he had all these stacks of papers with little notes on them. And it was just about frugality, they were operating out of the correct game plan. It just all changed in 1971. Okay, now I do want to say used to save the rubber bands.
Rabbi Evan Moffic 26:10
Yeah. Oh, no, it was delivered.
Jason Hartman 26:12
I believe it. I mean, I mean, how many of your look at a lot of you listening even have parents not even grandparents, that save jars yesterday, that thought went through my mind. I buy these big jars of artichoke hearts at Costco. They’re so good. By the way. I’m sure they’re super fattening. But they taste great. And they probably got tons of sodium. That’s why they taste so good. Anyway, I finished one jar yesterday through the jar and I thought, you know, should I be washing this out and saving this? Should it go in the dishwasher? You know, that’s what my grandparents would have done. They would have saved that for canning food. Okay, it you wouldn’t throw a jar away a perfectly good glass jar would be crazy, right? It’s funny. Isn’t that weird? Okay, so Let’s wrap this up but I do want to talk about Say’s Law. Just for a moment here because this is important. The problems with this paradox of Thrift, okay? Just circle back to Say’s Law. Okay? And the article says that here the circular flow model ignores the lesson of Say’s Law, which states that goods must be produced before they can be exchanged. Yes, capital machines, which drive higher levels of production. And so you know, factory equipment basically require additional savings and investment. The circular flow model only works in a framework without capital goods. So when a service economy works better, but remember, what’s the capital goods in a service economy, its people and if you pay people 20% more to stay at home than they can Make working, then you’ve lost your capital goods and that’s exactly what we’re doing right now. rant rant rant. That’s not gonna work, okay? But here’s the other thing that’s important about Say’s Law. Okay? And that’s s a y, Apostrophe S. Okay? You can look that up. I was just studying it yesterday. It’s such a coincidence, we’re talking about this. But remember, we’ve I taught you about supply demand shock a few months ago, and predicting that that’s the phase we were going into. And I’ve demonstrated that to be true many times over the last several months, and we’re gonna see a lot more of it. And Evan, I’ll tell you, I’ve been looking for a new car, I want to buy a new car. And they sent me a quote on the car about months, maybe five weeks ago, and I didn’t take it I was doing my normal thing and negotiating. And now guess what? I can’t get a car till the 2021 model. They’re all gone. There is nothing to buy And I said I can’t even they kept telling me I could order the exact one I wanted, but it takes 12 weeks to deliver. And you know, I had a feeling they were stretching the truth and it really be 16 weeks and I didn’t want to wait. Now I’m totally out of the car I want because, you know, the factory was closed for a while, and they’ve all sold out the dealership has nothing to sell me because they cut production and now they have less supply and they’re still still demand especially as the economy gets a little better boom. And the last ones were going above list price and now you can’t even get one at all.
Rabbi Evan Moffic 29:35
This is a lesson for our investors right? Yeah, don’t wait Don’t wait take action now. You know buy these houses we have before they appreciate Oh,
Jason Hartman 29:44
I mean look at what’s happening now the inventory is so tight. It’s unbelievable. And we’ve got a I said last week about how a hedge fund came in and bought 53 properties from one of our our seller clients and wiped out our inventory completely. In this one market so, and by the way, I might as well tell you what that market is. It’s our Alabama provider. We did a webinar with them. One of our investment counselors, I think it was no rash, was able to get one property from them last week after that 53 and sold. I don’t know how he did it. I don’t know if it was a deal that fell through or something. I’m not sure maybe someone didn’t qualify, but inventory is super tight. And folks, I mean, this market is just crazy. suburban. migration is happening in mass, it is going to change everything. We’re going to do a lot more about the seven meet the Masters,
Rabbi Evan Moffic 30:38
can’t wait. Can’t wait for meet the Masters keep. It’s going to be such a great conference and we’re going to be able to reach more people than we could ever reach before because people can do it right there.
Jason Hartman 30:48
Yep, absolutely right from your living room, your sofa. It’s the sofa summit, or from your iPad or your smartphone or your big screen TV or whatever you want. So Join us for that Jason hartman.com slash masters. And of course if you need to reach us by phone in the US one 800 Hartman and until tomorrow, happy investing once Jason
Jason Hartman 31:17
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