Posts
Below is my letter to the New York Times regarding its story titled "U.S. Unlikely to Use the Ethanol Congress Ordered". Read it here.
http://www.nytimes.com/2009/11/27/business/energy-environment/27ethanol.html?_r=1&scp=2&sq=Ethanol&st=cse
----- Original Message -----
From: Patrick Barron
To: NY Times
Sent: Sunday, November 29, 2009 4:45 PM
Subject: Ethanol
Re: Awash in Ethanol, 27Nov09
Dear Sirs:
There are several fallacious concepts that drove the ethanol mandates. Number one is that it is in the best interest of the U.S. to become more energy independent. There is no reason, either economic or otherwise, that requires that the U.S. government deny its citizens access to the cheapest form of energy available anywhere in the world, which includes, of course, many unexploited regions within our own borders. Furthermore, it is unconscionable that the government so blatantly penalize the vast majority of its citizens for the undeserved benefit of the farm lobby by using its power of compulsion and coercion to force us to use an inferior (ethanol delivers only three-fourths of the energy value of gasoline) and harmful fuel (as explained by Mr. Wald in his informative article). Scrap the ethanol mandates, allow drilling and refining anywhere in the U.S., and you will find that the so-called energy problem goes away.
Patrick Barron
Monday, November 30, 2009
Monday, November 9, 2009
Reserves Poised to Destroy the Dollar
Our prosperity rests upon cooperation under the division of labor. We all produce just one or a few things, but we produce them in massive quantities. Our productivity rests upon capital accumulation applied to our work. We command the output of others’ work efforts by use of money, the indirect medium of exchange. Without money we would be reduced to a primitive barter economy. Most of us would die. This is the bald fact about the need for a money economy.
The Price Level Determined by the Supply and Demand for Money
How much money is required to purchase the output of society is called the price level, which is determined, in broad terms, by only two things—the quantity of goods available for sale and the quantity of money available for purchasing society’s output. Because we use money as the mechanism for exchanging the goods and services produced in our division of labor society, economists refer to the price level as being determined by the supply and demand for money. But this does not change the nature of the issue. Money merely represents the value the market places upon previously produced goods. Rather than price things in terms of the number of apples an apple grower must exchange in order to purchase his necessities, he uses money. Therefore, its quantity and its demand determine the purchasing power of money.
Say’s Law Explains Purchasing Power
Jean Baptiste Say explained this as clearly as anyone, when he stated that all economic activity tends toward the equilibrium level at which all supply is demanded by purchasers. Most people understand this economic law—Say’s Law—as “supply creates its own demand”. This is merely shorthand for explaining that it is what we produce that becomes the means by which we buy things. Instead of the apple grower exchanging apples for a necessity, he sells his apples for money and then buys his necessities with that money. Money is the intermediate exchange mechanism, but it was his apple production that gave the apple grower purchasing power in the market.
One can now understand the importance of money. Not only do we need something to use for intermediate exchange, but its quantity is critically important too. Expanding the quantity of money provides society with no utility; it merely lowers its purchasing power on the market, disrupting commerce and making it more difficult to plan for our economic future. If we do not know what money will buy in the future—because its supply has been expanded or may be expanded arbitrarily to some unknown level—then investment in long term production processes becomes very risky and we get less of it. And the only way to have more goods available in the future is to expand long term production.
One can see from the above brief discussion of the nature of money as a medium of exchange that it is crucial that the quantity of money remain stable in order for it to provide us with its primary service, which is as a communication mechanism of people’s preferences not only in the near term but also in the future. Unfortunately, it is the quantity of money that is under severe attack today.
Expanding Reserves Means Expanding Money Supply
The quantity of money available in the U.S. is controlled by our central bank, the Federal Reserve Bank (the Fed). Its primary means of control is by manipulating bank reserves, either by changing the ratio of reserves banks must keep at the Fed (increasing the reserve ratio would be deflationary and decreasing the reserve ratio would be inflationary) or by adding to or subtracting from the level of bank reserves. The latter method is the more important of the two. There are several methods that the Fed uses to add to bank reserves--but it is not important to explain HOW the Fed adds reserves as is the fact that the Fed has added MASSIVELY to bank reserves in the past year and continues to add to reserves. The outcome could be catastrophic.
Here are some statistics taken from the Fed’s own website. I will explain their importance further down. All numbers are billions of dollars.
M2 (Cash, checking accounts, savings and money market accounts): $8,333
Total Reserves: $1,122
Required Reserves $62
Excess Reserves $1,060
Notice the level of “excess reserves”. These are reserves of the banks that may be used in the future to increase the money supply. Currently the level of “required reserves” is only $62 billion to support $8,333 billion of the most widely used measure of the money supply--M2. This means that the ratio of reserves to money is only .74%-- less than one percent. Under normal circumstances the amount of excess reserves banks hold is around $2 billion; this small amount relative to our money supply being considered the frictional amount that cannot be utilized in a dynamic banking system. Excess reserves are now a whooping $1,060 billion! Just consider this fact: if a money supply (as defined by M2) of $8,333 billion can be supported by “required reserves” of only $62 billion, then the current level of total reserves--$1,122 billion—will support a money supply of $149,784 billion, eighteen times the current level!
Remember our discussion earlier about how the price level is determined by the quantity of money and the demand for money, where the quantity of money commands all the supply of a society’s output (its “demand”, as we now understand it according to Say’s Law). If the quantity of money can expand by a factor of eighteen, the price level will expand right along with it, because no one expects America’s output--as measured in the number of real things, not its inflated monetary value—to expand by eighteen times its current level. If anything, the environmental movement has brainwashed a large percentage of our citizens to oppose any increase in American production as harmful to Mother Earth. But this is another issue.
End the Fed
Since the establishment of the Fed in 1913, there has been only one prolonged time period in which the banks kept a significant amount of “excess reserves”. You guessed it—the Great Depression years of the 1930s. It is in their nature for banks to expand lending, which concomitantly expands the money supply, until all of the “excess reserves” become part of their “required reserves”. This is how banks expand their business and their profits.
The current very high level of “excess reserves” means that there is no institutional brake upon hyperinflation. The level of bureaucratic irresponsibility at the Fed is bewildering, since the Fed’s primary commission is to safeguard our money. If the Fed bureaucrats have so inflated reserves to the level that our money supply can increase by eighteen times its current level, one is left to conclude either that they are hopelessly incompetent or that there is some malevolent intent to throw the nation, and the world, into chaos. Whatever the reason, we now can see clearly why there is a growing movement in America to “End the Fed”. For so many reasons in addition to the primary one I have discussed here, the Fed has become what President Andrew Jackson called a corrupt institution. Jackson did, in fact, “End the Fed” of his era, the Second Bank of the United States. His was a heroic effort that took both terms of his very popular presidency. Ours is a much more difficult task, since our president shows little understanding of the danger the Fed posses to the American economy and may actually be in favor of taking advantage of the corrupting powers of the Fed, such as the ability of government to spend without taxation or honest borrowing in private financial markets.
The Price Level Determined by the Supply and Demand for Money
How much money is required to purchase the output of society is called the price level, which is determined, in broad terms, by only two things—the quantity of goods available for sale and the quantity of money available for purchasing society’s output. Because we use money as the mechanism for exchanging the goods and services produced in our division of labor society, economists refer to the price level as being determined by the supply and demand for money. But this does not change the nature of the issue. Money merely represents the value the market places upon previously produced goods. Rather than price things in terms of the number of apples an apple grower must exchange in order to purchase his necessities, he uses money. Therefore, its quantity and its demand determine the purchasing power of money.
Say’s Law Explains Purchasing Power
Jean Baptiste Say explained this as clearly as anyone, when he stated that all economic activity tends toward the equilibrium level at which all supply is demanded by purchasers. Most people understand this economic law—Say’s Law—as “supply creates its own demand”. This is merely shorthand for explaining that it is what we produce that becomes the means by which we buy things. Instead of the apple grower exchanging apples for a necessity, he sells his apples for money and then buys his necessities with that money. Money is the intermediate exchange mechanism, but it was his apple production that gave the apple grower purchasing power in the market.
One can now understand the importance of money. Not only do we need something to use for intermediate exchange, but its quantity is critically important too. Expanding the quantity of money provides society with no utility; it merely lowers its purchasing power on the market, disrupting commerce and making it more difficult to plan for our economic future. If we do not know what money will buy in the future—because its supply has been expanded or may be expanded arbitrarily to some unknown level—then investment in long term production processes becomes very risky and we get less of it. And the only way to have more goods available in the future is to expand long term production.
One can see from the above brief discussion of the nature of money as a medium of exchange that it is crucial that the quantity of money remain stable in order for it to provide us with its primary service, which is as a communication mechanism of people’s preferences not only in the near term but also in the future. Unfortunately, it is the quantity of money that is under severe attack today.
Expanding Reserves Means Expanding Money Supply
The quantity of money available in the U.S. is controlled by our central bank, the Federal Reserve Bank (the Fed). Its primary means of control is by manipulating bank reserves, either by changing the ratio of reserves banks must keep at the Fed (increasing the reserve ratio would be deflationary and decreasing the reserve ratio would be inflationary) or by adding to or subtracting from the level of bank reserves. The latter method is the more important of the two. There are several methods that the Fed uses to add to bank reserves--but it is not important to explain HOW the Fed adds reserves as is the fact that the Fed has added MASSIVELY to bank reserves in the past year and continues to add to reserves. The outcome could be catastrophic.
Here are some statistics taken from the Fed’s own website. I will explain their importance further down. All numbers are billions of dollars.
M2 (Cash, checking accounts, savings and money market accounts): $8,333
Total Reserves: $1,122
Required Reserves $62
Excess Reserves $1,060
Notice the level of “excess reserves”. These are reserves of the banks that may be used in the future to increase the money supply. Currently the level of “required reserves” is only $62 billion to support $8,333 billion of the most widely used measure of the money supply--M2. This means that the ratio of reserves to money is only .74%-- less than one percent. Under normal circumstances the amount of excess reserves banks hold is around $2 billion; this small amount relative to our money supply being considered the frictional amount that cannot be utilized in a dynamic banking system. Excess reserves are now a whooping $1,060 billion! Just consider this fact: if a money supply (as defined by M2) of $8,333 billion can be supported by “required reserves” of only $62 billion, then the current level of total reserves--$1,122 billion—will support a money supply of $149,784 billion, eighteen times the current level!
Remember our discussion earlier about how the price level is determined by the quantity of money and the demand for money, where the quantity of money commands all the supply of a society’s output (its “demand”, as we now understand it according to Say’s Law). If the quantity of money can expand by a factor of eighteen, the price level will expand right along with it, because no one expects America’s output--as measured in the number of real things, not its inflated monetary value—to expand by eighteen times its current level. If anything, the environmental movement has brainwashed a large percentage of our citizens to oppose any increase in American production as harmful to Mother Earth. But this is another issue.
End the Fed
Since the establishment of the Fed in 1913, there has been only one prolonged time period in which the banks kept a significant amount of “excess reserves”. You guessed it—the Great Depression years of the 1930s. It is in their nature for banks to expand lending, which concomitantly expands the money supply, until all of the “excess reserves” become part of their “required reserves”. This is how banks expand their business and their profits.
The current very high level of “excess reserves” means that there is no institutional brake upon hyperinflation. The level of bureaucratic irresponsibility at the Fed is bewildering, since the Fed’s primary commission is to safeguard our money. If the Fed bureaucrats have so inflated reserves to the level that our money supply can increase by eighteen times its current level, one is left to conclude either that they are hopelessly incompetent or that there is some malevolent intent to throw the nation, and the world, into chaos. Whatever the reason, we now can see clearly why there is a growing movement in America to “End the Fed”. For so many reasons in addition to the primary one I have discussed here, the Fed has become what President Andrew Jackson called a corrupt institution. Jackson did, in fact, “End the Fed” of his era, the Second Bank of the United States. His was a heroic effort that took both terms of his very popular presidency. Ours is a much more difficult task, since our president shows little understanding of the danger the Fed posses to the American economy and may actually be in favor of taking advantage of the corrupting powers of the Fed, such as the ability of government to spend without taxation or honest borrowing in private financial markets.
Thursday, November 5, 2009
The Fed Acts Only According to Its Nature
I sent the following letter to the Wall Street Journal in response to its editorial that the Fed was determined to hold interest rates close to zero.
From: Patrick Barron
To: Wall Street Journal
Sent: Thursday, November 05, 2009 8:55 AM
Subject: Fed Acts Only According to Its Nature
Re: Money on Autopilot
The Fed was created to be an engine of inflation for the purpose of bailing out financial elites at the expense of the rest of the citizenry. To expect it to pursue a financially sound long term policy that would be neutral in its effects on every citizen, elite or commoner, is a foolish pipedream. Our Founding Fathers understood that man is fallible and will pursue his own interests and those of his fellows; therefore, it drafted a model of constitutionally limited government with enumerated powers. Nowhere in that short list of powers will one find the authority to form a central bank with the ability to issue fiat money in unlimited amounts. The Fed acts only according to its ultimately destructive nature; therefore, it must be abolished.
Patrick Barron
PMG Consulting LLC
West Chester, PA and Coralville, IA
www.patrickbarron.blogspot.com
From: Patrick Barron
To: Wall Street Journal
Sent: Thursday, November 05, 2009 8:55 AM
Subject: Fed Acts Only According to Its Nature
Re: Money on Autopilot
The Fed was created to be an engine of inflation for the purpose of bailing out financial elites at the expense of the rest of the citizenry. To expect it to pursue a financially sound long term policy that would be neutral in its effects on every citizen, elite or commoner, is a foolish pipedream. Our Founding Fathers understood that man is fallible and will pursue his own interests and those of his fellows; therefore, it drafted a model of constitutionally limited government with enumerated powers. Nowhere in that short list of powers will one find the authority to form a central bank with the ability to issue fiat money in unlimited amounts. The Fed acts only according to its ultimately destructive nature; therefore, it must be abolished.
Patrick Barron
PMG Consulting LLC
West Chester, PA and Coralville, IA
www.patrickbarron.blogspot.com
Tuesday, November 3, 2009
The Swine Flu Arrived Just in Time!
The swine flu epidemic arrived just in time! What! How dare I say something so callous! Just in time for what? Well, just in time to provide an example of what government control of healthcare in America would look like. The Obama administration has attempted to sell its takeover of the healthcare industry by claiming that our admittedly imperfect system provides too little access at too high a price and, here’s the big pitch (drum roll, please), government can do better. The swine flu epidemic illustrates why government is wrong on both counts. Its control of this one, relatively small healthcare issue has demonstrated that its response is inadequate, expensive, and inhumane.
Like many unfortunate economic events, the restricted supply of the swine flu vaccine has its birth decades ago in government regulations that made it less profitable for domestic drug companies to produce vaccines of any kind. These regulations acted as forms of price controls and forced Americans to rely upon foreign suppliers, mainly in France and Australia. Now, there is nothing wrong with importing drugs that can be produced cheaper and/or more timely overseas—this would be just an example of the internationalization of the division of labor—except that the reason for this shift to overseas suppliers was neither cost nor timeliness of production. It was price controls by government that forced domestic drug companies out of the market.
Government did not limit itself to destroying the supply. Next it had to control demand, reinforcing the Austrian School of Economics’ rule that one market intervention causes unforeseen adverse consequences that lead to more market interventions until government, in desperation, takes over both supply and demand. Thusly, the federal government confiscated all the swine flu vaccine in the country and now distributes it through state health officials who, in turn, allocate it (according to their own, mysterious methods) to healthcare providers.
The healthcare providers have no control over how many doses of this vaccine they will receive. All they can do is order it from the government and take what they get, usually with no prior notification so as to plan its distribution. We have seen cases in which consumers stand in long lines on the rumor that vaccines have arrived. Armed police patrol the queue, chasing away those who they deem to be at less risk that others. Then, after hours of waiting, the armed police inform those still waiting that the supply has run out. I’ve seen this scenario first hand before--Moscow and Leningrad before the fall of Communism!—but seldom in the Land of the Free and the Home of the Brave. (Some of us remember the gas lines of the 1970s, another government-manufactured shortage caused by price controls.)
Government ineptitude is there for all to see. The details of who needs the shot and where these high risk groups reside is fairly well known, yet government sends too many doses to some areas and not enough to others. For example, university towns are shorted because the census data used by government officials does not take into account that students actually reside elsewhere than their official residence. This is even more frustrating this flu season, since young people are more vulnerable to the swine flu. Unlike older folks, they were not exposed to a similar virus decades ago. We older folks were exposed and, therefore, the vaccine does not offer us any increased immunity. This is opposite all previous flu outbreaks, where the elderly were most vulnerable. This twist adds to the public’s confusion and concern.
Nevertheless, we all seem to accept government ineptitude as par for the course and do not consider that this potentially life saving treatment could be produced and distributed any other way than by top down, bureaucratic fiat. We just assume that, although government does NOT control other necessities of life, the swine flu vaccine must be. Yet, this situation illustrates perfectly how diffusion of knowledge necessitates that we allow the free market to control vital supplies. The centralized, top down management style of government just cannot assimilate all the information that is needed to provide this product on a rational basis.
I believe that government’s confiscation of the swine flu vaccine was nothing more than grandstanding; in other words, government wanted to be seen to be doing something…anything!…about the swine flu. This is the unfortunate view of many in today’s society who have grown up under the heavy hand of the welfare state: we look to government for the answer to all of our problems. The mainstream media, who hold government responsible for all undesirable life events, reinforces this view. Government has brought this attitude upon its own head by sticking its long, bureaucratic nose into aspects of life that used to be the realm of private responsibility and initiative. Can anyone imagine that a government official would voice the opinion that the free market be left alone to ensure that an adequate supply of the swine flu vaccine was produced and distributed to those who most urgently needed it? Picture the press conference--people are dying of the swine flu and Mr. Representative proclaims that government should keep out of the way of the healthcare industry in its battle with the disease. It is hard to imagine that this scenario is possible in today’s political and media environment.
But, government does not ration food and we do not starve. We do not stand in line at government food stores while armed police walk up and down the aisles telling fat people that they don’t need food and that they should allow the skinny people to have first dibs on the limited supply. Yet this is exactly what has happened with the swine flu vaccine. Government must get completely out of healthcare or the swine flu debacle will be repeated on a daily basis for all of healthcare and all necessities of life, as it was in the Soviet Union.
Like many unfortunate economic events, the restricted supply of the swine flu vaccine has its birth decades ago in government regulations that made it less profitable for domestic drug companies to produce vaccines of any kind. These regulations acted as forms of price controls and forced Americans to rely upon foreign suppliers, mainly in France and Australia. Now, there is nothing wrong with importing drugs that can be produced cheaper and/or more timely overseas—this would be just an example of the internationalization of the division of labor—except that the reason for this shift to overseas suppliers was neither cost nor timeliness of production. It was price controls by government that forced domestic drug companies out of the market.
Government did not limit itself to destroying the supply. Next it had to control demand, reinforcing the Austrian School of Economics’ rule that one market intervention causes unforeseen adverse consequences that lead to more market interventions until government, in desperation, takes over both supply and demand. Thusly, the federal government confiscated all the swine flu vaccine in the country and now distributes it through state health officials who, in turn, allocate it (according to their own, mysterious methods) to healthcare providers.
The healthcare providers have no control over how many doses of this vaccine they will receive. All they can do is order it from the government and take what they get, usually with no prior notification so as to plan its distribution. We have seen cases in which consumers stand in long lines on the rumor that vaccines have arrived. Armed police patrol the queue, chasing away those who they deem to be at less risk that others. Then, after hours of waiting, the armed police inform those still waiting that the supply has run out. I’ve seen this scenario first hand before--Moscow and Leningrad before the fall of Communism!—but seldom in the Land of the Free and the Home of the Brave. (Some of us remember the gas lines of the 1970s, another government-manufactured shortage caused by price controls.)
Government ineptitude is there for all to see. The details of who needs the shot and where these high risk groups reside is fairly well known, yet government sends too many doses to some areas and not enough to others. For example, university towns are shorted because the census data used by government officials does not take into account that students actually reside elsewhere than their official residence. This is even more frustrating this flu season, since young people are more vulnerable to the swine flu. Unlike older folks, they were not exposed to a similar virus decades ago. We older folks were exposed and, therefore, the vaccine does not offer us any increased immunity. This is opposite all previous flu outbreaks, where the elderly were most vulnerable. This twist adds to the public’s confusion and concern.
Nevertheless, we all seem to accept government ineptitude as par for the course and do not consider that this potentially life saving treatment could be produced and distributed any other way than by top down, bureaucratic fiat. We just assume that, although government does NOT control other necessities of life, the swine flu vaccine must be. Yet, this situation illustrates perfectly how diffusion of knowledge necessitates that we allow the free market to control vital supplies. The centralized, top down management style of government just cannot assimilate all the information that is needed to provide this product on a rational basis.
I believe that government’s confiscation of the swine flu vaccine was nothing more than grandstanding; in other words, government wanted to be seen to be doing something…anything!…about the swine flu. This is the unfortunate view of many in today’s society who have grown up under the heavy hand of the welfare state: we look to government for the answer to all of our problems. The mainstream media, who hold government responsible for all undesirable life events, reinforces this view. Government has brought this attitude upon its own head by sticking its long, bureaucratic nose into aspects of life that used to be the realm of private responsibility and initiative. Can anyone imagine that a government official would voice the opinion that the free market be left alone to ensure that an adequate supply of the swine flu vaccine was produced and distributed to those who most urgently needed it? Picture the press conference--people are dying of the swine flu and Mr. Representative proclaims that government should keep out of the way of the healthcare industry in its battle with the disease. It is hard to imagine that this scenario is possible in today’s political and media environment.
But, government does not ration food and we do not starve. We do not stand in line at government food stores while armed police walk up and down the aisles telling fat people that they don’t need food and that they should allow the skinny people to have first dibs on the limited supply. Yet this is exactly what has happened with the swine flu vaccine. Government must get completely out of healthcare or the swine flu debacle will be repeated on a daily basis for all of healthcare and all necessities of life, as it was in the Soviet Union.
Monday, November 2, 2009
More Backward Thinking by Al Gore
I sent the email below to the editor of "The Costco Connection" regarding its November 2009 cover story by the still confused Al Gore, who never lets a good crisis--in this case, three crises--go to waste without recommending even more government intervention in out lives.
You can read Al Gore's article here:
http://www.costcoconnection.com/connection/200911#pg27
----- Original Message -----
From: Patrick Barron
To: dialogue@costco.net
Sent: Monday, November 02, 2009 7:54 AM
Subject: Taking Issue with Al Gore
Re: "Separate Problems, One Solution", by Al Gore
Dear Sirs:
Regarding Al Gore's recent article in your November 2009 edition of "The Costco Connection", I take issue with his main premise--that his three crises have a common cause in our reliance on foreign oil. First of all, I do not believe that the global warming case is proven. If there is global warming--and I doubt it--the cause is beyond our power to control. Secondly, our reliance on foreign oil is caused by our domestic laws restricting American production. Professor George Reisman explains this phenomenon in his book, "Capitalism". Just think about the issue for a minute. Change the product from oil to autos. What would be the result of a cartel of foreign automakers conspired to charge Americans many times the price of a domestically manufactured car? Detroit would be a boom town, of course! The foreign automakers wouldn't sell any cars to Americans (their largest customer), permanently injuring their domestic manufacturers. But let us say that our government refused to allow U.S. automakers to expand production. The result would be a victory for the foreign auto cartel. Likewise, restrictions on American oil production gave the OPEC oil cartel undeserved power and wealth at our expense, both in terms of money and security. It has been a disastrous policy, aided and abetted by the likes of Al Gore. Thirdly, the current financial crisis has nothing to do with our reliance on foreign oil. It was caused by the federal government's fiscal and monetary policies. The Federal Reserve Bank inflated the money supply and drove down interest rates, which provided the necessary funds for bank credit expansion. Furthermore, its regulations, such as the Community Reinvestment Act, extorted banks to lend to those with poor credit. Finally, its finance banks--Fannie Mae, Freddie Mac, the FHA, etc.--created unprecedented moral hazard by lowering the standards of the loans they would purchase from the originating banks. Never has government, and its apologists like Al Gore, been so duplicitous in blaming others for the chaos that it has wreaked. The U.S. is a less wealthy and less secure nation as a result.
Patrick Barron
You can read Al Gore's article here:
http://www.costcoconnection.com/connection/200911#pg27
----- Original Message -----
From: Patrick Barron
To: dialogue@costco.net
Sent: Monday, November 02, 2009 7:54 AM
Subject: Taking Issue with Al Gore
Re: "Separate Problems, One Solution", by Al Gore
Dear Sirs:
Regarding Al Gore's recent article in your November 2009 edition of "The Costco Connection", I take issue with his main premise--that his three crises have a common cause in our reliance on foreign oil. First of all, I do not believe that the global warming case is proven. If there is global warming--and I doubt it--the cause is beyond our power to control. Secondly, our reliance on foreign oil is caused by our domestic laws restricting American production. Professor George Reisman explains this phenomenon in his book, "Capitalism". Just think about the issue for a minute. Change the product from oil to autos. What would be the result of a cartel of foreign automakers conspired to charge Americans many times the price of a domestically manufactured car? Detroit would be a boom town, of course! The foreign automakers wouldn't sell any cars to Americans (their largest customer), permanently injuring their domestic manufacturers. But let us say that our government refused to allow U.S. automakers to expand production. The result would be a victory for the foreign auto cartel. Likewise, restrictions on American oil production gave the OPEC oil cartel undeserved power and wealth at our expense, both in terms of money and security. It has been a disastrous policy, aided and abetted by the likes of Al Gore. Thirdly, the current financial crisis has nothing to do with our reliance on foreign oil. It was caused by the federal government's fiscal and monetary policies. The Federal Reserve Bank inflated the money supply and drove down interest rates, which provided the necessary funds for bank credit expansion. Furthermore, its regulations, such as the Community Reinvestment Act, extorted banks to lend to those with poor credit. Finally, its finance banks--Fannie Mae, Freddie Mac, the FHA, etc.--created unprecedented moral hazard by lowering the standards of the loans they would purchase from the originating banks. Never has government, and its apologists like Al Gore, been so duplicitous in blaming others for the chaos that it has wreaked. The U.S. is a less wealthy and less secure nation as a result.
Patrick Barron
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