Tuesday, November 27, 2012

The real cause of higher worker pay

From the November 19, 2012 Open Europe news summary:
During a radio interview with Europe 1, French Industry Minister Arnaud Montebourg said that Germany “should raise its salaries” to drive growth, and also asked Germany “to provide social security worthy of its name in a number of sectors”.
La Tribune

The idea that paying people more will increase demand and solve all our problems was refuted conclusively over 150 years ago by the classical economists, but that doesn't keep today's ignorant politicians from thinking that they have stumbled upon the idea for the first time.  This is nothing more than believing that paying someone to buy your product will make you wealthy, a truly irrational idea.  On the contrary, higher pay is a result of only one thing--higher productivity of labor.  And higher productivity of labor is the result of only one thing--more capital per worker.  And more capital is the result of only one thing--savings.  We cannot spend ourselves into prosperity, but we can SAVE ourselves into prosperity, economic self-sufficiency, and economic security.

Friday, November 16, 2012

Denmark Repeals Its "Fat Tax" for the Wrong Reasons

This article from Denmark is typical of one that can be found daily illustrating the many ways that governments everywhere intervene into our lives.  It is interesting that there is no mention in the article about personal freedom.  The "fat tax" will be repealed (only to be replaced by something else) due to the complaints of producers in Denmark.  The personal freedom of Danes to consume the foods they prefer is never discussed and, apparently, was never considered by Denmark's legislative elite.

Thursday, November 15, 2012

Merkel's Fiscal Union Plan Will Not Work

Re: Merkel's sovereignty remedy

Excellent article, although I do not agree with the author's conclusion, to wit:

"The upshot of the euro crisis will be some kind of fiscal union, but what fiscal union means is not clear. Germany believes it means sending tax inspectors to Thessaloniki. Brussels believes it means sending cheques to Thessaloniki."

A fiscal union (Merkel's plan) means loss of sovereignty (thus the title of the article). Yet no country in Europe will accept outsiders dictating its budget. The alternative program of making all Europe responsible for the bailouts of sovereign governments is coming to an end. The circle cannot be squared, thus exposing the internal dichotomies of the common currency project. It rewarded irresponsible countries and, eventually, the few responsible ones rebelled. The solution is NOT to kick Greece or any of the other countries in crisis out of the eurozone; the solution is for Germany to leave the eurozone, reinstate the deutsche mark, and tie it to gold. This would cause of cascade of similar moves all over the world and bring an end to ever increasing sovereign debt. Debt could be increased only by voluntary purchases by real investors with the own, private real money, not by involuntary purchases by taxpayers with fiat money produced out of thin air.

Wednesday, November 14, 2012

My letter to National Review Magazine re: What Crimes Are "Hiding in Plain Sight" Today?

Re: "The Court Predator" by Mark Steyn

Dear Sirs:
Mark Steyn makes clear--and, I am certain, the British police will discover--that Jimmy Savile's criminal pedophilia was well known to British media elite for decades. I ask you, what monstrous crimes are "hiding in plain sight" right now...celebrated, in fact, by the mainstream media and academia? Here's a hint--the criminal bosses are named Bernanke, King, and Draghi. That's right...our central bankers are as celebrated for their crimes as was Jimmy Savile. It is right before our eyes. All central bankers blatantly admit that it is their policy to debase the value of the money currently held by the people. They blatantly announce targets of two percent debasement. Bernanke will continue his debasement crimes until unemployment drops to a level that he personally approves, whatever that may be and whenever that may occur...if ever. Draghi will debase the money held by citizens of the eurozone in order that the Greeks may enjoy the ephemeral benefits of the unsustainable welfare state. (Well, it is sustainable as long as Draghi will print euros and give them to the Greek government.) There may come a glorious time when these criminals will be sitting in the dock, wearing headsets, and listening to the roll call of their crimes, much as the post war generation saw the trials of the Nazis at Nuremberg. Will we give any credence to their defense that they were only following Keynesian theory?

Patrick I. Barron

Monday, November 12, 2012

Germany Must Repatriate ALL of Its Gold

The Greatest Threat to Worldwide Prosperity

The greatest threat to worldwide prosperity is the collapse of what remains of free market capitalism.  Not war.  Not depletion of scarce natural resources.  Not environmental degradation.  Not global warming (or is it "climate change" now?)  No, the greatest threat to worldwide prosperity is the complete collapse of what little remains of free market capitalism.  Throughout the world, and not just in totalitarian countries, the state has been advancing at the expense of economic liberty.  The indispensible tool that enables the modern state to usurp our liberties is its access to unlimited amounts of fiat money controlled by central banks; i.e., the unholy alliance of the state with the central bank.

Fiat money expansion has made the advance of statism possible through its ability to thwart the wishes of the people as the final arbiters of state spending.  The state can obtain an almost limitless amount of fiat money from its central bank.  It need not increase taxes or borrow honestly in the bond market, so it need not fear a tax revolt or high interest rates respectively.  All it needs to do is convince the central bank to buy its debt.  The state then takes control over more and more resources, squandering them on war and welfare, depriving the free market economy of its capital base.  Once the capital base has been depleted, the economy will go into a steady decline.

The poster child of this phenomenon is the (former) Soviet Union.  Yes, total collapse is a real possibility--for us too.  The Russian people may have believed that economic decline would reach a plateau, stop, and then reverse.  As explained in stark terms by Dr. Yuri Maltsev, former economic advisor to Mikhail Gorbachev, in Requiem for Marx, the Soviet economy deteriorated into one of subsistence.  The capital base of Russia had been destroyed, and collapse soon followed.

The monetary printing press is seen as an alternative to saving and investing as the means to grow the capital base.  Monetary stimulus attempts to generate economic recovery mainly through exports.

If a nation can increase its exports, so the logic goes, it can increase employment, pay off debts, etc.  So, rather than properly reforming the economy, monetary authorities engage in a destructive "race to the bottom" through competitive debasement of their currencies.  First one country then another intervenes into its own currency markets to cheapen its currency against all others.  But currency devaluation will not work, as explained in this article.

What is desperately needed is for one country to break from this failing and ultimately disastrous model of fiat money expansion and its horrific effects.  This one country must be in a special position whereby it is readily apparent that it is being harmed by currency debasement over which it has no control.  Fortunately for the world there exists such a country--Germany.

The Intolerable Monetary Position of Germany Creates a Unique Opportunity

Germany is the fourth largest economy in the world, behind only the US, China, and Japan.  Amazingly, it does not control its own money supply, because it is a member of the European Monetary Union (EMU), composed of seventeen nations using a common currency--the euro.  Each member, regardless of size, has an equal vote over monetary policy, administered by the European Central Bank (ECB).  Increasingly Germany's is the lone voice for monetary restraint--recently it was outvoted sixteen to one over an ECB plan to print euros in greater numbers in order to bail out bankrupt members of the EMU.  This is a situation that would be intolerable for any other country; however, due to Germany's history, it is reluctant to be seen as "anti-Europe" and instead has tried to work within the EMU framework to force bankrupt countries to reform their economies.  But this is a hopeless exercise, as explained by Dr. Philipp Bagus of King Juan Carlos University, Madrid in his brilliant book Tragedy of the Euro.  All the benefits flow to the irresponsible countries, so there is little incentive and no enforcement mechanism for meaningful reform.  Therefore, in a previous essay your authors have called for Germany to leave the EMU, reinstate the deutsche mark, and anchor it to gold.

Most recently there have been calls within Germany to repatriate substantial gold reserves held overseas.  The Bundestag--federal Germany's legislature and, as such, representing all diverse elements and factions in the country--is the impetuous behind this movement.  The Bundesbank, Germany's still extant central bank, has agreed to repatriate about one-tenth of its vast overseas gold deposits over the next three years.

But this is inadequate for the real task at hand.  Germany must repatriate ALL of its gold.  There is only one reason that a central bank would wish to repatriate its gold--to serve as reserves in a gold backed monetary system.  The market must be assured that the gold actually exists, that it is under the total control of its rightful owner, and that it is not leased or part of a swap arrangement.  Furthermore, the central bank must be willing to honor demands to deliver gold in the quantity specified in exchange for its paper money certificates and the commercial bank book entry deposits.

Delivery of Gold upon Demand is Crucial

If Germany is to back the deutsche mark with its own gold, markets must be certain that the Bundesbank can and will deliver the gold upon demand.  For under a gold-backed system the gold IS the money.  The pieces of paper that people carry in their wallets and keep in cookie jars and the book entry receipts at commercial banks are not money per se--these are money substitutes that can be exchanged for real money...gold.  The central bank can meet this requirement only if it has absolute control over its gold.

The Bundesbank has significant portions of its overseas gold deposits at the Federal Reserve Bank in New York and the Bank of England in London.   At one time it may have made sense to deposit gold in these countries in order to protect it from the possibility that the Red Army would overrun Germany.  Fortunately that threat is no more.  But the Federal Reserve Bank has been very circumspect about displaying Germany's gold to its rightful owners.  Now, I ask you, is this not very suspicious behavior?  Why would the Fed refuse to show the actual gold to Germany or any other nation with gold deposits?  The reason usually given is one of security, but what does the Fed think is going to happen? Does it think that armed robbers will be able to abscond with some bars?  This is preposterous!  The gold is the property of Germany.  Germany should insist on viewing its gold, counting its gold, testing its gold for fineness, and making quick arrangements for moving its gold to its own vaults in Germany.

Let Justice Be Done...

Either the gold is all there, and rumors to the contrary are baseless, or some portion of the gold is not there or is encumbered in some way.  If the former, all is well.  If the latter, then let's learn about it now, so that we can stop any further theft and so that we can establish a financial crimes tribunal to try all who had a part in the theft.  If that means prosecuting central bank officials in the US and/or the UK, so be it.  If that means that the exchange rates for the dollar and/or the pound sterling fall in relation to other currencies, so be it.

Let's learn the truth, whatever that may be, so we can get on with the important work of placing the world's finances on the solid foundation of sound money and not on promises of confidence men.  Let us adopt the Latin legal concept fiat justitia ruat caelum, "Let justice be done though the heavens fall", and not lose sight of the goal of saving what remains of free market capitalism and beginning the difficult process of restoring our liberties.


A Golden Deutsch Mark as Catalyst for Ending Fiat Money Tyranny

In his recent Mises Daily Article "Fool's Gold Standards" John P. Cochran warns his readers against accepting any monetary reform less than that of money created by the free market.  Therefore, he felt it necessary to criticize our previous Mises Daily Article "A Golden Opportunity" in which we advised Germany to leave the European Monetary Union, reinstate the deutsche mark, and tie it to gold.  Although he admits that our "recommendation may be a step in the right direction, ...it leaves Germany with a central bank and a discretionary monetary policy".  That it does...for now.  In no way was our essay intended to imply that central bank control of gold backed money was the point at which we desired monetary reform to cease.  As Austrian economists we fully understand and support the goal of full monetary freedom of the marketplace as that which best advances liberty, prosperity, and peace.  The question becomes, how will we achieve it?

We believe that Germany is in a unique position to end the destructive forces of fiat monetary expansion that seem to gain new impetus every day.  That is number one.  Before we can have the perfect money, we must have a better money, and Germany is in a position to show us the way.  All of us who desire liberty, prosperity, and peace should ask Germany to seize this opportunity to stop what surely will destroy free market capitalism.  By reinstating the deutsche mark and tying it to its vast gold holdings, Germany can be the catalyst that creates a cascade of similar virtuous acts that will lead eventually to full monetary freedom and all that that will bring.

Consider the likely consequences of the world's fourth largest economy establishing a one hundred percent gold backed currency.  This currency would dominate world trade, because all trading nations would desire to denominate their exchanges in the soundest money available.  For awhile at least, that would be the deutsche mark.  Demand would drop for the currencies of all other nations unless and until these countries did the same thing.  A virtuous cycle would ensue as first one then another country linked its currency to gold.  The country with the most to lose would be the United States, whose dollar currently is preferred for international trade.  But as demand increased first for the deutsche mark and later for the currencies of other nations who followed Germany's example, demand for the dollar would fall and prices would rise precipitously in the United States as countries no longer found it advantageous to hold dollars abroad.  At this point the US would be forced to return to gold.  In our opinion nothing less will bring the world's superpower to its senses; i.e., the US will NOT voluntarily adopt gold, because it benefits the most from the current, inflationary system.  However, if the major trading nations of the world adopt gold backed currencies, even the US will be forced by the market to do so.

But this is not the end.  Once the peoples of the world see the advantages to using gold money, they would begin to understand that central banks are not required to perform the money function at all.  Why couldn't Hong Kong Singapore Bank, Citibank, Barclays, Deutsche Bank, or any of a number of well respected international private banks do the same?  These international banks are more nimble than any ossified government bank to meet the needs of business and finance.  Furthermore, these international banks are more trustworthy than national central banks, which tend to operate in great secrecy in order to hide the risk they are taking with our money.  Private banks would have to answer to stockholders employing their own independent auditors.

Consider how religious toleration arose in the West, first as an expediency by princes who vied for power with the Catholic Church.  Different religions were established and protected by the state.  But over time, religious tolerance came to be seen as a good in itself.  Today we accept religious tolerance in the West as a universal given, yet it is a relatively recent phenomenon.

It is in this vein that we recommend that Germany end the tyranny of the inflationary euro and adopt a golden deutsche mark.  Such a courageous yet self-protective action will lead to a u-turn in monetary policy, away from monetary destruction and toward better and better money everywhere.

Friday, November 9, 2012

My letter to the NY Times re: The Fallacy of Tariffs

Re: Solar Tariffs Upheld, but May Not Help in US

Dear Sirs:
Diane Cardwell's explanation of the failure of US tariffs on Chinese solar panels to protect American producers illustrates the fallacy both of subsidies to gain market share and tariffs as retaliatory measures to protect domestic industries. Neither work. The Chinese people themselves pay the full cost of subsidizing solar panels, and now they find that they have wasted capital on a vast scale--Ms. Cardwell reports that worldwide productive facilities have been over-built by 133%! Furthermore, the tariffs designed to punish the Chinese are easily skirted by moving different stages of production to non-tariff countries. The loser is the solar panel buyer in the US, who must pay 10 to 15 percent more for these panels that are needlessly transported from country to country in order to avoid the letter of the tariff law. The US is NOT harmed by foreign subsidies. We get bargains. Why can't anyone understand this basic logic?

Patrick I. Barron

Monday, November 5, 2012

My letter to the NY Times re: No research necessary to disprove tax report

From: patrickbarron@msn.com
To: letters@nytimes.com
Subject: No research necessary to disprove tax report
Date: Mon, 5 Nov 2012 16:53:35 -0500

Re: Tax Report Withdrawn at Request of G.O.P.

Dear Sirs:
The question of whether higher taxes will or will not affect economic growth is not one to be answered by reference to an examination of historical experience but rather solely to the principles of deductive rational thought. Economic science is a deductive social science based upon irrefutable maxims; it is not an inductive natural science. No evidence can disprove the deduction that an economy will grow faster when taxes are lower. Economic growth is based upon an extention of the division of labor that occurs only when the number of people in an economic area expands and/or more capital is applied per capita to the production process. Capital accumulation occurs only from savings. Since taxes reduce the amount of savings, capital accumulation will be retarded and economic growth reduced below the level that would have been the case otherwise.

Another indication that the Bundestag is beginning to assert its constitutinal authority

From today's Open Europe news summary:

A report by the Research Services of the German Bundestag has concluded that ECB involvement in a new write-down of Greek debt would constitute monetary state financing and thus be in breach of EU Treaties, reports Die Welt.Welt

Someone in Germany must take the lead in stopping the inflation monster that is the euro. Perhaps the Bundestag will take the lead. This latest statement coincides with a call last week by the Bundestag for the Bundesbank, the German central bank, to audit its gold reserves held in overseas vaults.

Sunday, November 4, 2012

Failing to Understand the Moral Hazard Monster

Sheila Bair was chairman of the FDIC from June 2006 to July 2011.  Her memoirs, Bull by the Horn: Fighting to Save Main Street from Wall Street and Wall Street from Itself, is a fascinating and sometimes frustrating glimpse into the mind of a career bureaucrat.  She recounts myriad meetings and battles with fellow regulators, of which there are way too many, American bankers and foreign central bankers.  Needless to say, Ms. Bair portrays herself as the blameless, honest bureaucrat who foresaw the coming crisis and fought, as the title implies, to save both Main Street and Wall Street.

People write memoirs mostly out of hubris.  Do we really care what Ms. Bair thought as she entered rooms full of powerful people?  Ms. Bair certainly thinks we do.  The tenor of the book has a touchy-feely tone to it that may interest some, but I found it to be distracting and rather annoying.  But this is a minor quibble compared to my main complaint about the book, which is that it tells me something frightening about people who have way too much power over us.  And that something is that they have no insight into the nature of the system in which they operate and, therefore, they cannot accomplish their mission of making banking safe and affordable for all.  Let me elaborate.
The Hubris of the Bank Regulator

 Ms. Bair does indeed understand certain fundamentals about our banking system, but she understands nothing about the monetary system upon whose foundation it rests.  She gives the lay reader a very nice explanation of fractional reserve banking.  She explains that a bank deposit is really a loan to the banker and that the banker does not keep anywhere near sufficient reserves to honor demands for repayment from all but a small fraction of his depositors.  That is the purported purpose of the Federal Reserve Bank; i.e., to lend to the banker when his depositors withdraw their funds in such amounts that the banker's liquid funds are depleted.  The banker has borrowed short and lent long.  This Ms. Bair fully understands and she supports the Fed's role as lender of last resort.

She also understands that the agency that she led, the  Federal Deposit Insurance Corporation, causes moral hazard.  (To my delight she actually used and explained the term!)  Ms. Bair explains that, because bankers know that the FDIC will pay off their depositors in the event of excessive losses, bankers engage in more risky lending.  Riskier lending gives the bankers bigger profits, IF the loans are repaid.  If not, bankers can tap the FDIC.  This arrangement, whereby the banker gets all the profit from successful ventures but does not suffer all the loss if unsuccessful, creates classic moral hazard, whereby the risky venture is encouraged rather than discouraged.  But Ms. Bair feels that, although moral hazard is a problem, it is manageable.  She believes that regulators like herself can ensure that bankers do not engage in risky lending.  And this, my friends, is the heart of her hubris--that she is capable of preventing the very moral hazard that her agency helps make possible.

A lay person reading Ms. Bair's book would get the following impression of our banking system.  Left to their own devices--that is, when lightly regulated--bankers will pillage the economy for their own benefit.  Their depositors will not care, because the FDIC guarantees almost all deposits.  To prevent reckless lending, bankers must adhere to very strict rules of what kinds of products they can offer, the extent to which these products are booked, the prices they charge for their products, the disclosures that must accompany their offerings, etc.  In other words, bankers are portrayed as modern Genghis Khans that must be reined in by the likes of Sheila Bair not only to protect the public but to protect the bankers from themselves.  The entire book is based upon this chain of logic.  But nowhere does Ms. Bair explain how bankers are legally able to pillage an economy and why they do not go to jail for doing so.  As I will explain in more detail below, it is the failure of the state's legal system to protect private property combined with monetary intervention by the state chartered central bank that is at the heart of the problem.  Again, Ms. Bair sees the symptom but does not understand the nature of the banking business in our modern fiat money monetary system.

The Incremental Steps that Feed the Moral Hazard Monster

 Although Ms. Bair states that she recognizes that deposit insurance carries with it a moral hazard component, she does not mention the number one reason that turned what she considers to be manageable moral hazard into a moral hazard monster--monetary expansion engineered by the Federal Reserve.  But monetary expansion by the Fed is just the final link in the incremental chain of government failures and interventions that have led to greater and greater misallocation of resources through moral hazard.  It all started with fractional reserve banking.

 The oldest banking crises are linked to the banker's issuance of uncovered money certificates.  Here the banker violates his contract to redeem ALL demand deposits for the monetary metal, gold or silver.  Instead, he lends out a greater and greater percentage of his demand deposits, retaining a smaller and smaller fraction of the monetary metal to honor daily withdrawal demands.  The subsequent economic booms and busts can be ascribed directly to the state's failure to prosecute fractional reserve banking as a crime, with the banker's personal assets at risk as compensation to his creditors for contract violation in addition to personal imprisonment for the crime of committing fraud.  However, the booms and busts experienced through the centuries were relatively mild and self-correcting by modern terms.  The banker who engaged in excessive fractional reserve lending was brought to heel by his fellow bankers through the mechanism of the clearinghouse, in which the banker had to honor checks drawn upon his bank for which he had insufficient liquid funds, and ultimately by his customers who "ran to the bank" and demanded specie redemption.

 In an attempt to square the circle and retain the lucrative practice of fractional reserve banking without suffering bankruptcy through demands for specie redemption, the central bank was born as lender of last resort.  Initially that function of the central banker was to be rare and short lived.  The great English intellectual Walter Bagehot advised the Bank of England to, "Lend freely at a high rate on good collateral."  The borrowing bank would survive, but it would learn its lesson.  Furthermore, in the era during which precious metals were the ultimate medium of exchange, the central bank itself had to take care that it did not run out of specie.  Therefore, it did lend cautiously, at high rates, and on good collateral.  The crown helped out by granting the central bank the sole authority of note issuance, thereby increasing demand for its notes.  If the crisis persisted, the crown would allow the central bank to suspend specie redemption until it became more liquid.

The next step along the road to greater and greater malinvestment via moral hazard was the practice of the central bank to engage in interest rate manipulation via open market operations to lower the market rate of interest.  It buys assets to pump more reserves into the banking system.  This added more thrust to the moral hazard induced boom, which led to even greater busts.  Finally, as the banks suffered devastating runs upon specie, the state first suspended specie redemption and then ultimately instituted deposit insurance.  This is the point at which Ms. Bair picks up her narrative.  True to her bureaucratic background and a good example of Public Choice theory, Ms. Bair insists that deposit insurance is absolutely necessary to prevent bank runs.  Because the common man is not capable of judging the safety and soundness of his bank, at the first whiff of a problem, he will withdraw his funds and bring the bank to its knees.  Deposit insurance allays this concern for the depositor.  But Ms. Bair fails to understand that deposit insurance is just one more intervention designed to cure a problem caused by previous interventions.  This phenomenon was well understood by Ludwig von Mises.

The Moral Hazard Monster Is Unleashed

 So, we have arrived at the great day in which the depositor need not take care that his bank is solvent, government turns a blind eye to the fraud of fractional reserve banking, and the central bank can pump unlimited amounts of fiat money reserves into the banking system upon which can be pyramided greater and greater credit booms.  Needless to say, all this is lost on Ms. Bair.  She touches only upon the symptoms of the real problem.  The behavior that she describes with disgust--the bailouts of Wall Street and the neglect of Main Street, the robo-signing scandals, etc.--are the inevitable result of an ever increasing attempt to perpetuate a boom that was never supported by the underlying savings of the economy.  Moral hazard became a monster--there was money to be made and no power on earth was going to stop the boom once initiated.  The economy was said to be in a new paradigm, a new era of permanent prosperity in which everyone could own the home of their dreams.  In this Never Never Land mindset it was not unusual to grant a loan to someone who did not have the income to support the purchase of his McMansion, because the home could ALWAYS be sold for more than the purchase price.  The bank would be made whole and the borrower most likely would walk away with money in his pocket.

Ms. Bair does recognize that her institution--the FDIC--is exposed to losses beyond its resources should the boom turn to bust.  Her answer is to make the banks pay for their own future losses via higher capital requirements, a battle that she fought her entire tenure at the FDIC.  Ms. Bair's campaign for higher capital standards will slow down the boom, for no matter what the level of excess reserves (currently a whopping $1.5 trillion!), the banks cannot increase loans outstanding if they are under-capitalized.

 (Loans are funded by money created out of thin air; i.e., when the bank books a loan, it credits the borrower's checking account.  This inflates the bank's balance sheet and, concomitantly, reduces its capital ratio.)

But, the inflationist pressures in favor of more lending will not be held back very long.  The Fed itself can simply lend long term to the banks and allow them to count these loans as capital.  The Fed has not been deterred by the legality of its actions so far--lending massive amounts to European banks, for example--so don't think it might not happen.

Conclusion: the Moral Hazard Monster Devours Capital

Nevertheless, the laws of economics always prevail.  The progressive political systems of the world and their number one tool for expanding state power and realizing heaven on earth, the central banks, have created a moral hazard monster, not a slightly misbehaving pet.  The monster started as comparatively mild and self-correcting boom/bust cycles caused by fractional reserve banking.  He grew from a child to a juvenile delinquent by feeding on central bank lender of last resort money, first at penalty rates then at below market rates.  Now he is an angry, steroid packed adult Godzilla gorging himself on unlimited fiat money reserves created by oh so willing central bankers.  There is nothing that can stop him...not higher capital requirements for banks and especially not Ms. Bair's favorite cure--tougher regulation.  The Fed's Quantitative Easing Forever policy will lead to a worse recession than the one that began in 2007.  Malinvestment is being piled on top of previous malinvestment.  If fiat money credit expansion caused the 2007 Great Recession, then the Fed's program of Quantitative Easing Forever cannot be the cure.  On the contrary, it is breeding even greater malinvestment.  The world needs real reform: an end to fractional reserve banking (prosecuted as a financial crime), the liquidation of both central banks and deposit insurance, and the end to legal tender laws.  The moral hazard monster must be destroyed or all society is at risk.

Saturday, November 3, 2012

My letter to the NY Times re: How France Can Restore Competitiveness

Re: French Socialists, Under Fire, Display a Lack of Fraternite

Dear Sirs:
There are only two ways to improve competitiveness. One, work longer. But France chooses not to adopt this option. Two, extend the division of labor. This one has several components. The division of labor can be extended by increasing the number of people participating in the economic unit. France could lower trade barriers to accept lower cost goods produced by workers in other countries, for example. Or it could reduce labor laws that cause unemployment, such as minimum wage laws. Also, the division of labor can be extended by adding more capital per capita, making each worker more productive. Capital accumulation requires a prior act of saving; therefore, anything that reduces savings should be eliminated, such as taxes and monetary stimulus programs that debasement the currency.

Patrick Barron