our conference in minnesota and the program of the studies center. so he has partnered with us on this interprize book series with his book. it has had a wonderful reception. he has become something of the a press celebrity. these mattered are described in the program that you have tonight. let me just conclude by telling you what larry said about it. larry, when brian was on his show says that the book that americans need to read now as our leaders rush forward to deal with the present crisis without consulting the lessons of the past is "econ class." it is my pressure to introduce brian domitrovic.

[applause] >> thank you very much. ken. i'm really happy to say that "econclass" was supported by the templeton foundation. you might want to visit the bar before i continue. yeah, you might want to his the bar before i continue. a lot of what i have to say here will be kind of crueling. maybe you want to pop a pill or have a loved one present. if you could hold on to something, it might be helpful. because i'm going to mainly talk about the middle third of my book called "econoclasts" from 1913 to 1969.

the second third is about 1969 to 1982. and it really stunk. and the last third is a great victory of supply-side economic under reagan and after. i'm going to mainly talk about the middle third. as i say, you are not going to like it. it had been a big couple of weeks for the historic. historic, it's just about everywhere. in the newspaper, internet news feeds, and public radio. the passage of the health bill has of course been the pretext. i saw that the associated press as well as "usa today," the "wall street journal" have used

that. historic health bill passes. type in the time historic to the "new york times" search engine and five of the top ten results that come up pertain to the health bill. historic, the word, is one of the adjectives derived from history. let me tell you something about that word historic. historians almost never use it. they use the adjective historical, al at the end, all the time. historical simply means having to do with the past. so it comes in handy when writing about history. historic, however, refers to the amazing quality of something that happened in the past. and if that thing in the past, that historical thing, isn't amazing, it's not historic. even though it's historical.

the reason historians generally keep away from historic is that it puts them out on a limb? this in history is amazing. historians are concerned they might be proven wrong if they speak in this way. no, that thing in the past you identified was unusual, not amazing. it might be objected. it was it was run of the mill. apparently unique. but in reality common. if you keyword search, the journal of american history which comes up quarterly, you'll see that outside references to architecture, the term historic is used in that organ about once or twice a decade. yet, care of the papers and the air waves would have been treated to it abundantly.

when commentators jump at the chance to call something historic, they smile. okay. we laugh a little. i go into this, because we pay a price when we lead to call things historic when we could just call them historical. we pay the price of misunderstanding. moreover, we pay the price of facing our actions in navigating the challenges we face today on that misunderstanding. this is intellectual mistake, i believe, is one we have roundly made in this country since this confounded recession started in the latter portion of 2008. for some reason and almost immediately, we started saying this economic crisis today was historic. it was maxal. specifically, we all heard this one million sometimes since

september faith, i challenge anyone that says they hasn't heard this, it was the world depression since the great depression. a clay -- cliche that today is common as dirt. we called the rough patch historic. nothing like it had happened since the greatest economic calamity of modern times that eight decades ago. well, ask, has our recession, our economic crisis will be been historic? has the stock market, for example, ever lost half of its value in a quick crash as in 2008/2009? and then regained about 60% of its loss in a snapback? at any time in the years since the great depression? because that's what happens in our crisis. well, certainly. exactly this happened in 1974 1974- 1974-'75.

how about unemployment rates? well, it was 11% in 1982. again, nothing historic there. how about five quarters of gdp decline about in 2008/2009? that happened in 1973 to 1975. the gdp in 1975 was steeper than the worse we've had. okay. how about a mass failure of the banking system in about the 19 1989? by the way, during our own crisis of the last two years, e have not seen it impossible to borrow money because the prime rate of interest as blown past as in 1980. we have not seen three straight years of double digit inflation. we have not seen oil increase 14 fold in price as it did from

1973 to 1980. we have not seen the stock prices move 75% in real value over the long term as was the case from 1976 to 1982. and into the bargain, there was a home foreclosure crisis in the 1970s, particularly in california. i recount the facts to relate beyond a shadow of a doubt, our crisis today is not historic. for it is only the worse economic crisis of the last four, not the last eight. because we have allowed ourself of forgetting the economic calamities of the 1970s, we have compounded this mistake by thereby not learning from the

1970s. specifically how we escape them from a favor of the long run that went on for a quarter century from 1982 to 2007. indeed a run of prosperity so steady that i for one am ready to deem it historic. now there's a very good reason that commentators had been economic to call historic. the reason is it is next to impossible to really read books by professional historians detailing since the great presentation. most of all, it is next to impossible to find books of what solved those crises. when i began researching my books on the historic of supply side five years ago, i immediately ascertained on doing

the literature searches. that not one book, scarcely even one article had been written by a phd at an academic position on the supply-side revolution on the economic policy, on the reagan revolution. while i must compliment my colleagues in history with the adjective historic, i must fault them from manifesting no real interest in telling the story of how our nation was once laid so terribly low by the economic ma lays of the 1970s, only to embark on the longest period of smooth non inflationary growth in history. it is true that the economic is driven to depict the history. but the specialty is statistics and models. weaving the insights into the it's is -- past is the job of

historians. i can only assume when the recession hits in 2008, if we had then a nice shelf of narrative history based on real primary sources and the policies that put it to pasture in the 1980s, we would have avoided two large mistakes. we would not have called ours the worst recession since the 1930s, and we would not have presumed that the only solution to economic crisis, history had ever shown, that was outlined by cranes -- cain andman -- and manifested of the new deal. when you start writing the history of the predictments four decades ago. this is that expect for the 1930s themselves, there are no

mess like it stretching back over the centuries. the 1970s were the second worse period in all of american economic history. from 1969 to 1982, the american economy endured three double dip recessions. which is to say, there were six recessions in a span of 13 years. now, remember, people try to write out the rough patches that recessions bring by relying on savings. could you please imagine doing this? saving money in the context of the 1970s? i told you, it's going to get heavy going. okay, it's going to get -- hold on to something. inflation, inflation which ran at 9%, made it impossible to save money. consider the options, nobacks

can offer double digit interest on deposits. 9% inflation, you have to offer double digit. interest rates in the bank. bonds? how about bonds? their rates fixed were easily swamped by the consumers price level. triple a went down 66% in the decade. as for stocks, they are supported to go up 10%, it's supposed to return 10% every year. well, let's say they do that. that gain would barely clear the nearly 9% inflation to begin with. yet, this whole appreciation of 10% per year would be subject to the capital gains tax rate that stood at 50% after 1969. so in the 1970s, stocked had to make 20% in order to return any real gain to the investors at all. 20%. of course, nobody expected this

kind of pressure from equities. statistic market participation plummeted, and the indexes went down in real terms relentlessly every year. james lawrie saw that the in the 1970s, since the founding of the dow, the 1930s included. he called it the second great crash. okay. you could put your money in commodityies. since anything in supply or by the dead hand of the past, skyrocketed in value and has is hedge against the price level. but land carry with it an excise tax. that zooms up with the property. in california where house prices went up five fold, so this

texas. texas went up five fold. if you wanted to sell to realize your appreciation or to pay those taxes, the 50% capital gains tax got you. you were stuck. the run up in land only cost you. but you better know what you are doing, because these things are tricky investments. saving money became a fine art in the 1970s. something forclosed to the masses. so the masses spent rv vehicles. they had to spend. i mean, because not spending meant watching whereby money evaporate against inflation. as for the future, that would be guaranteed by cost of living, col, that were demanded from employers.

hence the resurgence on the part of unions in the 1970s. i hope you can imagine what all of this held in store for business owners and for entrepreneurs. what business could issue a bond for a 10 or 20 year term? as well as clear whatever large portion of the coupon was to be done in taxation. the bond would haveing the -- the fortune 500 became the only enterprises anyone wanted to lend money to. venture capital was waiting things out in commodityies.

as for the economy, the problem was young companies ordinarily create jobs at 20 times the rate of the fortune 500. they testified to the fact were congress in 1978 and everyone was shocked. and indeed, unemployment which has hoovered at 4% in the late 1960s went up by half with the recession of the 1967 to 6%. unemployment failed to moderate and led by 50% anyone. over the next several years, they were able to take a breather before rockets to the double digit levels of the early 1980s. as for growth, gdp, the king economic statistic, well, it went into ady generating tail

spin for the long term. postwar prosperity was the name given to the economic scene of the quarter century after world war ii. well, postwar prosperity had returned of 3.3% per year. in the long 1970s, this trend was cut down by 45% to 1.8% per year through 1982. it was a bebuilderring years. people could only name it. it was the stackflation. from stagnation plus inflation. the economy was going nowhere. yet the price of everything was getting out of reach. according to the cain theory, that was a freak, a

contradiction in terms. yet, it was all too live reality in the long 1970s. at the time, back then, the standard response to stagflation to say there was no defeating. it was the new fact of life. the boundless emission of the united states finally had to be cut down. we had to adjust to diminished expectations on account of scarce resource that is limited growth. as well as the congenital excessive consumerism on the part of the american public that bit of prices in the context of scarcity. that was the general view. i'd just like to have a few words about what the three presidents thought about it at the time, nixon, ford, and carter. i talk about this in the book. nixon actually wanted high inflation.

we wanted to increase -- he hold his fed chairman, arthur burns, who had known well as the eisenhower white house, i want you to print money like crazy and cause inflation. that will solve my unemployment problem. then i'm going to count act with price controls. so we're going to have jobs because we're causing inflationary pressure. but we're not going to have inflation because i'm going to out law it. the best of all words. stable price level with employment caused by inflationary pressure. ford changes the policy. he said, okay. inflation is bad. no matter what. what i'm going to do is i'm going to ask the american people to stop buying things. if you stop buying things,

there's no incentive to raise the price. here's what i'm not going to buy this week that i did buy last week. then carter came in and said, now it's time to get serious. i figured out inflation problems. we have to go on the couch and we can come out on the other side and will solve it. as for the top economist, how about them? yes, i'm going to kiss -- diss yale in harvard. okay. house of economic advisor member, higher inflation, this is james toban, higher inflation, higher unemployment, the relentless combination

frustrated policymakers throughout the decade. in prescribing a cure makes any appraisal of the theory in practice of stabilization as of today a full hardy venture. the only thing i can do at the very peak of the profession, the only thing i can do is give my own observations and confess my own puzzlement. professional economics, we can only cry for help. to my mind, the clear record of history is the era simply represented one of the most momentous public policy challenges that this nation has ever faced. do you know what? a small band of individuals started to gather just as

stagflation rose and they adjusted perfectly. soon it offered a comprehensive solution to the problem. often dismissed at the time is unrealistic dreamers. this persisted and stepped into the arena of power with the ronald reagan election in 1970. -- 1980. they undertook the solution, stable money, and tax cuts at the margin. on the scream nation of this policy -- implementation of the policy, the united states was off on a quarter-century run of noninflational growth at the old rates of postwar prosperity of 3.3% per year. is simply was one of the greatest challenges this nation was faced in public policy, and it was vanquished. that's the third part of the book.

i want to say one thing about the 1970s. i'm done talking about it. it's going to be a happy ending. i went easy on them. i did not tell you about the tax code or automatic increases in tax rates because the rate code was on index for inflation. i did not tell you about the stunning magnitudes of african-american unemployment in the 1970s. because blacks were largely shut out of unions. the only way to get a cost of living increase was to be a member of the union. there had never been a budget in the great years of the great society in the vietnam war that exceeded 20% of gdp. that started to happen in 1976. after the era of the vietnam war, the great society. which tremendous displacement of the real economy by government. didn't tell you about that. 5% of the gdp. i did not tell you about how

inflation and the soviet union. because everybody wanted to hold commodities. the adventures around the world. i had them right where i wanted them and let them off of the hook. the 70s, we can go on. you read about the history in the 1970s, you run and embrace the economic conditions of 2008 to 2010. what i'd like to do here for a few minutes is to tell you the facts and narrate a few, a little bit of the history of the great supply-side who vanquished all of this. i failed to take the profession call, but i made up for it by writing a book.

as early as 1958 it said the main reason for inflation was the 191, the two great institutions of macroeconomic policy were invented, the federal reserve was created and the income tax was created. both of these are overused. the misuse is the opinion any economic crisis starts in the modern period. the way you solve is you restrain the institutions. you stabilize the value of the currency and you cut taxes. restrain them. not kill. you can maybe kill them later. the easy way to kill something is to restrain is it first. austrians said, you didn't fill the fed. once you have stable prices, the fed can vanish. once you have stable government,

it maybe possible to have no taxes at all. you have to stabilize the currency and cut taxes. he said this in 1961 and won over the kennedy administration. kennedy blew off the advice of james toban and all of the economist that said losen money and raise taxes. working at the ims, 29 years old kid, did the opposite of that. kennedy took that advice in the summer of 162. and the 1960 resulted in 4.5% growth in the face of collapsing economy. they got the idea from the center of economics and the journal of the economy at the university of chicago where he was awarded tenture at the age of 32 in 1965. and again he won over the profession. this argument that supply-side is outside is defiance. you should see the letters of

recommendation, the letters of reference that they got the lions of the seal in the late '60s and early '70s. people talk about the incredible ideas. we don't agree. but man is he per -- persuasive. he found people to listen to him. one of his editors, became a staffer. for money other than that jack kemp in 1975 and 1976 and these ideas of stabilizing the currency and tightening money started to penetrate congress. they had a victory with the 1978 with the capital gains tax cuts and reagan won and installed the supply-side in the subcabinet. once they were able to get the

fed just targeting the price of gold and keep the dollar stable and there are very significant tax cuts. growth was exactly on the same trend line as postwar prosperity . and the inflation rate and unemployment rate. i don't think i'm being model in saying one the greatest examples of public policy success in the modern government. the story of economic life in america over two centuries is of constant growth and activity. when it flags especially for the long term, americans want it back. they do not want to adjust to diminish the expectations, the standard 1970s catch phrase or to concentrate on the so-called better things in life. that's what they were told to do in the '70s. americans want their prosperity. and they will work on i