My letter to the NY Times re: Reviving New Deal Fallacies

Re: Confronting an Old Problem May Require a New Deal, by Eduardo Porter

Dear Sirs:
Mr. Porter recently trotted out every discredited economic idea of the New Deal, from Keynes' fallacious idea of permanent, structural unemployment to the fallacious idea that technology permanently destroys jobs to the fallacious claim that raising the minimum wage is good for employment (the craziest one of all!) to the discredited claim that "the WWII production explosion" ended the Great Depression.  In an unhampered free market economy with sound money prices there is no unwilling unemployment, because the only true limit on an economy's production capacity is the existing pool of labor.  Technology makes workers more productive, expanding production and lowering prices.  Make-work WPA projects drain resources from the private economy.  The minimum wage eliminates from the legal workforce those whose marginal productivity falls below the all-in minimum wage, which, of course, is much, much higher than the new $10.10 minimum.  Unemployment in WWII was solved by two factors--placing millions of men under arms, and sending them off to kill and be killed, and the elimination of the most onerous New Deal legislation that hobbled American war production.  The Great Depression really didn't end until 1946 after the worst New Dealer, FDR himself, was gone and a Republican congress was able to end even more anti-business madness.

My letter to the NY Times re: Yellen's analysis won't help

Re: Don't expect job data to persuade Fed on rates

Dear Sirs:
Floyd Norris reports that Janet Yellen loves to study all those employment statistics in order to set Fed policy.  And that is the problem.  The Fed's new leader believes that monetary policy can be used to beneficial effects.  But nothing could be further from the truth.  By manipulating money and interest rates, the Fed confuses entrepreneurial activity, leading to what Ludwig von Mises called "malinvestments".  The natural interest rate regulates savings with profitable investment.  By manipulating interest rates the Fed causes malinvestment in the time structure of production by sending too many resources to stages of production that are far removed from the consumer.  These malinvestments will be revealed when the Fed stops its interventions or when the value of the currency deteriorates.  Once monetary intervention is set in motion nothing can prevent the inevitable recession.

My letter to National Review Magazine re: The Nobility of All Work

Re: The Hard-Working Rich, by Kevin D. Williamson

Dear Sirs:
Mr. Williamson's presents some truly amazing facts about what separates the rich from the poor...and it's not just that the rich have more money, per Ernest Hemingway's famous quip to F. Scott Fitzgerald.  Behind Mr. Williamson's statistics about the rich lie people who just plain are willing to work.  A European immigrant friend of mine has told me many times that he is amazed that Americans will take jobs that would be beneath a person of his, shall we say, class or stature, and do so without embarrassment.  Americans who are self-sufficient and take personal responsibility may not be rich but they certainly are not poor. Despite our government's best efforts to drive all of us to government dependency, the non-poor have a way of finding work and providing for themselves.  Before the age of the welfare state, the poor had role models for pulling themselves up by their bootstraps.  I fear that government welfare and the welfare state's cheerleaders have convinced many that there is menial work that is beneath them or simply does not pay them the salary that they are due; therefore, welfare has become if not an honorable choice at least it has become a choice that the rest of us are not allowed to criticize.

Keeping Greece on the EU Dole

Re:  EU official assures the IMF that it will continue to support Greece

There was never any question that Greece would not get all the money that it wants from the EU and then even more from the IMF.  After all, the money that the EU throws down the Greek rat hole isn't real money.  Furthermore, the EU officials who decide to squander it are not sending THEIR own money and are not democratically elected anyway.  The same is true of the IMF.

The EU and the IMF are putting entire nations of the dole.  The EU is admitting even more basket case countries for membership with the promise that these countries do not need to pay their own welfare bills but can send them to the EU.  After a suitable time and meaningless promises these countries will get more money too.

The EU is little more than a welfare plan on an international scale with the IMF as backup.  As such, the results are the same as putting individuals on welfare.  Personal responsibility, honesty, hard work...all the necessary elements of a truly civilized society...are abandoned.

My letter to the NY Times re: The Boston Fed as Community Organizer

Re: Boston Fed as Community Organizer

Dear Sirs:
This PR campaign by the Boston Fed is not authorized by its mandate.  More importantly, the Fed has no idea what businesses to support.  This is the role of the entrepreneur, who risks his own money and that of other capitalists.  Without skin in the game, the Fed has no means to evaluate which projects to support.  Ludwig von Mises destroyed this socialist dream almost a hundred years ago in Economic Calculation in the Socialist Commonwealth.

My letter to the Wall Street Journal re: Central bankers cannot "buy time" for politicians

Re: Euro Zone Must Defeat the Deflation Ogre, by Simon Nixon

Dear Sirs:
Simon Nixon does an admirable job of showing that "cronyism, corruption, and vested interests" are a greater threat to the Euro Zone nations that the so-called (by IMF chief Christine Lagarde) "deflation ogre".  Yet the implication is that the ECB monetary inflation can "buy time for politicians" to get their houses in order.  Such is not the case.  If, in fact, central banks could postpone the day of reckoning, then why not keep printing more money and postpone it forever?  Because the day of reckoning is inevitable and necessary.  More money printing, even if tapered, as the Fed is attempting, masks the underlying additional dislocations to the time structure of production and makes the inevitable correction even that much worse.  Sound money reveals all these dislocations in an economy that has undergone a credit induced boom, and sound money prevents the next boom--and the inevitable and necessary bust--from happening in the first place.

A Question for Ford Motor Company

Re: Ford threatens to leave Britain if Britain leaves the EU

Would Steve Odell change his mind if, at the same time that Britain left the EU, it adopted unilateral free trade?  I don't see why he would not (change his mind, that is).  If he wants to meet the EU regulations in order to export there, nothing would stop him.  He would be in the same position as if Britain were still a member.  But unilateral free trade would liberate from costly and burdensome EU regulations those British companies that do NOT want to export to the EU.  Local companies with only British customers, such as many small farmers, could ignore EU regulations altogether.  The same logic would apply to those who exported to non-EU countries.

There's a bigger world than the EU out there for British goods.

Two Economic Lessons

From today's Open Europe news summary:

In a new report released today Business for Britain calls for UK firms which do not export to the EU to be exempt from EU regulation as part of a renegotiation over the UK’s membership of the EU.
Open Europe research: Regulation Open Europe research: Trade Mail Guardian Sun

Of course, if Britain leaves the EU its businesses that do not export to the EU would not be subject to EU regulations anyway.  Those UK businesses that did want to export to the EU could decide for themselves if the cost of compliance was worth the cost.  Then the only real harm would fall on the EU citizens who either were denied British products that they would otherwise have purchased or were required to pay a higher price due to the increased cost of regulatory compliance.

There are two economic laws that emerge from this small report.  One, there is nothing that a trading bloc can offer that free trade does not already provide.  Two, the cost of regulation always falls on a country's own citizens and not on those who wish to sell to that country.

The problem with wind and solar as energy sources

Re: Renewable energy fiasco in Germany

Here are the basics of electricity generation--it must provide either base power or on-demand power, and it cannot be stored.  Base power today is provided mostly by nuclear and coal plants and some hydroelectric.  On-demand power is provided mostly by natural gas driven utilities.  In other words, an energy source must provide power either all the time or whenever demand spikes up.  WIND AND SOLAR PROVIDE NEITHER ONE!  Read the short article that illustrates the problem in Germany, a real life test case of wind and solar drawbacks.

My letter to National Review Magazine re: Misunderstanding Savings

Re: Raising Savings, by Allison Schrager

Dear Sirs:
Although Ms. Schrager's heart is in the right place and she says many good things about the need for a higher level of savings, she makes apparent in many places that she really doesn't understand the role of savings in the market process.  I believe that she is blinded by the GNP numbers, which are little more than aggregations of, mostly, consumer spending.  By relying upon GNP as the barometer of the economy, then of course any reduction in spending appears to be harmful.  But this is not the case.  No one would disagree that what is spent cannot be saved.  But where does the savings go?  It goes into the investable funds pool to finance stages of the production process that are further removed from final consumption.  Spanish economist Jesus Huerta de Soto estimates that business to business spending accounts for over seventy percent of economic activity. Very little of this is captured by GNP statistics.

Government should not try to guide the economy in any way.  It should not try to encourage either spending or savings.  Such decisions are the personal choice of millions of Americans, based upon their "time preference"; i.e., their preference for consuming in the present rather than delaying consumption, saving now, and consuming more in the future.  Time preference is different for different people and changes constantly for a variety of reasons.  No economic czar can determine the right amount of savings, because to do so assumes that it is possible for him to determine the aggregate time preference for the entire economy. But we don't need a czar, because we have the market, which does the job for us, as long as government keeps its grubby hands off, that is.

A Sobering Calculation on the Dollar / Gold Price Ratio

 Re: Jim Rickards predicts the price of gold

In this four minute interview Jim Rickards predicts that the price of gold will go to "$7,000 or $9,000 or even higher".  (The price becomes infinite if all confidence is lost in the dollar.)

How does Jim make this prediction?  Well, consider these facts:

M1 = $2.611 trillion (cash and bank checking accounts)
M2 = $10.934 trillion (M1 plus bank savings accounts and short term certificates of deposit)
Gold owned by the Fed: 261.5 million ounces

Therefore, the price at which the Fed would have to price gold in order to honor all of M1 without running out of gold is determined by the following calculation:  M1 / ounces of gold

$2.611 trillion (M1) / 261.5 million (gold ounces) = $9,985 per ounce

Here's the calculation using M2:

$10.934 trillion (M2( / 261.5 million (gold ounces) = $41,813 per ounce

Remember...until the US abandoned the Bretton Woods Agreement in 1971, the dollar was pegged to gold at $35 per ounce!