Thom Hartmann: And welcome back, from Washington DC, Thom Hartmann here with you. David Frum is our guest. He’s the editor of the Frum Forum, the author of six books, most recently, “Comeback: Conservatism That Can Win Again,” a columnist for Canada’s national post, Italy’s Il Foglio, and from 2001 and 2002 served as special assistant and speech writer to President Bush. His website is FrumForum.com. And David Frum, welcome back to the program.

David Frum: Thank you for having me.

Thom Hartmann: Thank you for coming on and agreeing to have an extended conversation about the nature of politics in America and the direction that we’re going. I believe it was in one of your columns recently that I saw this word “liberaltarianism,” was that you?

David Frum: Yes.

Thom Hartmann: Describe that, what were you talking about there. And is this a reflection of a fundamental shift in the nature of politics in America, not just the football of politics, as it were.

David Frum: Well the liberaltarian story is kind of a story about the way Washington works these days. I went to law school with a good, good friend, a man named Brink Lindsay who was a libertarian, which means he didn’t believe in government regulation of the market, of personal life. And he was a great expert in trade. He was a trade lawyer, went to work at the Cato Institute. And he was, he became disillusioned with the Bush years and he became interested in could libertarians maybe rethink their historic connection to the right and work with people on the liberal side. And he coined the term “liberaltarian.” And for this idea he was fired. He was fired from his job at a think tank along with his research assistant, a very bright young guy called Will Wilkinson. And it’s part of a pattern where there’s been a kind of battening down of the ideological hatchet.

Thom Hartmann: Well same thing happened to you.

David Frum: Same thing happened to me, same thing happened, looks like its happened by the way to the man who runs domestic policy at the Heritage Foundation. A brilliant policy student named Stewart Butler, who is the main author of the Romney Healthcare plan in Massachusetts. Now he didn’t get fired, he got promoted, but he got promoted into a whole new building, across the street with no staff and no connection to Heritage’s healthcare policy.

Thom Hartmann: Oops.

David Frum: He’s got a great title but he’s got no, nobody working for him. Now I don’t think this is a uniquely conservative tendency, I think right now it’s a little stronger on the conservative side, but it tells us something about how Washington is girded not to work. It is wired not to work.

Thom Hartmann: Well and it also tells us something about these think tanks. I mean the Koch family foundation’s own combined assets of more than 60 million dollars in 2001, and gave away over nine million, almost all of it, to libertarian causes. They funded Citizens for a Sound Economy, the Cato Institute, the Reason Foundation, the Manhattan Institute, the Heartland Institute, the Democratic Leadership Council, the DLC, and the Americans for Prosperity and Freedom Works, which created the tea party movement. And they’re not alone in this. Joe Coors when he was still alive was giving his money away like crazy. Richard Mellon Scaife still is. To a large extent, it seems to me, David Frum, that these think tanks that are purging themselves of thinking conservatives are doing so because what they want are basically people who will be shills for billionaires.

David Frum: Well same thing is happening on the other side.

Thom Hartmann: How so?

David Frum: Well if you look at the difference in say the Center for American Progress and the Brookings Institute, that the new organizations on the liberal side who are also funded by billionaires, also say we’re action tanks, we’re not think tanks. The idea that hey what we do here is we’re going to get scholars in public policy to do disinterested research, follow it where it may, with not a lot or regard for how it’s going to come out, we’re going to make tools that are useful for policy makers and we’re going to trust that policy makers you know have more in common than separates them and are looking up. That just sounds so like from the middle ages. That what we have got is a city that is a pitch camp. It’s ready, everything is war, if you want to get anything done, the way to get it done is to make it as boring as possible so it doesn’t get people interested and passionate about it because then, the more important, the more urgent a problem is, the more it becomes impossible to solve.

Thom Hartmann: But, well, Center for American Progress, for example. Funded by George Soros, as you correctly point out, or at least in part. I would like to think, I mean I read their stuff every day, I get it that from time to time, in fact probably very frequently time to time, they’re looking for the stories that make democrats look good and make republicans look bad, just like Heritage on the other side. But if there’s anybody that they’re standing up for, any group, any constituency, it’s not George Soros and billionaires, it’s working people in America. Which is the opposite of what is happening on the right.

David Frum: Okay the way I look at this, and maybe I look at it differently from you. You know we all have our heroes, we all have our villains. But the test of the value of your intellectual work is not who you’re standing up for, it’s the way you do it.

Thom Hartmann: Why?

David Frum: And I don’t want to say that the Center for American Progress does nothing good, and I don’t want to say that Heritage does nothing good. But there’s a big difference between the kind of work that the Center for American Progress does and that the Urban Institute, or Brookings does. I’ll tell you why. Because if you’re a republican president, you can find work at Brookings that you can use. And you won’t find anything at the Center for American Progress because they have an agenda. And the other moral fashion idea, we used to believe in more of an idea that Americans had more in common than divided them, that the system of government had to work in a consensual way.

America doesn’t work the way Britain does. You know if you get half the seats in the house of commons you can do whatever you want. It’s never worked that way. And when we try to govern that way, and this is what President Obama is bumping into, you can do one or two things. You can run the jet engines super, super hot and you can get something done, but you burn the engine out. And I don’t blame President Obama for this, who did he learn it from. But what we have now is we’ve got this kind of revenge drama where each side justifies the worst things it does by pointing out that there’s a precedent on the other side, and that’s always true. And we get this deadly spiral.

And what is going to happen after November, that the uses of congressional power that you’re going to see are going to be really frightening. And what every republican who abuses public power is going to say is the other guys did it first and they’ll always have a point.

Thom Hartmann: Right. Well and I mean you know this goes back 150 years or more. I mean you can take those kind of arguments back to the founding.

David Frum: I think it’s different, I think what’s happened in the past 25 years is different from what happened 25 years before that.

Thom Hartmann: I do too. I would say 30 years but yeah I absolutely agree. And I think that we’ve seen a real fundamental shift. That the Reagan revolution really and truly was a revolution and a change in the gestalt of America, the way that Americans think, the way that they think about themselves and the way that they think about our nation and the role of government. And what I don’t get, I mean let’s just put a punctuation point on this one point about billionaires funding think tanks and think tanks driving society. What’s the alternative?

It seems to me that, and I’m old enough to vaguely remember this, I mean I was a teenager when a lot of these things were being founded in the ‘60s and I was in my 20s in the ‘70s when they were getting going, Heritage and Cato and what not. But it seems to me that early on, you had William F Buckley doing Firing Line on PBS and actually having intelligent dialogue with both conservatives and liberals and the Sunday shows were dialogue driven shows and since that time it’s become kind of punching bag. We have about a minute to the break here, David. I know you’re staying with us through the hour, but your thoughts on that?

David Frum: Well let’s look at two moments when the system worked the way it should. In the immediate aftermath of 9-11 and in the immediate aftermath of the financial crisis. What we saw was American’s can respond to crises, they can do big things. What we failed to do is to do that same kind of level of government with things that are big but not urgent.

Thom Hartmann: For example?

David Frum: For example, the country is going broke. I mean if we could deal with Medicare the same way we dealt with the financial crisis, we’d have a real solution. But we’re not going to. And it seems like anything that, like a hospital that can cure an urgent disease but can’t cure a chronic disease.

Thom Hartmann: Yeah. And so let’s get into a conversation about what those diseases might be. Because my take on it is that Medicare is not what is making us broke, our insane trade policies and tax policies are. And I suspect we’re going to disagree on that and it’ll be a fascinating one. Stick around. And if you have questions, by the way, David is going to be with us for this hour, he will be taking your questions, if you’d like to talk with David Frum. Our number, 866-987-THOM. David Frum, FrumForum.com is the website. Stick around.

**Commercials**

Thom Hartmann: Welcome back, Thom Hartmann here with you, broadcasting this week temporarily from Talk Radio News Services studios in Washington DC. Actually right next door to the Heritage Foundation that we’ve been speaking of. And David Frum with me, FrumForum.com is his website.

And David, during the break here, you and I were talking and you suggested, and this was a really novel idea, not a novel idea, I’ve heard a variation of it before. But you were asserting this as like this is, this should be our goal. And that is that people make economic decisions based on nothing to do with taxes. And yet the fact of the matter is that we have been engineering behavior in the United States with taxes since George Washington put down the Whiskey Rebellion.

David Frum: Well we do do that, and it’s a bad thing. Because we, whenever we want to do a policy, because we will do it through the tax code rather than the spending code. So we will say hey let’s promote adoption in order to have an alternative to abortion. One way to do that is to give everybody who adopts ten thousand dollars. Well gee, that’s free spending, big government liberals, we don’t want to do that. So what we do instead is we give everyone who adopts a ten thousand dollar tax credit. See that’s not giving them money, that’s a tax cut. And because we insist on talking that way...

Thom Hartmann: Well let me give you a different example. I mean that, abortion, there’s a debate. We, in 1791 Alexander Hamilton delivered an 11 point plan to George Washington at Washington’s request, his report on manufactures, which was largely adopted in 1793 in four or five pieces of legislation and a couple of executive orders. And stood until the 1980s. And you know, basically what it said was if you want to make a pair of shoes in Connecticut where there’s a dollars worth of labor, great. If you want to make that same pair of shoes where there’s only 40 cents worth of labor, and the same pair of shoes, there’s going to be a 60 cent tax when you bring it into the country. If you want to make it in China, where there’s only 20 cents worth of labor, there’s going to be an 80 cent tax when you bring it into the country.

Those tariffs associated with that, with Hamilton’s 11 point plan, supported, provided 100% of the income for the federal government from George Washington’s administration until Abraham Lincoln's. Provided two thirds of government revenue from Abraham Lincoln’s until World War I, provided fully a third of government revenue from World War I to World War II. And because it was tax policy encouraging manufacturers to keep jobs at home, built this huge industrial juggernaut and a massive middle class.

Ronald Reagan, George Bush, Bill Clinton in particular, and the other George Bush dismantled that. We’ve gone from an average tariff rate of in the low 30s, high 20s under Reagan, which historically it had been, I mean throughout the history of the United States, we’d never been below 25%. And down to where we’re right now, our average tariff is 2%. China is charging a 24% import tariff on American cars and yet if they send a car to us, we charge a 2% tariff. Isn’t it appropriate for us to calibrate the behavior of our citizens and our businesses with tax policy?

David Frum: Our most important free trade presidents were Woodrow Wilson, Franklin Roosevelt, Harry Truman and John F Kennedy. Everybody else more or less tidied up the working class.

Thom Hartmann: They all supported high, they all supported tariffs above 25% on virtually all imports.

David Frum: Woodrow Wilson in 1913, in the democratic congress they pass a huge tariff cut.

Thom Hartmann: I know. But the huge was from 40% down to as I recall 31%, was it not?

David Frum: And here’s why they did that. In the period that you described, now it is true the United States had a huge surge in manufacturing between the Civil War and the first World War. And it happened at the same time as the country had a high tariff policy. The United States also had the most violent labor relations and the most difficult relations between urban and rural people of any country in the world. I mean it just, it didn’t happen in Britain or even in Germany that strikers got killed the way they did at places like Ludlow or that you had the kind of, you had mass protest movements like the Granger movements and others. But…

Thom Hartmann: If I may interrupt, may I?

David Frum: Go ahead, it’s your show.

Thom Hartmann: I would say that the reason for that is because we had an open immigration policy and you had, and this is why in the 1880s that racist legislation barring the importation of people from China, by the railroads to break the strikes was passed, but basically you had all these poor Italians and poor Englishmen and poor particularly in the 1840s after the potato famine, 1848 in Ireland, coming to the United States and so there was competition for jobs in the United States that was pretty violent and the countries of Europe did not allow that, they did not allow immigration. And that’s why there was that difference. It had nothing to do with taxes.

David Frum: I hope I’m not going to exhaust your listeners patience with economic history but…

Thom Hartmann: Feel free.

David Frum: Germany and France were huge takers of immigrants in the 19th century, France from Italy, Germany from Poland. Huge, huge migration.

Thom Hartmann: They were, okay, I stand corrected.

David Frum: Obviously not on the American scale but they did take them. But look, I’m not going to say that’s not true. But here’s another part of the story. What you had was a situation where people who lived on the land, and that was a, I think something like 1/3 of the country still, don’t quote me on that figure, I think that’s right, are paying enormously high prices for things compared to what people are paying in England and are getting less for their agricultural produce, it feels to them, year in and year out. And their debts are becoming more onerous because they borrowed in paper and are paying back in gold. And you had these social explosions. And the people who supported free trade under Wilson and then under Roosevelt did so not just as an economic belief but for social peace so that people would feel that everybody in the society was getting a fair price. Not everybody works in manufacturing.

Thom Hartmann: No, I understand that David, but they were still, and we have a minute by the way to the break. They were still saying don’t move the manufacturing off shore and they were using tax policy, we call it trade policy, but it was tax policy, to do that. And isn’t that a good thing?

David Frum: I don’t think it’s a good thing. I think free trade is a good thing.

Thom Hartmann: Why?

David Frum: Because it promotes the, the point of economic activity…

Thom Hartmann: We have a 6 billion dollar a year trade deficit, how can that be a good thing for America?

David Frum: The number to watch, the numbers to watch are incomes per capita. And the ability of people to consume, that’s why people work. If people are getting better off…

Thom Hartmann: And they’re collapsing in America.

David Frum: Well but that, they have done worse, we have done worse since 2000 than we did in the 1980s and the 1990s but we had free trade in all three decades. So what’s different in the 2000s from the 1990s and the 1980s?

Thom Hartmann: Good question, good question. And let’s discuss that when we come back and we’ve got a board full of callers who want to talk to you too. David Frum is with us, his website, FrumForum.com. He is the author of six books, most recently, “Comeback: Conservatism That Can Win Again.” He’s served as special assistant and speech writer to George Bush back in 2001 and 2002. We’ll be right back.

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Thom Hartmann: Thom Hartmann here with you, we’re having a conversation this hour with David Frum, FrumForum is his website. And David, just a quick question. I’ve got a bunch of callers here who have questions for you but I noticed recently, hang on just a second, it would help if I put David on the air, wouldn’t it. Welcome back David. Sorry. I noticed recently that Glenn Beck basically called for your death. And Gingrich is making comments you know about purges. Glen Beck called for he says, republican, he refers to progressives I guess, republican progressives, he said, “There is suicide by gunshot to the head or suicide by cocaine powder.” You want to speak to this purge that’s going on in the republican party or is this just grandstanding by some media guys who want to make, you know Beck made 30 million bucks last year, he wants to make 50 million this year, I mean is that really what it’s all about?

David Frum: Well there are a lot of disturbing things going on in the conservative world, no question. I was especially disturbed and I’ve written about Newt Gingrich’s remarks endorsing the cover story in Forbes Magazine by Dinesh D'Souza suggesting that the way to understand President Obama is that he’s an alien who thinks the way, I don’t ….

Thom Hartmann: Kenyan anti-colonialists.

David Frum: Well yes, he has the ideology of a Luo tribesman. And what I found very disturbing about this is, it should be possible to reject every idea in the President’s head without denying that these are American ideas. Now the president believes the same things that George McGovern and Walter Mondale and Ted Kennedy believed and they were all of impeccable northern European origin. Now I don’t agree with any of their ideas and I’m glad that we’ve been reasonably successful in beating those ideas back and I wish we’d been more successful in beating back this president’s ideas, but they’re American ideas and the mistakes are American mistakes. Nobody but an American would have the kind of optimism to borrow as much money as President Obama wants to borrow. Even the most left wing Frenchmen would be afraid to do so. But an American, you know we are a very optimistic country so we take on debt.

Thom Hartmann: Well he’s a piker compared to your guy Reagan and our guy Bush, I mean.

David Frum: Oh no these are 800 billion dollars, that’s a big borrowing. That’s 100 thousand dollars for every unemployed person in America. So but we can disagree about that without having to rule the president of the country out of the national conversation and then brand him as an illegitimate person. And in Gingrich’s case, given, you know, Gingrich doesn’t come from the hard right of the republican party, not at all. Why is he talking this way, why is he talking this way now?

Thom Hartmann: I’m assuming that he’s doing it because he wants to get back in the headlines. That he’s largely irrelevant and that if he can, if he can get himself in the headlines a lot and maybe even be a relatively phony contender for the presidency in 2012, he’ll be able to jack his speaking fee from 20 thousand dollars an appearance up to 50 or 75 or 100 thousand dollars an appearance like Sarah Palin is getting.

David Frum: Well when you poll in Iowa, Gingrich is one of the top three names along with Romney and Palin.

Thom Hartmann: That’s scary.

David Frum: He has raised not as much money as Romney but more money than Palin in his political action committee, he’s a real candidate for president. And what he’s trying to do, what he’s I think thinking to do is how do I make sure that this race shapes up as Gingrich versus Romney. And that I, Newt Gingrich, can eliminate Sarah Palin as the candidate of the republican right. So he is trying to get to the ultra national right of Palin in order to occupy that space, face Romney and then have a conservative versus moderate fight that the moderate Romney will lose.

Thom Hartmann: Amazing. I’ve been assuming that it’s going to be Romney / Palin, that Palin would bring along the conservatives and neutralize his Mormonism, but you know who knows.

David Frum: I’m not predicting, I’m just saying that what’s in Gingrich’s head, that’s his plan.

Thom Hartmann: Yeah, yeah. Okay I get it. Okay, let’s pick up some calls here. Will in Blakesley, Pennsylvania. You’re on the air with David Frum and Thom Hartmann. What’s up?

Will:Hey Dave and Thom. Hey first off Dave, it’s nice to talk to a rational republican, you guys are getting rarer and rarer these days, I’ve got to tell you. So it’s nice, it’s refreshing. But my question is real simple. I’m assuming that you’re for extending all of the Bush tax cuts, I’ll make that assumption. If that is true, my question is this. We’ve had that for ten years. If this is so good for the economy, why didn’t it work? This was a pretty good test, wasn’t it?

David Frum: Yeah. I’m in favor of a temporary extension of the Bush tax cuts for somewhere between two and five years. I think looking out at the country’s long term fiscal future, I think we can’t make them permanent except as, we can’t make any tax change permanent except as a part of a bigger deal about the fiscal future of the United States. I don’t think that tax cuts are a remedy for everything and I often make this point to republicans. If they are the cure for the disease, how come they didn’t prevent us from getting this disease in the first place? That said, to raise taxes now in the middle of this extremely severe downturn, would I think be a mistake. And it’s not just me who says that, it’s Peter Orzak, who says that and it’s most of the democrats in congress. And even President Obama, in terms of the dollar value, he wants to preserve almost all of the tax cuts for just that reason. He then has an ideological objection to giving them to the very top people.

Thom Hartmann: But that has him, you know what that means is that basically Obama is buying into supply side economics. He’s buying into the notion that somehow tax cuts or tax giveaways or tax breaks, because really, these should not be called tax cuts. As long as we’re running a deficit, any reduction of taxes is borrowing from somewhere else. It’s a giveaway, it’s a break. And these tax giveaways, particularly to multi millionaires and billionaires, what possible value is there, and they’re, you talk about Obama is borrowing all this money. In part he’s borrowing it because the Bush tax breaks for billionaires have left less money in the coffers of the federal government.

David Frum: He, Obama is borrowing the money for two reasons. One is that tax revenues just collapsed in the recession that began, well arguably when it began, but …

Thom Hartmann: Sure any president would have to do that, wouldn’t he? I mean just to keep government going.

David Frum: So that’s one reason.

Thom Hartmann: Even George Bush would have had to do that.

David Frum: And then he borrowed a lot to pay for the TARP, which is a measure I support. And then he had…

Thom Hartmann: Well no, George Bush introduced that and it was passed during Bush’s presidency.

David Frum: Right. Well the TARP is…

Thom Hartmann: Oh, it’s being funded over several years, okay, got it.

David Frum: Right, Bush borrowed the money, Obama spent the money.

Thom Hartmann: Right.

David Frum: And most of it has been paid back, I mean these are the stimulus. So he did a lot of anti-recessionary things, that’s why he borrowed all of this money but where he is on the taxes. Look, this is, there are some things that get decided. In the arguments in the ‘70s where we had to stop inflation to use monetary policy to use wage and price controls, the monetarists just won that argument. It’s over. And in the same way, on the…

Thom Hartmann: That’s because wage and price controls, when Nixon tried them, blew up in his face.

David Frum: As people predicted. But in the famous debates with Milton Friedman and John Kenneth Galbraith wrote this to how do you stop inflation, I think everybody agrees Friedman won. And as to do you want a simpler, clear tax code that doesn’t, I mean you may not agree with this idea, but I think when you say the president has absorbed this supply side idea, I think this supply side idea he has absorbed. We want a flatter, clearer, simpler tax code.

Thom Hartmann: I think he has too and I think it’s a mistake and you and I are disagreeing on that but we don’t need to beat each other up about it. Elaine in Poconos, Pennnsylvania. You’re on the air with me and with David Frum, FrumForum.com.

Elaine: Hey Thom, hey David. My question is just what is the goal? What are the republicans working towards? I mean to us it looks like some type of corporate fascism that’s going to take over this country if it hasn’t already. What exactly is the goal?

Thom Hartmann: Let me rephrase that slightly, David, if I may. If government doesn’t restrain the power of the very wealthy and the corporate from running rough shot on average working people, who will?

David Frum: Well, I don’t think politicians have ultimate goals like that. I think they think in terms of the immediate short run. How do you restrain, how do you deal with the problems that are in front of you. The problems that a republican politician sees and that I see are, we’re on a trajectory now where we have made promises to the people who are going to retire that are much more expensive than we have the ability to finance. And if we change nothing, we are going to be on the way, 10, 15, 20 years from now to paying dramatically more of our incomes into the government to fund the retirement promises made…

Thom Hartmann: You’re talking about social security.

David Frum: And Medicare even more and Medicaid, veteran’s benefits. I mean healthcare much more than social security is the driver of all of these things.

Thom Hartmann: I mean why not just lift the cap? I mean social security, if you make less than, if you make more than 100 thousand dollars, or 106 thousand I think it is this year, you pay nothing.

David Frum: Medicare is the bigger problem than social security. And if Medicare continues to grow at the rate that it’s growing, we are going to have payroll taxes in the 20%. That’s before, that’s aside from the income taxes from the rest of the government. So republicans are haunted by that fear. We do want to maintain the size government about where it is now, less than a quarter, approximately a 5th for the federal government and then another 10 points for state and local. And we think we can run a pretty ample social service network with that kind of money and we are frightened of the coming looming growth of the government and we want to stop it.

Thom Hartmann: But if that government, I mean you talk to the average Frenchman or woman or Dane or Swede or Norwegian, they’re paying 50% of their income in taxes, but you know their minimum wage is 16 bucks an hour and their, and it just doesn’t seem to matter to them. And they’re, you know they’re not concerned about the size of government as long as they’re getting something for the money that they’re paying. What’s wrong with that? We have a minute to the break, by the way, David.

David Frum: They face the same trends. They’re not standing sill either. They also, even if they like where they are now, they are also faced with the same remorseless increase in the in the cost of government to honor the promise to retirees…

Thom Hartmann: You’re talking about the demographic trend.

David Frum: We’re talking about demographic trends and the rising cost of healthcare. And that is what haunts center right people everywhere is that we are going to…

Thom Hartmann: So what’s your solution? What’s the republican solution?

David Frum: I don’t think, I can tell you my solution but I’d need more than 40 seconds.

Thom Hartmann: Okay. Yeah and let’s come back to that then. David Frum is with us, his website, FrumForum.com, his most recent book, “Comeback: Conservatism That Can Win Again.” It’s the Thom Hartmann radio program, it’s an interesting conversation with a principled and thoughtful conservative that I’m pleased to be having here. We’ll be right back.

**Commercials**

Thom Hartmann: Welcome back to the Thom Hartmann radio program and the place where smart people get their news. We’re talking with David Frum, the conservative thinker, former speech writer to President Bush and special assistant, author of six books, on conservative thought and philosophy. The most recent, “Comeback: Conservatism That Can Win Again.” His website, FrumForum.com. David, have I accurately characterized you, do you think?

David Frum: Splendid, thank you.

Thom Hartmann: Okay thank you. Greg in Seattle, listening on Talk 1090, you’re on the air with David and I, or me I guess.

Greg: Hey Thom and David.

David Frum: Hey there.

Greg: I just want, I was listening, I just wanted to thank you guys for being in a rational conversation about two different philosophies. You hear so much just banter and rhetoric going on, on the airwaves. And I found you, Thom, a while back and I’ve listened to you and learned some things. And I just wanted to say thank you guys and I’d like to hear you two more often together, that’s it.

Thom Hartmann: Okay, thank you Greg. That’s very kind.

David Frum: Let me say something to Greg which is, look this is a kind of conversation that Greg is actually the indispensable party to. If Fox News believed that they could get twice as many listeners by putting on the economics faculty of the University of Chicago to debate the Economics faculty of Harvard about what way to get out of this recession, they’d do that. They’re in business to make money. But unfortunately the advertisers and the broadcasters know that the public likes the Punch & Judy show. We’re the public so we don’t like the Punch & Judy show, we have to not just complain about it, we actually have to demand more and reward those who give us more and turn off those who give us something else.

Thom Hartmann: Yeah and I’ll tell you, I do the Punch & Judy show quite a bit on this show and I want to, and it’s just, it’s a necessary part of being in show business. And at the same time I try to always drill a little deeper and take it a little farther. And this is a rare, I mean it’s very unusual that we spend an entire hour with one guest. In fact I don’t think it’s happened in a year. But in any case, Tony in Waterford, Michigan. David you wanted to say something?

David Frum: No, go ahead.

Thom Hartmann: Okay.

Tony:Hi Thom.

Thom Hartmann: Hi Tony, thank you for listening to WDTW, you’re on with…

Tony:You’re welcome. I just wanted to say I’m enjoying this hour a lot. I’ve listened to you for a long time, Thom. And David, I’ve been listening to you since you were on NPR in the ‘80s doing commentary on Morning Edition. So I’m familiar with your work and I respect you because although I disagree with you on most of your points, I think you’re civilized and I think that you’re a clear thinker and you’re not a rabble-rouser like some of the other people on Fox News are. So thank you very much for your work.

Thom Hartmann: So you had a question, Tony?

Tony: My question is regarding the banking crisis that we went through and I wanted to know what David’s opinion was on how we should approach the reregulation of the banking industry, should we go farther than we’ve already gone so far or have we gone far enough? Just his whole philosophy on deregulation with regard to the banking industry.

Thom Hartmann: I’d like to hear that too, David. I would argue that we wouldn’t have had this crisis if Phil Gramm hadn’t gotten his way, his wife Wendy, the Enron Lobbyist pushing the Commodities Futures Modernization Act, and blowing up Glass-Steagall in ’99 and 2000, during the Clinton administration with the help of a democratic president.

David Frum: Right now we’ve got a patient who’s got a raging infection and also has significant long term health challenges. So I would say let’s deal with the infection first. The problem that I’ve got upper most in mind, you’ve got a commercial about this earlier. Is the massive amounts of cash that are being held by businesses by banks, in banks in the form of reserves that are not circulating into the economy, that are not creating work, and that are leaving us with nearly 10% unemployment. We have to think about what do we do to make the banking system strong and able to lend again.

I think one, a key part of this would be to set an inflation target of 2 and 3%. If you’re Google and you have 40 billion dollars of cash right now, if you were told that the inflation rate is going to be 2%, you’re threatened with a fine for holding 40 billion dollars of cash. You’re going to have to pay 800 million…

Thom Hartmann: But David, now you’re talking about using taxes to engineer behavior, again. And also by the way, I’m assuming you’ve been reading the pieces in the Financial Times, particularly the Lex column over the last, what, month or two, about how right now, you know, Friedmanism seems to be being disproven with regard to his theories on inflation. Because we’re on the edge of deflation and yet everything that has been done should be hyper inflationary.

David Frum: Well there’s one, Friedmanism, in fact, has been amply confirmed. We have a huge monetary crisis on our hands. There’s one part of Milton Friedman’s, I wouldn’t say not work, but one part of his calculation that has been proven wrong. Friedman always worked under the assumption that the velocity of money was more or less a constant, that money would circulate most of the time at the same rate. And what we have seen is we’ve had a huge increase in the money supply but money is not moving because the volume of transactions has just collapsed, and that’s a big pat of the core of our problem and we don’t really have good ideas …

Thom Hartmann: And we had that problem in 1930, too.

David Frum: And we had that problem in the 1930s. And it looks like it’s not a unique situation, it looks like something that can strike every half century or so. But to, the idea that what you want to do in an deflation is to create an inflation, that is, was absolutely what Friedman said was done wrong in the 1930s. And what he would have prescribed if he had been there in 1931, that he would have favored something. He talked about this in the Monetary History of the United States that he co-wrote with Anna Schwartz. That there should have been measures to save the banking system, an early version of TARP that would have got, kept the banks on their feet and would have kept them lending. And inflation encourages, will encourage, everyone to begin to chase higher returns because you can’t just hold cash. Whereas in deflation you pick up 1, 2, 3% a year for doing nothing at all.

Thom Hartmann: Right. Well and that’s it. I think that one of the reasons why everybody is holding cash right now, people aren’t even holding stocks, all these articles about everybody’s moving into the bond market. Is because everybody’s anticipation deflation.

David Frum: Everyone’s, yes. That anticipation has to be changed because it’s terribly destructive.

Thom Hartmann: Right, so how do you do that?

David Frum: Here’s what, the Federal Reserve…

Thom Hartmann: I think the way that you do that, by the way, is the WPA. Oh I’m sorry, we’re out of. David, I genuinely did not mean to have the last word on you, I missed my time cue.

David Frum: Fair enough, it’s your show.

Thom Hartmann: We do have to wrap it up. David Frum, FrumForum.com. and his most recent book, “Comeback: Conservativism That Can Win Again.” David, thank you for being with us today.

David Frum: Thanks so much, bye bye.

Thom Hartmann: I do appreciate it.

Transcribed by Suzanne Roberts, Portland Psychology Clinic.