Sunday, November 27, 2011

One Intervention Leads to Another...and Another...

From Open Europe's news summary of November 22nd:

In an interview with FTD, EU Commissioner for Economic and Monetary Affairs Olli Rehn argues for “the functioning of the eurozone to be improved through better coordination and tighter fiscal surveillance”, which would include having to clear national budgets in Brussels in order to ensure that rules on budgetary stability are adhered to. According to a draft copy of the Commission’s legislative package seen by Süddeutsche Zeitung, member states would have to submit their draft budgets to Brussels by April 15 in order for the Commission to provide comments and suggestions. The budget would then be discussed nationally and resubmitted by October 15 in order to get the Commission’s final approval. Rehn argues that the Treaty changes urged by Germany would not be necessary to achieve this, although he added that the Commission did not exclude this possibility. Handelsblatt reports that a source close to German Chancellor Angela Merkel has said that her goal is a Treaty amendment which allows for similar budgetary intervention and an enforcement role for the European Court of Justice, and according to experts, such a change can be achieved through a protocol added to the EU Treaties.

The crisis in Europe is a textbook example (Austrian economics textbook, that is...) of how the adverse consequence of one failed market intervention leads to another and another until the state, or in this case the European Union super state, controls all economic life at the expense of personal liberty.The failed attempt at establishing a common currency has created a tragedy of the commons (see Philipp Bagus' excellent book The Tragedy of the Euro), whereby the most irresponsible nations are rewarded for their irresponsibility. Now, instead of simply abandoning the failed project and considering something with a real track record--dare I say "gold standard" or money freely chosen by the market?--the elitists of Europe plan to move to the next step of trying to run the supposedly independent and sovereign countries that comprise the European Monetary Union from their cushy desks in Brussels. Here in America we would ask the rhetorical question "Are they smoking dope?". But since this is Europe, with more refined continental tastes, perhaps the question should be "Are they drinking supermarket wine?".

Sunday, November 20, 2011

My Letter to the Wall Street Journal re: Fallacious Economic Theory by Fed Presidents

Subject: Fallacious Economic Theory by Fed Presidents
Date: Sat, 19 Nov 2011 17:50:50 -0500

Re: Fed Official Backs Action

Dear Sirs:
Seldom does one see so many fallacious economic theories displayed in one, short article. New York Fed President William Dudley believes that buying mortgage backed securities at above market prices with money that he creates out of thin air is "ammunition", and that he has a lot of it. But the reality is that more money does not create more resources--just ask the Zimbabweans or the Weimar Republic Germans. Cleveland Fed President Sandra Pianalto thinks that the definition of "inflation" is rising prices, and she doesn't see any. (The definition of inflation is expansion of the money supply, and more money eventually leads to higher prices.) Furthermore, she subscribes to the discredited "cost-push" theory of higher prices, whereby rising factor prices, such as labor union demands, somehow cause higher prices all by themselves. Well, labor unions may demand higher wages and they may get them, but the result will be unemployment to the extent that the wage increases granted are not supported by increases in labor productivity. With such gross economic ignorance at such a high level, no wonder we are in such a financial mess.

Patrick Barron

Wednesday, November 2, 2011

An Alternative View of the EU Crisis

Today's news reports from Europe reveal that political leadership of all Europe wants to deny their citizens the right to stop the EU's inflationist policies. They are determined to punish Greek leadership for having the temerity of actually asking the approval of its citizens for accepting more debt and more regulation of their country from non-Greeks. Merkel and Sarkozy have called Panpandreou onto the carpet to explain himself. When did he dare to become a democratically elected GREEK official? The Dutch government decided it won't even ask the approval of its own parliament; it will sign the newest bailout deal right now before the people or the people's representatives catch the Greek disease and decide that they might have a say in whether to further burden themselves with unpayable debt.

All financial crises start somewhere. For the last few months it appeared that perhaps the Finns or the Slovaks would precipitate the crisis. And why is there a crisis? If the Euro elite, as exemplified by Merkel and Sarkozy, think that they have the answers, why are they so concerned? The answer, of course, is that the people finally have awakened to the fact that they do NOT have the answers...or rather that they have the same OLD answer that they have always had--namely, more debt and more debasement of the Euro.

It is time for the politicians to step aside and let markets sort things out. Perhaps the contest to win Lord Wolfson's Prize (for the best recommendation for curing Europe's financial crisis) will bring forth new ideas...ideas that actually are very old; i.e., sound money and banking that is provided by private entities who are subject to standard commercial law.

My Letter to the Wall Street Journal re: Tax on Speculators

Subject: Re: Tax on Speculators
Date: Wed, 2 Nov 2011 08:03:10 -0400

Re: Time for a Tax on Speculation by Ralph Nader

Dear Sirs:
Since Mr. Nader fails to understand the source of our current economic woes, of course he will recommend a cure that will do nothing to fix the problem and most assuredly will make it worse. Generally, Mr. Nader blames "corporations" and trots out green-eyed envy of
Wall Street salaries as his evidence. Oh, and he says that Merkel and Sarkozy want a financial transactions tax in Europe and, since the Europeans have shown such foresight in handling their financial affairs, we here in America shoud emulate them. Well, Mr. Nader, take off your class consciousness glasses and take a look at the real problem--government control of money and banking. The government uses the Fed to fund its welfare state and endless overseas wars with massive amounts of new, fiat money. Here's a startling fact--more money does not produce anything. More money causes higher prices, a redistribution of wealth from the people to government's favorite insiders, and fosters the capital destroying boom/bust business cycle. Speculators are nothing more than government's favorite whipping boy, designed to shield our gaze from the real problem. The capitalists who oppose your ideas are right--a tax on speculators, really just a tax on capital--will harm ordinary Americans while doing nothing to cure the real problem.

Patrick Barron

Tuesday, November 1, 2011

My Letter to National Review re: The Real "Secret Bad Guy"

Subject: The Real "Secret Bad Guy"
Date: Tue, 1 Nov 2011 16:18:08 -0400

Re: Occupy Salem by Kevin D. Williamson

I very much enjoyed reading "Occupy Salem" by Kevin D. Williamson in the Oct 31st edition of National Review. The source of American's frustration, as manifested in the "Occupy Wall Street" movement, can be debated endlessly, and Mr. Williamson certainly has hit upon some excellent causes; namely, America's fleeting industrial superiority as the only unscathed combatant at the end of WWII. But, like Mr. Williamson, I would advise the OWS types that the real "secret bad guy" is not behind the scene but right in front of them as chairman of the most corrupt organization on the planet. I refer, of course, to Ben Bernanke, chairman of the Federal Reserve Bank. "Most corrupt organization on the planet"? You bet. The Fed acts in complete secrecy and for very good reason. It prints mountains of money and distributes it throughout the world to the detriment of the American people. Bloomberg News' Freedom of Information Act lawsuit revealed that the Fed had lent hundreds of millions of dollars to foreign banks, following the financial crisis in 2008. It refuses to allow an independent audit of its operations. It refuses an independent audit of its gold reserves. It enforces the federal government's perverse regulations that force banks to lend to those who are not creditworthy--the infamous Community Reinvestment Act. It bails out some banks and lets others go under, for no known reason (although we know that there always is a reason and it usually is political). And I haven't even touched upon its role in promoting unsustainable and capital destroying bubbles through its control of money and the interest rate. So, open your eyes, you OWS types, and picket the real bad guy--the chairman of the Federal Reserve.

Patrick Barron