Hi, I'm Porter Stansberry, the founder of Stansberry Research.  With me today I have Dr. Ron Paul: Dr. Paul for 50 years has been America's leading political statesman for freedom and liberty.  Dr. Paul thanks so much for being here with me today.

I'm glad to be here with you today.

The first question I have for you is you're one of the very few congressman who ever turned down the congressional pension plan.  Why did you turn down all that money?

I considered the pensions that the congressmen voted themselves at the expense of the American people was morally wrong and technically it should have been legally wrong, but of course they're allowed to vote themselves their pay and their benefits, but no I thought it was wrong.  I was complaining about everything they did; they don't deserve a pay raise, and I just though it wouldn't be right to do that. 

It was my same attitude about taking benefits from the taxpayer's ongoing onjuncets and it was one of the things that I never did.  I didn't think it was right to take the money from the taxpayers for a very plush retirement benefit.

How'd your wife feel about that decision?

Why did you ask that?  She always sort of "Why did you do that Ron?"  She's not really serious of course. 

I know.

I think she knows and understands that it's about when I - I kid about that.  I say "Oh yeah but my wife; 'Why in the world would you do such a thing like that?'" but I think she understands clearly what I've been up to all my life.

I think it would be interesting if congress' pay was fixed so that it was never allowed to increase, because it's awfully hard to get government to stop growing.  Usually the best you can do is hope to freeze it.  If you froze congressional pay you could tell the leaders of Congress that the value of the dollar was their only way to gain a meaningful raise, so they would become much more likely to protect the value of the currency since they know there's not adjustment for inflation coming for them.

Their pay would actually go down in real terms if it were frozen.

But they're in charge of the money, so they have the power to make sure that the dollar is sound.

You're such a moderate.

[Laughter]

My proposal in the 70s when we had 15 percent price inflation and interest rates at 21 percent was that the congressman's pay should go down at the rate of inflation.  It was added on - freezing you're probably not even gonna get that, but if you could get it - if you had 15 percent price inflation last year and the congressman lost a nominal pay of 15 percent I said "They'd learn about economics real fast."

I think, if I have my history correct, you only authored one bill that was ever passed by congress.  Is that correct?

I think that's about it.  I've introduced a few more, but the one bill that I had passed that I'm well aware of - well I was a co-sponsor with Jesse Helms and that was to set up the Gold Commission and study the role of gold in the monetary system.  That was shortly after the Bretton Woods broke down and we had all that excitement in the 1970s.

Let's talk about that for a minute.  As an economist and a financial analyst I have been just shocked and stupefied by the Central Bank actions around the world over the past seven or eight years. 

Even before that I had grave concerns about the United States' ability to continue to add to its deficits; both its formal deficits, the Treasury bills and notes and bonds that it's currently paying interest on, and of course all the unfunded liabilities that are much larger in scope.

Clearly you have been on the scene longer than I have and you have been far more intimately involved in government finance than I have been.  I just wanted to get your opinion on can you believe the scope of how big the monetary base has grown and how big the debts of our government have become?

No I would have never predicted it would get this bad without the whole thing blowing up in our faces.  I think it's all this wanting to believe.  They end up probably believing their own lies about it and it's a new era, right now; the dollar is strong and the market's doing well and there are less people applying for unemployment benefits, so it's all self-deception. 

No I never believed it could get this bad in the sense of how much abuse the system could take.  If anybody would have predicted even during the crisis, and we did make some predictions about how bad it would be, but 400 percent increase in the money supply and no loss of confidence. 

It's still explainable by Austrian Economics, 'cause things are relatives and there's a lot of subjectivity in setting values and you can't just say "Well I'm gonna increase the money by a certain amount and the value is gonna go down."  It takes time to adjust.

The money supply is one thing, but the whole thing is how much trust there is, and there still is.  One of the reasons is they compare it to other currencies.

Other paper currencies.

People used to get to me on the TV, on the business stations, say "Yeah, what are you gonna do?  You're not buying this and that."  I said "What do you want me to do buy Euro's?  Do you think the Euro" - and this was when the Euro was a lot stronger. 

Yeah.

I said "I wouldn't trust the Euro either."  It looks like the dollar, comparatively speaking, turned out to be a better reservoir. 

I believe in the inverted pyramid and all the best assets go to the bottom and what's at the bottom is gold and the precious metals and right above that is probably treasury bills and dollars and that's where people are gravitating.  That gives an artificial boost.

Actually you could interpret that to mean that things are a lot worse off than a lot of people believed, because you have all these bad assets; the mortgages are all owned by the taxpayers now, and just going down into this inverted pyramid and so what would it do?  The things right above gold would look better than one would expect.  I think that's what we're witnessing.

Where does it go when it leaves the dollar?  It's going to go in the hard assets.

I like to explain it by saying to someone "If you jumped out of an airplane with three other people and you were all falling at about the same rate you might look at your neighbor and say "Oh, I'm not doing so bad, he's a little bit below me.  He's gonna hit the ground first."  Right?

It's something like that.

But you're all falling out of the airplane.

Yeah we're all gonna face the consequences.

Let's talk about that tipping point for a moment, that trust factor, because people's habits are very hard to break and since the early 70s constant inflation, paper dollar unbacked by any specie has been normal in America and people have gotten used to it.  They think of traditional liberal economists like you and I as being somewhat out to lunch.  It's funny because I think our views are actually more conservative, but today they're seen as sort of outlandish and wild. 

Of course you and I both know what will eventually happen; sooner or later there'll be a panic and everyone's mood will change instantly.  A great example of that was what happened in Greece three or four years ago.  Greece was thought of as an investment grade country and all of the numbers were faked, and then one day the world woke up and decided that Greece could never pay anybody back, which had been obvious to economists on Wall Street since the late 1990s. 

Overnight the market changed and then everything changed with it.  I think it's foolish and naive for people to believe that can't happen here.  The tough thing is that we're not Greece, we're the underpinning of the entire world's financial system; so a panic in the dollar would mean a panic in the whole paper currency system.

That is the reason what a lot of people outside of the United States will want to help us out, because they have a big investment too, although we owe a lot of money they might like to get some of it back so they don't want to -

We talk about how the Chinese will punish us and other countries might punish us, and they might someday, but in the meantime they have an investment in us, and therefore they're more likely to collude with our Central Bank, and there's a lot of Collusion among Central Banks.

It's not just the amount of Treasury Bonds they own; it's the investment they have in the system itself.

Right.

The question I have for you is can you envision a tipping point that would finally cause the world, not just America, but to lose faith in the dollar system?  Particularly our unique ability to print our way around debts.

I think they're gonna be similar.  If they lose confidence in the dollar, and truly so where they're leaving the dollar and it's a signal to the world; it'll be a worldwide event.  Because right now very few are acting outside the dollar. 

Of course the only transition we might see is we might be seeing some of that now because of our foreign policies where we want to punish certain countries and put sanction on them and we drive people to the East, we drive them toward China and Russia toward China.  They may come along with an alternative, because if there is no alternative and the dollar crashes the whole world crashes. 

I still think it's going to be a worldwide event.  When the dollar is no longer reserve currency - and it may go rapidly.  It's less of the world currency than it was 20 years ago, but it's very gradual.  I think that confidence is a subjective element.

Austrian Economics talks about the subjectivity of value no other economists do.  That's just one thing that I always ran into with the Central Bankers, the Federal Reserve officials, is what are you talking about?  We don't believe in that.  They just say "Well we can calculate that.  We'll put it into the computer." 

They forgot all about this old fashioned thing called human action which Misa's taught us that human action has a lot to do with that.  If there's overconfidence there's gonna be over expansion.

Mal-investment.

Then when it goes down there's an overreaction when you say "Well yeah, the dollar should be at this level and it shouldn't be up here." but then before we say "It should stop here instead of it goes down here."  There's going to be an overreaction too because of the emotions that are involved and that's the way human beings react.

I want to talk for a minute with you about inflation.  A lot of people say there isn't any inflation today and the problem in fact may be a deflation.  If you look at some of the government statistics you can find that prices haven't increased very much overall in the last five years, but when I look at prices in the real economy I see tremendous inflation. 

For example there are condominiums now in New York City that are over 50 stories tall, I think there's 8 or 10 of them being built right now, where the starting prices on these condominiums are $5 million and higher.  There are beach-front properties in Palm Beach and places like that that are selling for $100 million, so there is an enormous amount of inflation in certain parts of the real estate market.

There's obviously a lot of inflation in health care; these latest cancer treatments are costing $125,000 per course of treatment, for example.  We've seen tremendous inflation in education; in the price of Harvard, for example. 

These are all things that are very objective and quantifiable, but there's another impact of inflation that I see as well.  For example the rise of gambling in our society and a decline in the public morality and the increasing aggression of the Nation State as well as things like gambling have gone hand in hand with the debasement of currencies through history.

I just wanted to ask you do you see any non-quantifiable factors that lead you to believe that the inflation that we think is happening is, and that it's having a perverse effect on our society?

You're talking about the prices and they're going up and that's what the government economists measure it by.  The things that you mention is where all the money is; the money has gravitated to the very wealthy, so the goods they buy; the big condominiums and yachts and things like that, those prices are going up.  Indeed there is inflation, but there might be two structural positions of inflation.

Let's not be too critical of yacht's.  Some of the merely rich own boats.

[Laughter]

I think it's not good just to look at the prices.  That is just one of the consequences of inflation, because I look to the money supply.  This is what the free market people want us to look at, because when you inflate the currency you devalue the currency, but you don't know where it's going.  There's a lot of dollars out there not being used so it's sort of like pushing on a string; it's not out there pushing the price of bread up as much as it might someday when those dollars come out and the confidence is lost.

I look at the money supply and even though there is not a reflection yet in the government CPI to reflect the increase in the money supply the inflation is there.

I think the most serious problem with inflation, even though high prices is serious and everybody knows about it; I think it's mal-investment.  That is the insanity of below 0 interest rates.  Yes they're down around 0.1 or something like this, but what about the inflation that does exist of 1 percent or two percent?  That means interest rates are below 0.  This is insanity.

I see, to some degree, everything that we do; whether we're savers or spenders or investors, whatever, we make mistakes because we think money is cheap and for free.  For instance -

I'll give you a great example.  I've been following the revolution in the oil business and the capital was so cheap to oil drillers and people, like they thought that housing would never go down; the people believed the price of oil would never go down so we've now produced so much oil that we've run out of room to store it. 

The peak oil people were almost right, they just forgot one word.  It wasn't peak oil, it was peak oil storage.  They're now starting a futures contract, believe it or not, for you can buy a month's worth of storage in Louisiana.

Oh storage, yeah.

You're gonna see tremendous dislocation in the oil industry because lots of very marginal fields have been drilled and lots of capital has been wasted.

That's right and if interest rates had been five or six percent -

That would have never happened.

- depending on savings they wouldn't have been doing all that shale drilling and taking more risk.  Now it's super good and right now there's a pretty good estimate that the jobs lost in the oil industry have not been counted in the unemployment statistics.  It takes a while for that to filter in.

Not yet, but they will be.

All you have to do is look at a Daily newspaper in Houston, Texas and almost every single day there's an article in there about jobs being lost.  Not only jobs of people drilling, but the jobs that surround and are associated with hat.

Sure all the people who are providing services.

I think that, as time goes on, maybe six months or a year they'll say "Oh we're in a recession and it's the oil people that caused this recession." and they will say "Boy, we need help from the fed, the fed's our friend and they give us good times and they will get us out of our bad times."

Extending unemployment to 99 months and all the reckless things we've seen from the current administration. 

Let me move on to a particular question about gold.  I think you and I have a very good understanding of gold; we understand the role of gold.  A lot of today's financiers don't.  Warren Buffett famously has said that Gold has no utility whatsoever. 

I wonder, first question, is about the federal government's gold.  They claim that they have a bunch of gold in Fort Knox, but they won't allow anybody to audit it.  I wonder were you surprised that when some of our allies asked for their gold back they weren't able to get it, and what do you think that means about whether or not there's really any gold left?

Well it raises a lot of questions and if they wanted these conspiracies disposed of they'd let us go in and count the gold and have an independent person count it and then we would dispose of that.

Seems pretty simple right?  Kind of like Obama's birth certificate; just produce it and...

The plain truth is we don't know - when we had a Gold Commission in the early 80s the commission essentially broke down 15 paper people against 2 gold people.  I asked for analysis and evaluation of the gold so two of us supported having a gold audit; they're just not gonna have it.

But why?

Because it would expose them.

But who could -

'Cause they're cheaters and they don't want to expose and they sort of like looking at people's e-mails.  No they don't want to let us know. 

Everything is turned on its head.  The government's supposed to, if we have a government dealing with our liberties; provide privacy for us and open-ness for the government.  Now we have no privacy and they have total secrecy.  Whether it's the Federal Reserve policy or the gold there, and they pretend there's no connection, but I think they're very much aware of it. 

To me it was a bold statement for us not to turn that gold over to the Germans, but it was just as wild to me that they didn't complain more about it.  I mean they're still talking about it and others are asking for their gold, but that should have been an alarm bell go off.  Maybe -

Well and just a year or two after that the Swiss; they voted against a measure that would have backed their currency again by gold.  It seems like the role of gold has been forgotten, and I'm sure it's only temporary, but I wanted to get back to the question about what Buffett said; that gold doesn't have an utility. 

Of course the value of gold is money and it's as an anchor so that it keeps prices fair between creditors and debtors.  I know you've made some investments in your lifetime in gold.  How do you think the government's manipulation of gold by not allowing an audit of the fed, by not telling you how much gold is in Fort Knox, and perhaps by other ways has made it more difficult for investors in gold to do well?

I think they have a precise interest in not being show up for what they are, and that is allowing gold prices to be totally free market.  Just think from the 1960s - well during Brenton Woods and all the way up to 1971 gold was fixed at $35 an ounce and we actually gave away 500 million ounces of gold to prove that gold was only $35 an ounce.  That was to prove the dollar was king, and they got away with this.

We think that's how much they gave away, we don't really know.  Maybe they gave away more.

Yeah we don't even know if we have the 272 million ounces of gold.

But it is interesting, isn't it, that every chance they get Russia and China are continuing to stockpile.

To buy gold, and I think they will.  You talk about the utility and I think you're referring to the utility in a monetary system, but gold is only money because of its utility outside the monetary system.  You just can't pick up sand pebbles and decide that we're going to make this legal tender.  Money came about in a natural way in that people had to use it as a useful tool and it was a useful tool to replace bartering. 

Talking about Warren Buffett I had conversation, or heard conversation, with him about his dad.

He was a congressman, mm-hmm.

His dad was a famous congressman, Howard Buffett, who was an old -

And wrote a great essay about the value of gold.

The old school libertarian Republican -

Yes he was.

- and he was a strong gold standard person.  Warren Buffett was asked about it and he said "Well I don't follow anything my dad said." 

[Laughter]

Well he might learn the hard way that that was a mistake.  Just one more question about gold; you have been an investor in gold and has there been any particular gold investment you've ever made that stands out to you as one of your best?  Something that you would recommend other people look into?

Not in particular.  I think that I was pretty conservative with systematic purchasing of the metal, the gold coins that I maintain pretty close protection of and control of.  I think there was one time back in those days that I had a nice fee, which back then was a really pretty nice fee, for gold for a speaking engagement and I said "Why don't you just give me it in gold ounces?"  I remember getting - at the time it didn't seem like a tremendous amount, but I got 30 ounces of gold.  I thought "Wow, I wonder if I can get 30 ounces of gold today for giving a speech."

[Laughter]

Maybe.

Maybe someday and then the money isn't buying as much.  But no nothing in particular other than the fact that people shouldn't, form my personal viewpoint, shouldn't be so determined to know that oh I'm investing in gold because I'm gonna make a killing at it.  I buy gold for an insurance policy.  I buy gold because I was on a reserve standard, it was my security blanket.

It's your personal gold standard.

Even though I worried about things for a long time we're still going along and I've never claimed that I know when this is going to end.  I think, obviously, it looks like we're getting awfully close, but we've made the statements; the 5-10 years, who knows, it's going to be a different world. 

I think people should buy it not to sell quickly.  If you're into the short trades you need somebody else to advise you about that, because I'm sort of a fundamentalist and it's done well for me, because of course I started at an early time when gold was still just barely breaking out of $35 an ounce.

I tell the story that it wasn't even legal.  "Well how did you buy it?"  It wasn't even legal in the states.  "You mean you couldn't buy gold in the United States of America?"  I said "Yeah, that guy Roosevelt took our gold and then stole it from the American people at $20 an ounce."  I said "Well" I said "the one thing that was sort of neat; those Mexicans knew what to do.  They put on their coin 1947, and this was probably in the 1970s; it became a Nubis Mati coin because it was old.

[Laughter]

So I could buy 1947 Mexican pesos.  If anybody's never seen one it's worth looking at -

- because it's a beautiful coin.  Interestingly enough even though you have to be a little bit careful 'cause it's not - our American Golden Eagles were less than an ounce of pure gold.  This one was 1.2 ounces of gold, so you have to know what you're doing.

This was one of Chris Webber's favorite coins as well.

Was the Mexican peso.

Yeah.

No I think it's a beautiful coin.

Dr. Paul you spent most of your life in politics and you know Washington first hand in a way that very few people do.  I know you disagree with the way a lot of things happen in D.C. you were Dr. No, who voted no against just about everything. 

If you could force the federal government to adopt three new rules and live by them what would you change?

Okay these are not necessarily in order.  First off prevent the fed from monetizing debt, which means that when the congress spends too much money interest rates go up and it would naturally curtail that from happening.

The second thing I would do is, unfortunately, it's not making a new rule, but it's to obey the rule that we never got to war without the consent of the people through a declaration of war and a president should never go to war under NATO commands and UN commands; we should defend our country, but we shouldn't so carelessly go in to war, because I think that is such a detriment, because war is the health of the state.

In economics it would be looking at economics by redefining or re-emphasizing the principle of private property; because you can defend civil liberties, you can defend low taxes and property rights in all sorts of things if people truly understood property.  I believe property to the extent as much as possible to be owned by the people and very rarely owned by the government, so I would emphasize the private ownership of property.

In America today you don't really own anything, you just rent it.

There you go.

As long as you're willing to pay taxes on it.

That's right.

Speaking about these problems; now that you're out of office, or perhaps you would have spoken plainly about this because you were such an unusual politician, but how do you think the government's going to fix social security? 

People have been saying that this is gonna be a problem in 10 or 20 years.  They don't realize how much the social security spending for people who claim to be injured or sick has accelerated the losses in social security.  How in the world would you fix this problem and how would you deal with all the promises that have been made that can't be financed?

There's two ways that it could happen; one is to have a cataclysmic type of economic event where things crash and you have to rebuild.  Which probably is the fastest way; like when you have a recession you ought to let the liquidation go. 

They're not going to want to do that, so what they're going to try to do is re-distribute wealth as long as they can like they're doing now.  If that is prolonged and they start redistributing wealth to a large degree you're gonna just see an impoverishment of this country that is gonna be devastating.  Of course then there'll be civil strife either way.

Don't you think that's sort of already underway?  I mean I happen to live in Maryland and it's a long explanation for why I live in Maryland, but my marginal tax rate there for a while was over 50 percent.  Governor O'Malley, who's now making a run at the presidency; he was kind enough to volunteer that the people in Maryland who earn more than $1 million should be happy to pay a lot more to live in the state, so my state income tax doubled in a year because of the kind governor.  That pushed my marginal rate above 50 percent.

That'll get worse, it'll become more national.  How long is it gonna last?

People talk about  high rates in the past, but those rates weren't like they are today, because in the past there were so many different tax dodges that were part of the tax code.  Now it's very difficult to legally avoid taxes unless you're willing to live in Puerto Rico.

If we were interested as a country to work our way out of it, which that'd be pretty difficult to get people to agree to this; what we should always have is the right to opt out.

I love that idea.

Let's say medical care:  You say you don't want to pay in to it, I'll take care of myself, I'll pay my own bills, just leave me alone.  But that -

That doesn't exist.

Obamacare has actually made a real effort to eliminate that.  Force us all under that.

Yeah you can't do that.

Same way with schools.  We still have the right to opt out; we have home schooling, we have private schooling, and the public school system is getting worse slowly.

That rights being very eroded significantly.

Yeah it's getting worse, but we still have that right to do that.  Whether it's in education or medicine, whatever; we have to have the right to opt out.

Wouldn't that be wonderful?  You could opt out of the whole federal tax code.  You could say "Look, take 20 percent and you get to have it and I don't get to use any of the services, but you can't tax me anymore than that."

That's such a wonderful dream.

It would never happen though, because the whole system would shut down if it wasn't for progressive taxation.

I even complain about 20 percent.

[Laugher]

Except it was so much better than now.

Well I'm a moderate.

[laughs] Yeah well...

I mean if my neighbor's said "Hey Porter, we'll give you 20 percent of our income you just leave us alone."  Okay, sure 20 percents a pretty good deal.  I like explaining 20 percent because in the bible it teaches you to tithe 10 percent.  You figure if God can live on 10 percent surely the government could live on 20.

There you go.

They're not even close and they're still running absolutely insane huge deficits and they're financing by manipulating interest rates lower. 

What's gonna happen one day when you can't force interest rates lower and the total debt is $20 trillion and we end up spending half the money on interest and the other half's gonna be going to finance Medicare.  The whole country's gonna be broke.

That's why you can expect strive and turmoil and violence because we have an entitlement system too.  It's not just entitlement for the poor who want food stamps, there's an entitlement system that has a stronger lobbyist over in Washington than just people who want food stamps _____.

There's 50 million people on food stamps.  There can't really be 50 million people who can't afford to eat in this country.

It's gonna be very bad.  To me the only salvation will be there will be always some people who are going to survive.  I think there's two things that we need, one, people have to know what a free society is all about, because there's gonna have to be some rebuilding, and that's why I spend a fair amount of time in education because you have to have friends out there.

I think that's true in finances too.  We don't want to have 1000 people or 2000 people or 5000 people that know what's going on "Well I'm protected, I have some money here and I have money over here and I have my gold coins here."  That's not going to be enough.  Just look at what was in my lifetime; Roosevelt coming in and ruthlessly taking the gold from the people.

A quick story about that:  A woman, I don't want to use her name, but you certainly know who she is, she's a very famous best-selling neo-conservative author.  I had dinner with her in New Orleans about 10 years ago and I started talking with her about gold confiscation and about whether it was possible that would happen again. 

She didn't know that it'd ever happened and she accused me of being an alarmist and saying that that could never happen in American.  I said "Well it happened once before.  Why couldn't it happen again?"  She didn't even know about that. 

Do you think that's a big part of the problem that the economic literacy of the people who are in power, both in the press and in the halls of government, is so poor?

You made the point why I'm involved in home schooling.  I'm very upfront about home schooling; that we teach free market economics and gold standard, private property rights and we teach history in a different manner and it's all designed to teach individuals about a free society and how it operates and refute all these lies. 

Everybody I met on the hill; they were raised in Keynesian Economics and they can't conceive of any existence without a strong central bank.  Most of them couldn't conceive of world without world government.  "Well you have to have NATO.  Who would tell us what country to invade if we didn't have NATO?" or "if we didn't have the UN to take care of the starving people in Africa?"  All this stuff that just isn't true.

I think education is a key to it, but I also think equally so the more people we have protected financially the better off we're going to be, and the two can go hand in hand, because it's gonna be a rough battle, but it'll be an intellectual battle eventually. 

The intellectuals ____ our enemies were well in place during the 20s when everybody thought we still were on a gold standard and everything was good.  The whole intellectual climate changed in the 20s and the depression came and then they flooded into the universities.

Keynesian Economics became the sole economic policy; gold was thrown out the window, and we've been marching on now and it's going to end.  It's bankrupted this country.  We are insolvent and people have to recognize this and that's why we have to try to help people to do something about it.

Today I don't believe most Americans have any idea how the state really works.  Most people believe that it's a democracy in America and they get to choose their leaders and they get to vote for them. 

If you really look at how the democracy works, if you look at the massive amounts of redistricting that goes on so that the politicians themselves are deciding who gets to vote and so they align the districts up so there's no way they can lose and they align the districts up to minimize their opposition. 

In every state it goes on.  In some states it's just really extreme, like Illinois and North Carolina, so that there's no real choice at all about who's being elected.  Then there's other corruptions that have become part of the system. 

I was speaking with you last night about how the Federal Reserve has become a very powerful lobby all on its own because it spends all this money, sends it out to universities, and has a big constituency. 

Of course you know very well how Fanny and Freddie Mac became the largest lobbyist in Washington.  Meanwhile they're using the treasuries credit and they ended up putting $5 trillion at risk of the taxpayer's money. 

I just wanted to ask you what do you think the biggest impediment to a real political revolution is in the United States?  I don't mean an economic revolution.  I think you and I agree that's likely to happen almost no matter what happens next. 

Is there a way that we could reform government as voters, and if not why not?  Is it the redistricting that's a problem?  Is it the lobbying that's the problem?  What's the main impediment to political change?

I think the politics of a country is a reflection of an economic understanding of what freedom is all about and we gave up on that and it is designed as much as two parties fight over who runs the show and who's the boss they're all Keynesians, so that's why we always lose on this.

The other fallacy here that we have to contend with is this whole idea that if we just had fairer democracy all of the sudden we'd have better government, but not if 52 percent are the wrong kind of people.  To me -

Right not if more than half the people are already on the dole in some way, which I'm pretty sure is the case.

Yeah, but I think prevailing attitudes of the people will always be reflected in the government.  The prevailing attitude today is that we are to cure the world and we're to run a welfare state -

But hold on.  Even your own district that you used to represent before you left congress briefly in the 1980s you were replaced in that congressional district by Tom DeLay, who was probably in the top 10 percent of the most corrupt politicians in the history of the United States.  The same people that voted in elected you voted and elected a guy who was later convicted of serious crimes. 

I wonder how that can be possible if what you just said was true.  If the leaders are really reflection of the people how do you explain that?

Even though I was there and fought for our cause I wasn't representing the prevailing attitude.  The prevailing attitude is still pro militarism and pro Keynesian Economics and pro paper money and pro fed.  That is why you have to change that attitude.  The system does bring out a lot of fickleness with people.  A lot of people don't even think about election 'till the day before, so you have to look at well where did they get their opinion?  They got it from the major networks.

From advertising

So they get it from -

I think it's funny how many people believe they're choosing the candidate and they don't realize how strong the correlation is between advertising budgets and who wins.

That's it and the lobbyists are very, very powerful and it's a system.  We have to address the subject of what the role of government ought to be, and we only occasionally ask that. 

I think we're getting to that point, the work that you're doing; asking the question what should the government be doing?  Should they be taking care of everybody?  Should we be doing this?  Should we spend all this money? 

We have to know what the role of government ought to be.  The founders had that question asked, but you might say "Well didn't Roosevelt ask that question?"  He did, but he gave us the wrong answer.

Yeah but even Roosevelt, he at least realized that you couldn't allow things like unions to form in government employees, because then you're gonna lose control of the government to the employees, and you've seen that happen in state after state and the result has been bankruptcy and the result has been things like fire fighters retiring in California with $200,000 a year pensions and -

You might even in that area begin seeing a reversal of that, because unions aren't doing all that well right now.  Some of the states that bankrupted themselves and got out of trouble they've been willing to shift a little bit and decide that maybe we shouldn't - because they know they can't pay these bills, these pension funds and all this that the unions have built up.  They're not payable.

This is one of the things that I find most remarkable:  The amount and number of clearly suicidal policies that exist and we continue to follow and people like you and I try to plainly explain and warn people what's going to happen and yet we're labeled the extremists and the fear mongers and they guy out there like Dick Cheney who says the deficits don't matter and they're running our country right off a cliff; they're herald as the responsible leaders.

I asked a very similar question before, but do you expect to see in your lifetime a change in that where people who are willing to speak honestly about our economic problems will ever be able to get elected?

Well some day they will and it probably won't come until after we go through the ringing out of a bankruptcy.  That could be a very positive thing.  It could be painful, but it's sort of like taking your medicine, otherwise it's gonna be prolonged. 

The longer it's prolonged and the longer we prop this system up I think the greater the pain.  The bigger the bubble the more people are going to suffer and it's gonna be very few who are gonna escape completely unless they start thinking about this and what we have to do about it.

Here in your office you have a portrait of Grover Cleveland up on the wall and I know that he's your favorite US president.  I doubt many of our viewers know much about Grover Cleveland, they might not even know he was President.  What would you tell people about Grover Cleveland that makes you admire him so much?

He vetoed more bills than any other president.

[Laughter]

He was the Dr. No of his time.

Yeah.  Let me get back to Grover Cleveland, but on Dr. No I got to give myself a little defense here I guess, that my staff always loved it because I was standing up saying "No, no, no" and we would kid about it and I said "Yeah, but really I'm not no, I'm saying 'yes' to good things.  I'm just saying no to the bad things."  My wife was a little bit annoyed with this too.  She says "Well, if you spell it with a K it's okay to call him Dr. Know."

[Laughter]

Back to Grover Cleveland:  He vetoed bills.  He's the last president ever to veto a bill on constitutional grounds.  Then you wonder why -

The last one.

Just think - yeah how many bills have been signed since then that -

That were clearly unconstitutional, yeah.

So that's one of the things.  He had a good foreign policy, but he was a really strong gold standard person, and that was when they first started inkling about leaving gold and -

Yep and that was an incredible time in the American economy.  Transformative the amount of productivity and the amount of GDP growth.

People knew that I respected Grover Cleveland and during the presidential campaign in New Hampshire somebody says "Do you know that his grandson lives not too far from here?"  I said "No, that'd be interesting.  Someday I'd like to meet him."

The next time we came through town they said "Guess what, you have a visitor." and he came over and we spent an hour together and he brought me a pen from one of Grover Cleveland's campaigns and it just said "Cleveland" and guess what color it was?

Gold.

It looked gold!

Yeah.

I might have to check it out and see if I got a gold pen from -

Maybe.

But I thought that was rather interesting.

What about for people out there who might be interested in learning more about the kind of economic theory you're talking about?  Are there any books that are good for beginners that are more approachable that you commonly recommend to students or people who are interested in sound economics?

Yeah there's a lot.  There's too many for me to list them all, but one book I think is so important because it sets the stage for the principle and it has to do with civil liberties and property rights and that is Bastiat's The Law

That's a great book.

It's easy, I mean, the high school kids - of course the high school kids, the ones who have gotten interested already are really into many deep books now on Monetary policy.

Bastiat's basic premise is so simple and clear that if you and I aren't allowed to steal from our neighbor and we can't hurt our neighbor and we have to respect their property, which generally is still truth, thank goodness for that; they know if we steal their car we could get into trouble.  If we can't do it the government's not allowed to do it either.

Very simple principle.

It's no more complex than that.  That means that you're voting no on most everything that we do in Washington because it's always using the power of government, exerting this tyrannical approach to forcing people to do things; whether it's involving civil liberties on what you should do in your personal life and what you do with your property and how much taxes you pay and all the thing goes on.  If you follow that one principle you would know a lot about the capitalist system.

Yeah and Bastiat was a French legislator back in 1848 when there was a revolutionary period in Europe and his book is available for free on the internet; you can download it in PDF format.  There's another Bastiat book that if you like The Law, I know you know this, but the Economic Sophistries book talks about the fallacy of the broken window.

It really reveals a lot of the nonsense that you hear coming out of government economists like the - I mean it's amazing to me that the politicians in the 1840s in France; they had their version of the Cash for Clunkers program, yet the government continues with that kind of complete insanity today as though we have learned nothing about economics in 150 years.

During my time in office there was a young college group that would come to my office and they tended to be conservatives, they weren't real hard-core libertarians, but a conservative very nice group.  I'd meet with them and it'd be about 8 or 10 of them and I'd ask them about Bastiat and it was so disappointing to me they hadn't heard of Bastiat and they were the French you know.

I have a degree from the University of Florida in Political Science and Bastiat was never mentioned, neither was von Mises, neither was Hiak, so if you go to a state school you're gonna get the state version of history and the state version of economics, which is not very useful in the marketplace at all.

The other thing that people can do if they want to followup is if they go to misesinstitute.com they sell a lot of books and they ought to really look at a lot of these shorter books with Mises and they ought to start with Human Action and also to read Murray Rothbard.

Murray Rothbard is more approachable.

Murray Rothbard is great on money, What Has Government Done to Our Money? and 100 Percent Gold Standard and things like that.

The Creature, yep, that's right.

Murray, whom I knew pretty well; his book that influenced me the most was his dissertation on the great depression.  He explained why the republicans were innocent; we - I was raised in a republican family and it was "Well, they were punishing Hoover and this sort of thing, but Hoover started a lot of it and then Roosevelt just went ahead."  So the seeds were planted, but Murray does a very good job on the great depression which is well worth reading.

Did you ever read any of the British historian Paul Johnson's work?

On history.

On history.  I feel like that's some of the most accurate modern history that's been done.

I knew he was okay because he mentioned Austrian Economics.

Well and he sites Murray Rothbard throughout most of his work on the great depression.

It's been a fantastic conversation, Dr. Paul, thank you very much for taking so much time with us today.  I know that my audience will love hearing from you and thanks for all of your hard work over the years to protect freedom and liberty in America.

Porter it's great being with you today.

Thank you.