Welcome back to another episode of Passive Real Estate Investing. I’m your host, Marco Santarelli. Well, this episode is part two of my interview and conversation with John Taney. We talked about many things on the previous episode, so if you’re starting here, go back and listen to that one first. But he just released a new book called The Money Confusion. So we’re talking about that and to some degree, a lesser degree, the future of our economy and interest rates and housing to a, a smaller degree. Very interesting conversation. I think you’re gonna get some interesting insight and a different perspective on money and money supply as we continue this interview with John. So without further ado, let’s jump right into that interview. I hope you enjoy it. And as always, thanks for listening and remember to subscribe.
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If you missed our last episode, be sure to listen to The Money Confusion and the Future of Our Economy with John Tamny (Part 1)
So let me throw some random questions at you. In your opinion, what are some of the biggest economic challenges that the United States is facing today? Or are we facing any big economic challenge?
Is Jalen Hurts in a recession is LeBron James? No, I mean, and the economy’s a collection of individuals, and so there’s always people going up and down at any one time. I I, I think this, this desire to basically li shrink what is wildly sophisticated and diverse to, oh, it’s recessing is just a waste of time. But I would add what do the best companies on earth do they rush to their mistakes? Yeah. Pixar is the greatest movie studio ever. And why is it because they acknowledge all their movies suck at first <laugh> and then they keep fixing them. They’re constantly looking for the mistakes to fix. And so to me, if you’re telling me it’s a recession, what you’re telling me is the economy is about to grow because the recession is the ti It’s a sign that we’re curing things, that we’re fixing what we’re doing wrong.
The 1930s was the 1930s bec precisely because government got in the way of people fixing their mistakes. So recession is the signal of growth. We make the mistakes that lead to the recession during the boom times. And so if you tell me there’s a recession, I’m telling you, boy, it’s about to take off. The la last thing I’d say about this though is that if there’s a recession, it happened a couple of years ago when growth stocks started to decline. That’s where the innovation is. And so investors grew a little touchy about two years ago about that. So I’m thinking that if there recession would be a rear view mirror thing. Yeah. but generally I just think how can we reduce what is so complicated and beautiful and and remarkable to some number like G D P? Yeah. I mean, what a loser number, huh? Yeah.
Yeah. You make a really good point that I think is worth noting in everybody’s in everybody’s mind listening to this because most people, and especially the media, the talking heads and you know, economists, when we talk about recessions, we’re talking about did we have two quarters of declining G d p gross domestic product, right? Like, is productivity going down that that’s the generally accepted definition of, of a recession? What you’re saying is interesting because you’re looking at it at more of a micro level. Like you’re using a lens and you’re asking the question of is there a recession in housing or with, you know, John Doe or with this particular company or the who or the what. And so you’re making it very granular from what I’m hearing you say is that you’re saying a recession with who or with what not just at a very high level talking about a country economically speaking. Is that right?
Oh, yeah. No, economies are only are individuals. They’re never big blobs. They’re just individuals. And individuals make mistakes and successful individuals rush to their mistakes and fix them.
Yeah. I love it.
That’s what good businesses do. And so that’s why it’s so dangerous when politicians say, well, we wanna fight the recession. Well, you’re fighting the recovery. A recession signals the recovery, the realization of errors. You keep hearing from good businessmen, as they always say, never let a struggling time go to waste. As in you profit from the rough times. That’s what forces you to be better. Right. That forces you to fix mistakes. Who’s the guy out in California? I mean, he’s a global citizen now. Howard Marx of Oak Tree Capital, he’s always made the point that the seeds of bad times are planted during the good times. Mm-Hmm. <Affirmative>, which is logical. Were a bit less careful when times are good. Mm-Hmm. <affirmative> and the seeds of good times are planted during the bad times. Never let the rough times go to waste because that forces you to get better. Yeah. And yet politicians and economists, I mean the economics profession is just so backwards and, and awful. I mean, we’re talking about a profession that almost monolithically believes that war actually causes an economy to grow, which is such a horrifyingly obtuse statement. But just about every economist will tell you that. And they also think that recessions are something to avoid. No recessions are a sign of health of growing that’s about to happen because you’re fixing what you’re doing wrong.
Well, I’m, I’m generally an optimistic person, but in listening to you talk, I’m becoming more optimistic, which is great. Given my audience and the, you know, the title of the show, it would be a mistake if I didn’t ask you a couple questions about housing and real estate. You know, it’s maybe not something you’re too deeply involved in, but from more of a higher level, if you have any comment or opinion, how would you describe the current state of housing or the housing market in the US right now? It’s kind of a high level question.
As always, because it gets a bit, you wanna get a bit granular on this? Sure, go for it. I’m forever amazed. One of my favorite stories and I don’t have it exactly right, but Lee Harvey Oswald’s father was a postman and he had a place in Manhattan. He lived in Manhattan when Rob Lowe’s parents got divorced in Dayton, Ohio back in the 1970, Rob Lowe moved with his brother and his mother to California and they moved to Malibu cuz Malibu at the time was a working class area. And Lee Harvey Oswald’s father lived in Manhattan. Nowadays, neither scenario applies, and it just strikes me once again, that is the housing market healthy in the us? Oh my gosh. Is it ever, and why is it because Americans just can’t get enough of the work they do, they love it and they produce more and more.
I’ve heard from people, sadly I, people close family members who thought for the longest time that, oh, California’s over with, oh, come on, you’re living it. California continues to grow and why does it, because California is populated by some of the most remarkable people on earth. And so if, if, if I were a man of means, I’d always want to own in California. And some of these places, people say, well, I want to get off at the top. When you’re betting against California, you’re betting against the greatest economic engine in the richest, greatest country on earth. I wouldn’t wanna bet against that.
Yeah, I agree with you a hundred percent. And I take what you just said one step further, which is my justification for investing in certain areas or avoiding certain areas. And I’m not saying I I’m justifying investing in California or avoiding California, but what you’re talking about is economy. California has a large population, a large economy, large economic engine. There are jobs here. So there are always gonna be people here that need a place to live, which is that fundamental demand for housing. Therefore, it’ll always be a solid place to own real estate, maybe invest in real estate. It may not cash flow, but you’ve got some level of capital protection by owning real estate here. As long as you’re not stupid and overspend for something that’s not worth what you’re paying. Anyway, that’s my take on it.
So no, I I think you’re right. It it, how do you, yet there’s people who keep just one other anecdote. In 2010, the Wall Street Journal’s editorial page had something saying, well, you know, all the businesses are moving, leaving California for Texas. Hmm. Yeah. Better get out now and everything. Okay, well, so Well some…
Well, some did and…
Some did. Yeah, of course. That’s always going to be for a variety of reasons businesses will leave California. One of them being that a lot of people can’t afford what is so much in demand. And I think people leave that out of the equation. They focus on the taxes. I’m not a fan of taxes, but they focus, I think, in their own way. Well, so over the subsequent 10 years, 2010 to 2020 venture capital investment into Texas doubled from 1.5 billion to 3 billion. Not bad. Wow. But during that same period, it more than quadrupled from 13 billion to 60 billion into California, half of the world’s venture capital, in fact, over half of the world’s venture capital still flows to California. This isn’t me defending a lot of the policies. I am a limited government kind of person. I think it’d be, you would be hard pressed to find anything in my commentary that ever calls for more government.
Right.
I’ve heard all my life that California’s over with, except it’s not, and it’s not be, as the talented people continue to, to go there to seek their fortune. And it’s, and again, it’s don’t bet against what is amazing.
Yeah. I think what you just said is a whole other podcast episode <laugh>, because that opens up all kinds of, you know, rabbit holes and cans of worms and all that kind of stuff. Well, cool. I don’t know what else to ask you. I mean, I, there’s a million things I want to ask you, but I wanna respect your time. We’ve been going for 50 minutes here before I ask you to plug yourself and, you know, tell people where they can follow you and find you in your books and all that stuff. I’m just curious if you have any kind of final thoughts, comments, or takeaways for the audience based on what we talked about today?
Well, probably the one other thing that, that I would, I wanna stress, there’s all this inflation talk right now, and I Yeah,
We didn’t talk about that. That was a whole section of stuff I wanted to bring up, but ran out of time. Yeah.
But I just, what I’ll say there is that if you’re paying more for corn on the cob, because there’s a lack of supply of corn on the cob, logically you have fewer dollars for the honey crisps, apples that you normally get. The simple truth is that rising prices are not inflation prices can rise for all sorts of reasons. Right. And I bring this up because my book argues that there’s no inflation, there is higher prices right now, but this is not inflation. Inflation is a devaluation of the currency, which we really haven’t seen much in a, in a major way in in recent times. And so, long story short, why was Henry Ford able to make cars very cheap for the common man? Well, he was, because he recognized something that men working together, thousands of men working together in specialized fashion can create very cheaply what used to cost a lot.
And I asked people to think of that in terms of what happened in 2020. Every good in the world is a consequence of workers around the world. Billions of workers cooperating with each other on the way to the creation of the final good. And then we had lockdowns that eviscerated this global cooperation of billions of workers engaging in trillions of different economic arrangements that prices are higher. Today should be a statement of the obvious that isn’t a supply and demand concept. It’s if you break up what was incredibly sophisticated that produced voluminous goods and services at prices that continue to fall, which is what happens when we divide up work, of course you’re gonna have higher prices. And I, my point here is that I argue in the book that we have higher prices today, that were a consequence of our freedom being taken away in 2020.
But that’s not inflation. And I say this because people are so willingly eager to basically change the subject to, oh yeah, we have inflation. No, no, no. You’re doing exactly what politicians want you to do. They want you to forget what they did. And I say, don’t let them forget that yes, we have higher prices, but they’re not a consequence of a currency devaluation that are consequence of us being locked into our houses and our businesses being shut down three years ago. And I just think it’s an important thing to talk about. And it’s, it’s the second to last chapter of the book.
I’m gonna ask you a question about that because I want to make sure that I understand it clearly in my mind, and therefore my audience understands it as well. I always break things down into supply and demand because that’s how I can understand how things change or prices change. Given your example with 2020 in, you know, the, the pandemic, it seems to me that two things happened, supply dropped because of supply constraints and demand possibly temporarily or maybe probably temporarily dropped as well, which those two things, the supply and demand affect pricing. So when we saw pricing go up, wasn’t that because supply dropped, but demand was more or less the same? So that imbalance pushed prices up?
I don’t think so. Demand is always a consequence of supply. Huh. Okay. I mean, it, just think about it. Why can you demand more now than you probably could 20 years ago? Well, because you’re more productive now. So, no, in the book I talk about Adam Smith’s pin factory. He walked into a pin factory in, in the late 17 hundreds. And he noticed, and they told him in this pin factory, one man working alone in here could maybe produce one pin per day, but several men work together, can produce tens of thousands Work divided is the path to prices falling, falling, falling, falling. In 2020, this division of labor that was wildly sophisticated and global was broken up. It was broken up for several months. And then politicians all of a sudden said, oh, you, you’re free again. Only for them to say, well, but there’s inflation.
Now what you think the miracle was the prices that prevailed in February of 2020 that were born of remarkable global cooperation. It’s incredibly sophisticated. You can’t produce that. You can’t recreate that overnight. It’s gonna take lots and lots of time because let’s never forget that we got to 2020 after decades of painstaking growth and global cooperation of global trade. And so to me, the higher prices, yeah, there, there can be supply and demand imbalances. I mean, look, if they announce tomorrow that if you eat a one honey crisp apple per day, yeah. I’m guessing demand for them will outstrip supply such that they rise in price. Yeah. But that’s not inflation, because if I’m paying triple for honey crisp apples, I’ve got fewer dollars for, I don’t know, comic books as a rule as John Stewart that’s in all in the book. But a rising price implies a falling price.
And it’s important to stress that right now, amid all these higher prices, apple or Dell’s never had so much inventory. Nike’s never had so much inventory. Broadband prices are plummeting and all sorts of prices are plummeting that people aren’t talking about. Yeah. But the way you get to cheaper goods is through division of labor. And what did politicians break up in 2020? They broke up Division LA in, in California, where you are who is the mayor of Los Angeles, Garcetti was literally saying, if you open up your business, I’m gonna shut off electricity to you. <Laugh>
You can’t then just turn that back on and expect prices to be where they were. Right. Because where they were was a consequence of an immense sophistication arrived at over decades. And so, you know, again, I’m very alone on this, but I’m not gonna write books so that I can agree with everyone else. I I think there’s a major misunderstanding about why we have higher prices today, and it’s one of the things in the book.
Yeah. Yeah. It’s, it’s very interesting. It’s, it’s fascinating. You’ve got me, you know, kind of thinking everything through and looking at it from just a different perspective. So anyway, very interesting stuff. So John, thank you for your time. It’s, you’ve been very gracious. Tell our listeners how they can follow you, get more information about what you do, what you write about, where your books are located, which is usually pretty simple to figure out.
Well, thank you so much, first of all for having me on your show. What a great show. And you’re, you’re so kind to ask me questions and everything. I’m easy to find. I’m editor of Real Clear Markets, which means that you can find my columns, which are just about daily on real clear markets. My books are all on Amazon. You can order them, hopefully you order several of them and you can find me on Twitter, Facebook, and all that. But mainly probably the best place to look for me is real clear markets in Amazon. You can find everything that I do in both those places.
Awesome. Great. Well, everything we talked about will be transcribed. It’ll be in the show notes on a website, and we’ll make sure we put links to your websites and your book and all that stuff. So once again, thank you for taking the time, John. This has been real joy, so I appreciate it.
Thanks for having me on.
Thank you.
Well, once again, I hope you enjoyed part two of this interview with John Tamney and his book, The Money Confusion and some other interesting related tangent conversations. It was a great one hour interview. We went long and I seriously could have stuck around for another couple of hours talking to him and asking him questions about things. But that is it for today. I hope you enjoyed it. Remember to subscribe. If you haven’t done so already, feel free to reach out to me and my team if you have any questions about investing or real estate or promissory notes or whatever it may be. That is it. Help us spread the word, share this show with your friends. Remember to leave us a rating and review on iTunes. I greatly appreciate it. I do read them all. Thank you for listening. See you on our next episode.
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