Scott Horton Show - Just the Interviews - 3/7/25 Mark Thornton on the Precarious State of the American Economy

Episode Date: March 12, 2025

Economist Mark Thornton of the Mises Institute returns to the show for a quick look at the state of the economy. He and Scott zoom out and try to determine where in the cycle between artificial booms and recessions we find ourselves.  Discussed on the show: Anatomy of the Crash Extractive Psychology - Minor Issues Podcast with Mark Thornton Mark Thornton is a senior fellow at the Mises Institute. His most recent book is The Skyscraper Curse: And How Austrian Economists Predicted Every Major Economic Crisis of the Last Century. Follow him on Twitter @DrMarkThornton  This episode of the Scott Horton Show is sponsored by: Roberts and Robers Brokerage Incorporated; Tom Woods’ Liberty Classroom; Libertas Bella; ExpandDesigns.com/Scott. Get Scott’s interviews before anyone else! Subscribe to the Substack. Shop Libertarian Institute merch or donate to the show through Patreon, PayPal or Bitcoin: 1DZBZNJrxUhQhEzgDh7k8JXHXRjY Learn more about your ad choices. Visit megaphone.fm/adchoices

All right, y'all, welcome to the Scott Horton Show. I'm the director of the Libertarian Institute, editorial director of anti-war.com, and author of Provote, how Washington started the new Cold War with Russia and the catastrophe in Ukraine. Sign up for the podcast feed at Scotthorton.org or Scott Horton Show.com. I've got more than 6,000 interviews in the archives. for you there going back to 2003 and follow me on all the video sites and x at scott horton show hey you guys on the line once again for the first time in way too long i've got the great mark thornton from the ludwig von meesa's institute where they practice austrian economics

and he's written some books including the economics of prohibition and tariffs blockades and inflation, the economics of the Civil War. Welcome back to the show. How you doing? Hey, Scott. I'm doing great. It's great to be back on the program and congratulations on your book. Thank you very much. Appreciate that and very happy to have you back on the show here. We've got important things to talk about, but way too many of them, in fact, I'm going to have to really try to narrow it down. There are two things I really want to pick your brain about today. and the first one is interest rates and the second one is tariffs and so I'm very interested as you know I mean well not interested enough to really do the hard work on it but to have you

on the show over and over again over the years to ask you about it um uh Austrian business cycle theory not only do I hate inflation but I hate the way inflation booms and bust the economy all the time and that's the thing that the Austrians are so right on that nobody else seems to pick up on very well. But so I have all kinds of questions about our current situation with the monetary system the way it is and all of that.

And I guess maybe a good way to start this conversation off would be that there was talk about bringing Ron Paul in to audit the Fed. And then someone even said, hey, maybe you should make him the chair of the Fed.

And I thought, oh, well, Donald Trump's not going to like the sound of that because Ron Paul is a hard money guy and Donald Trump is a real estate investor who's made it clear that he likes interest rates good and low. And in fact, I think he's even sort of implied that maybe he just nationalized the Fed and set the interest rates himself if they wanted to keep them too high compared to what he wanted, which was actually how I was sold the central bank in the first place when I was a kid was I was told that, well, the Congress will just always

vote to inflate and never do the responsible thing. And so that's why you need this semi-independent central bank to take the punch bowl away at the party and all of that kind of thing. So anyway, I'm very interested in how you assess the economy now in terms of where we are in that boom-buss cycle as it repeats and what you think about Trump's preferences for his monetary policy, especially just as his second administration is starting off here. While it would be great to have Ron Paul in charge of the Fed, that would be ideal at this time in place or any time in place, he would get rid of it just as quickly as possible. Scott, I thought that the economy was going to turn into a correction, recession, and

eventually a crisis in the last quarter of 2024. That didn't really materialize. And then when Trump was elected, you know, the markets got a lift. Business people got a temporary, optimistic lift. And everything looked very good for a while there. And my prediction failed, basically. But I think that today, I think we can see some clear signs. that things are turning for the worst,

that the stock market, which has been very lackluster and has turned down, is a sign of things to come, that the NASDAQ 100, which is the leading edge, all of the artificial intelligence and the high technology stocks, which led the market up, up. And believe me, this has been a bull market that is unbelievable. I mean, it's been up basically hundreds of percentages since the great financial crisis with an interlude during COVID, but basically up, up and up. And, you know, now we see that the tech stocks are not

doing well and that there's some fundamental reasons why they're not going to re-accelerate. And also the financials and health care and a bunch of other things. So stock markets are leading edge. They tell us a little bit about what profit expectations are and that's not looking good. You know, the recent reports on employment and unemployment have also soured. And so, you know, and then you add on all of the chaos, which President Trump's tariff policy implementation has caused. And I must say, you know, is someone who pays a lot of taxes and never gets any benefits,

President Trump has created circus-like conditions in Washington, D.C., amongst all. the bureaucrats and the media people and all of that. So it's been an interesting circus to watch. But I don't think it's been really great for entrepreneurs and investors, the people who hire other people and pay the bills and all the rest. So I think we're at a very precarious point right now in the economy. And I think that my prediction was just, which is typically the case too early, too soon, I'm always expecting these things to happen faster than they actually do. But I think it's clear to me right now that markets are very upset, that they're not doing well. Gold is at an all-time high. The commodity, Bloomberg

commodity index seems to be rising. And so all the numbers out there that I watch throughout the day, every day, seem to be turning, at least temporarily in all simultaneously in a negative direction. So I think this leads into your, you know, concerned about interest rates. If the economy does break and break hard, you know, I think you can pretty much anticipate that the Federal Reserve will try to come in, you know, to the rescue, so to speak, cutting interest rates. Now, just today, I was listening to Chairman Powell of the Fed, and he was saying everything is fine, everything is great. We don't anticipate having to cut any interest rates. We think we're going to stay the course in terms of returning to the 2% target, but they know, and we know, that they will react to cut interest rates and to try to, you know, do the only thing that they can do, which is inflate the money supply in response to emerging crisis conditions.

So this may take a while to become visible and tangible to the general public in the media. There's signs, you know, that they're showing a little sign of worries. But it's mostly about President Trump's tariffs and, you know, in the fact that he's announcing them and then delaying them and, you know, changing them and giving people breaks. in delaying them and all that, that that is creating uncertainty. And it is, but that kind of uncertainty is not going to cause a recession. It's not going to cause an economic crisis to start. But that's the only thing that they can focus in on because they don't understand the Fed and what it does to the economy.

they don't understand the Austrian business cycle theory at all. They don't realize that there is a huge economic problem that is not of Trump's doing. This all happened under Powell and Biden for the last four years plus. And so it's a trap. You know, and I think it's being sprung right now. And, you know, the Fed is a creature of habit. And when it sees a crisis, when it sees an opportunity to come in and save the day with lower interest rates, particularly with the financial stocks, the bank stocks, not doing well right now, they've lost all of their gains. like some of the high-flying tech stocks, the financials have lost all of their recent gains.

And so that's what I'm anticipating looking forward over the next couple of months. All right. So if I could rewind a little bit, sure. Would you agree with my, well, a couple things. Well, I'll save that. Okay. Would you agree with my basic kind of thumbnail sort of history of the last little while here, where in the first Trump administration, essentially he was due, we were all due for a big crash

from the bubble from the Obama QE and all of that that they had done to make up for the last big crash in 2008. And so Trump was really desperate to put that off and the Federal Reserve, I guess, was too. And so they were inflating and, you know, he was desperate to get reelected. But then the germ came, regardless of how. how it escaped from that lab. And in effect, what happened then was because of the lockdowns, that sort of played the role of Paul Volcker in the 80s jacking up the interest rates

by essentially forcing a recession, forcing businesses to stop doing business and stop taking out loans and expanding the money supply that way and sort of force the recession that way. But then they created trillions of dollars to bail out all big business especially, but also everyone they sent checks to and massively inflated the money supply again, sort of in a replication of QE. And so then that's the bubble that we're still under, the one that very late Trump One handed to Biden and Biden handed to him. And I guess with Powell's raising of the interest rates, they would claim that they succeeded in creating a soft landing where they had a big

bubble, but they sort of tamed it down without popping it, which is what Rothbard says they can never do. It always pops. And then it's so it sounds like if I have that right, what you're saying is no, Rothbard's right. It always pops. And that's what we're coming up on now is essentially the air has got to come out of the bubble. And so there's a correction due when it's coming. But then one more wrinkle in that is, is it not the case that Trump is doing everything he can to slash regulations and taxes and all that is very stimulative and good for business, but that just means they're going to take out more loans and expand the money supply even more by taking loans out of new money, right? And all that. So do I have any of that right? And where

does that leave us? Scott, you have it nailed, basically. And I couldn't agree more with you about the fact that when COVID hit, we were due for a big economic crash. There were signs, similar signs in terms of stocks and banks and employment statistics, which showed that as we were heading into late 2019 and early 2020, there were already negative economic signs. And the Fed actually had to come in and do a couple of Save the Day type operations in 2019. So we were expecting a downturn, correction, crash, what have you, going into 2020. As a matter of fact, the Institute published a book where we have 20 Austrian economists, and this was published, I think, in April of 2020, saying, you know, the next economic crash.

So we were clearly and visibly, you know, anticipating what would have happened. And, of course, with COVID, nobody paid any attention to that. And that whole project went right down the toilet, so to speak. But, of course, you know, there is the possibility of the Fed, at least temporarily, bailing the system out of an economic crisis with a massive inflation. And that's essentially, and that's what Mises taught. And that's essentially what COVID allowed them to do. COVID provided cover for the Congress to spend multiple trillions of dollars and for the Fed to create, I think, five plus trillion dollars in money supply so some things that we hadn't ever seen or even could anticipate

except for maybe with a massive war breaking out of work in effect covered up by the fact that we had COVID they had to shut down the economy so to speak everybody was going to die you know the story better than anybody and and so with people glued to their CNN and staying at home unable to congregate and getting checks in the mail and keeping the liquor stores open I mean it just completely shut the minds of Americans down and allowed them to cover over what would have been, in our estimation, some kind of economic crisis. And even at that point, you know, if you go from the great financial crisis in 2007, 2008, 9, and then you look at all the monetary policy, all the quantitative easing rounds that we went through, Operation Twist,

you know and so on where they were constantly feeding the economy and the banking system ever larger supplies of money that you know we kind of anticipated it being a large economic crisis and then COVID hit it covered it all up and of course you don't know what was going on because all of that subsidy money and all of that Federal Reserve inflation made things like gross national product, gross domestic product looked fine. And, of course, everybody knew that not many people were working. So it was understandable why we had so many people unemployed. And people were basically unaware of what was going on until that Federal Reserve stimulus started increasing prices like crazy,

causing large-scale price inflation in 2022, 2023. And, you know, when we had to pay the Piper again, so to speak, and of course, we still have those trillions and trillions of dollars of debt that, of course, never got paid off. And so there's a lot more. pain and suffering through taxes, interest on the national debt, et cetera, that's coming due every payday, essentially. But that definitely is the case that we were due for a crash. COVID had helped us avoid it. And there was not really, I mean, people lost their businesses.

People lost their jobs, but it wasn't a business cycle correction type cleansing. And, you know, a lot of commentators have noted in recent years that zombie corporations, which are so typical in places like Japan and Korea and China, are now we're seeing this more and more in the United States where corporations stay in business, they can make their debt payments. but the companies are slowly eating themselves. Their balance sheets are shrinking, but they can make their payments with low interest rate in a low interest rate environment where there's plenty of extra government spending going on. Scott Horton Coffee.

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World War I, World War II, Korea, Vietnam, Iraq War I, Serbia, Afghanistan, Iraq War II, Libya, Syria, Yemen, all of them. But now you can get the e-book, All the War Lies, by me, for free. Just sign up the email list at the bottom of the page at Scott Horton.org, or go to Scotthorton.org slash subscribe. Get all the war lies by me for free. And then you'll never have to believe them again. And then, you know, we don't really know, of course, exactly the total impact of President Trump and his policies. Like I said, it's great theater. I mean, government bureaucrats getting cut, programs getting cut, you know, promises of deregulation,

promises of drill baby drill um you know those are things that are promising uh but i would note that you know most states uh individual states have regulatory systems which independently prevent oil and natural gas drilling and mining and some of the environmental issues that have been holding up American extractive industries. I write about this on my podcast this weekend. And then there's all sorts of regulation. So they have a lot of work to do. And the benefits of deregulation take place over a long period of time.

I mean, it certainly raises the spirits of entrepreneurs and investors. But the full impact of deregulation, like if you look at telecommunications deregulation under President Jimmy Carter, it didn't have much of an effect right away. It took a decade to really have its impact. Am I right to be so cynical and dubious about even how just because of the monetary system that then when times are good and banks are doing well, say they slash some regulations and not just banks, but I mean, companies are doing well. that means that virtually always it means they're taking out loans to further their business and that's new money and that's always inflationary like just good times are inflationary necessarily because the monetary system is inflationary so you're really damned if you do and if you don't kind of thing well it all depends on the federal reserves policy if the fed is holding interest rates artificially low then business people cannot make accurate projections of the future and they might get lured into making investments, which ultimately

might not be profitable. And this is the problem with having the Fed in charge of the banking system and in charge of the money supply and in charge of interest rates. So, I mean, this gets back to what you said right off the bat is that, you know, we need a Ron Paul revolution type undermining of the Fed's ability to control these things and ultimately you have to get rid of it, either in fact or in reality, you have to take that power away and make banks completely independent

and completely responsible for the types of loans they make and, of course, savers completely responsible for their deposits that they make in banks. So in a free market, depositors have to be insured of safety. And in a free market, investors and depositors and bondholders have to be insured that the bankers that they're associating with are making good loans. And that is certainly possible. That, you know, there's no doubt about that. But in the current situation, No one, and frankly, including Austrian economists, we don't know if banks are making good solid loans or if they're making artificially stimulated loans because, you know, you can't just match up the number that the Fed is discharging and are they really increasing artificially the balance sheets of banks or are they completely on the sidelines?

And we want the Fed completely out of the picture. Now, so, Mark, let me ask you this because I'm glad you had at least a chance to reference sort of offhand about the uncertainty caused by all this tariff policy. But I'll have to do a whole interview with you about tariffs on a different date because we're almost out of time here. But I wanted to ask you about this because I know that Robert Blumen and yourself were way ahead of the curve over at mesis.org in predicting the housing bubble and the housing crash during the W. Bush administration days. And as we all know, that was an absolute catastrophe.

They called the Great Recession, because it was only second place to the Great Depression crash of 29, I guess. And then I was thinking about what you were saying about zombie companies there, especially with the massive changes in social policy, forcing everyone to work at home and all that. Seems like every major city in America has got to have what amounts to now a massively overdeveloped downtown full of empty office buildings and i just wonder and and lord knows i mean i'm from austin where the distortions are in great part driven by increased demand but at the same time it was all funny money that everybody was buying these houses with and so prices in austin i know this isn't exactly a measure of the whole country but prices for a house in austin are way i mean they're

they're down a bit they're way up from where they were in 2019, 2020, and I just wonder whether you and Robert Blumen see a massive 2008-style catastrophe coming. You say tech stocks already crashing, you see recession, but what about, you know, something so bad John McCain would have to suspend his campaign over it, Mark? Well, I think they all need to make sure they have plenty of diapers up there in Washington, D.C. And, you know, I communicate with Robert Blumen on a fairly regular. basis. And we're just been biding our time. And I don't want to put words in his mouth. But I am certainly anticipating a severe real estate problem. And I think the first cracks will come

in commercial real estate. And I've heard some commentary fairly recently, you know, in the finance sector. And I think this may be the reason why the finance ETF is down pretty noticeably just recently, and that is that refinancing these zombie office buildings is going to become problematic, and they're going to have to go on to the market. And the Fed has been cajoling these participants to suspend everything and to just push things off into the future, hoping that things would get better. and my understanding is that no, now today, that's no longer the case, and the holders of these mortgages are going to end up repossessing those properties and having to put them onto the market. And, of course, if they do sell them, the values are going to go down and it's going to cascade throughout this marketplace.

So we're probably going to get a cleansing of the corporate. that corporate market this year. And then, of course, you know, housing has been booming. And in my area, it still is. You know, and the price of lumber right now is over $600 a unit. And that's really quite high. And indicating that right now, and that may be partly due to the tariffs on Canadian lumber, but, you know, that housing, that they're building a lot of housing, that housing prices are

really high, and there's a big gap in between what houses are going for right now. They're very high-quality houses, too, and multi-unit housing and what the market will ultimately bear after a cleansing process takes place. So, yes, I do. I see all the sectors of the real estate market, the commercial, the residential, the multifamily. It's all going to have a significant and noteworthy down phase correction, and I think that's going to be led by all of the various segments in the commercial sector. And, of course, office buildings are the lead force there because of just the social aspect of not going into work that you mentioned at the beginning of your question. But it really, I mean, you know, there's hospitals and there's storage units and there's all kinds of commercial real estate that may be overbuilt.

Yeah. Well, I'll call it the skyscraper theory. Another variation on it, right? Yeah. And the Jetta Tower just got restarted. about 10 years. Oh, yeah. Well, you know, I thought of you, too, when I was watching this thing that YouTube,

I guess, had just fetched up for me, this guy, I've seen a few of his videos where he talks about, and, you know, he's looking at the economy through a soda straw. He's not Austrian, but he's saying, look at how absolutely, ridiculously expensive these pickup trucks are, and look at how long they're staying on the lot. And the typical turnover is this many weeks, and these trucks have been sitting here for this many months, and they can't get rid of them. And this huge thing is run on a four-banger that's like the EPA mandated the design of these ridiculous things, and nobody wants them. Just a Ford for a 150, F-150 can be upwards of $100,000, you know, especially the higher-end pickup trucks are, it's just absolutely completely out of control. And this guy, you know, he's talking about, you know, damn Detroit, they are, you know, trying to extort us into these, you know, massive debts for these vehicles and whatever.

But I could imagine your Austrian-style thinking behind, you know, what's really going on with those markets. And then, but what does that really signify, too, when they can't get rid of these trucks right now? And I think I had heard that, you know, people overall are behind on their car and truck payments in very high numbers. I don't know if that amounts to a crash. But I know there was a huge bubble in especially used cars during the pandemic and all that. During the lockdowns, I should say, it wasn't the germ. It was the government policy. Yeah, that goes hand in hand when people are making money in construction in real estate.

and when, you know, houses are, you know, going fast. And, of course, the truck market was that way, certainly last year. It's just, you know, it's slowed down and the prices are just ridiculously astronomical. And Scott, I would point out, you know, if your listeners want to tune into a positive opportunity, my podcast tomorrow on minor issues is going to be on extractive. industries, mining, oil, natural gas, and why there may be some long-term opportunities in that area that have been, it's been smashed by regulation. It's been smashed by the global warming ideology and, you know, and people not wanting to get

into dirty industries, but it's really a cool industry that's turned extremely high-tech with robotics and autonomous vehicles and all sorts of technology. And I think it's going to be an interesting, uplifting story that we're going to see over the next few years. So while most areas are going to be in a downturn, I believe, this is one area, bright spot in the U.S. economy and really not just in the U.S. but around the world. yeah well mr right about everything all the time rom paul buys gold i don't know that he goes around telling people to buy gold but i know he buys gold so well he's looking pretty smart again i know i'll tell you what um okay well listen i'm so sorry that i'm out of time i wanted to ask you all about tariffs and things too i know there's a lot there but um it's been great to catch back up

with you and i hope we can do it again soon me too scott and tariffs are going to be around for a while so have me back on. Absolutely. All right. Looking forward to it. Thanks a lot. All right you guys. And that is the great Mark Thornton. He is at the Mises Institute.

That's the Ludwig von Mises Institute at Mises.org. Thanks for listening to Scott Horton Show, which can be heard on APS Radio News at Scott Horton.org, Scott Horton Show.com, and the Libertarian Institute at libertarian institute.org.