This is Rob Johnson, President of the Institute for New Economic Thinking. I'm here today with my friend, Professor Marcus Brunermeyer, who is at Princeton University, and he's also the director of the Bendheim Center at Princeton University, which has been a very, very vital, how do you say, contributor to the debate on new economic thinking over the 12 or 13 years that we've been involved in trying to excavate new economic thinking. And Marcus has really been at the cutting edge. Marcus is here today because he has a new book. It's called The Resilient Society. It's by Endeavor Publishers. It came out just recently and Marcus is exploring lots of things that I think you will find to be very germane to the challenges before us. Marcus, thanks for joining me. Thanks, Rob. It's a pleasure to be with you and with Inet. Let me ask you just quickly to start. What motivated you? When you sat down to do this book, what was going on inside your mind that brought this to the fore? So I was thinking about resilience quite a while because I worked a lot on systemic risk measures and trying to capture systemic risk. And then there was the COVID crisis and during the COVID crisis, I organized this webinar series and I tried to distill the main insights from the webinar series and put it under a common theme, some common thread of resilience. So that's the idea of the book, to have a common theme combining a lot of insights which I got from many, many speakers. And so that, which Max still calls stimulus from your excellent webinar series, which I attended many, many times over the course of the crisis, gave you, how do I say, a nudge to try to distill, bring forward the insights or crystallize them into a framework. And I noticed at the outset of the book, there's a very important subtlety about words like, or phrases I should say, risk avoidance, robustness, and resilience. Why don't we start there and tell us what, what is the difference? What's the nuance that opens this? Yeah, in order to figure out what something is, it's probably good to say what it is not or what is it different from, as you said. And so I contrast it, I call it resilience and its cousins. And so robustness is a different concept than resilience. And what I often use is this story by the French poet in 17th century who compared robustness as with the oak, and it's very robust against winds in your stance, very, very forcefully there and doesn't move at all. And resilience is more like a reed, which is, you know, constantly swinging back and forth as the wind blows. But there's a big difference between the oak and the reed. If the wind becomes very, very strong, the oak falls over and then can't get back up. While the reed is constantly, it needs to be very volatile all the time, but it always comes back. So it's much more resilient. So robustness has a robustness barrier. Once you correct it, robustness barrier, it can't come back. While resilience is all about coming back. And the French poet Lafontaine, 17th century, in the poem, the reed talks to the, to the oak and says, I bow in a bend, but I don't break. And I think that's a principle of resilience in contrast to robustness. And it's related what I worked early on on the volatility paradox. So it seems something which is very volatile, it might not be the most robust thing. I might not most, because it might break, it might break the robustness barrier. And something which constantly moves and is agile and is changing to the circumstances seems at the end of the day much more resilient and it's some better way to arrange society, to have a more stable society. Yeah, forgive me to use an analogy from my engineering training at MIT, but they used to talk about the elastic limit of materials. You can stress something and it'll spring back. But if you go beyond the elastic limit, it breaks and is deformed permanently. Very nice. Yes. And but we're now talking about social process. Now, look, how does risk avoidance relate to resilience? So risk avoidance means you just avoid risks in the first place. You don't go into risky environments. And while you should actually take certain risks, if you know you can bounce back from it. In particular, if you take on this risk and you have a higher growth path. So for example, if you compare, you know, different countries like Thailand in the 1990s in India or so Thailand was growing much more quickly, but was also going for more risky strategy and then the Southeast Asia crisis was suffering more. But, you know, it came also back, but the income to per capita income ratio is higher now. And so it's, you have to think about chompaterian growth and other things that might be more risky. You go for R&D risks and other things. But as long as you can bounce back, it's actually okay. And that's what one has to focus on. One has to really distinguish risks from which you can bounce back if you agile and adjust and other risks from which you get trapped and you can't bounce back. And that's, I think, the distinction between different types of risks is the key to understand. Yes. And in a presentation that I saw in preparing for this, you talked about three levels of resilience. The individual, the systemic and the societal. Help us with those other things. It is indeed the case that you can think of individual resilience, which is very important too. And psychology has done a lot and has given us a lot of hints about that. And that's, you know, what I said is bouncing back as an individual. But then we have also networks and systems which can bounce back. And that's, you know, one way to make something more resilient, like global value chains and the counter can bounce back. But I think the book really focus on the resilience of a society. And that brings people into the picture and the interaction, in particular interaction of people. And that's what you have to keep in mind that once you hit by a shock, you might react in a way which then causes an externality to somebody else. And then there's somebody else is then reacting because of the shock which you caused to him. And it feeds back to you and you have some feedback loops and makes situation even worse. So if you understand this, how this whole thing amplifies and then it leads to these feedback effects, that's very, very important in particular when people interact. And that's when then the social contract comes in and a good social contract essentially tries to mitigate these feedback loops, which are a combination of externalities. And if I may use some economic language, some strategic complementarity. So that's what I call these feedback externalities. So normal externalities are really bad, but if they're combined with the strategic complementarities and develop this feedback externalities, then they're really dangerous because it's not only that I cause a negative externality on somebody else, the reaction of the other will cause it back and then we both can end up in a spiral and that makes the duration really worse. Yeah, I've heard a number of climate scholars like Jim Boyce and Robert Pollan talking about how the fear, say in a place like West Virginia, that there won't be a social contract for adjustment assistance, creates a resistance to addressing climate change, which then, which you might call postpones embracing the challenge until it's a much deeper, more dangerous challenge. And so they're afraid that the social contract does not, how do I say, facilitate the dynamics that we had. And as a guy who grew up in Detroit, I saw globalization and we're all taught, make everybody better off and nobody worse off, except without the adjustment assistance, a whole lot of people got trampled. And now the people in West Virginia say, you're gonna do to me what you did to the auto industry? Yes. Different kind of shock, climate as opposed to globalization. But people need to believe there's a common good in that social design, I would think, in order to, which you might call demobilize their resistance to essential change. I agree. And if you have this, then you might be much more open to change, which might be welfare housing to everybody. And there are two types of externalities, essentially the social contract should mitigate. One is externalities from each other, you know, we cause some negative externalities on each other.  So if you suffer a shock, and if it's an idiosyncratic shock, we can partially insure each other. And that's actually also should be part of the social contract. So these both combinations, that's, you know, what characterizes a stable social contract. And there is, the society itself or the social contract should be resilient. That's the key to figure out. Yes. But you can see these, you know, for instance, if I am unmindful of how the people in West Virginia are being treated in adjustment assistance, they become resistant and I experience a negative externality that climate change becomes more dangerous for me and my family. That's right. And so we really have to have a much more systemic holistic vision. And I like how you broke it from, you know, individual all the way up to system and societal. It was very, very, I say, it's very challenging because many of these experiences we're having right now have to do with what I'll call the prevalence of widespread externalities. Yes. The whole question of masks in the pandemic, I would guess, is something that's exactly the same thing. If you think about hoarding behavior, it's exactly the same thing we're all buying toilet paper, whatever it is in the crisis. If the others buy toilet paper, my best response is to also buy more toilet paper and then we actually end up nobody having any essentials anymore because everybody's hoarding things.  Well, you talked in your presentation that I watched about points of no return. Yes. And explain that notion. Yes, so I talk about resilience destroyers and we talked about these feedback loops. That's one resilience destroyer. Another resilience destroyer are these traps. So you might be caught in a trap. So if you have a negative shock you might not go back come back out. So that's you have to really watch out for these type of traps. But a very important aspects are these tipping points. That's a third form of resilience destroyer. It's related to the feedback loops. Essentially you might be walking towards a tipping point and then if you cross the tipping point you can't come back anymore. And even worse it's worse than a trap. A trap you just caught there. But if you have a tipping point you might just at that point you might become worse and worse and you can't do anything against it anymore. And that's you know what you really have to avoid. And you see this a lot in the environmental dimension as well because you make an environment. So if you think about the Gulf Stream stopping once the Gulf Stream stops you cannot start it again very easily. So there's a tipping point. So in a sense there are certain risks where there is no resilience at all. There's anti-resilience. Things can even worse. And these risks you should really avoid. So you really have to classify your risks ex ante whether you can actually bounce back from them by being agile and adapt to the situation and others where you can't even if you're very agile and adapt to it. And that's from an ex ante perspective. It's very important to draw the distinction across the various forms of risks. So if I'm looking at a graph a transient disturbance you go down and you come back up to the baseline.  And the displacement becomes the new base. And that's very interesting. I should perhaps all those like coming back doesn't mean necessarily you come back to the old point. There might be a new normal. And the new normal might actually be better than the previous normal. So if you look at the covid crisis in particular you know we might come back to a world where we have way better vaccines. We will know how to produce vaccines within a few months. We might be now be able with these new technologies to create malaria vaccines and you know treat cancer differently. So there is or we change working from home the whole you know we were locked in in some certain behavior and a certain shock can also shake us and bring us to new opportunities. And that's part of it too. So it doesn't need to go back to the old normal. It can go to a new normal as well. And hopefully it's a better normal. For instance you modernize ventilation systems, you modernize sewage systems in communities. And let's say the covid challenges behind us. But the how to say susceptibility to illness in communities is diminished in a non-transient way by that threshold change in the systems. Yes so and so what comes exactly so what you also don't want if i may say so is that you don't want to protect humans from any shocks.  So they have to have some setbacks and this way they know how to handle bigger shocks later on when they're adults. Or if you think about the human immune system it's also designed you know if you make your kids or anybody live in a very sterile environment you will be knocked off by any little shock later on. But if you expose to some bacteria and a small dose and know how to handle it you will also be able to handle it differently. So one another message of the book is you might want to expose you know a society to some smaller shocks. At least don't kick the can down the road in order to avoid a small shock knowing that actually it will become a much bigger one later on and we will not be able not trained to handle the bigger shock. And I think it was very characteristics in the covid crisis that you know the countries which had the experience with SARS they were initially way better in handling the covid outbreak. And so it was in a sense a good I mean I shouldn't say a good thing but it had some positive effects from that. And the same thing is true if you look at the reaction of the central banks and the fiscal and the government the fiscal authorities during the covid crisis was way more aggressive compared to the global financial crisis. But you know the central banks have learned how to react to the global from the global financial crisis. And they can just replay the same playbook they have learned from the global financial crisis. And this way bounce back much quicker this time around. So in this sense learning from smaller crisis is actually a good thing. That's a little bit like they read you constantly when there's winds coming you try to learn and adapt. And and this way when a bigger storm is coming you're also ready to handle it. I kind of sense myself right now that like you mentioned the learning of the great financial crisis. When you look at macro policy now we have all these games going on in the pharmaceutical industry about dissemination. And then you see the variants the mutant variants coming back. And the cost of subsidizing pharma companies to get on their horse is in the billions of dollars the cost of further shutdowns and delays in the trillions of dollars. And it feels like we have a collective action problem and what you might call scorekeeping on the balance sheets of companies where we've got to unlock things and be much more particularly in the global south pervasive in dissemination of vaccines because we all and I think we are learning that yes slower than we don't. I think the biggest challenge is actually distribution of the vaccines I think. Yes. Just production is a huge challenge in the distribution across the countries but within the country to convince the population in many many countries to get vaccinated will be the way biggest challenge. And this cannot be obvious that from outside it has to be done within the country. And that will be by far the biggest challenge. You see it even in the advanced countries that there's a lot of resistance to take the drugs. And I think the resistance is even more pronounced in more emerging economies. And to handle that and develop schemes that's also where behavioral economics can help and psychology. And there's a lot of things we have to learn. And the other thing is actually trust in science. You know that we don't abuse the trust in science such that there will be a long long lasting trust. And you can if I may say so there was some not so nice behavior towards minorities in some decades ago in certain countries. And that still hurts today. These minorities they're not willing to take vaccines. I think it has long lasting effects if you don't treat everybody same and with respect. Now I remember during the time of AIDS I was working with a famous South African musician Hugh Masekela. He was very concerned that the prime minister of his country was not using condoms and other forms of insulation from the propagation of AIDS because he thought it was a conspiracy to stop black African people from continuing to thrive and grow in how I say inhabit the earth. And he thought he had to fight that. And this gentleman that I work with Masekela was quite convinced that this was going to be very painful and very harmful. And he devoted a lot of his concert proceeds and so forth to setting up public charity. And so I think some of those suspicions which you might call are historically well founded but in the certain innovative contexts we've got to overcome a lot of that. Now you talked in your presentation that I watched about the nature of a social contract and in terms of the structure the principles whatever. What's a healthy social contract look like and when can you identify that we don't have one? I mean then you have to really go into details of all the various policy measures but I think there has to be ideally some common identity some caring some solidarity around the contract. So as I mentioned before there's two key elements to it. One is you want to mitigate certain form of externalities really make it understood that this is really not allowed.  So that's essentially the key one key element. So you limit externalities from others and the other element is that you have a certain amount of social security in a sense of granting some insurance scheme against particularly these in garlic shocks and that becomes a little bit more tricky in a sense you know ideally when you look at risks if you have a more heterogeneous society a more diverse society then the shocks are more heterogeneous they're more diverse the shocks themselves and hence you can diversify better you can actually ensure better if the society is more heterogeneous but we know from Alberto Alicina and others research the willingness to do insurance is actually if society is more homogeneous. So there is a trade off here on the one hand the willingness of people to really ensure each other is higher if they're more homogeneous on the other hand the insurance scheme is actually better if there's more diversity and we know in general more diverse systems are more stable because you know and they can help each other much more and there's a tension between the two on the one and you know want a very very diverse society because shocks are more idiosyncratic and better to ensure on the other hand you also want the willingness of people to do it and of course this requires some convincing of heterogeneous society to help each other out and be part and a common identity helps and this phenomenally and that's essentially what's what's described in the book these two different dimensions and this tension between diversity and homogeneity of the society. That resonates in my mind my father's family was from Sweden and looking at macro policies and social welfare design and implementation in Scandinavia is a very different challenge than in the United States. Yes so it's it's we achieve it in America that diversity might create what I call a cross current of balance different sectors different regions different types of people some contributing to insurance in different episodes people collecting the insurance but the whole system is not going up and down together all the time. That's correct so it's a little bit of a paradox you know when the the society is very heterogeneous very diverse you can really do a lot in terms of insurance but they're not willing to do it if the society is very homogeneous they're very willing to each other but all the shocks are the same everybody's experiencing the same shock so insurance doesn't work so well and that's there's a paradox which needs to be solved essentially the only solution is to have a more diverse society which you know thinks more commonly and is willing to ensure each other more. But as you used in the outset to this question the word caring is part of that I would say essential yes design or I'm interested into I'm just trying to improvise around this part of the structure gun control in the United States the free I always think of Isael Berlin and the different types of freedom in his writings but the freedom to carry a gun means your neighbor has to worry about being shot by you yes and that's a loss in their freedom in some respects that they have to be more anxious but yes so there's the freedom to in the freedom from our intention at all times that's correct yes but I don't it goes so deeply in and this because it doesn't connect to resilience but I agree with you that's you know whenever you ground somebody of freedom you take it away but there might be a positive some gain because you give somebody freedoms you cause an externality and then the reaction to this externality might cause a back a spillbacks essentially and then it makes a duration even worse so everybody will actually benefit from having a tighter regulation or whatever the social contract will describe gun control and other things and that ultimately everybody will benefit from that yeah I remember I think the movie was called Bowling for Columbine by Michael Moore where he talked about the difference between Detroit where I grew up and Windsor and Toronto which were just across the bridge places where I went and played hockey and how much safer they were with a different regime regarding what was legal to carry or have in your home as firearms yeah and so I think there's a lot of scope for this framework that you're bringing out and how would I say it I think it applies across many different domains and speed limits in school zones and things like that are also related to these kind of so this is about the externalities caused by others if I go back to the insurance aspects there's of course resilience has a slightly different touch to it which I would like to emphasize too so insurance in a resilient environment doesn't necessarily mean that if somebody suffers some financial losses I will immediately compensate it with some money it might mean that I help him to get out of the hole and he has to do it on his own and this way he will bounce back so it's not you know blocking the shock in the first place but just helping to bounce back so in a different way you can say rather than providing unemployment insurance right away I give some rescaling I focus more on the rescaling and then you can come back and this gives you more dignity in the long run to be part of the workforce a part of society because we talked about you know globalization and hitting Detroit and all this just giving transferring money is not often doing it doesn't give you the same dignity back you had before when you were part of you know producing center and producing cars for the rest of the US and the world you know rescaling is probably if it can be done smartly is probably more satisfying and brings you back in society rather than just getting a transfer so transfer often is not there it might be more simple but it's not the ideal solution yeah you bring up a dilemma also in the presentation that I've viewed on innovation and what you call scarring I can sense when things have been tumultuous like the pandemic the presidential election the january sixth episode all kinds of fears make people anxious about innovation being disrupted through a different channel it's like maybe later guys but not now but so I'm trying to get at this what is scarring and how do we preserve the possibilities the vitality of innovation in the context of that trade-off yeah so what the book describes it describes this you know it's a whole chapter devoted on how COVID and other crisis stir up and shake up things sometimes we just stuck in certain things so we can't work from home because it's perceived as being not working hard and COVID crisis really shaking up this social perspective and that's essentially changing things or we have certain arrangements which we you know find useful but now it works think of teaching think of telemedicine think of many things think of online conferences a lot of things will be very different and it was speeding up it was a trend accelerator so in this that's a you know any crisis comes with huge changes as well and many of them can be positive but then on the other hand you have this scarring effects as you mentioned where the long-lasting effects are directly on the health side you have long COVID you have psychological implications for many people and you have breakups from job losses firms and workers are broken up and they don't find together again so you have a higher unemployment rate and even structural unemployment rate potentially and so this leads to long-lasting scarring effects and these one has to mitigate because they're essentially scarring effects they're anti-resilience so they don't allow them to bounce back it's actually when you scarred and because of the scarring be it long COVID be it anything you don't come back and that's one thing one has to really look out for and help out in order to make sure there's no way to protect from the initial impact of the shock so you can mitigate this too but if you have such a shock help out to make sure that people can bounce back and I guess the initial conditions when anything is what we call a disruption we were talking a little bit earlier about West Virginia and climate change we're inets running a series of panels on just transition and a transition to justice with relation to climate change there is a huge fear in this country that with very highly concentrated wealth whatever we go through a handful of people we'll just call it the 1% we'll be able to insulate themselves they have the resources the power the means and that everybody else will be damaged how does which you might call the courage to innovate relate to the breadth of wealth and income distribution so that how they say more of us are on the side of innovation and less we say hunkered down in our garage trying to avoid breakage I think we you need that everybody has a certain equal opportunity to innovate so having low entry costs to innovate I think is very very important that you can have startups and you have with new technology actually some of the entry barriers actually are much lower and some are much higher so if you want to set up a certain company and you can all the IT system and all this much more easier to set up then it was decades or two decades ago on the other hand there's some new network externalities where the entry cost increased significantly so that's you know it's shifting and you have this winner takes it all societies where you know if you will get the huge payoffs and the others who don't make it who just a second, third or fourth placed don't get it so that's something you have to keep in mind in innovation so in the book I talk about in one chapter about inequality and social challenges in particular inequalities and you know it's very important to distinguish between income inequality wealth inequality and what I talk is about resilience inequality so that's essentially for some people they are poor in resilience because they can't bounce back and if other people they are very easy for them to bounce back and once you have this interact with income and wealth inequality because if I know I can easily bounce back because I have some support system or something I can take on more risk and then I get higher returns from going more for more risky projects I become more wealthy down the road and this way having this resilience inequality is interacting with wealth and income inequality in a sophisticated way but if you have more resilience that allows you to give more take on more risk and then subsequently become you become more wealthy down the road and it feeds into wealth inequality so we have to make sure that all people have roughly same resilience inequality and are not resilience poor because that's what you want to grant them initially and then that can take the opportunities and many people can't take the opportunities because they are really afraid that once the phase are shocked that they can't come back and that's you know in many developing economies that's the case that you're a farmer and suddenly you can't you have a bad crop this year and you can't send your kids anymore to school and that not only hurts yourself you can't bounce back but even your kids they can't bounce back and be part of of the flourishing society and that's I think what the resilience interacts very dramatically and importantly with other inequality measures you know well you know our research director at INET Tom Ferguson who looks at the feedback of wealth concentration on to the design and enforcement implementation of social policy and how that which I might call that system which promotes excessively perhaps policies for the few is quite dangerous in many people's mind now because the many despair and they become subject if you will attracted to authoritarian rule that when they don't think the democracy works right I know Martin Wolf is writing a book about this at the financial times right now when they don't think the system is protective of all of us they start looking for someone in this case Donald Trump who say the system is rigged we got to change it and they say I haven't heard that in a long time both parties were planned with the narrow so I think there's a lot about what you might call the interaction between politics and economics that has to do with the design and implementation of a resilient system which then fosters more innovation less fear and less susceptibility to authoritarian role so I think you're really playing in how would I say you're exploring very important dimensions of the quality of life in this realm yeah I agree that this is an important point so for me you know your wealth inequality depends very much what the wealthy do with their wealth if somebody is very wealthy but he invests it and pushes really the frontier and that has positive spillover effects to the rest of society so be it if he is a very good decision maker and he's innovating and you know develops new industries or pushes whole industries forward and then this has benefits to to most of us but then it's fine if he's just you know spending it on luxury goods and it's not really beneficial for the rest of society then it's a totally different thing so we might want to consider you know discriminating within the two things so which one benefit and what activities don't benefit and treat it you know from a text perspective accordingly yeah well there's a gentleman that I know quite well named Morris Pearl who's leads a group called the patriotic millionaires and their thought is how do you redirect this money and you you mentioned luxury goods but his big concern is they use that money in lobbying to take what used to be called tax evasion and turn it into tax avoidance and then state and local governments can say we can't afford it because we don't have the budget anymore because large concentrations of wealth are kept offshore and not considered accessible for rebuilding the infrastructure and in particularly in a period of transition but so I think you've got a lot of I would say a lot of dimensions of this but that I'd love what you said that there are people with money who are brilliant who are doing good as well as doing well don't throw that baby out with the bathwaters because that puts us into a stagnant place and in the world of climate change perhaps a much more dangerous place yes I think we need so in a sense we need an open-minded system where mavericks can also thrive so sometimes it is some maverick who is really innovating a huge thing and then helps us to overcome let's say climate change or it's coming and pushing certain technologies much more efficiently than many others could do and that's I think the big advantage of a democratic open society where it allows for people to think differently and it's open to it and if you have an autocratic society it's a little bit more like the oak you know it's very rigid it's not moving it seems very stable but when the wind is too strong it will fall while the democracy might look much more like the reed and it allows for constant debate and back and forth and and seems less stable but ultimately I think the transition of power is smooth and it actually makes the whole society much much more a stable framework to live in and I think what's really important is that people who think differently should be allowed to think should be allowed to explore things and push the frontier essentially and that's what you can see in in the US and other societies who allow for that so you know going new directions and helping this way the whole society and one has to acknowledge that and if somebody's very wealthy because of that and he's still pushing the frontier so be it don't stop him that's my philosophy if somebody's not doing things which you know will help and is taking risks is not taking risks so somebody will take risk in this and there's a lot of R&D and that's I think it will ultimately benefit everybody yeah there's a group that affiliates with INET quite closely the Center for International Governance Innovation in Canada in the suburbs of Toronto and Ro Hinton Madora who's their CEO and part of the INET board and Jim Balsilli who's the founder have often talked to me about feeling that in the realm of technology we need something akin to the Food and Drug Administration in other words where we don't let it unbridled go and affect society we run tests and we assess its social goodness relative to the which you might call power a private accumulation and their thought is that having a system like that that has credibility and expertise and those are necessary conditions may improve the confidence of society as a whole and diminish the resistance to tolerating innovation because it's filtered by a vision of social which you might call accountability social good and this is what they do with the pharmaceutical drugs yeah the only problem is what is good and what is bad there might be huge disagreement that's right if there's one committee deciding what's good or bad that's a little bit you know you might go the wrong direction because the committee decided the wrong way so I like it more pluralistic that everybody can you know push for things if it's really bad like for drugs you have to be really careful because you know once you die there's no bounce back from that there's no resilience so for this you need the FDA and Food and Drug Administration and things but if somebody wants to just experiment with a new way of setting up companies or doing things differently or go to Mars or things like that then I would be more open-minded that would allow people's freedom to select that as long as the risk and in particular the non-bouncing back risks so this where you'll fall into a tipping point or some trap and all this so that these are the risks you know one has to look out for if people want to take different risks and potentially discover accidentally something I think that's good if you just have one committee deciding about all the risk-taking that might be too interventionistic in a sense well and to go back to Tom Ferguson's notion of capture people know how to protect their intellectual property rights so people who are making a profit see a new innovation that may make mankind better off but displace them can perhaps influence these committees and stifle an innovation that would benefit us all yeah that would be huge for this committee there will be huge lopping efforts so that will be done you know at the end of the day everybody will try to lobby this committee but if I if I come back to the vaccines we have developed the mRNA vaccines and other vaccines if you think about it of course as you mentioned the cost billions and the companies will make billions of dollars but the benefits to human mankind are in the trillions and even more so so there are still huge spillovers from innovations more generally and I think one has to take these innovations fully into account and promote it so putting this in a bigger picture there's too little innovation because because of the benefits given the benefits which are cruel to everybody we should actually innovate more and push the frontier more let's how you say leave the frontier of Schumpeter and go back to where you and I met which is the question of resilience and the operation of the financial system you mentioned earlier the great financial crisis and now the pandemic but how did talk talk to me about the resilience of a financial society and what role central banks play what role does regulation play in that sector yeah so for central banks are very crucial for resilience so essentially whenever there's a liquidity run or some run in the system central banks can make a very big difference and you could see it in March 2020 where you know the whole global financial system was about to implode so nobody wanted to hold even U.S. treasuries and then the Fed stepped in cut the interest rate and really stabilized all capital flows at the global scale so without this intervention there were huge outflows much bigger outflows than in the taper tantrum or the global financial crisis so the emerging corners would have been collapsed without the intervention of the Fed in March 2020 so this was really crucial to stabilize the global financial system but more generally I mean the Fed used the same playbook they used for the global financial crisis and were stabilizing this but what one has to take the account that there might be you buy some resilience at the very immediate front in order to stop that but you might build up some other risks for the long run so you might make the system less resilient in the very long run and then it's a delicate balancing act to really keep this term structure of resilience in a sense in Jack and that's you know something one has to keep in mind as well as one intervenes where it might hurt resilience in the long run but more generally the financial resilience you could say one way to get more resilience is to have more buffers having more equity requirements and that's a little bit like a robustness approach so once equity is gone you have to break so what you also need is you need some good debt restructuring mechanism so when the buffer is used up what do you do then and then you restructure debt and if you can do this restructuring in a way which does not cause huge spillovers or does not cause huge bankruptcy costs so if you have a very well-oiled bankruptcy procedure or debt restructuring procedure this way you create much more resilience to the society and you know that's on the domestic side also if somebody's overly indebted he has can get rid of its debt or can come back and grow out of his hole but it also means for sovereign debt so you would like to have some debt restructuring possibilities which are not too costly if a country is overly indebted that it can actually you know grow out of its debt and you don't want to be suffering from debt overhang problems which will be tremendously costly for the growth rate often in the world but also for a whole country and that's part of the resilience so debt restructuring efficient debt restructuring which makes it less costly would be is a big component of financial resilience I think particularly now in a world where if you will some of the downturns that occurred since 2020 were not caused by errors in policy in the global south but they experienced the slowdown and now we're coming out of that their debt has run up to cope with those circumstances and we're asking them to embrace climate change as part of a global partnership how do we handle what you might call the risk premia with sovereign debt overhangs and the need at the margin in many places in Africa, India or global south to contribute to the how do I say transformation of the energy structure yeah so that two things so as you pointed right now to the global south was suffering from the COVID crisis much more from the global financial crisis actually the advanced economies were suffering more than and the emerging economies actually did fairly well handle this fairly well so it is now the other way around this time so it's not clear when it goes this way when it goes the other way but with respect to a climate change I think my view is we have to take some certain R&D risks so we have to develop new technologies and it is the task of the advanced economies to develop these technologies and show a model or provide a role model how to transition with these new technologies to a more environmentally friendly world and then we can approach to once the technology is out there can approach the emerging economies and say okay here is a way I don't want you that you don't have any heating in India or somewhere where you live and you know you're freezing anyway so it's very hard to argue you can't burn your coal because we have a global climate change and you're suffering from the basics what we consider as basics in the advanced economies so the way the duty for the advanced economies to develop some technologies which make it much more environmentally friendly to get the services we just enjoy and we can't tell them not to enjoy the same things we enjoy yes, yes well Marcus I don't know if you have other chapters or other thoughts you'd like to share with the audience are there other issues that you'd like to excavate? I think we covered it pretty much I just want to say at the end you know of the book I go a little bit so the book is very much focused what can we learn from the Covid crisis for other shocks and of course pandemic shocks is one particular shock but then you can imagine many many different shocks as well as it could be cyber attacks we will have a lot of changes coming up on the technology side we will probably produce in labs some organs where you can transplant organs much more easily there will be huge advancements but there might be certain things which go wrong so we have to be ready for these shocks and you cannot think of all shocks which might happen so we have to be able to be flexible enough so that we can actually adjust and modify behavior accordingly and I think this is flexibility that gives us a resilience and you know many many potential shocks we might be facing in the near future and we should be confident that we have everything in place in order to react to that and one good example is like the global value chains where we have seen you know all the supply chains everything is now going in difficulties and the answer is probably not to just say we reshow everything we do everything in the US because this will hurt the emerging economists tremendously and they will suffer from that it's probably saying we might multisource we provide it from and we reflexively can then switch from one country to another country if there's some you know outbreak or some health crisis or something we can still source from another country and certain things will bring back and do some reshoring but many things we can be more resilient and have a global vision and work together and the final point I wanted to make so the COVID crisis was a big global crisis and we didn't react really as a global society so a lot of nationalistic aspects came back and that's you know in order to have a resilient society we really have to work together also for global challenges at a global scale and there's a lot of institutional buildings necessary in order to have this framework to react at a global scale efficiently


Every year of the Mises Institute, we had the Schlarbaum Prize last night. We also give the Rothbard Prize It's a beautiful medal with Murray's likeness on it Given to someone who was exemplified libertarian principles and the Rothbardian tradition it also includes an ounce of gold and This prize and and the gold As a result of a gift from the light George W. Connell of parachute, Colorado was a wonderful man a very successful oil geologist and himself a great libertarian and so it's Many great many great people have gotten this award and it's it's my honor to present it to another one Mr. Doug French not only has it has a devotion to Rothbardian principles in a devotion to Murray himself and Received his math you'll see from his bio and on the sheep, but he received his master's degree from Murray And I can still remember Murray calling me so thrilled that he had a banker who had the right to use on economics and Well, my Doug French though it was it was great So Doug come on up and let me present this medal to you and thank you and recognition of all your great work and Your devotion to Murray and to Rothbardianism. Mr. Doug French Well, thank you, Lou. This is of course a tremendous honor and I have a very Very soft spot in my heart for for Murray for those who don't know the story I had no idea who Murray Rothbard was and was just sifting through the UNLV catalog on about 1990 or thereabouts and stumbled on a course called EC 742 I believe the history of economic thought and taught by Rothbard it said and So I decided to enroll in the class and actually One of my classmates tried to talk me out of it. He said that you don't want to take it with this Rothbard guy he's a kook and He suggested another professor that I could take an independent study and I At the time I was working full-time as Lou mentioned in the banking business. Yes, I was in the fractalized banking Business, so I'm a banker with a checkered past for sure but So I was urged not to take Murray but you know I was working during the day and I didn't I didn't really want to play the politics of Those working on their master, so I just went ahead and showed up the first day and I remember Murray coming in and A gentleman by the name of James Philbin carrying a stool behind him and Murray had a pocket full of pens and the minute he hit the door he started talking and it was about the first Gulf War and The craziness of those politicians trying to trying to lower gas prices Don't they understand supply and demand and he just he just went on from there. There was no talking about Syllabuses there was no talking about Taking role He had centuries and centuries and centuries of economic history to cover and he got right to it, so believe me I I Thank my lucky stars every day Butler mentioned serendipity last night and believe me I was hit very hard by the serendipity Stick and I am I am very pleased and When you get struck by Murray's kind of lightning you feel like you need to give back and What I I don't give back to United Way. I don't give back to local charities but I've tried to give back to the to the Mises Institute and You know when we talk about Murray and his name has come up over and over in this conference and And we and Lou mentioned last night about how many How many Mises Institutes there are there's not very many Rothbard institutes? And and it's not because necessarily that he was so radical that nobody wants to name their Institute for him it is really the the Market power if you will the brand name that has been created by Lou Rockwell's 30 years and You're 30 years of support. I was just in Bodrum, Turkey at an event I met with some young guys who most of them are Running Mises Institutes around the world and there was a discussion I Participated in and the question was asked why did you name your Institute Mises? Sweden or Brazil or Lithuania or whatever it was and the question and the answer always was There is a brand name that's been created With Mises when Mises is the name of your organization You know it's legitimate. You know that it's uncompromising in its ideas and You know that it's part of something much much bigger so all of you should be Commended for creating not only something that resides at 518 West Magnolia and Auburn, Alabama Not only at Mises, Oregon the United States, but Lou mentioned these organic this organic creation of Mises institutes all over the world and it's a credit to him and it's a credit to you for creating a brand that is again uncompromising in its devotion to liberty I Hope that Murray is Looking down upon us today, and I think the first thing he would say probably is How could he had my medal so early in the morning? For those of you who knew Murray he was very much a night owl and So to ask him to speak before noon was definitely something you didn't you didn't want to do but But I think that I would hope anyway that Murray is at least in some small way a proud of proud of me and What I do know for sure is it is very proud of His friend Bert Blumert who passed away Unfortunately a couple years ago, and he is very very very proud of Lou Rockwell for the great work that he's done to build this organization over 30 years and Beyond being proud he is overjoyed at what you as donors have created in the Mises Institute So you can be very proud of that. I'm sure Murray is smiling down upon us You know Lou told me a long time ago a very pithy little saying he said no tank no think and so Believe me most of you are the tank and There are a few thinkers here, but it takes the tank to make the thinking work So I thank all of you For your support of the Mises Institute. I thank you Lou And the board for this recognition the Murray metal it means so much to me and Believe me your reach is beyond what happens in Auburn has not stayed in Auburn It has gone worldwide. So thank you Thank you And now I have work to do during the debates and on the campaign trail Probably one of your favorite candidates Mitt Romney Said repeatedly that the first thing he would do on day one of the many things he could do Because it's not like America has any problems But the first thing he would do is cite China for manipulating its currency. It's the first thing he would do Take the oath his hand would come down He would kiss and and immediately Immediately call China a currency manipulator. I was thinking this is truly the pot calling the kettle black In fact, it was just a couple of weeks ago that the Brazilian Finance Minister blasted the feds QE 3 or If you will QE infinity policy for setting off current currency wars around the world Again this year. We've had the Fed. We've had the ECB We've had the Bank of Japan all announcing Easing within days of one another and the effects are inflation in China Food riots in Egypt stock bubbles around the world Consumer price inflation in Brazil and higher unemployment in developing countries now Romney's hectoring of China's is really not so harmless You combine this Romney rhetoric with the Federal Reserve's QE to forever Policy and these are the sounds of what we will call At least for the purposes of this talk the currency war three And it is in its initial stages now. I think most people in this room accept that the big picture is the government's eventually Inevitably reduce the value of their currencies to their intrinsic value and that would be the value of the paper or virtually zero but in the meantime politicians are looking for votes and Governments look for an advantage over competing governments It's not just rockets and bombs that gets fired It's a wars raged on an economic front and the current and same manipulation is the primary weapon And just as America's military industrial complex wages war all over the world Forget about this strong dollar dollar policy that you continually hear and have heard for years America has been the leading advocate of currency devaluation or debasement for the last 200 years Through the revolution through the Civil War the Great Depression The inflation of the Carter years and now Bernanke's QE forever We are continually devaluing the dollar James Rickards has written a wonderful book called currency wars and he warns of a complete collapse in the dollar during this Currency war three he says the Fed chair Ben Bernanke is Engaged in the greatest gamble in the history of finance He says a dollar crashes overdue and it's not a matter of guesswork The preconditions are already in place Bernanke's attempt to print America's America's way out of its economic jam is in essence a declaration of currency wars against the entire planet He writes that the new currency war is the most meaningful struggle in the world today The only struggle that determines the outcome of all others And he explains that while currency wars are fought on the world stage they actually begin at home They they begin with domestic policy this when you have a an economy lacking in growth an economy with high Unemployment a weak weak banking sector worsening public finance With economic growth stymied time and time again Countries look to depreciate the currencies and promote export growth and investment Now there was once a classic gold standard That really was practiced around the world. It was long ago that most of us don't remember only from the history books But it was self-equilibrating it operated essentially like a club The members strictly adhered to The rules that were unwritten, but they were well understood Free market forces prevailed government interventions were minimal Exchange rates were stable What kept this all in place? How did this happen? Well The Federal Reserve hadn't been created yet There was no us central bank to mess up monetary matters This monetary Tranquility was jarred with the creation of the Federal Reserve in 1913 And as Murray Rothbard explained in a book I hope is out front for sale. If not, it's certainly on the institute's website in the bookstore The history of money and banking in the united states the colonial area to Night to world war two the Federal Reserve act was just part of a wave of legislation brought about by the progressive movement At the time big business was tired of competing and continually innovative to stay ahead of falling prices Because that's what you have when you have a stable monetary unit as Innovations are made prices fall. There's a continuing array of competitors and big business was Was tired of that and they wished to use the power of government to establish and maintain cartels In an effort to ensure high profits The plan was to quote Transform the economy from a roughly laissez-faire to centralized and coordinated Statism according to Rothbard now what Records calls of currency war one began with the german hyperinflation in 1921 and it ended with france breaking with gold In 1936 at the same time that england was devaluing the pound sterling In between there were various continuous monetary fireworks For those of you who've seen a great Movie by woody allen midnight in paris. You were probably struck by the number of very creative and Literary literary types usx patriots that ended up in paris In the mid 1920s Well, you wouldn't be surprised that there's actually an economic answer for why they were there at the same time And that's because the french franc Had collapsed in 1923 And so the internist hemming way scott and zelda fits gerald Gertrude stein they could all afford comfortable lifestyles living in paris because the franc had collapsed and they could use their strong dollars at the time To live a very comfortable lifestyle In paris Now by this time the classic gold standard was long gone It was replaced by a deeply flawed gold exchange standard that allowed central banks to inflate Caused the boom in the 1920s and therefore it required the The correction of the 1930s, which of course we've heard about previously that fdr Essentially exasperated with his government policies FDR Started his term in office actually by by closing banks It was one of the first things that he did and then he confiscated the people's gold In fact the the language of fdr's FDR's order is really quite chilling. It's it said that uh citizens have until may 1st 1933 To deliver to the federal reserve system quote all gold Gold bullion and gold certificates now owned by them And this was under the threat of a $10,000 fine or 10 years in prison $10,000 At the time in 1933 was a fair amount of money 10 years of prison is always a fair amount of time in prison Now citizens received they didn't go away empty-handed when they brought in their gold they got 20 They got $20 and 67 cents per ounce Only to watch the new president move the price up to $35 an ounce after he had confiscated it all and that amounts to a 70% devaluation Now rickards places uh currency war two from 1967 and 1987 In between uh currency war one and currency war two we had the brenton woods agreement Which was a phony gold standard that? henry haslett who as lou mentioned last evening was One of the initial supporters in the mesas institute henry haslett actually predicted that it would Collapse and this set the stage for currency war two Now currency war two began with a number of crises in the british Sterling and then a flight from the dollar into gold And charles de gold called for a a return to the gold standard In fact the president the french president said he would be very helpful He he offered to send the french navy to the united states to ferry the gold back to france I don't think americans have viewed the french quite the same way ever since This all led up to richard nixon of course preempted everybody's favorite show bonanza on uh august 15th I don't know how he had the audacity to do that august 15th 1971 Telling the nation that he was closing the gold window because of the evil international speculators He left out a part about the money printing and budget deficits and all that It was the evil international speculators He instituted a 10 percent surtax by the way on all imports, so he effectively Devalued the dollar in the trading arena Now the devaluation was to spur employment But within two years the united states was admired again in a recession It suffered three recessions between 73 and 81 And while uh at the same time purchasing power dropped from 77 to 81 Dropped in half Suddenly everyone was talking about something that They'd never heard of before stagflation something that wasn't supposed to happen according to the canesians Of course tall paul volker Who doesn't seem to be able to go away? At the time he took over as fed and hiked interest rates Price of gold plummeted in the dollar strength and but that dollar strength finally gave Got in a way of export Export jobs and the and the plaza court of september 85 was an attempt to drive down again The greenback's value primarily against the yen and the mark And it worked from 85 to 88 the dollar fell at 40 against the french franc It was cut in half against the yen and it was dropped 20 against the mark however That devaluation did little for the u.s economy and in 87 They met again at the uh the louvre in in paris and in the louvre accord It was hatched again to stop the dollar's fall the bank of the japan participated And they were very willing to expand their money supply to depreciate the yen Versus the dollar well this depreciation of the yen versus the dollar Hiked off one of the greatest stock market booms in the history Probably in the history of the world the niké index went from 10 000 in in 1985 and By the end of the decade it was almost 39 000 And if you follow the niké index you'll know that Of two decades later that market has never ever recovered So currency through a currency war three has just begun And this one's going to be the worst one yet after 40 years of massive government money printing and explosion of derivatives and See currency war three will be fought on a massive scale And it's a real risk to the entire monetary system So how this is going to end up we really don't know but you know mesis had a three-step program Uh or or he thought there was three steps to inflation first Government could print all they want and prices wouldn't go up nearly as much as the money supply That's kind of where we are now in stage two the demand for money falls That intensifies price inflation And instead of stage three prices go up faster than the money supply Then the shortage of money Causes the public to agitate government to print more And when government does more of this then prices and money supply spiral upward And that's when we have hyperinflation So small change in preferences among just a few people could lead to this collapse because financial framework is just this weakly constructed canesian Traption of fiat money government deficits and financial alchemy Any one of a thousand events could trigger the collapse and the last straw we won't know until after the fact It's been said that war is the health of the state For that this conference certainly true But i'd say currency wars are a sign of a desperate government That's willing to do anything it can to wreck Its citizens lives to benefit its own agenda Chaos is the most likely outcome of the latest currency war It's not going to be pretty After the desperation government gets mean and when government gets mean After their currencies collapse they freeze the people's assets They grab the people's gold and they institute capital controls unfortunately Currency war is neither a spectator sport and it's certainly not a game We all have to participate Because this is the government's war that's on each and every one of us It's not a matter of if The war has already started Now's the time to get prepared Thank you