Transcription
If things continue, we are going to have an economic catastrophe.
How do we avoid this economic catastrophe? Forget fundamentals. Forget technical analysis. You just wait until a rumor comes around swirling around or or even better, some it it appears that some of the oil traders have had inside information with regard to when Trump is going to make an announcement.
It's my pleasure to welcome back to the show regular guest Steve Hanky, professor of applied economics at John's Hopkins University. On the agenda today, who's manipulating markets and how do we navigate a market that's so heavily concentrated by the big players. We're going to find out who these big players are and what we can do as investors. We're also going to be talking about wealth inequality and why so many people feel so poor these days while the rich are getting richer. Is there a solution to this? We'll find out. And of course, Professor Hanky will give us an update on his economic outlook and inflation outlook. We'll be going over how high gas prices will get this year, a topic that a lot of people are thinking about. Professor Hanky is going to give us the answer.
That's actually a trade on Koshi right now. Gas prices in the US next month is a trade and traders are predicting there's a there's a 62% chance that it'll get above $3.80. So, Kawoshi is the sponsor of today's video. It's the largest prediction market in the United States. And unlike a sports book, you're trading peer-to-peer on real world events, from economic data to political outcomes, and the price moves based on public opinion, not a house. Go to the link in the description down below or scan the QR code here to get started. New users who use my code, Lynn, L I N, will get $10 when you trade $10. And if you want to place a trade on how high gas prices will get in the next month, let's say you place $50 on above 380 and you turn out to be right, your payout could be $78. So we'll find out what Professor Hanky has to say about gas prices and inflation.
Welcome back to the show, Professor Hanky. Good to see you as always.
Great to be with you, David.
I want to start by showing you the prediction markets prediction for gas prices in the next month. 61% chance believe that there's an uh well 61% chance that gas prices will be above 380 um at the gas pump. Uh 34% chance it'll be above $4. It's still very high. Now, this is a post a remarkable post by President Trump made earlier yesterday. He said gasoline retailers must get their prices down immediately. They're too high considering that oil is now at $68 a barrel and heading south. The retailers must quickly react to the statement and do what they know is right, which is drop your price for our great American people. There will be no price gouging, which is totally illegal. If retailers don't do this, big problems lie ahead. Start targeting around the 250 a gallon number, and California should stop charging such heavy taxes on their gasoline. Soon the tax will be higher than the product itself and the US will not stand for it. Nor will the people of California who are being abused by these ridiculous taxes by their own government.
Well, I think he's right. The taxes on gasoline are too high. But uh let's get to his bigger point here. Gasoline prices should target 250 a gallon at the pro at the pump. What can the government do to actually enforce this, if anything?
Well, Trump uh he's he's jawboning the thing. He's a little bit delusional about 250 because the num number one, the price of crude now is a little over $70 a barrel, WTI today. and and it's going to go higher and and the reason the reason for that uh before we get into the price of the pump kind of thing just thinking about crude we uh with the attack by the US and Israel on Iran that that is what caused the problem. Trump caused the problem and now he's trying to say that the oil companies have caused the problem. So, it's a typical Trump thing with his rhetoric often doesn't me doesn't comport with reality whatsoever. I mean, he he says more things that are off the reservation than on, but the attack was made, prices jumped up. Uh the straight of Hormuz was shot and as a result of that, the world basically borrowed 1.2 two billion barrels of oil from the future, sucked that into the present, put it into the present market, lowering inventories out of strategic reserves and private in inventories and so forth. And and now what's going to happen assuming the straight by the way is is not open. Uh it's not operating in a normal way whatsoever. uh contrary again to what Trump has has been advertising there there's a trickle of tankers coming out of the Gulf but even assuming that the thing completely opened up which is which is not going to do uh we we would have to find uh the the 1.2 billion barrels that we borrowed from the future and dumped it into the present. We'd have to replenish all of that. So, the demand for oil is going to go up. The all this restocking will occur and the and the price will go up. I my my base line case is probably around $85$90 a barrel. That wouldn't surprise me whatsoever.
So, so that's one factor.
By the way, the markets uh kind of agree with you. The prediction markets are saying there's basically uh less than 2% chance that the gas prices will go below 250. Says here 98% chance above 250. So there you go.
So so so that so there we have the background is crude oil and what what's going to happen to the crude oil market. So now we get towards the pump and what's going on now? Of course, the the major oil companies are operating with very high margins or profits are very high uh and and profits for refined products like gasoline. So Trump is laying into them and trying to jawbone them, but also he he's sicking the the Department of Justice on them. So, you've got two things going on. He he's he's he's not only barking, but you know, there's there's some potential bite in that because if you get the Department of Justice going after you, you you've got a you've got a legal problem on your hands. So, so that's that's that's what's going on.
But this is this is this is a larger pattern of of things that are happening. And I've talked about this with you in the past and that is we we have everything being politicized. Every all all major decisions now everything is running through Washington. Either the bureaucracy in Washington or more likely directly Trump himself is is at the control tower trying to run things. This is this this is the American version of the Soviet system of centralized planning. There is no centralized plan, but there there is a centralized voice and and you just read it read it. It's it's announcements on true social. So with everything being politicized, you you have a lot of what I called before regime uncertainty where everything is changing, all all the rules of the game and so forth are being changed. But you also get another factor coming in and that's what's called the the big players theory in economics and and and the the the big players operate uh and and they can be private if they're real big like like Musk for example that he's a big player but obviously Trump's a big player chairman Z in China is a big player and and they're big enough to influence supply and demand uh and expectations about supply and demand. They're they're insensitive to profit and losses. So, they can spout off uh you know, not not thinking about is this going to increase or decrease profits. And their announcements and pronouncements are are pretty much arbitrary. They're not based on any rules or anything like that. So as a result um you have asset prices that get disconnected from fundamental rationality. In other words, fundamental rationality does what? What are the expectations about free cash flow and you discount them at some discount rate and you get a present value. You come up with a the market cap of you know whe whether you whether you whether you think that a share price is fair or not fair. But but that just goes out the window once you get big players. And and once you get big players, you you have hurting takes effect, hurting behavior. You forget fundamentals. You forget supply and demand, forget the level of inventories, forget present values of free cash flow, forget all of that. You just trade off of hype, rumors, other factors that are not associated with fundamentals. And as a result, you get a lot more volatility in the market. You you get a a much higher chance of a bubble or and a and a higher chance of a bubble popping. And you get what's called noise trading. Instead of trading off the fundamentals, you you you noise trade. And and that is go going for the rumors. Following the herd, getting on the bandwagon. All all of these things that we're observing are all all based on the whole this whole notion of big players which which most people aren't familiar with. But there there actually is an academic literature on this and it turns out that one of the contributors is my co-author on my book uh making money not not making money work is Leland Joerger capital interest in waiting Leland Joerger capital interest waiting and Joerger was one of the first ones and he he wrote one of his first articles with one of his students Roger Copel who's a who's now a collaborator with with me. So I am familiar with the literature and and where it leads you is is towards noise trading. Uh something that was actually introduced by Fisher Black you know the Black Scholes option pricing model that that black Fiser black in 1986 introduced the idea analytically and in a sophisticated way of of noise trading. what noise trading was all about. And noise trading is something, as I say, it's it's completely disconnected from trading off fundamentals or technicals. It's trading off rumors. Noise.
What about Trump saying that he moves the markets? Take a listen to this remarkable statement that he made at the G7 summit a couple weeks ago. People online are asking, "Hey, did Trump just admit to market manipulation?" and take a listen.
Every time we talked about the possibility of peace, the stock market shot up like a rocket ship. It never went down. They didn't like it. The people, you know, the stock market is more brilliant than anybody there is, including the people on the stage, other than me, of course.
Every time he talks about peace, the stock market shoots up. Okay. Well, if he's identified a pattern, one can surmise that he could just keep doing it over and over again.
Oh, yeah. That that's the big player. You just saw the big player. That that's the point of the of the the theoretical apparatus called Blake big players. Uh, and it doesn't happen that often, by the way. But it we're we're in we've entered an era of big players now. We we're we're moving away from the the efficient market hypothesis, you know, rational markets and all this. We're moving into the era, I think, in my view of the big players. So you have to understand this theory, understand what noise trading is all about if you want to understand what's going on in the markets and and why you observe hurting and why given every measure we have on on the planet of a bubble. We're definitely in a bubble and and no one even cares in the United States. The equity markets are clearly in a bubble. And and and going back to Trump, by the way, why do you think the US attacked Iran over the weekend, this past weekend, and why did they announce that Friday, 33 minutes after the market closed? Because Trump didn't want to rattle the markets.
Yeah. The markets closed last Friday and 33 minutes later the US attacked Iran.
I have noticed that all these announcements are made on Yeah. over the weekend.
Yeah. And and and when when did they announce that they were going to patch things up? Right before the market opened on Monday morning.
Yeah.
So So this is this is how big player operates.
What does economic theory tell us about how to navigate this kind of environment?
Oh, it it it's you hering behavior. If if you're going to make out, you you've got to be part of the herd. You you you have to jump on the bandwagon for you have to first throw fundamentals out the window. Okay? Forget fundamentals. Forget technical analysis. You just wait until a rumor comes around swirling around or or even better some some it it appears that some of the oil traders have had inside information with regard to when Trump is going to make an announcement. So there there have been huge trades occurring either long and short in the oil market prior to Trump's announcements on on what's going to be happening next and with regard to the US visa v Iran.
Are are you suggesting that the whole market is operating based on insider information?
Uh well, not not not really because everybody can't get the inside information, but but that that
But the big players move the markets.
Yeah, that that that appears to be part of it because some appear in the in the oil trade to have inside information and once they place these big bets based on what apparently is inside information and then is confirmed by a few minutes later an announcement by Trump, then the herd comes in and and then what what do you get? you you tend to get overshooting going on and and that's why by the way that's why I think the oil market clearly is not looking at fundamentals right now and is overshot on the downside. I think $70 a barrel is not fair value. I I think I I think the price is more in in the you know as I said before 85 maybe 80 my my base my baseline case is more like $85.90.
What's your explanation as to why oil dropped to $70 a barrel immediately after the Iran uh the straight of Hormuz reopened for a few days? Remember two weeks ago and then they reclosed the strait following the Iranian strikes, sorry, the Israeli strikes in Lebanon. The ceasefire was broken. But anyway, oil went down on a ceasefire, but it didn't go back up after the ceasefire was broken. Why not?
Well, I because they the I I think it it is the hurting aspect of the big players. I think it overshot.
I see.
And and and and it's going to take time to it's going to take time for the fundamentals of supply and demand and inventory levels to to come into the picture and and influence the herd.
Okay, I want to just bring this up very quickly uh before we move on to other matters of the economy. Professor, here on your screen is a chart made by the EIA. What do we pay per gallon of retail regular grade gasoline in 2025? 14% of that was refining cost and profits, 17% was distribution and marketing, 16.6% 6% federal and state taxes and 51% from crude oil itself. So when Trump says to the gas price to the gasoline retailers lower your prices, I mean which part of this pie can they actually control here?
I guess distribution and marketing. They can they can not make any profits and the state has to take out the taxes but yeah.
Yeah. Yeah. So it's mainly the top the first thing the margin which they're not going to do.
So, uh, well, we we don't know exactly how they'll react. We don't know exactly what Trump's going to do with the Department of Justice and so forth, but but ba basically he's he's trying to he's trying to nationalize profits. This is the politicization of things. This is this is a the we used to call these things socialism. Okay. Now, now another form of socialism, not not not the directly out of the communist manifesto, kind of indirectly out of the communist manifesto, we have interventionism, which is we we have all kinds of things going on. protectionism, sanctions, all all the tariffs, quotas, sanctions, all of that is part and parcel of interventionism, which which is obviously by definition interference with the free market system. And Trump just loves this stuff. back in the uh Soviet Union, if um the government wanted the uh distributor or the retailer to produce a certain thing and keep a price at a certain level and they refuse, the owner will probably end up in a goolock somewhere. My point is, what is the recourse here in the United States? We don't get sent to Guantanamo Bay if we're a retailer and we don't follow Trump's tweets, right?
Well, well, depend on depending on what the Department of Justice does and and the FBI and so forth and so you you could end up in the in the slammer.
Okay.
We we we don't we don't have a goolog in camps uh as far as I know. Well, uh well, we we we we kind of do in a way. Guantanamo Bay would probably it is a slammer, but it's kind of a camp type thing. In other words, you you can go to Guantanamo without any due process of law or anything like that,
right? So, they just nail nail you and say you've done something and and you stew down there forever and uh you know, there's no trial or anything else.
All right. Well, I mean, does go back to economic theory, then. Didn't Trump just solve the inflation problem? If he could threaten everybody to lower prices and say, "Look, if you don't do this, somehow we're going to make the Department of Justice think you're guilty of XYZ and you're going to go to jail?" Well, in theory, didn't he just fix higher prices?
Well, he we're inflation includes everything. So, the answer is what causes inflation? Inflation is every is always an everywhere a monetary phenomenon. It depends on the how fast the money supply is growing, how big the money supply is. So so that that's the cause of that. Um, and you know the the the only thing he could do there is do something with the Fed, which he's been trying to do desperately. But but he's actually doing the he he's trying to get the Fed to loosen up. He He wants to keep this this speculative mania what we're in right now in the United States going.
He he doesn't want it to stop. He want he wants to goose the thing. So, okay. So, so the idea of fighting high prices at the gas pump that that that that happens to be one particular price that that that's very sensitive because number one, it's easy to follow. And and and number two, a lot of people drive cars that burn gasoline and and and they fill a tank once or twice a week, maybe even more than that. So every time they fill it, they kind of have sticker shock.
On the monetary policy thing, I've been talking to some people who believe that there is reason for the Fed to lower rates this year. The prediction markets are predicting that there will be a 77% chance of exactly zero cuts. The Fed watch tool, which is something you look at, is kind of predicting the same thing. uh roughly 83% chance of a hike, 17% chance that uh it will not move, but no one's pricing in on the CME Fed watch to at least no one in the bond market is pricing in any chance of cuts. So, I wonder what do you think?
Well, well, yeah, the reason for that, David, uh uh I didn't mean to cut you off. You you said Go ahead.
Yes.
You said what do you think?
Yes. Yes. there. Yeah. What do you Yeah. What do you think, Professor?
Okay. Well, what what I think is that the inflation genie has escaped. It's out of the bottle. The inflation rate in the United States now is is more than double the target. The the target is 2% and the rate of inflation today as we speak here is at the end of June 4.2%. So, so it it's hard to and it's hard to get your head around the idea that somehow the Fed's going to cut rates. Plus, the economy, they revised the first quarter GDP number. It's 2.1% real rate of growth. So, the economy is chugging along. It's it's doing okay. The labor market is more more or less okay. Hey, the unemployment rate, you know, is is good. Actually, if you if you only look at the unemployment number, unemployment's low. So, so it's it's hard for the go for the members of the Federal Open Market Committee to come in and say, "Oh, we got inflation double a target. The economy is doing pretty well and and and the unemployment's quite low. Let's goose things some more." You see what I mean?
Yeah. That's a that's a hard pill to swallow.
It it's pretty it's pretty damn hard hard to rationalize gooseing the money supply even more than they are right now. But and and what they do gooseing to them is the federal funds rate. That's not gooseing to me. The rate of growth and the money supply is what's counts which which they're not looking at. But but at any rate, gi given what they look at the Fed funds rate,
I I which you just had up on the screen. Yes.
I I would I would say that the chances of them lowering that, meaning gooseing in in their eyes is pretty low.
Well, as you saw in the chart, I think it's non-existent.
May I posit another theory to you, professor? You're thinking about this from the perspective of a rational economic actor. As we've discussed for the last 15 minutes, big players have given us some some consideration as to whether or not the markets are still rational. In other words, could it be possible, professor, that in a couple months, Trump would say, "Look, the Iran war is still ongoing. Let's say the street of Ramoose's crisis is not resolved and Americans really need a relief. Gas prices are even higher now as you predicted. But instead of combating inflation by raising interest rates, we're going to give relief to the regular worker in the form of lowering interest rates and making monetary policy looser and expanding the money supply to help alleviate the threat of a recession from higher prices? Would that make sense? In other words, avert a great depression. As Trump said, we're going to avert a great depression. That's what he said. The G7.
Okay. So, right, let's let's let's go with that scenario. That that scenario means that the war drags on, you know, and it's not resolved. The straight doesn't open. And in that case, by the way, my my baseline price for oil is is too low. It's going to go higher, even higher than that. And as Trump said, he doesn't want to be another her Herbert Hoover. President President Herbert Hoover was a president when the Great Depression started. and and he Trump is implying that if the war continues, if the straight remains closed, if oil prices go to the moon, that we'll have a great depression. As he he used the word catastrophe, economic catastrophe.
Yes.
And and and and in that scenario, obviously that changes everything. So that would that would change what I think the Fed the Fed probably would goose things under under that scenario.
Okay.
And we we and we would get a lowering. We all this also plays into where where we can anticipate Trump is going. The the memorandum understanding was was in in effect uh a surrender document where where the the US surrendered.
Yeah. and and and and why did Trump frame the thing as a as a surrender and and with all those points that were in there, he he did it because he doesn't he he wants to get out of this thing. He he wants to claim victory that no matter what he what happens, he's going to spin a victorious uh cry from the top of the roof of the White House. There's no question about that. But the reality is he just wants out. And the reason he wants out, he doesn't want to be Herbert Hoover. He doesn't want an economic catastrophe. He's smart enough to know if things continue, we are going to have an economic cont catastrophe. He knows that. And that's why he's doing everything possible to keep this thing on the rails and and get out of the thing as fast as he possibly can and see that straight of hormones open. And and by the way, that's why if it does open, he'll he'll probably put blinders on and look the other way when he realizes that Iran controls it and they're charging a toll for ships to go through.
What is the way out? How do we avoid this economic catastrophe?
Well, that actually the the agreement would the surrender agreement would would be implemented along the roughly the lines that it is with with the Iranians being the victors and holding most of the cards and and ultimately controlling the straight, opening the straight and charging a toll for the going through even even shippers in Asia and Greece ship owners said, "We don't have any problem with paying a toll as long as the straight's safe and it's open and so forth." And this would be, by the way, this is another propaganda thing. Secretary Rubio and and Trump, all the administration and as well as all the hawks, they keep saying the right of free navigation is every place in the world. It's illegal to charge tolls. Nobody charges tolls. That's not true. There is a treaty, the the Montro treaty of 1936 that does allow and specify that Turkey can charge tolls, they call them management fees for going through the Bosphorus and the Dardinels. So, so what they say in the propaganda, it's not true. There there is one international waterway in which tolls management fees are charged and I just gave it to you.
Yes. I'd like to talk to you about this interesting article about income inequality. Let's go back to the economy and what ultimately affects people. People feel that they're not getting richer. This article says, "This number helps explain why many Americans are down on the economy. The American worker share of the economic pie has fallen to its lowest level since at least 1947 when the federal government began tracking the data. According to an analyst by the Federal Reserve economist, the measure known as labor share of income tracks how much of the nation's economic output flows to workers in the form of wages and salaries as opposed to the share that goes to investors and corporations through profits, dividends, and other capital income. A shrinking labor share of income indicates that more economic gains are flowing to shareholders and business owners. Okay. Your response to what I just read?
Well, uh that's that number one. That's that's true. What what you just read uh you know for the my calculation I I I like to look at it in the following way because it's it's fairly easy to understand. It's pretty spectacular actually. And that is that billionaire's wealth in the United States is a percent of GDP. What what was that in December of 2019? Right before CO it was 13.7%. 13.7%. Then the the Fed goose the money supply. And once they goose the money supply, what happens? Asset prices go up with a lag, which they did. Stock prices went up, land prices went up, real estate went up, all all asset prices zoomed up after the Fed goose the money supply and they're still going up and and we have now billionaires wealth as a percent of GDP. It's 26.3%. It it jumped from, you know, in in six years, not even six full years, five and a half years, it's jumped from 13.7% to 26.3%.
Now, that that's because of the Fed gooseing the money supply. It always comes back to the money supply. Okay.
The money supply dictates all all of these things going on. If you what you read were the symptoms, but the cause was the fact that the money supply put if you put a chart of the money supply up there, you'll see that M2 has just been zooming up.
Let me overlay that. Yeah, you're right. Um, before I do that, let me just comment on this chart. This shares this shows the um share of total income uh sorry to share of total economic output that goes to workers. So labor share of income as you can see this graph has been going down. What happens if we let's say businesses to tomorrow they're feeling good everyone starts raising their wages and this share this chart goes the opposite way goes back up in that scenario. Um, let me just address the inflation front first. Will we would wage inflation necessarily mean goods inflation?
No.
No.
No. The data doesn't support that.
No. The this there there's a theory of inflation called cost push. The cost push theory of inflation.
And the cost push says if if costs go up, they they drive the overall price level to go up. But but in fact the the cost or what's happening with cost that that's a symptom only of what's happening to the money supply and and and the reason by the way that chart shows what what it does. It's exactly what I told you about the billionaire's wealth as a percent of GDP. You've had t tremendous increase in asset prices as as a result of the money supply going up. the the biggest distortion in the picture, which by the way, Matt Sukurki and I go through this in our book, Making Money Work, the the the distortion is the money supply is not neutral. the monetary policy. One one thing that the those who design monetary policy should be cognizant of and they should be trying to shoot at neutrality that it that the changes in the money supply don't affect one group or another in some disproportionate way which has been happening since co
Yes. the the the the the rich have made out the the rich and very rich have made out like bandits. I mean the median the median in income level in the United States is about $83,000. So th those above $83,000 have done pretty well. And by the way, and by the way, you see this by going on right now. By the way, if you look at retailers in the United States, e
Even lowerend retailers like Walmart are tilting into into more affluent kinds of products. Pe people with income over $100,000 a year. Walmart is tilting into those. Sachs Fifth Avenue. Saks Fth Avenue. now is going back to their old model of the luxury top end top end. Every everyone's tilting in why because the top 10% of wage earners in the United States account for 50% of the value of all consumption in the United States. The the little guy isn't consuming much. That's why the little guy is complaining about affordability. A and there are lots of little guys and and that of course is one of the Achilles heels that Trump's got. He has many Achilles heels but one is affordability.
But let me just talk about billionaires. Uh, ever since the SpaceX IPO and Trump, sorry, not Trump, uh, Elon Musk became the world's first trillionaire, at least on paper, uh, the internet exploded with two sides of the debate. One, people supporting him, supporting free enterprise. Look at what the American dream can do for you if you work hard. And the and on on the other point other hand, the other side of the spectrum, billionaires should not exist is the argument. Um, a lot of people online have been making this argument for quite some time that by the way, nobody needs a billion dollars, right? That that money should be better off just distributed away and given away to people who actually need the money. So, let me just ask you the question, should billionaires exist? And if not, do we how do we abolish billionaires? This is a talking point from the left. AOC has been saying this. Elizabeth Warren has been saying this. Abolish billionaires.
Well, I I'm not I'm not on that side of the fence. I I'm I'm for the the spirit of the founders of the United States, who now at July 4th, we'll have our 250th year anniversary.
That's right. and and that the declaration of independence of course was the the document that uh that was in 1776. Uh that's why we got 250 years. So uh that that spirit is enshrined in the constitution which of course came few years later. And what what is this spirit? the the main spirit is a spirit of liberty and freedom. So how how can you how can you say you're going to abolish a class of wealth if if in fact liberty and freedom are the are the basis for the whole US Constitution. Everything in the Constitution is based on that idea. So of of course I'm I'm I'm I'm for I'm for liberty and freedom and and and that means I'm I'm for the US Constitution.
Okay, there's several videos. Can't Okay, this is Let me just play for you. Um, a minute of this logic here. Maybe you can just understand.
Uh, here here we go. When you have these systems, when you have corporations, when you have a an economic elite, they have not there's a certain level of wealth and accumulation that is unearned, right? You can't earn a billion dollars.
That's right.
You just can't earn that.
That's exactly correct.
You can you can get market power. You can break rules. You can do all sorts of things. You can abuse labor laws. You can pay people less than what they're worth.
But you can't earn that, right? And so
you have to create a myth
that since you didn't earn that, you have to create a myth of earning it.
I've seen this before. Her argument is that um there comes a point where you're only this rich. You only become a billionaire if you extort people and exploit your workers um and basically do bad things. So to get ahead by a margin of thousands of times the ordinary workers income comes at the price of other people's livelihoods. I think is a central argument here and again we'll play the clip. Um, but your response?
I I I I would simply ask you you have a clip of, you know, one one of the great philosophers in Washington DC, AOC. So, I I take that with a grain of salt. Uh, babbling on about things she doesn't know anything about. And and I would simply ask, well, all of those assertions, those are assertions or conjectures. Where where's the evidence? Where's the evidence? You you you said doing all kinds of bad things. Well, h haven't they haven't they had federal prosecutors after him for doing bad things? Haven't they had trials, etc., etc., etc. So, it's this this is gets down to where, you know, where's the beef? Basically, where's the evidence for all these things that you're claiming? This this is a connecting rhetoric and reality. What What is the reality? Why why why did Jeff Bezos become a billionaire? He he was nothing. He he he was he he was nothing except
I'll tell I'll tell you I'll tell you how uh according to um the camp that believes what I just showed you Jeff Bezos became a billionaire off of the back of millions of underpaid workers whom he exploited.
Well, why did they work for him if they're underpaid and exploited? They there there's no he he he they're they're not slaves. He he doesn't own them. They they can voluntarily leave if they want to. He Why Why do you see all these Amazon trucks? They're that are actually patented by Amazon. They kind of oddlooking things uh running all over the place. Why Why every every week why why do Mrs. Hanky and I receive things we have voluntarily purchased from Amazon. Everybody likes Amazon. What What about all the people bought? What about all the consumers? Are they getting screwed?
Yeah.
No.
They they they make a choice. They go to Amazon. It's convenient. They get they get what they think is a fair price and they buy something. And at least that's what Mrs. Hanky and I do when we're buying stuff from Amazon.
So, how do you explain?
And and and by and by the way,
yeah,
you you you you get delivery. We do. And in less than 24 hours and and you don't have to get in your car. You don't have to buy buy GA that expensive gasoline to go to go to a shopping mall and screw around for hours trying to find a knee stack. You can you can it's very convenient. So
I I understand all that. But just to play devil's advocate here, professor, since we don't have a AOC advocate to debate you, what happens if we pay Amazon workers hypothetically double their current wage? Wouldn't their livelihoods just be a lot better? In other words, let's move this chart back up, increase the labor share of income here. Let's start with Amazon and Walmart and all these big big corporations.
Okay. One. Okay, this you're you're throwing in a hypothetical. Oh, I I'll throw in a fact and and and one
one reason for the capital share increasing as it has and and worker share being shrunk is the operation of the Federal Reserve. Mhm.
This moni monetary policy is behind this and and and by the way you can find out if you if you look at macroeconomics properly
you you you you you can look at two books that I've co-authored recently. One is the Jerger Hanky book capital interest and waiting. That's capital theory. And if you combine that with the book I co-author Sukurki and Hanky, making money work, that's monetary economics. You've got the macroeconomic picture. And what what really calls the tune behind all of this is what's happening with monetary policy and and and the and the quantity of money that's circulating in the economy.
So basically to solve income inequality, we have to do what with monetary policy, professor?
Well, you you you you can't have this zigg zigg and zag moves by the Fed. The Fed has to embrace a quantity theory of money. They have to keep the money supply growing at more or less a a constant rate of around five or 6% per year measured by M2. And and and that's a rate consistent with the 2% inflation target. And that's consistent with a pretty steady growth in nominal GDP. What a and and a a policy not only of the growth rate in the money supply, but a policy of neutrality. try trying to design policies that allow for that stable rate of growth in the money supply to be designed in such a way that they're they're neutral. They don't favor some one group or another group. And now now the way it's designed now, number one, it's not stable. And number two, it's not neutral. it it's favoring different groups. So so so so we have so we have two we we have three things going on. One the Fed does not accept the quantity theory of money. The Fed does not admit that ch substantial changes in the money supply cause substantial changes in asset prices and substantial changes in economic activity and substantial changes in inflation. They don't they don't look at it that way. they don't look at the money supply. So that's one that's that's a big problem. And as a result of that big problem, what happens? The money supply goes up and down, up and down, up and down. And and that means that you don't have the stability factor. Number two, that also means that the money supply that is supplied is is is not neutral.
Okay. So let me just ask you one final question before we close off. Uh the ordinary citizen, the constituent uh of you know of of America doesn't vote directly for the Federal Reserve and the monetary policy bill. We do vote for who gets to be in Congress and ultimately who gets to be our president. What I'm trying to say is wouldn't it be a lot easier to just vote for the people who want to raise the minimum wage? Wouldn't it be more direct to just again this is a hypothetical economic situation here. Let's raise let's double the minimum wage and the share of labor income goes up and everyone's happy. Right or wrong?
Wrong. Okay. Why? Wrong. It's not going to work that way. Point number one, because the the minimum wage by by imposing the minimum wage, if it happens to be over what a what a normal market equilibrium wage would be for the type of employment that's involved, you you end up squeezing in particular lowskilled workers out of the market because the minimum wage does exceed and in in many cases it does exceed the the market what would be a market-based equilibrium wage for low-skilled workers. And if that's the case, you you just pop low you get rid of lowkilled workers there. They become unemployed. Then they go on welfare. That's what you're going to end up with. I I could put a lot of people I could put millions of people, by the way, on on welfare and and and knock off their jobs completely if I jacked up the minimum wage to, let's say, $50 an hour.
Yeah,
that that would put that would put a hell of a lot of people out of work and put them on welfare.
By the way, I'd love to get your reaction uh next time. The UK, I don't know if we've talked about this, but the the UK in the last quarter reported that they spent more money on social welfare than they did raising revenues through taxes. In other words, social welfare exceeded tax receipts for the first time in the UK's history. Um, so
well, the the UK is in trouble big time. There's no question about it.
Great. Let's end it here. Professor, thank you so much. Uh, let's uh follow your work. Uh, tell us where we can follow you.
Well, you can follow me on X, steve_hanky, or write me a note at hankyjhu.edu or indicate you'd like to be on my free weekly distribution list or if they wanted to get into the indepth thing, I've given two books that I've recently written. the Jagger Hanky book uh on capital on capital markets uh and the waiting book you can put that up and the other one is a Sukuri Hank Hanky book making money work.
Okay. Excellent. We'll put the links down below.
So that's it.
Okay. Thank you, Professor. Please do email Professor Hanky or myself if you'd like to ask any questions for our next interview. Thank you very much, Professor. We'll put the uh links below so people can follow you there and we'll speak next time. Take care for now.
Okay. Thank you, David. Great to see you. Thank you.
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