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Season 3 - Episode 4
Crises, interventionism, and free banking

Lawrence White is an economics professor at George Mason University. A follower of the Austrian School of Economics, he is primarily known for his research on free banking. His latest book is The Clash of Economic Ideas: The Great Policy Debates and Experiments of the Last Hundred Years.

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The financial crisis of 2007-2008 that sparked the Great Recession has led to years of government intervention, but recovery has been slow in the United States, and has flat-lined in Europe. As Professor Lawrence White points out in this challenging interview, with debt levels having risen sharply, there is a danger that taxpayers will see more of their money being used simply to service that debt.

“The U.S. economy’s growing at somewhat less than 2%,” says White, “which used to be considered anemic, but that may be the best we can hope for until we get policies on the real side of the economy that stop discouraging investment so drastically.” Uncertainty about things like health care costs, taxes, and future regulations has had the predictable effect of encouraging corporations to sit on retained earnings.

Looking back, Professor White points to the sharp downturn that took place in the United States in 1921. President Harding allowed the market to adjust without interference, and the economy was soon back on its feet. In contrast, both Hoover and FDR interfered extensively with the market’s automatic adjustment mechanisms, prolonging the hardships of the Great Depression for many years.

White has extensively studied free banking, a system that has existed in various places in the past in which there was no central bank, including Canada and the U.S. Such systems had no protections and privileges such as deposit insurance, which we think protects us but in fact encourages riskier behaviour on the part of commercial bankers. Despite the advantages of free banking, getting back to such a system would be tricky. “We’ve got so many protections on banks, and they’ve adapted in so many ways that it’s a matter of cutting the wires in the right order to diffuse the moral hazard bomb we’ve got on our hands,” White concludes.

Links of interest: Lawrence White | The Clash of Economic Ideas

Watch these related FMS interviews
- Steve Forbes - Sound money and capitalism
- Charles Murray - Resisting regulatory overreach
- John Stossel - From consumer reporter to market enthusiast

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