Friday, September 18, 2009

Corn for Ethanol

I sent the following letter to the Wall Street Journal today in response to a lobbyist's defense of the increased use of corn for ethanol production

Dear Sirs:
In his role as president of the American Corn Growers Association we should expect nothing less from Mr. Bob Dickey than that he make as good a case as possible for increasing the demand for his product. ("Ethanol Has Boosted Corn Output"--Letters--18Sep09) Nevertheless, each of his rationales defending the increased use of corn for ethanol production fails sound economic analysis. The fact that U.S. corn production has increased is to be expected when demand for any good increases. But what other agricultural good was sacrificed in order to increase production from the artificially boosted demand for corn? Mr. Dickey says that the price of corn is down and, therefore, its use as a fuel has not priced other uses out of the market. But the price would have fallen even further without the government's mandate for ethanol production. Finally, no one doubts that the government's mandates for ethanol production is good for farmers, but is it good for everyone else? Of course not. The point of any government intervention is to prevent the free market from guiding production and consumption decisions based upon man's true preferences. If ethanol were such a wonderful product, it would need no government mandates to force us to use it.

Patrick Barron

Thursday, September 17, 2009


The Obama administration proposes to slap penalty tariffs on imported tires from China. It accuses the Chinese government of engaging in unfair trade practices, namely, subsidizing its domestic tire industry. Beyond the spectacle of starting a trade war with one of our largest and most important trading partners who also just happens to be a nation that is emerging in fits and starts from being an implacable enemy, there is no ethical or economic justification for imposing said penalties. The public face of this seriously flawed policy is that Chinese subsidies destroy American tire manufacturers and cost American jobs. The private face is that once again the rest of the country must pay higher prices for lower quality union made goods.

Penalty Tariffs Violate Man’s Natural Rights

It doesn’t matter if the accusations about Chinese subsidies were true! Even if it were true--which it most assuredly is not!--that Chinese subsidies destroy American industries and cost Americans jobs, our government has no ethical basis to forbid by its coercive police power our citizens’ right to purchase any legal good from any person or company wherever it may be located on the face of the globe. This is not a utilitarian argument or even a foreign policy argument, although both are perfectly apt in this case. It is an argument based upon the rights of a free people, which may not be legally abrogated by the state. As American citizens we delegate to our government only certain powers. Our economic freedom is not one of those powers so delegated. Economic freedom is part and parcel of political freedom, for a man is not politically free if he must seek the permission of his government to engage in trade in order to sustain his earthly body. If a government may deny man the right to purchase tires, it may deny a man the right to purchase food. And, come to think of it, that is exactly what the U.S. government does when it slaps protective tariffs on sugar cane from the Caribbean! Cheap sugar is snatched from our very mouths in order to force us to purchase more expensive domestic sugar. And now we are not allowed to purchase Chinese tires. This is a violation of natural law and, therefore, the law is illegal and should be repealed forthwith. Nevertheless, there is a lot more to say about this matter from an economic perspective.

None of Our Business

What China does internally to subsidize its home industries is none of our business. Let me repeat that—it is none of our business. Chinese subsidies harm Chinese citizens, just as American subsidies—such as farm subsidies—harm Americans. Both are to be regretted, but it is our business only to lobby for the repeal of American subsidies. Let us set a good example. If China wants to tax its citizens so that Americans can live more prosperously, that is its business and its business alone. This is the case for all supposed “unfair trading practices” that allow Americans to purchase cheaper goods from abroad. Why must our government interfere with something that benefits its own citizens, especially when it creates ill will with the rest of the world?

Case Not Proven, Because It Cannot Be Proven

It is impossible for the U.S. to isolate any one cause as the source of decline of any American industry. There are too many factors that can cause a company or an industry to decline or fail to reach what its supporters may feel is its full potential. This is especially true of American unionized industries. First of all, unions force upon these companies higher wages than would be the case in the absence of government supported legislation requiring the companies to negotiate with the unions. This cannot be denied, since the legislation exists and the unions exist. Why do they exist if not to secure higher wages than other Americans, not members of the union, would willingly accept? Unions intimidate non-union workers (and their own members!) to prevent them from accepting jobs at less than the rate that the union leadership arbitrarily demands. Furthermore, they trespass upon the companies’ factories and destroy its physical plant, while the police and the courts turn a blind eye. The fact of union violence and government’s failure to protect industry property cannot be ignored as a major source of the decline of many of previously strong American industries.

In addition, American companies are hobbled by a myriad of labor and, increasingly, environmental regulations, all of which add significant costs to company products and prevent them from employing their labor and equipment in the most efficient manner. Local governments literally extort companies to provide public services in order to obtain permission to expand their operations. This is a well-known and open secret of local government operations. Ten years ago Boeing, America’s giant aircraft manufacturer, moved its head offices from Everett, Washington to Chicago, Illinois to protest the city of Everett’s continued demands that Boeing fund its wish list of public goodies.

International Expansion of the Division of Labor

I’m sure there are many more factors that must be considered when a company loses its international competitiveness, and we haven’t even discussed the obvious one of entrepreneurial error. How can any one of them be singled out as THE cause of its difficulties? But beyond this looms another, more basic, factor that accounts for the decline of some home industries—the normal process of the expansion of the division of labor beyond our borders. Just as no one would suggest that a town or a city or a county or a state must be completely self-sufficient in all things--because the expansion of the division of labor operates to destroy old industries and old jobs and create new and more productive ones in their place, the “creative destruction” phenomenon articulated by Joseph Schumpeter--one must not look upon international trade as some sinister plot by foreigners to destroy our country job by job and industry by industry. International trade represents an expansion of the capital base to include the workforce of the entire world.

Specialization, just another word for the division of labor, accounts for all of man’s economic progress. It cannot be otherwise. Just as we as individuals no longer hunt or grow our own food, we as a nation no longer produce everything that we once produced. To say that others can do this for us more cheaply is but another way of saying that we have better things to do. When the costs of the factors of production upon which an industry depends rise in one country, this means that these factors are more urgently needed elsewhere for the production of goods that consumers value more highly. This includes labor. Cheaper foreign goods free factors of production so that they may be employed to produce these more highly valued goods. There is a reason that most advanced nations import certain products from developing countries. Developing countries are like new entrants to the labor market; they perform the less skilled jobs first before moving to more highly skilled ones later. This process is taking place even among developing nations themselves. China itself is losing some manufacturing jobs that require lower skills to less developed countries like Indonesia. This is a process to be admired and encouraged. It is in everyone’s best interest, both economically and politically, for the entire world to become more capitalistic.

The Division of Labor Promotes International Peace

A little considered byproduct of the expansion of the division of labor as represented by increased foreign trade is that it promotes peace among nations. Of course, governments seem to do everything in their powers to thwart this process, erecting trade barriers to foreign products and penalizing supposed “unfair trade” practices. But ask yourself this question: do you want to kill your barber, your grocer, your filling station owner? Of course not, because these people perform valuable services for you. But one could also say that they have taken away some of your employment. At one time people cut their own hair or had a family member do it for them. More people lived on farms and grew much of their own food. They produced much of their own fuel—no, not gasoline, but oats to feed their own horses. Do we wish to return to this more primitive, meaning less capital intensive, time? Of course not. They why do we want our nation’s business owners and laborers to continue to produce absolutely everything that we require? The fact is that more international trade means a higher standard of living for everyone involved, and the “creative destruction” of some jobs and industries is a consequence and not a cause of this beneficial process. It is a peaceful process among cooperating peoples around the world. As this process deepens, we understand that we NEED the production of the rest of the world and they NEED ours. This creates a worldwide culture of cooperation and peaceful intercourse that leads to higher standards of living among peoples everywhere. Government trade barriers promote the opposite; government trade barriers promote impoverishment and war. The choice is clear.

Tuesday, September 15, 2009

Two Recent Letters to the Wall Street Journal

Monday, September 14, 2009

Re: China Strikes Back on Trade

Dear Sirs:
Regarding the brewing trade dispute between the U.S. and China over new U.S. tariffs on Chinese tires, you make this statement:

"The effect on the U.S. is less clear because China has not imposed sanctions."

But we do know the effect on the U.S., and it is clear as day--U.S. consumers will pay more for tires. That is the whole point--reduce our standard of living by denying us the products of overseas trade in order to benefit a few U.S. tire manufacturers and their union members. The Obama administration is dividing the country into those whose businesses and occupations will be protected by the coercive power of the state and those who are not members of this politically connected group and must pay.

Patrick Barron

Tuesday, September 15, 2009

Senseless and Murderous Drug War

Mary O'Grady explains the damage done to our southern neighbor by our senseless war on drugs. She details the murders of law enforcement officers and honest politicians in Mexico and the fear of its citizens. She could have mentioned the many needless deaths in the U.S., too. No, not necessarily from turf wars and that sort of thing, although there are plenty of these. There are many needless deaths from so-called drug overdoses, which really means that the user inadvertently took too large a dose or a corrupted dose of his drug of choice. How does this happen? Well, in a lawless business there is no way for customers to enforce standards through the normal court process. If a legitimate drug manufacturer tainted his product with poison, he would be taken to court, fined, and possibly sent to jail. But the victim of a tainted illegal drug just dies. I heard recently of the death of the son of French actor and director Gerard Depardeu. The reports claimed that M. Depardeu's son died of a drug overdose. Since his son was a rising force in the film industry himself, I doubt that he wanted to kill himself. More likely the drug was tainted or more potent than he believed it to be. Another needless death cause by our senseless and murderous war on drugs.

Patrick Barron

Friday, September 11, 2009

Blame Milton Friedman

I wrote the following letter to National Review Magazine in response to an article by my friend Kevin D. Williamson, which appeared in the September 21, 2009 edition.

Re: “Blame Milton Friedman” by Kevin D. Williamson

Dear Sirs:
I am tempted to respond to the excellent essay by Kevin D. Williamson (“Blame Milton Friedman”) as would the Kung Fu master of the old TV show: “Ah, grasshopper, you are established on the road to wisdom but you have a long way yet to travel.”

The gist of Mr. Williamson’s essay is that the bank bailouts (TARP, TARP II, and who knows what else) were necessary under the circumstances, because the forces of statism wanted to go even further, plus there is the possibility that these programs will be limited somehow. Furthermore, these programs probably did stem the danger of massive depositor losses and—Oh, the Horror!—uncontrolled deflation.

The Friedman/Schwartz analysis of the cause of the Great Depression as a failure of the Fed to prevent a decrease in the money supply has been challenged and, in my humble opinion, refuted by that of the Austrian School economists. Murray N. Rothbard’s breakthrough analysis of the economy of the 1920s and Hoover’s interventionist response—America’s Great Depression--explained why a recession was inevitable and intervention made things worse, much worse. The newly created Fed had created a bubble economy in the 1920s through its fairly continuous expansion of bank reserves, which became the building blocks of bank deposits. The subsequent crash is explained by the Austrian Business Cycle Theory, whereby artificially lowered interest rates from the expansion of bank reserves fostered unsustainable investments in longer-term, more time-consuming economic processes that were not funded by real savings.

(That is saying a mouthful in one sentence and hardly does justice to this elegant theory. The best book for an introduction to this theory is a compilation of four essays by noted Austrian School economists, Rothbard included, titled The Austrian Theory of the Trade Cycle, compiled by Richard M. Ebeling. Both the Rothbard book and the Ebeling book are available on line at

Fiat money expansion cannot paper over these malinvestments forever. Either the bubble comes to an end and the unprofitable investments are liquidated, as occurred rather quietly in the unheralded and forgotten American depression of 1920/21, or hyperinflation destroys the economy, as occurred in Weimar Germany of 1923. The damage has been done. Socializing the loss through bank bailouts does not cure anything; it merely spreads the losses over the entire economy in the form of higher prices down the road and encourages future bubbles through moral hazard. Despite Mr. Williamson’s hopes, the damage has not been minimized either—the damage was done long ago--; it will not be temporary—as happened in 1920/21 but not in 1929/45--; and there is no political consensus to undo the federal incursions into the economy. Quite the contrary. Because the incursions kick the can down the road a few more yards, there are calls for more of them and in greater amounts. But this solves nothing and makes the necessary correction even greater, because malinvestment in unsustainable processes continues to expand.

Unfortunately, the best for which we can hope under our current set of policies is a repeat of the 1929/45 Great Depression and not a collapse of the economy as occurred in Germany in 1923. But almost of trillion dollars of excess reserves just waiting to be turned into bank deposits via a growth in lending, combined with other policy errors that will exacerbate the problem, tell me otherwise.

Tuesday, September 8, 2009

The Ethics of Compulsion

A controversial element of the Obama healthcare reform plan is its “public option “ clause, whereby those without health insurance would be enrolled in the government’s subsidized package. Opposition has come mainly from free market advocates who fear that a government plan would underprice private insurance and eventually lead to the demise of private health insurance and, with it, their ability to choose their own doctors, treatments, etc.

Apparently there is less opposition to more coercive government measures to force private insurers to accept those with pre-existing health problems, to price the same for all categories of risk (such as age, sex, and lifestyle), and the mandatory inclusion of politically motivated procedures, such as sex-change operations.

I regret to say that I am certain that something will pass and that eventually the government will take total control of healthcare in America. The same dynamic existed for government programs that now are completely out of control, such as Medicare, Medicaid, Food Stamps, Social Security, and other welfare programs. Once a foothold has been gained, there is an irresistible pressure to extend the benefits to the next tier of potential beneficiaries.

The reason that these welfare programs gain a foothold in the first place is that the electorate has too little concern over their loss of freedom and no understanding of the philosophical basis for advocating the protection of their freedoms. But all such programs fail the freedom test.

The Source of Our Freedom

Frederic Bastiat explained it best in his 1850 book The Law, in which he explained the foundation of man’s freedom and the logical implications for limiting the power of the state. Bastiat repeated the widely held (at that time) understanding that man (and woman, of course) is created in the image of God. And Bastiat meant each and every individual man, not some collective of “men” as an aggregate group. He explained that this is a logical conclusion and not exclusively a religious conviction. For one would come to the same conclusion about man’s relationship to the state even if he were an atheist.

Bastiat explained that man’s relationship to other men must fall into one of three categories and that only one of those categories was compatible with man as a rational being. One, man owns himself. Two, some men own other men. Or, three, everyone owns everyone else. The third option is impossible, for if everyone owned everyone else, we all would have to poll everyone else on the planet in order to do anything at all. This is impossible. The second option is the case of slavery, which we may dismiss without belaboring the issue of the impossibility of any ethical determination of how some become masters and the rest become slaves. Therefore, we are left with the first option, which is completely compatible with both religious convictions and secular reality.

Next Bastiat explained that man’s ownership over himself places natural limits on his actions. Most importantly man could do anything he chose, but only as long as he granted all other men the same natural right and as long as he harmed no other men in the exercise of his right. This leads to man’s innate right of self-protection. The only legitimate use of force is that which is required to protect oneself from the coercion and/or harm of others. All other use of force is illegal. But man soon saw that he was limited in his ability to protect himself and saw cooperation with other men as the solution. Thus was born society (or the state) as an artificial, man-made institution formed among cooperating individuals to more perfectly secure their natural rights of life, liberty, and property.

The Limits of State Action

The state, as a creation of man, cannot possess any rightful powers that do not come from man. Since man can delegate only his rightful power to self-protection, the state can lawfully exercise only this power and no more. Furthermore, since the state is a product of man, it is not an institution with any rights that are not rightfully man’s in the absence of the state. Therefore, there is no conflict at all between the free, harmless exercise of man’s rights as an individual and the state’s legitimate exercise of those delegated rights. Since there can be no conflict, any action of the state to interfere with man’s exercise of his harmless rights is unlawful. Thus, The Law, in all its majesty and rightly understood, flows from man’s inalienable rights for the better securing of his life, liberty, and property.

Absent from this irrefutable, logical understanding of man’s relationship to the state is the right of the state to force man to do something that man, as an individual, could not do legally himself. Therefore, since man, as an individual, cannot force his fellow men to behave in certain ways or contribute their wealth for the benefit of others, the state itself exercises no lawful right to do so.

All of this is embedded deeply in America’s Declaration of Independence and codified into law via our magnificent Constitution. These documents of our nation’s founding are all that the common man needs in order to evaluate for himself when the state has overstepped its bounds and has become a tyrant rather than his servant. Nowhere in either document can be found the right of the state to force one man to be another’s keeper or even to force men to adopt behaviors “for their own good”, such as cessation from smoking, gambling, drinking, etc. No single man has this power and, therefore, it is impossible for the state ever to get this power legally. It can exercise this power only illegally, its beguiling sophistry to the contrary.

Thusly may we evaluate the Obama administration’s healthcare proposals—or any other governmental proposal, for that matter--from an ethical and legal standpoint. Since I may not legally force my fellow man to stop smoking, when it does no harm to me or anyone else, the state has no right to do so either. Furthermore, since I may not force my fellow man to pay for my healthcare or anyone else’s, the state may not do so. Utilitarian arguments over the shame that many in our society do not possess healthcare insurance--or any other desirable good, such as food or housing—carry no legal right to force us to provide such healthcare or any other necessity of life. Furthermore, utilitarian arguments—legitimate, in my opinion—over the likely adverse consequences of the socialization of healthcare, are irrelevant to the proposal in a free society. Those who call for such measures are willing to abandon freedom and turn their backs on the natural rights of their fellow man. In my opinion this is a monstrously tyrannical ethical position and, therefore, we need discuss the socialization of healthcare no further.