In this Flashback Friday episode, Jason Hartman first talks to Fernando about lease renewal. Then, he interviews a senior fellow at Cato Institute, Dan Mitchell. They discuss what’s happening in the government’s fiscal policy and its effect on the economy. Their topic also revolves around corporate taxes and recommendations on how a country’s economy can grow instead of collapse.

Investor 0:00
So I kept reading and listening and then went forward in the podcast. Then I went to your website, and I looked at the sites you have for the different properties and the numbers, I started to learn about the numbers and what they meant. And being the skeptic I am and being a techie actually would a program to go and scrape your website and other people’s websites and redo the calculations just so I could prove it out myself. And eventually, I came to the conclusion that real estate is a great deal.

Anouncer 0:29
Welcome to this week’s edition of flashback Friday, your opportunity to get some good review by listening to episodes from the past that Jason has hand picked to help you today in the present, and propel you into the future. Enjoy. This show is produced by the Hartman media company. For more information and links to all our great podcasts visit Hartman

Anouncer 0:53
Welcome to creating wealth with Jason Hartman. During this program, Jason is going to tell you some really exciting things that you probably haven’t thought of before and a new slant on investing fresh new approaches to America’s best investment that will enable you to create more wealth and happiness than you ever thought possible. Jason is a genuine self made multi millionaire who not only talks the talk, but walks the walk. He’s been a successful investor for 20 years and currently owns properties in 11 states and 17 cities. This program will help you follow in Jason’s footsteps on the road to financial freedom, you really can do it. And now here’s your host, Jason Hartman with the complete solution for real estate investors.

Jason Hartman 1:35
Welcome to the creating wealth show. This is your host, Jason Hartman. This is episode number 506 506. Thank you so much for joining me today, as I am talking to you from a rooftop of a hotel here in Beverly Hills, California, one of the most overpriced real estate markets in the world. As you know, our client and now investment counselor client turned investment counselor, Fernando, who you’ve heard on the show before, he’s here with me, and we’ve been at a mastermind meeting the last couple of days, I came out to see him for breakfast. And he started asking me questions, and we thought you know, these would be really good for the podcast, because a lot of investors have the same questions. So Fernando fire away with, I guess, well, first of all, before we fire away with questions, impressions from the last two days here at our mastermind meeting,

Fernando 2:26
it’s been awesome. I mean, the learning that I’ve I’ve done in the last couple of days, the level of the people that are part of the mastermind, just blew my mind you, you instantly get to a level where your interests are aligned with the people that are present in a mastermind, it does cost quite a bit to be part of it. But with the connections, that instant recognition and a level playing field, you make strong connections with future business partners and get ideas right away. It’s it’s been it’s been great. You know, obviously the learning from a marketing perspective that I’ve gotten was, was very, very worth the the first meeting that we went to. So it was been great.

Jason Hartman 3:14
This one is one of the three mastermind groups of which I’m a member and Fernando join this one with me, so that we could get some great ideas on marketing and business and entrepreneurship and so forth. Because, as you know, Fernando story, I’ll just refresh your memory. He was a client, I met him three years ago, he purchased 70 units retired about a year ago from Apple Computer. And he’s just got a great story. And so what we decided to do as he was encountering some of the frustrations of you know, managing properties and managing a portfolio, of course, we still think real estate is the best thing going. But you know, it’s not without its perils and problems here and there. And so we decided to start a little software company together, that provides some good tools for investors, to help them find properties, evaluate properties, self manage properties, and really empower them in that all important task of the property management, where, you know, investors can buy all ecart property management services. So more to come on that we just signed a software development agreement. And, you know, we’re several months away from having a beta test, again, really to help you manage your properties, manage your managers and manage the properties. So more to come on that. You know, what impresses me about these mastermind groups is that the price is part of the qualifier. And for this one, we paid 25,000 bucks. It’s like you walk in the room and whether it be john Ashraf, just you know a whole bunch of other names. You look at all the main badges there as you go in. And this one’s limited in size to 100 people but it’s really an elite group. I mean, just the price. qualifier, you know, everybody you’re talking to is the real deal, right?

Fernando 5:03
And they and they look at you already being appear, they don’t look at you as going there just to, you know, to have free food, you know, it’s a completely different level. And within a few minutes, you can, you can strike a conversation and you find out what somebody is interested in what your common interest interests are. And this mastermind is about marketing, internet marketing. And obviously, that applies to all fields in business. So we’ve talked to quite a few PPS today and had some great ideas to implement in our company. And also, we bounced ideas off of these people that have, you know, excellent credentials, and can really provide qualified feedback and the feedback that they provided on our IMLS company is strong, which is awesome.

Jason Hartman 5:49
Yeah, Good stuff, good stuff. So more to come on that. And at breakfast this morning, you have a few of your leases renewing of your 70 units, and you have some questions for me. And, you know, as soon as I sat down, you told me have your coffee, and then I have questions for you. I thought that was really funny.

Fernando 6:07
Yeah. Now that I went to a marketing, conference mastermind, I were going to start a new segment in a program called what would Jason do?

Jason Hartman 6:18
with which you may not want to do what I would do. But anyway, you know, take it for what it’s worth,

Fernando 6:23
what’s Jason, his opinion on this? And we’ll see what we’ll be doing. So yeah, so the question is, I have a renewal on a property in Naples, Florida, then this one is self managed. We have a tenant that has a two year lease. So the two year lease is expiring in May. The current lease price, rent price, monthly price is 1075. Okay. Now, when we look at the market rent two years ago, it was about 1200. And the reason that, you know, we were only charging 1075 is because we negotiated a discount with them. They are landscapers and they agree to install irrigation systems and throw out their property in exchange for a lower lower rent. They are good tenants they pay on time, they don’t request much. And even if they even fix some issues with with the house themselves, they’re good tenants, good people. So I want to know what you would do I need to know the market rent currently to have a basis on what what the starting point is for the renewal. But the market rent that I see from places like rental meter, doesn’t tell me much the range that rental meter provide is very wide. So we need to get a better feel for what the market is. And then what would you do with this renewal? You know, it’s likely to have a big Delta in price from what the market rent is to the 1075 year period.

Jason Hartman 7:53
Okay, so the first thing is, I would not recommend entering into deals unless you just have to do it, where the tenant agrees to improve something for rent discount, because it’s hard to quantify that. And you know, you never know if you had good luck with this tenant, and they’re good people. But you know, you could have someone who does shoddy work, and you just don’t know, you know,

Fernando 8:16
It’s more to fix what they did and what you know what they promised to do.

Jason Hartman 8:19
Yeah, I try to stay away from deals like that, because that’s just complex. Okay. So that’s the first thing. But you know, since you’re already in it, here’s the challenge you face, Fernando, and this one is that you’ve, you’ve got a tenant that’s used to getting a really good deal on the property. And you may not, even if if the new rent that you want to charge is, say 12 $150 per month, you you may not be able to pull this tenant up there because their psychology is at a certain point where they’re only paying what 1075 Yeah, correct. Yeah. So so that’s their psychology, and, you know, that’s just what they feel it’s worth right. And so they may go out on the market and not find anything else. But they’ll just be possibly, you know, kind of angry with you for trying to raise them up to market rent. So you may have to get a new tenant, okay. But you know, if you can succeed in doing it, you know, show the tenant, the evidence and the reason and sites like rental meter and rent range. Those are handy sites. But again, they’re like Zillow, you know, they really, they’re using an algorithm and it’s very imperfect. Okay. So when you’re looking at a site, you know, that uses an algorithm to determine when it’s never going to be accurate. It’s better than nothing. It’s a guideline, you know, it’s helpful, but you really what you need to do is you need to go and act like a tenant. There’s an old saying, you know, walk in the other Indians moccasins for a mile right before passing judgment, right. And so you need to go and just act like a tenant would and go to Craigslist, go to the other sites where properties are for rent. Go to Zillow rentals, and look But what else is out there on the market and do exactly what they’re probably going to do when you hit them with a rent increase is they’re going to just shop a little bit, and maybe they won’t do it seriously, but they’re at least going to look online. And so that’s what you need to do to try and get a feel. Also, since you’re self managing this property, I think it’s worth a couple of quick calls or emails to a property manager in the area, a couple of property managers, and ask them what it’s worth for rent, and just kind of evaluate all of this stuff and go from there. Okay. And you got one more question. And let’s do that and get to our guests. By the way, our guest today is Dan Mitchell, Senior Fellow with the Cato Institute. And he’ll be up in a moment.

Fernando 10:41
Alright, second question, what would Jason do so have a renewal coming up? This is in Atlanta, Georgia, the tenant is currently paying 1100 a month, and we proposed a two year lease with an increase to 12 101st. Year and going to 1225. Second year.

Jason Hartman 11:02
Okay. As you can see, it’s $100 increase, we were a little bit, by the way, I like your two year lease idea. Okay, you know, for someone who’s definitely buying and holding the properties, I think the two year lease is a good idea. So listeners, you can tell your property managers or you know, your tenants, if you’re self managing properties, that you want to do two year leases, but you’re not doing two year leases at one fixed price you’re doing what Fernando is doing, which is a good idea is you’re you’re making it higher the second year. Now, of course, the downfall here is you could get trapped with a bad tenant, but you can always, you know, kick them out for violating a covenant of lease.

Fernando 11:38

Jason Hartman 11:39
you know, the other risk you have is obviously inflation risk. But I’m just gonna say, over the next two years, I don’t think there’s a lot of inflation risk, and you’ve got a small bump in there, too. Okay. So what’s the specific question though?

Fernando 11:51
Yeah, so so just to finish on your thought, I like the two year lease proposal because there are more knobs you can play with. If the tenant comes back with a counter proposal, you have more levers that you can you can adjust.

Jason Hartman 12:02
Good idea otherwise known as horse trading, right? And so you can you can trade this for that and, and you got more points to negotiate.

Fernando 12:09
And he puts them in the in the in a frame of mind that there is increased built into your lease expected to go up next year. And I think there’s, there’s some psychology that is involved with that.

Jason Hartman 12:20
And some tenants, like my mom’s example, you know, and you can ask her about this one in the Memphis property to her listeners, I know a lot of you are gonna be there. And you know that she’s got that tenant that’s been in her property since 1989. I mean, that’s just crazy. The longest tenant I ever had in the property was nine years. I kept raising the rent and the guy just would not move. It took him nine years. Yeah.

Fernando 12:42
Okay, so back to the questions. So the proposal that we made is 12 101st, year 1225. Second year, and the tenants came back and says, you know, we will accept these terms, but we would like our late fees to be waived. They’re currently behind on, on their on their payments for I think, a couple months. And the late fees are about $230. So

Jason Hartman 13:06
they want the late fees to be waived. Now, one distinction. They’re not actually behind on the rent, they’re just behind on some late fees.

Fernando 13:11
Right. Sorry. I misspoke on that.

Jason Hartman 13:12
Right. So they were late a few times, and they’re late fees totaled up to be $230 or so. And you haven’t collected the late fees yet. you’ve collected the rent? Because if you said you hadn’t collected the rent, there’ll be eviction. Yeah. All right. Okay.

Fernando 13:28
Yeah. Okay. Yeah. Good point. So, so should, should the late fees be waived for a two year lease at the price that I want it?

Jason Hartman 13:36
Okay, so tenant says, look, we’ll renew the lease for two years. And you know, they’re kind of these types of tenants that aren’t super careful and on it, and they’re not too late now. And then so you’d get to put up with that. But sometimes the late fees can be actually very profitable. And this is one of the reasons we like you and I Fernando self management so much, because the property managers not keeping the late fees, okay, you’re getting them as the owner, as it should be. Or at least it should just be on a split. And you know, I’ve talked on past episodes about the flat fee property management, where you pay a higher fee, and they just get it on everything, but they don’t get these funny little nickel and dime II things. Past episodes. We talked about that in January it meet the Masters, etc. We won’t go into it now. But what I would say here is look, you know, never in a negotiation. Never just give the other side everything. Okay, just use it as a, like you said, more knobs you can play with more levers, more horsetrading. Right. And so just trade with them. And you know, if you want to make a concession, get the two year lease done, rather than saying, I’ll waive all the late fees. I think you should ask things as a question. Okay, and see what they say. and say, Look, how about if we split the difference? You just send them an email, that’s all it says. How about if we split the difference, and you pay half the late fees, and you know, you got a two year lease? He had a tenant who’s who’s late now and then, which means you’re going to be collecting some more late fees in the future, probably this is the reason they’re not a homeowner. So this is actually can benefit you as a landlord, and really increase your ROI quite a bit. On the late fees,

Fernando 15:13
I also put some weight on the quality of the tenant that I’m dealing with, if if the tenant is someone that hasn’t given me a lot of headaches in the past, then I’m more lenient and try to work on I want to keep them not have a turnover. If the tenant is trouble, then you know, I think the the negotiation negotiation changes, you have to take that into account.

Jason Hartman 15:35
So right, so if they’re difficult tenant, you know, you can be firmer on the negotiation in the thought that maybe they’ll just move Anyway, you know, and I won’t have to ask them to move. So there you go. Okay, good. Well, Fernando, those are great questions. I hope this has helped our listeners, let’s get to our guest, Dan Mitchell, Senior Fellow with the Cato Institute. Thank you so much for joining me today. And here’s Dan Mitchell. It’s my pleasure to welcome Dan Mitchell to the show. He’s a senior fellow at the Cato Institute and focusing a lot on government spending fiscal policy, and tax plans for the various candidates in the elections. Dan, welcome.

Dan Mitchell 16:08
How are you? I am doing just fine. Glad to be with you. Good to have you.

Jason Hartman 16:12
You’ve written a lot about Marco Rubio and Mike Lee and their proposed tax plan, what

Dan Mitchell 16:16
are your thoughts on the business side, in terms of the treatment of income that is saved and invested, it’s a very, very, very good plan, it would basically get rid of almost all the double taxation in the current tax system, it would make America a lot more internationally competitive in terms of both corporate income and in terms of investment, it doesn’t do a whole lot to bring down individual tax rates, on the theory that it’s more politically saleable if you increase child tax credits, but I gave it a solid B if not an A minus because of what it does for business and corporate taxation. The people on the left love to talk about corporate welfare as if corporations aren’t really passed through entities in my opinion, when companies are taxed more when the regulatory burden increases, doesn’t that just pass through to the consumer, ultimately, all taxes on business are paid by individuals, whether in the form of lower returns for shareholders, lower wages for workers, higher prices for consumers, businesses simply collect taxes, but people are the ones who pay taxes. Now, that doesn’t mean that there isn’t such a thing as corporate welfare policies like the Export Import Bank at the Cato Institute, we’re very critical of those policies, because that’s where government is putting its thumb on the scale and giving undeserved handouts and wealth to the business sector. But we definitely don’t believe that the government should be penalizing the corporate sector with high taxes, let companies compete if they earn profits fairly for their shareholders. That’s a good thing for our economy. And we should try to keep tax rates low on all productive activity.

Jason Hartman 18:01
What do you say about all of this money that the multinationals have overseas? And, you know, some talk about how, if the government were to have an amnesty or reduction in corporate tax, a lot of that money would repatriate and it would be better for the economy overall,

Dan Mitchell 18:15
the first thing to understand is the reason that companies are keeping more than $2 trillion overseas is simple. We have almost unique in the world, a perverse system of worldwide taxation, which means that American companies, when they earn tax in other countries, which is a good thing, we want our companies to competing to compete successfully around the world and earn market share. So when are American domiciled companies earn money overseas, they of course, pay tax, wherever that income is earned. They earn money in Germany, they may tax the German tax authority, they earn money in China, they pay tax to China, so on and so forth. Well, under the IRS rules, they also have to if they bring that money back to America, put it on their American tax returns as if it’s American source income and pay another layer of tax on it. And of course, because our corporate tax is the highest in the world, this is a huge competitive hindrance for American companies. And it gives them a giant incentive. They keep their money outside of the United States. So some people have proposed Well, why don’t we have a repatriation holiday? So this money comes back to America, which of course is certainly better than the status quo. But ultimately, the answer is we need to reform the tax system, bring the corporate tax rate down dramatically, you know, certainly no higher than 25%, but ideally 15 or 20%. And then, like the rest of the world, move to a system of territorial taxation, which is the common sense notion that you only tax income earned inside your borders. And if a company earns income inside another country’s borders, pay taxes.

Jason Hartman 19:53
This is true of individuals too. I mean, the the IRS is the only taxing entity in the world from what I understand that taxes are Worldwide income on individuals. So, you know, there there’s a very small movement and it is admittedly small. But it’s interesting when these people relinquish their citizenship, it’s almost like they’re having an incentive to do. So. If you’re living overseas, why should you be paying American taxes if you’re not using American services? Now, granted, maybe if he got into trouble, you could go to one of our embassies, maybe, you know, the government would rescue you or something like that. But, you know, I mean, it’s a lot less than using various other the huge list of services

Dan Mitchell 20:32
here locally at home, our worldwide taxation system does apply to individuals as well. And it’s a nightmare. It’s a nightmare because of policies like fatca, the foreign account Tax Compliance Act, which is leading to Americans overseas being denied financial services, because no foreign financial firm wants to have a Nexus with the IRS. And yet the IRS, in effect, blocks them to become deputy tax collectors. It’s fundamentally bad tax policy, because, as you pointed out, you were the only civilized country in the world that has this policy of worldwide taxation for our our citizens who live and work abroad. Here’s the bottom line. If an American citizen is living and working in France, they’re already paying French taxes. If an American citizen is living and working in Thailand, they’re already paying high taxes, why we have this perverse additional layer of tax is an anachronism that is very contrary to American competitiveness.

Jason Hartman 21:26
well analyze the corporate tax side. Let’s go back to that for a moment if you would. And so this $2 trillion is being kept offshore. And what would happen if we had a repatriation holiday or just a lower tax rate? I mean, the money would flow back and then what would happen? I mean, just kind

Dan Mitchell 21:44
of analyze that whole thing for the listeners, if you would, we actually don’t even need to theorize about it. Because we have a real world example from last decade in 2004. There was a repatriation holiday. There was, of course, a smaller amount of money at stake back then. But companies brought back I think it was something like $362 billion, because they only had to pay a 5.25% tax instead of this heavy double tax of 35%. So it was a huge success. Now, I don’t want to exaggerate the economic benefits, because as I’m sure you understand, global capital will always seek out the best after tax rate of return. And so if if hundreds of billions of dollars, I guess nowadays would be over a trillion dollars of capital comes back to the united to the United States because of a repatriation holiday, there’s no doubt that some capital that’s currently invested in America would instead be invested someplace else, because you know, the after tax rates of return are going to equalize. But clearly, it’s going to be a benefit for the American economy. Clearly, it will be very advantageous for American companies to utilize their cash holdings more efficiently. It’s bound to be a win win for the American economy, heck, and leaving, just like in 2004, it’ll probably give the politicians more money, it’ll be a net win for them even so there’s, it makes no sense for us to cling to this very anti competitive system, that unambiguously is not only bad for our companies, but of course, for workers and consumers as well. derivatively and even a net revenue loser for the IRS. Yep.

Jason Hartman 23:19
I couldn’t agree more. That’s the interesting thing. You know, when you, when you ease up on the taxes on the regulation, you just spur more economic activity? And it’s it’s just better for everybody,

Dan Mitchell 23:29
you know, away, is

Jason Hartman 23:30
it? Is it that the left doesn’t see that? Or do they just love this soundbites about you know, this fake sort of class and the warfare of the corporations versus the people? Or what do you think is going on and on that side of the aisle in what they say,

Dan Mitchell 23:46
I think class warfare drives a lot of it. ideologically, there are some folks on the left who just have disdain and hostility for the market economy. And so if a company is making money, or if an entrepreneur or investor is becoming, quote, unquote, rich, they just assume that somehow that’s bad. I think they have this mentality that the economy is a fixed pie. So if someone like Bill Gates is getting a big slice of pie, they think that means the rest of us are getting smaller slices of pie. Now, that’s obviously not true. And the data is overwhelming, showing that in the long run, the economy grows and the pie gets bigger, and everyone can be better off. I mean, think about how much better off our generation is and say, our grandparents, in terms of our living standards, our income, just the various benefits and quality of life that we enjoy. But I think this fixed pie mentality somehow is hardwired into the minds of people who support status. Now, that’s one component. The other component, I think, frankly, is just political. Some of these people probably understand Yeah, it’s good to have a growing economy. Yes, it’s better to have low taxes than high taxes, but they see Short term political advantage from dividing the country, fomenting class warfare and making it seem like it’s the big guys versus the little guys? Yes, they

Jason Hartman 25:08
certainly do. What What do you think the other side can come back with to win over the hearts and minds of the electorate? Well, if

Dan Mitchell 25:15
I knew the answers to questions like that, I would know how to promote freedom better. And I would know how to fight statism better, but I think it is critical. tying into our tying into our last question, we have to somehow figure out ways of explaining to people that a rising tide, as JFK said, will lift all boats and then in a competitive global economy, especially if you look at what’s happened to Europe, with the collapse of the welfare state, we need to be able to convince people that growing tax burdens and growing dependency on government are like a cancer that can eat away at the at the vitality and prosperity of our society. It’s just

Jason Hartman 25:52
that everybody wants their little piece of the pie, you know, they they don’t really view they don’t worry about the bigger picture, you know, whether the welfare state will collapse, that’s just too big for at least most people, at least on the left to think about, you know, they want their they want their goodies. I think you’re right. In many cases, but but I’m going to be a little bit more optimistic here.

Dan Mitchell 26:12
At least what I, what I’ve seen over the last several years, when I’m giving speeches around the country, what I’m doing, especially calling radio shows and getting feedback from people. And even when I’m up on Capitol Hill, talking to politicians and their staff, I think people have, to some degree, incorporated in there thinking, look what’s happened in Europe, look at our countries like Greece and Italy, and Spain and France are beginning to collapse. We can’t do that. And people understand that our population is aging, the demographics are pointing against us. So that that makes it all the more important that we begin to reform government spending, we begin to lower tax rates and try to make the country more competitive, and no question about it. Then you mentioned Europe and Spain and Greece and Portugal. And you know, there there are so many issues and challenges there. What are your thoughts? I

Jason Hartman 27:03
mean, Greece gosh, it will Greece ever get back on track? Or is that country just pretty much slated for a revolution?

Dan Mitchell 27:11
I’m very worried about the long run outlook in Greece, not because mathematically, it’s impossible for them to the right to ship. Any country, any point in time can make fiscal progress, so long as they follow my golden rule, which is simply to have the government grow slower than the private sector. However, what are the odds that that can be achieved, when for decades, the Greek people And this, of course, is a problem all throughout Europe, when people have been told that it’s government’s job to take care of them. And sooner or later, as more and more people climb into the wagon of government dependency, and there are fewer and fewer taxpayers who can pull the wagon, the entire system grinds to a halt. And yet all these people sitting in the wagon, they don’t have any concept that it’s been sort of taught out of them by the political class that you have to produce if you want to consume. And so will the Greek people ever vote for Margaret Thatcher or ronald reagan? Will they ever take the steps necessary to put their country back on a good track? So I don’t think that there’s a mathematical problem and fixing the problem in Europe? I think there’s a political culture problem, a dependency mindset problem, that makes it a very, very uphill battle. No, no question about it.

Jason Hartman 28:29
So let’s compare and contrast that to the US then. I mean, do we have a mathematical problem? It sure seems. So when you look at the unfunded entitlements coming at us over the next 15 years or so. I don’t know that there’s enough tax revenue to get even if we tax the rich at 100%. You know, there’s, there’s a, you know, what are what are we going to do? Are we just destined for a massive inflation due to this debt? Or, you know, will technology I think technology could kind of save us, but what are your thoughts on the future for the US,

Dan Mitchell 28:58
if you look at the forecasts, whether from the Government Accountability Office, the Congressional Budget Office, anybody who’s crunching the numbers on the US, we are basically going to become Greece if we don’t change government policy. Now, the good news is, we have a little bit of time, and I underscore a little bit of time, we’re 10 or 15 years behind some of these European countries in terms of the the long march toward dependency. However, if another four years goes by another eight years goes by, and we don’t make these changes, and we begin to get into the peak years of the baby boom, generations retirement. I worry at some point, just like in Europe, there’s a tipping point where there’s just so much government dependency, and the political culture changes enough and people no longer understand that you have to produce before you can consume. We could wind up in the same situation. I don’t think that’ll happen. Because I do think as we talked about, before, that a lot of people, even some of the policies, Officials in Washington understand that things have to change. But it’s certainly not a Gimme that we’re going to solve the problem. So so there is an educational mission. For people like you and me, there is an awakening that’s needed on the part of the American people. And we do need at least some repop responsible politicians who are willing to tell the truth and to do the right thing.

Jason Hartman 30:20
No question about it. With this level of debt, though, I’m really surprised we haven’t seen more inflation.

Dan Mitchell 30:26
What are your thoughts on there that couldn’t history, we’ve had so much easing and so much liquidity pumped into the system. Now, part of it, of course, has been sterilized by the banking system. They’re keeping all these excess reserves at the Fed part of all this liquidity, I think, as has been steered into financial markets, and it’s quite possible we have a bit of a bubble that might come back to bite us in the rear end, if it pops. So I don’t know if I knew the answer to that question. I’d be investing money and I’d be coming, I’d be becoming rich. But but here’s here’s, I guess, one optimistic answer to part of your question. Yes, we have a lot of debt right now. But our debt as a share of GDP is still well below where it was at the end of World War Two. And if we can simply follow my golden rule of having government grow slower than the private sector. That means in a relatively short period of time, we could balance our budget, and our debt will begin to fall as a share of GDP again, it’s really all about the trend lines, are you growing 2% 3% or 4%? That has enormous implications for long run living standards? Is government growing 2% and the private sector growing 4%? Or is it the other way around, if it’s the other way around, we become greased. So I think we need to keep our eye on the ball and the eye on the ball means we have to focus on the long run capping of the growth of government spending to restrain the burden of governments. So grow slower than the private sector. If we do that. A lot of problems will be solved. But if we follow the path of Greece and France and let government grow faster than the private economy, well, frankly, no amount of taxes will save you. It’ll be like a dog chasing its tail. And we’ll eventually wind up with fiscal collapse. Yeah, we

Jason Hartman 32:14
certainly certainly will. So what tell us about how that trend line has been. And I like your golden rule a lot. By the way, you know, the private sector needs to grow faster than the government sector. And obviously, that hasn’t happened lately. But at least in the past, you know, several years, what’s the trend line been like over the past few decades. And over the long run, ever since World War Two,

Dan Mitchell 32:35
the government has been growing a little bit faster than the private sector. And that’s why the burden of government spending as a share of GDP is higher today, but it was after World War Two. However, inside all those decades, there are some fascinating stories. We made a little bit of progress during the Reagan years, after, of course, moving in the wrong direction under Nixon and Jimmy Carter, then under the first president bush government grow but then it actually shrank not not nominal terms. But as a share of GDP. It shrank under Bill Clinton. And then it grew a lot under bush and during the early Obama years, but ever since the Tea Party election in 2010. government hasn’t grown nearly as fast all these battles over debt limits and sequesters and government shutdowns, they’ve actually paid off and in the sense that government spending has grown at a much slower rate. Now, is this just a temporary low? Is this sort of like a false victory? Is government now going to begin exploding in size again, you know, frankly, a lot will be told by what happens in the 2016 elections. Yeah,

Jason Hartman 33:42
it sure will. It sure well,

Dan Mitchell 33:44
well, good to know your website, if you would tell people where they can learn more about your work. Well, the Cato website is just ca to dot o RG. And you can see all the work of all our scholars, I have a blog, and the simplest way to get to it is just go to some search engine and type in Dan Mitchell blog that’s called international liberty, where I write primarily on fiscal policy issues, but I also cover a lot of other economic and philosophical issues relating to the relationship between individuals and the state.

Jason Hartman 34:15
Excellent. Dan, any closing thoughts?

Dan Mitchell 34:16
I guess the message is very simple. If we think that we can live off the government. We’re repeating the mistake that Basquiat warned about more than 150 years ago, which is that the great fiction of government is that everybody can live at the expense of everybody else. We have to be responsible for ourselves. We can’t view government as a sugar daddy, very well put very well.

Jason Hartman 34:38
But Dan Mitchell, thank you so much for joining us. Thank you.

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