My letter to the NY Times re: New Fuel Economy Standards

From: patrickbarron@msn.com
To: letters@nytimes.com
Subject: New Fuel Economy Standards
Date: Thu, 30 Aug 2012 13:37:13 -0400


Re: US Sets Much Higher Fuel Economy Standards

Dear Sirs:
There is no justification for claiming that new fuel economy standards will improve our economic satisfaction. In fact, there is every theoretical justification for claiming that any fuel economy standard economically harms both the buying public and the car manufacturers, who, after all, merely want to satisfy the consumers' preferences. The fact that the government arbitrarily sets such standards is proof that the public would not buy such cars willingly; otherwise, no standards are necessary. Furthermore, it is patently ridiculous and an insult to the readers' intelligence to claim that thirteen automakers "endorsed the new standards during lengthy browbeating...oops, I mean negotiations...last year". I got a special laugh out of the ravings of Transportation Secretary Ray LaHood, who has never held a real job in his life. He was chief of staff to Representative Bob Michael for decades before successfully obtaining that office when Michael retired after the Republicans stripped his party leadership. LaHood left that job when offered the Transportation Secretary post. There is no doubt that he will retire on a generous public pension, having never held a real job in his life. Yet, LaHood deigns to instruct us on our preferences and the economics of the automobile industry. Regrettably, the government is full of such pretentious clowns.

Patrick Barron

Currency Devaluation is NOT Necessary

From today's Open Europe news summary (my emphasis in red):

Former Polish Finance Minister: ECB bond-buying worst option for the eurozone
Open Europe yesterday hosted a lunchtime discussion entitled, “What can the eurozone learn from Eastern Europe’s transformation?”, with a keynote speech from Professor Leszek Balcerowicz of the Warsaw School of Economics, formerly Governor of the Polish Central Bank, and also Deputy Prime Minister and Finance Minister on two separate occasions. Professor Balcerowicz – famous for implementing the Polish structural reform plan following the fall of communism – used the example of some Eastern European countries to show that it is possible to get out of recession through structural reforms, without currency devaluation. He warned against further bailouts, arguing, “If you have a lot of money, then incentives to reform are weaker…Many politicians prefer taking the easy money and putting off painful reforms.” Professor Balcerowicz also said that having the ECB buy large amounts of government bonds would be “even worse” than state-led bailouts, since it would create greater long-term costs. He concluded that, instead of trying to rush the creation of an “unrealistic” political union – which would backfire politically – eurozone leaders should try to put in place the two conditions to make a monetary union function, fiscal discipline and flexible labour markets. The debate was covered by Polish daily Rzeczpospolita, Polish current affairs magazine Wprost and by financial website Puls Biznesu. Open Europe Events Rzeczpospolita Wprost Online Puls Biznesu

Professor Balcerowicz's practical and successful experience with currency reform contrasts with that recommended by Roger Bootle, the winner of the 250 thousand pound sterling Wolfson Prize for how to exit the EMU. Bootle's prescription is pure statism--steal the peoples' money in the middle of the night via secret redenomination and devaluation.

By all means, do not let anyone have an advantage!

From today's Open Europe news summary:
Greece to pursue special economic zones to boost investment
Greek development minister Kostis Hatzidakis announced yesterday that Greece is in talks with the European Commission over setting up special economic zones, tax and possibly regulatory concessions, in an attempt to encourage investment in Greece. Hatzidakis notes that such zones would be controversial with other eurozone countries as they would give Greece a comparative advantage. Separately, both Credit Agricole and Societe Generale are in talks to sell their Greek businesses in an attempt to reduce their exposure to the crisis. Open Europe’s Raoul Ruparel appeared on Sky News over the weekend discussing the crisis in Greece.Kathimerini Kathimerini 2 FT CityAM WSJ Le Monde Les Echos

The response to the announcement that Greece may set up special economic zones in which regulations are relaxed a bit reveals the true nature of the hijacked European project. Rather than encouraging governments to compete for business, the European Union has become a giant prison in which business cannot escape increased taxes and regulations. This results in a race to the bottom whereby the most wasteful countries prevent more responsible ones from offering better terms for business and the entire continent suffers.

ECB president Draghi does not understand the problem with the euro

From today's Open Europe news summary:
Draghi: A United States of Europe is not the solution to the eurozone crisis

Writing in Die Zeit today, ECB President Mario Draghi argues that the current “solutions offer binary choices: either we must go back to the past, or we must move to a United States of Europe. My answer to the question is: to have a stable euro we do not need to choose between extremes.” Draghi suggests that a new architecture is needed, with Germany remaining the “anchor of a strong currency”, but that a political union is not a prerequisite, adding “economic integration and political integration can develop in parallel”. Draghi suggests a model based on fiscal responsibility, combined with financial regulation and oversight, arguing, “This is not the end, but the renewal of the European social model.” Draghi concludes, “Those who want to go back to the past misunderstand the significance of the euro. Those who claim only a full federation can be sustainable set the bar too high. What we need is a gradual and structured effort to complete EMU.ECB Press release

ECB president Draghi does not understand that the problem with the euro is that it is a classic "tragedy of the commons", as explained by Dr. Philipp Bagus in The Tragedy of the Euro. Each country in the EMU can print euros by the "backdoor" method of using worthless sovereign debt as collateral for euro-denominated loans from the ECB. There is no mechanism to prevent this from happening. So the EMU is composed of seventeen countries who are vying with one another to print euros. As with any commonly held resource, the euro will be plundered to extinction. The true tragedy is that the liberal European project of free trade, free mobility of workers, and free transfers of capital is threatened by the unnecessary euro project.

My letter to the NY Times re: Consequences of EU Ag subsidies foreseen by Mises

Re: Spain's Crisis Reignites An Old Social Conflict

Dear Sirs:
In his magnum opus Human Action Ludwig von Mises explains that subsidies result in LESS of the desired good rather than more. Subsidies allow inefficient producers to remain in business, whereas the free market would place scare resources into the most productive hands. The social unrest among Spain's unemployed agricultural workers, who resent subsidy-gorged landowners who allow their fields to lie fallow, is a perfect illustration of Mises' insights.

My letter to the Financial Times, London re: Stick to the Law!

From: patrickbarron@msn.com
To: letters.editor@ft.com
Subject: Stick to the Law!
Date: Mon, 27 Aug 2012 09:54:34 -0400

Re: The ECB must still do its bit to help solve the crisis by Wolfgang Munchau

The European Stability Mechanism cannot indemnify the ECB for any losses. I would suspect that ECB legal constraints will ultimately outweigh the credibility of an informal pari passu pledge. There is a law against monetary financing of sovereign debt. There is, however, no law against lying. Of the constraints, the first is political. If you push this too far, you may simply replace a southern European debt crisis with a northern European political crisis. The German establishment is already howling. The second constraint is legal. A legal dispute, especially in Germany, could endanger the credibility of the operation. It is one thing for the Bundesbank to disagree with an ECB policy. It is quite another for it to say publicly that Mr Draghi is breaking the law.On Sunday, Jens Weidmann, the Bundesbank president, issued the sternest warning yet that he opposed large-scale bond purchases. He said they came close to outright debt monetisation.

The above quote from Munchau's column illustrates the enormous pressure upon the ECB to violate its charter that prohibits it from monetizing sovereign debt. Manchau obviously chafes at this restriction as much as Draghi, because he calls for the ECB to purchase corporate bonds, apparently favoring any borderline legal method that will pump more fiat euros into the money supply. Pardon my naivete, but wasn't the purpose of the European Monetary Union to instill Bundesbank-like discipline on all of Europe? It seems to me that, apart from the theoretical advantages of sound money, the history of post war Europe's economic recovery would validate the Bundesbank's relative hard money policy as the better system for the long run.

Patrick Barron

My letter to the Finacial Time, London re: Who controls money should be the key issue in the US presidential election

From: patrickbarron@msn.com
To: letters.editor@ft.com
Subject: Who controls money should be the key issue in the US presidential election
Date: Sat, 25 Aug 2012 16:48:29 -0400

Re: Republicans eye return to gold standard

Dear Sirs:
The subject of your page one lead article on Friday, August 24th should be the key issue in this year's US presidential election. This short paragraph in your article states the case for the status quo vs. a gold standard:

"A return to a fixed money supply would remove the central bank's ability to offset demand shocks by varying interest rates. That could mean a more volatile economy and higher average unemployment."

The Austrian school of economics postulates the opposite of this claim. It is central bank manipulation of the interest rate that causes economic disequilibrium in the form of malinvestment that must be shed eventually, causing high unemployment in the process (what is commonly called a recession). In addition to unemployment and poverty, other economic problems such as higher prices and increased debt stem from state control of money. Furthermore, central banks finance the hope-destroying welfare state and, most perniciously, the warfare state. Central banks' incessant money pumping has resulted in a loss of liberty that took the Anglo Saxon world centuries to achieve. Undoubtedly, the key issue of our times is the debate over state control of money through central banks versus market produced money willingly accepted by the people.

Patrick Barron
Adjunct Instructor in Austrian Economics
Department of Economics
University of Iowa, USA

Excellent Short Recap of the Consequences of the Misconstructed Euro Project

Showdowns that will define Europe's future

This crisis was predicted by the Austrian school of economics, which warned that the euro project was a socialist enterprise and bound to fail. As the blog states, rather than bring Europe together the euro project has driven Europe apart. It has squandered all the good of decades of hard work to liberalize European markets. Now the political elite want to replace peaceful market forces with coercive political mandates, starting with centralized control of banking. It is ever thus. The first goal of all socialist enterprises is to control money and banking. Should the elite succeed, Europe will continue to deteriorate both economically and socially. As the Open Europe blog states, already Germans resent transferring money to Greece and Greece resents German demands for Greek austerity.

The solution is right before our eyes--free markets, limited government, and the rule of law.

But what if Greece doesn't pay?

From today's Open Europe news summary:
Mail: Greek exit from the eurozone could cost the UK economy £105bn
The Mail reports that, according to unnamed senior government sources citing internal Treasury calculations, a Greek exit from the eurozone could see UK GDP fall by £105bn (around 7%). The article notes that this estimate is much higher than estimates by financial firms, with much of the cost stemming from a fall in UK exports to the eurozone and collapses of European banks causing losses for UK banks.

An export is simply a sale to a foreign buyer, for which the exporter must be paid. If Greece cannot pay its debts, it makes no sense to continue export sales, just as it makes no sense to sell to a domestic customer who does not pay. Greece cannot pay for its imports, except by borrowing or printing euros. Of course the export industries in the UK want to make sales and, undoubtedly, lobby the government to lend their fellow citizens' money to Greece in order to fund these sales, but this means that all UK citizens are paying their own export sector to produce goods for Greeks. The same is true of Germany, where powerful labor unions in the export industries lobby the German government to continue funding the many EU bailout funds so that they can keep their jobs. It is a giant scam, perpetuated by fallacious Treasury calculations.

Germany's Increasing Liabilities Towards the Eurozone

From today's Open Europe news summary:

"German SPD budgetary spokesman: Funding deficits via the ECB the worst way of dealing with the eurozone crisis Speaking to Berliner Zeitung, the SPD’s budgetary policy spokesperson Carsten Schneider estimated that Germany’s true liability towards the eurozone stood at around one trillion euros, arguing that “In reality we have already been in a debt union for a long time. We are liable not only for the debts of the deficit countries via the Greek package and the bailout funds but also for far larger amounts relating to the transactions of the ECB.” Schneider also criticised the “opaque and undemocratic” decision-making within the ECB, arguing that “In the ECB’s Governing Council Germany has only got one vote just like Malta and can always be outvoted. Financing deficits via the ECB is the worst way of dealing with the eurozone crisis”."

The "transactions of the ECB", to which Herr Schneider refers, are the credit obligations due Germany through the ECB's TARGET2 system, as described by Dr. Philipp Bagus in this article:

Passing the Bailout Buck, by Dr. Philipp Bagus

Furthermore, as should be expected, Greece asks for a two-year delay in meeting its budgetary promises. One should expect that this two-year delay will never arrive.

"Greece to renew push for two year delay to austerity programme
The FT reports that Greek Prime Minister Antonis Samaras will renew his push for a two year extension to the country’s fiscal consolidation programme when he meets German Chancellor Angela Merkel and French President Francois Hollande next week. According to Greek government documents seen by the paper, Greece would require an additional €20bn in funding if cuts were slowed. However, the funds could be raised by increasing short-term debt, delaying repayment of the initial EU/IMF loans or even increasing disbursements from the IMF. The Greek government is still expected to present plans for a further €11.5bn in cuts over 2013-14 to Eurogroup Chief Jean-Claude Juncker in a meeting next week, despite the fact that the coalition is yet to fully agree on how these cuts will be achieved."

As long as Greece and the other debtor nations can externalize the cost of their profligacy, they will never summon the courage to reform their economies. The only answer is to end the socialist euro experiment and return to the founding principles of the European Union (which have already been met!); i.e., free trade in goods and services, free mobility of capital, and free movement of labor. This is the true liberal ideal, not a socialist transfer union enforced by a coercive, centralized European government in Brussels.

Wrong Policy for Japan

Re: Japan Lifts Sales Tax to Tackle Debt

Here is the key point:

"Lawmakers dropped plans to curb entitlements, which were seen as more politically contentious than the tax increase."

This is the challenge of democracies everywhere. The people resist cuts to unsustainable entitlements. The elderly population of Japan votes to keep entitlements that their non-existent sons and daughters would have to pay. (Japan's birthrate is the lowest in the industrial world and well below the population replacement rate.) Japan's public debt to GDP is the highest in the industrialized world, and these tax increases will NOT stop it from increasing. So where will Japan get the money? From the printing press.

A Shortage Cannot Cause Overall Price Inflation

Re: Will the Crop Crisis Trigger Inflation by Doug Casey

The full article about the impact of a reduced cereal crop is interesting, although the conclusion is misleading. A shortage of some key commodity cannot cause a GENERAL price inflation. Certain products may increase in price, but this need not cause ALL prices to rise. The more we spend of our disposable income on cereal based products the less we have to spend on other products. As a result, we will cut back on the consumption of both. In the short run this will cause non-cereal based products to fall in price, due to their excess supply. In the long run, we will cut back on cereal based products, either substituting other products or simply doing without, causing these prices to fall also. (Think eating less beef and perhaps more fish. Or think of the situation where your landlord raises your rent. In the short run you must cut back on other spending, but in the long run you may find a less expensive apartment.) The only way all prices can increase is for the money supply to increase.

The European Central Bank Evades the Law to Print Euros for Greece

Dr. Philipp Bagus of King Juan Carlos University, Madrid, has previously revealed this backdoor evasion of the law by the European System of Central Banks. This blatant disregard for the law is a trend that we see by governments and governmental institutions everywhere.

Here is the key section from the Speigel online report:

"...the central bank is prohibited from financing governments directly...The ECB has chosen a detour via the Greek central bank...The Greek central bank will accept the dodgy bonds as collateral, and will provide the country's equally troubled commercial banks with freshly printed euros -- which ultimately come from the ECB."

http://www.spiegel.de/international/europe/ecb-prints-money-for-greece-to-buy-time-for-athens-a-848989.html

Prime Minister of Japan Noda's Pretense of Knowledge

Prime Minister Noda of Japan sends a weekly blog email to subscribers. Below is his blog for Wednesday, August 8, 2012.

Prime Minister NODA's BLOG" E-mail Service (August 8, 2012)
"The challenge of opening up frontiers": http://nodasblog.kantei.go.jp/2012/07/120731-1.html

Here is the key point from the blog posting:

"Over the next three years we will be engaged in concentrated efforts, setting "green" innovations, "life" innovations, the agriculture, forestry, and fishery industries, and small- and medium-sized enterprises as our four major project areas. Moreover, the Strategy lays out 11 strategies and 38 prioritized policies and is accompanied by a progress schedule that specifies for each area matters including "what to undertake by four years from now" and "what kinds of
results to aim for by 2020." We will also strike a balance when formulating the budget and realize these policies one by one."

So, how do Japan's politicians know that these are the proper goals? Hayek would call such grandiose plans "the pretense of knowledge". Of course, Japan's politicians have no special insight into the future; they are confiscating the nation's resources to fund politically connected and/or currently populist projects. This is euphemistically called "doing something".

Ominous interview by the president of the Boston Fed

Re: Boston Official Calls for Bond Buying

Eric Rosengren, President of the Federal Reserve Bank of Boston, calls for an "open-ended program" of bond buying that will entail even "more substantive action than we've taken to date,". Ominously he states that the bond buying program would continue "until we start seeing some pretty significant improvements in growth and income."

The Fed engaged in Quantitative Easing One in 2009 and 2010 to the tune of $1.25 trillion. That didn't do the trick, so it engaged in QE2 in 2011 for another $600 billion. So, we have had $1.825 trillion dollars of monetary stimulus so far and Mr. Rosengren, obviously a disciple of Paul Krugman, thinks that the Fed just hasn't done enough.

If Mr. Rosengren has his way--and he simply may be sounding out public reaction for a policy already endorsed by the Federal Open Market Committee--the Fed will print money until the purchasing power of the dollar is destroyed.

My letter to the Philadelphia Inquirer re: the economic ignorance of writers

From: patrickbarron@msn.com
To: inquirer.letters@phillynews.com
Subject: Economic Ignorance: The steep toll it takes
Date: Sun, 5 Aug 2012

Re: Cheap Fashion: The steep toll it takes

Dear Sirs:
Katie Haegele's admiring review of Elizabeth Clines' Over-Dressed: The shockingly high cost of cheap fashion is simply the latest false epiphany by a young person who is ignorant of economic science. Wage rates are determined by worker productivity, which itself is determined by capital investment, which itself is the result of capitalist savings funding successful entrepreneurship. The ever expanding division of labor brings us increasingly improved products at ever lower prices. A capitalist society is not run by evil owners of capital but by the consumer: his decision to purchase or not purchase makes and breaks industrial empires. If women want lots of pairs of cheap shoes rather than one or two pairs of expensive shoes, then that is what the capitalists will fund and the entrepreneurs will provide. Only a spoiled American, ignorant of the workings of our marvelous free enterprise system, would fail to see that the sweat shop workers in China today are better off than their out of sight and starving ancestors. I am old enough to remember when the label "Made in Japan" was viewed as the mark of cheaply made and inferior goods. Not any more. The same can be said of South Korea, Taiwan, Singapore, Hong Kong, and other formerly developing nations. They are "developing" no more and are paid wages approaching that of U.S. workers. Time for writers and book reviewers to learn some basic economic science.

Patrick Barron