Since when is $3 billion in cash relief NOT a bailout?

My letter to the NY Times:

Re: Senate Republicans Introduce Bill for Puerto Rico Relief

Dear Sirs:
Here's another example of a government bill that will do exactly the opposite of its summary. Puerto Rico and bankrupt states, such as Illinois, will never reform their finances by their own volition. Allowing them to file for bankruptcy protection, as proposed by the Obama administration, would end their ability to tap the bond market and force them live within their means. It's time to stop kicking the debt can down the road and get American government at all levels back on a sound footing.

My letter to the NY Times re: An abuse of language

Re: Rubio Quietly Undermines Affordable Care Act

Dear Sirs:
Your reporter Robert Pear characterizes Marco Rubio's amendment to the Affordable Care Act, which reduces the government's subsidy to participating insurance companies, as a case of "quiet legislative sabotage". Sabotage? Really? Aside from the fact that his colleagues passed the measure, which hardly constitutes sabotage, Rubio's amendment illustrates that ObamaCare is NOT health insurance. Since the cooperating real insurance companies must pay claims on clients with pre-existing ailments, ObamaCare is nothing more than welfare on demand. Call things what they are and stop attempting to sway readers' opinions with loaded and poorly chosen words. There's enough of that on your Op Ed pages.

My letter to the NY Times re: Safety net for regulators

Re: A Middle Ground Between Contract Worker and Employee

Dear Sirs:
Noam Scheiber's report of how current labor laws cause unintended adverse consequences for new, digital companies should lead everyone to question the need for such regulations. Why not let employers and workers decide their own terms of employment? The safety net, so beloved of Labor Secretary Thomas E. Perez, seems designed to protect his own job, that of other labor regulators, and busy-body pundits who fret over other people's business. Labor laws raise costs and uncertainty, destroying job creation and threatening current employment. All employment is the result of cooperative interaction between employer and worker. The employer values the employee's services higher than the money and benefits he pays, and the employee values the money and benefits he receives higher than leisure or alternative employment options. Where is the need for a labor regulator in this transaction?

Splendid Isolation: A sane foreign policy for America

A proper foreign policy for the US would be consistent with and recognize the limitations placed upon our country by the physical world in which we live.

First of all it would recognize that all countries, including the US, have limited resources. These resources are provided by the private economy; there is no other. All government spending, for whatever reason and however justified, weakens the private economy. Most importantly, the US must reject the myth of "war prosperity". Military spending detracts from an economy's productive capacity. It uses precious capital to produce non-consumable goods and robs the economy of some of its most productive citizens. A nation's leaders must recognize that frugality in a nation's military spending is as important for the nation's long term welfare as is frugality in one's personal household spending.

Secondly, a sane foreign policy would distinguish between what is in one's true national interest and what is not. It would not embark on military adventures or commit the nation to future military action when national security is not threatened. Furthermore, a sane foreign policy would recognize that it is impossible for the US to judge disputes in foreign lands, as if it were an impartial jury deciding the guilt and innocence of the parties involved.

For the above reasons, the US would not intervene in the internal affairs of other nations, for it would not be able to understand the animosities which led to the conflict. Nor would it commit itself to an open-ended collective security treaty. Not only would such a treaty oblige the US to intervene militarily in long-standing foreign disputes, it would encourage new disputes to the degree that members of the alliance would feel less need to engage in difficult negotiations to find peaceful solutions to the inevitable frictions which arise among nations. Furthermore, collective security agreements suffer from moral hazard and the socialist tendency to consume the resources provided by others.

A proper foreign policy for the US is that of "Splendid Isolation", a term that came to be synonymous with Britain's late nineteenth century policy of eschewing both formal alliances with foreign nations and intervention in foreign affairs. Britain's foreign secretary Edward Stanley, 15th Earl of Derby, articulated the policy succinctly in 1866:

"It is the duty of the Government of this country, placed as it is with regard to geographical position, to keep itself upon terms of goodwill with all surrounding nations, but not to entangle itself with any single of monopolising alliance with an one of them, above all to endeavor not to interfere needlessly and vexatiously with the internal affairs of an foreign country."

Notice that the principle has two parts, both of which are necessary for either to become realized in practice--no formal alliances with a foreign power and non-intervention in the internal affairs of foreign nations. One is impossible to achieve without the other.

Alliances oblige members to intervene in matters that would not otherwise be viewed as necessary to the security of the nation, and interventions in the internal affairs of others almost always require at least the tacit cooperation of allies. An example of the former is the US's intervention in Vietnam. It was triggered by its membership in the Southeast Asia Treaty Organization (SEATO). The US waged war in Vietnam for over a decade before abandoning the fight. Today the US and the communist regime there are on friendly terms, an astonishing development on which few supposed foreign affairs experts have commented. Were the deaths and disabilities on both sides and the expenditure of so much treasure even necessary, since the two nations exist harmoniously now? What are Gold Star Mothers to think?

An example of the second principle--that interventions require at least the tacit approval of allies--is the ultimate failure of the Anglo-French invasion of Suez in 1956. The US was not informed of the invasion and was placed in a difficult position when Russia threatened to intervene on behalf of the Egyptians. The US was forced to confront Russia, but it also demanded that the British and the French withdraw.

Some may consider the lack of formal alliances and nonintervention in the affairs of others to be a bad thing. If so, let them consider the relevant paragraph of George Washington's famous 1796 Farewell Address:

36 The great rule of conduct for us, in regard to foreign nations, is, in extending our commercial relations, to have with them as little political connexion as possible. So far as we have already formed engagements, let them be fulfilled with perfect good faith. Here let us stop.

George Washington did not advise that the US never intervene in foreign affairs or that it never join an alliance. Later in his address he advised that the US conduct its foreign policy on an ad hoc basis "as our interest, guided by justice, shall counsel" and that "we may safely trust to temporary alliances for extraordinary emergencies." Temporary alliances and interventions that serve our interest would require exceptional circumstances, a policy which is very similar to Edward Stanley's dual dictum to eschew formal alliances and interfering in the internal affairs of others.

NATO is an example of an alliance that was formed to meet an exceptional circumstance. All Europe had been weakened by war, and an aggressive Soviet Union maintained a large military presence in the Eastern European countries that it liberated from Nazi rule. The Mitrokhin Archives reveal without a doubt that it had designs on the rest of Europe as well. America's solemn treaty to defend Western Europe as if it were American soil created a stalemate and deterred Soviet designs until its economy collapsed and new leadership pulled its troops out of Eastern Europe. At this point NATO could and should have been disbanded. Western Europe's economies had fully recovered. Two NATO nations outside the US, France and Britain, had nuclear weapons. Germany's economy alone was greater than that of Russia, although it did not possess nuclear weapons.

The fallacy of the necessity of political control of natural resources

America's current overseas bases and deployments are based to a large part on the great fallacy--one which has led to great conflicts--that a nation's prosperity depends upon the political control of essential resources. This fallacy drove Nazi Germany, Shinto Japan, and the USSR to imperial overreach and eventual downfall. None of these empires realized anywhere near the pre-occupation production from their conquered lands, which probably were net liabilities from the need of onerous oversight and military protection. Just ask yourself whether it is better simply to buy Middle Eastern oil or to conquer the entire Middle East and attempt to operate the oil industry in what surely would be hostile territory. There is no reason for alarm that control of Middle Eastern oil or any other vital resource would allow America's enemies to deprive it of essential resources. Whoever controls Middle Eastern oil, even ISIS, will sell it on the world market. Furthermore, the current oil glut is amply evidence that the so-called energy shortage was the result of decades of American price regulation and other governmental restrictions on American energy production. An oil boycott today would bankrupt even Saudi Arabia, who would lose customers to more reliable suppliers. For the same reason Western Europe need not fear undue influence from Russia as a provider of natural gas. Whatever temporary dependency that arises will be the outcome of foolish policies from Europe itself. Germany, especially, is making its economy dependent upon Russian energy supplies by practically outlawing coal and nuclear power production and relying upon wind and solar to take up the slack. The Poles know that this is a foolish policy. They are rebelling against European Union restrictions on electricity production from fossil fuels, of which Poland has ample supply.

The power of the consumer

Those who have personal concerns about foreign production methods or the intent of foreigners to use their export revenue to fund hostile groups may use the time-honored tactic of the consumer economic boycott. Examples include the "Boycott Grapes" movement, the demise of Venezuelan controlled Cities Services/Citgo retail gasoline chain following Venezuelan President Hugo Chavez's criticism of America, and the fair trade coffee movement to raise grower incomes. (Citing these examples of the economic pressure that consumer wield is no endorsement that the movements were either just or based upon sound economics, only that consumer pressure can and does work in certain circumstances. Remember, Mises always cautioned that the consumer was king in that his preferences established the structure of the economy.)

In conclusion, pertaining to our overarching relations with others, we would do well to follow Barron's dictum: “Mind your own business and set a good example.”

 

My letter to the Philadelphia Inquirer re: Learn Economic Nonsense from the Fed

Re: Fed to help teachers learn finance

Dear Sirs:
Here is what the Fed will teach about money and finance:

Lesson #1: Print money
Lesson #2: Print more money
Lesson #3: Print even more money

Here is a quote from Mr. Bill Martin, a high school teacher who has taken many Fed classes:

"We hook the students with questions about the $100,000 bill," he said: "Where does money come from? It's created by lending. You take some of that $100,000 bill, lend it at an interest rate, say, to 100 people, and they grow a business and it becomes $200,000. That's how wealth is created. Growth doesn't happen unless lenders lend. You borrow to grow, and then pay it back with interest."

It's magic! (Or is it?) If banks can create $100,000 of wealth at the stroke a pen (by lending), why can't you or I do the same thing? We print $100,000 on our personal copiers and lend it at interest. Voila! Instant wealth!

Pardon me if I do not believe this nonsense. Wealth is created by hard, smart work, plus saving to build capital. It is not created at the stroke of a pen or from the rollers of a printing press.
 

Another socialist EU proposal to reward irresponsibility

From today's Open Europe news summary:

Commission eyes jointly funded Eurozone deposit guarantee scheme

The Financial Times reports that, according to leaked documents seen by the paper, the Commission is planning to create a Eurozone Deposit Guarantee Scheme, which would initially support national schemes but eventually replace them with a fully mutualised system by 2024. The move is strongly opposed by Germany, which is currently the only Eurozone state to have a fully funded deposit guarantee scheme, as required by EU law.

Source: The Financial Times

 

 

Despite the fact that centralization of money and banking regulation at the EU has led to nothing more than an increase in member state transfer payments funded by debt, the EU Commission continues business as usual. It is blind to the consequences of its actions and desires a steady march toward a European super state.

 

Germany must leave the European Monetary Union before these new laws come into existence. Its national wealth is being stolen by back door policies such as this. Furthermore, it is not in Europe's long term interest to have Germany's wealth destroyed. Germany needs to regain control of its own economy and can do so only by regaining control of its own money and banking system. This is not abandoning Europe but saving Europe from itself. Without German guarantees the rest of Europe would be forced to abandon the worst of their socialist policies. The best role for Germany is to set a good fiscal and monetary example for the rest of the EU (plus the US and the rest of the world) to emulate.

The logic of sovereignty and unilateral free trade

From today's Open Europe news summary:

FT: UK pushing for ‘emergency brake’ on EU laws to safeguard rights of non-Eurozone countries

The Financial Times reports that the UK is seeking to obtain an ‘emergency brake’ on future EU proposals in order to protect the rights of non-Eurozone countries. This new ‘emergency brake’ could be based on the so-called ‘Ioannina-bis mechanism’ – which already exists in the EU Treaties – and could allow non-euro countries to delay a vote on new EU legislation if it threatened their interests or the integrity of the single market, triggering additional consultations at the level of EU leaders. The ‘emergency brake’ is reportedly part of a set of UK demands to reform the relations between euro ‘ins’ and ‘outs’. Other proposals include recognising the EU as a ‘multi-currency union’ and ensuring that non-Eurozone countries will no longer have to contribute to Eurozone bail-outs. Another provision would establish the principle that non-euro countries would not be forced to take part in initiatives – such as the banking union – that are driven by the Eurozone’s integration needs.
The paper cites Open Europe’s proposals to strengthen non-Eurozone states’ rights, published last month, which argued that if three non-Eurozone countries oppose an EU proposal, EU governments should aim for consensus. If this cannot be reached within six months, the proposal should either be dropped or only be pursued by a smaller group of member states.

Source: Open Europe Intelligence The Financial Times The Financial Times 2

 

 

The logic escapes me that the UK should remain in the EU yet opt out of policies that are unfavorable to its interests. EU policies are in constant flux, which would require a UK bureaucracy just to keep track of them and somehow decide which ones are favorable and which ones are not, no easy task. Sovereign nations with free market economies have no such problem. Each sovereign nation makes its own policies based upon its own internal political situation. Every business evaluates for itself whether or not it wants to satisfy requirements of foreign trading partners. Some may and some may not.

 

The longer this referendum is delayed the more likely it is that UK citizens will realize that there is nothing to gain from belonging to the EU (or any trade bloc) that it cannot achieve at zero cost by adopting unilateral free trade.

My letter to the WSJ re: Two kinds of refugees, people and money

Underground banks in China

Dear Sirs:
Money will flee areas where it is repressed just as people will flee areas where they are repressed. Capital controls can be seen as the monetary analogy of the Berlin Wall. Capital controls are indications of a failed economic system that benefits the politically connected elite at the expense of the people.

I can answer that question, Mr. Prime Minister.

From today's Open Europe news summary:

Cameron: Those who want to leave EU will have to answer question of single market access

In his House of Commons statement following last week’s European Council summit, Prime Minister David Cameron said that, when it comes to EU membership, “I want Britain to have the best of both worlds” in terms of sovereignty and market access. He reiterated the four key objectives of his renegotiation including extricating Britain from ‘ever closer union’, boosting the EU’s competitiveness by “signing new trade deals, cutting regulation and completing the single market”, ensuring that the EU “works for those outside the single currency” and changing EU rules on benefits access to “ensure that our welfare system is not an artificial draw for people to come to Britain.”
During the subsequent debate, Cameron argued that “as we get closer to the debate on whether Britain can stay in a reformed EU, those of us who want that outcome will be able to point clearly to what business gets from Britain being in the single market with a vote and a say, and those…who might want to leave, will have to answer the question of what guarantees they can get on single market access and single market negotiation ability.”
Pressed by Labour leader Jeremy Corbyn to take part in the EU refugee relocation scheme, Cameron responded, “If we become part of [this] mechanism…we are encouraging people to make the dangerous journey.” In response to a question about border controls, he argued, “Can we guarantee that we will be able to have the excellent juxtaposed border controls in France that we have today if we do not have an adequate relationship with the EU?”
Finally, on the issue of 16 and 17 year olds voting in the EU referendum, Cameron argued, “We voted in this House of Commons on votes at 16, and we voted against them, so I think we should stick to that position.”                    
Source: Hansard

 

Dear Prime Minister,

I can answer your question, to wit..what guarantees Eurosceptics can give on Britain's post EU single market access. None. But, then, neither can you give a guarantee that the EU will not ignore your negotiated repatriation of powers. In fact, no one can ever guarantee anything that others may do. That is the whole point of leaving the EU--to regain sovereignty, which means to regain independence. It turns out that when the UK joined the EU it unwittingly signed away its sovereignty to unelected EU bureaucrats. Now its only option (from inside the EU) is to beg to be allowed to run its own country in order to trade with the mostly insolvent EU members. The EU's outrageous regulations are making that harder and harder to swallow. But as one looks around, one sees lots of non-member nations trading freely with the EU. Of course, this does not rule out the possibility that the EU could prohibit all trade of its members with the UK simply out of spite. If there's one thing we've learned it is that there is no preposterous diktat that is beyond the consideration of Brussels' unelected elite.

 

The UK's simple yet powerful policy should be to adopt unilateral free trade with all the world. Now there's an idea that the UK can export at no cost whatsoever!

My letter to the WSJ re: Why is the Fed worried that inflation is too low?

Re: Fed's Rate Delay Spurred by Worry Over Low Inflation, Minutes Show

Dear Sirs:

Can anyone please explain why the Fed is worried that inflation is too LOW? Did no one at the Fed live through the high inflation years of the 1970's, which were caused by excessive money printing in the 1960's to fund LBJ's guns and butter policies? Inflation is the silent thief of the people's wealth. In a just world the Fed's very words would condemn it to charges of failure to safeguard the currency of the nation at the expense of the people.

My letter to the NY Times re: My advice to the ECB and the Fed

Re: Skepticism Prevails on Preventing Crisis

Dear Sirs:

Mr. Binyamin Appelbaum's report of the Fed's conference in Boston over the weekend perfectly illustrates our central bankers' incompetence. They wring their hands over what they do not know and beg the public to forgive them when the next financial crisis strikes, which surely it must. If the Fed wishes to prevent financial crises, it only needs to stop initiating them. The Fed's hubris that it can fathom the proper interest rate for our vast and complex economy must rank among the greatest fallacies of all time. The Fed sees the world through the completely discredited Keynesian lens which posits that aggregate demand--what the rest of us know simply as spending--is the path to prosperity. Anyone who believes this nonsense need ask himself why he has not liquidated his own savings on frivolous consumption and why the citizens of countries like Zimbabwe, Venezuela, and others are not as rich as Midas. Please allow me to answer Mr. Luc Laeven's question, posed to the conference attendees, to wit, "Do we have other policies?" Yes, Mr. Laeven, I do. Liquidate your central bank (the European Central Bank) and recommend similar action by the Fed. Scrap legal tender laws that prevent the market from choosing the best medium of indirect exchange. Outlaw fractional reserve banking as the fraud that it is. Subject banks to the same commercial code as all other businesses. There--problem solved! Now send everyone at the conference home to look for a real job.

Strict defense of private property solves the economic fact of resource scarcity

Scarcity of resources exists in many forms and is THE problem in economics. If resources were not scarce, there would be no need to economize. The existence of scarcity is true of all resources (time, human energy, natural resources, etc.) It is not intuitive that allowing scarce resources to be owned privately is the solution to this problem. Socialists would like to ignore this reality of scarcity and have all resources owned collectively for the common good. By contrast, we Austrians know that private property solves the economic fact and economic problem of scarcity, as I will now discuss.

A society which spurns private property and throws all resources open to those who wish to take them will quickly learn the terrible lesson of the tragedy of the commons; i.e., that commonly held resources will be plundered to extinction.

If society spurns allowing private ownership of resources, it must find some other means to prevent the tragedy of the commons, and historically the means chosen is the use of force. Throughout history most of mankind has been divided into a hierarchical system of masters and slaves with some graduations between the two extremes, such as priestly or aristocratic classes. The masters (pharaohs, emperors, kings, sultans, warlords, etc.) devised complex rules-based systems for resource distribution that ultimately depended upon pure terror for enforcement.

But this so-called solution to the problem of scarcity--restricting the people's liberty through the use of force--does not work. The gradual understanding of modern economics eventually ended thousands of years of subsistence existence for the masses in the West. Modern economics explained that without private ownership of resources, a man could not hold an ordinal preference. The term ordinal , of course, means that something is prioritize from highest to lowest. Without ordinal preferences, there is no rational means to economize for the betterment of society. In other words, the masters never really knew what to order the slaves to produce, what technical means to use, what alternative materials to use, the quality desired, or how much to produce. Thus, the Commissars of the Soviet Union ordered the production of inefficiently produced, shoddy goods. The Soviet empire collapsed, despite the fact that Russia is blessed with vast resources and an industrious population .

A second fatal problem with common ownership of all resources is that few such readily available, consumable resources actually exist. There are no resources on the planet that do not require at least a minimum of effort to transform into a consumable product. Even edible berries growing in the wild must be harvested, meaning that someone must transport himself to the berries' location and pull them from the bush at just the proper time. The cost of doing so is the value one places on forfeiting his leisure. Of course, other natural resources require much more effort to convert to consumable products, passing through uncountable stages of production. For example, timber and minerals must be extracted, harvested, etc. and then molded into something that can be consumed. Consider a hiker lost in the wild. It matters not at all to him that great stands of timber lie within easy reach or that valuable minerals lie under foot. These natural resources require great effort over very long time periods to be converted into something consumable, such as a shelter or gasoline. A lost hiker does not have the knowledge, time, or previously produced means to convert these basic resources into consumable products to ensure his survival. All this is far beyond anyone's autarkic abilities.

Now let us assume that someone did harvest trees by felling them, transporting them to a lumber mill, milling them, storing them in a ventilated and dry place for many months before kiln-drying them (all processes that are required to turn trees into useable lumber), advertising their availability to contractors, keeping sales records, sending out bills, collecting the bills, etc. only to have a socialist call him a plunderer and confiscate his lumber for free distribution to whomever the masters deemed to be politically advantageous to their continued privileged position. No one would ever harvest another tree. In other words, production of usable lumber would cease despite the fact that trees were readily available.

Now let us consider what would happen if the commissars did order slaves to harvest the trees. Great forests would be denuded in short order, because there would be no social mechanism to prevent what would amount to a tragedy of the commons by order of the state.

Proper harvesting of timber requires that its value be capitalized

Capitalization of timber requires that it be privately owned in order that its worth can take its proper place in the ordinal hierarchy of preferences. The consequences of ignoring this fact of economic science is most evident today in China's ghost cities, where resources, both natural and human, have been expended for no  observable benefit except to advance the careers of politicians who can claim to have met the requirements of the latest Five Year Plan.

The opposite case of resource waste comes from special interest groups who capture the political (police) apparatus of the state and prohibit exploitation of resources by private individuals. In the name of protecting  Mother Gaia from being plundered, modern environmentalists have convinced the political class that most progress is unsustainable, dangerous to our health, or any number of other specious claims. Society is prevented from benefiting from their conversion to consumable products. Private ownership insures that resources will never be plundered to extinction, because their value will have been capitalized. The process of determining a resource's capitalized value is impossible absent free market capitalism with strict defenses of property rights.

Despite both the theoretical and empirical evidence to the contrary, socialists tell us the opposite; i.e., that state ownership of all resources will prevent their plunder and ensure prosperity for all. As Ludwig von Mises explained, socialism is not an alternative economic system of production. It is a system of consumption only, and a system of economic ignorance and economic plunder.

Three questions for Andrew Haldane, chief economist for the Bank of England

Re: From ZIRP TO NIRP by Alasdair Macleod

1. What exactly is wrong with price deflation?

2. In a world of increasing productivity, are not lower prices inevitable?

3. Are not lower prices beneficial, in that all society enjoys an increasing standard of living on the same money income?

The problem with the "real bills" doctrine

Re: Free banking vs.the real bills doctrine

I wrote the letter below to Don Boudreaux of Cafe Hayek. Under the real bills doctrine, banks would be allowed to create demand deposits backed by promissory notes and not reserves. Those who adhere to this doctrine, such as Mr. White, author of the above essay, believe that money backed by "real bills" is superior to money backed only fractionally by reserves. I make the point that both fractional reserve banking and real bills adherents are advocates of the same fraud: i.e., that bankers' demand deposits are NOT backed by reserves but by debt that may or may not be collectible. PB

Dear Don,

What free banking advocates such as Mr. White are really saying is that a free banker operating under the real-bills doctrine must be careful not to perpetrate too much fraud and catch the attention of the public, who will make a run upon his bank. The point is not what the banker wants but what the recipient of the banker's supposedly demand note believes that he has. A banker's demand note promises the holder that it may be exchanged for real reserves that constitute a final claim upon money; i.e., gold, silver, or even Federal Reserve Notes. This is my main problem with those who claim that they would not be alarmed if their banker engaged modestly in fractional reserve banking. The account holder is passing a check to someone who has no way of knowing that he is receiving a check that is backed only fractionally by reserves. In other words, he is the victim of fraud. Under Rothbard's two bank system--the Deposit Bank and the Loan Bank--only the Loan banker would purchase commercial credits, because there is the possibility that the commercial credit may fail.

Respectfully,

Patrick Barron

My letter to the Philadelphia Inquirer re: the crude oil export ban

Re: Debate swirls over lifting crude-oil export ban

Dear Sirs:

The answer to your headline question on the front of Sunday's business section is self-evident. The crude oil export ban cannot be justified on any economic or moral basis. It is an economic myth that there can be rational economic calculation under socialism and that private property may be violated to achieve a more important common good. First the economic calculation myth. Over one hundred years ago in Economic Calculation in the Socialist Commonwealth, Ludwig von Mises proved that private property is required for rational economic decision-making. Only owners of private property can hold rational preferences of how best to manage resources. One hardly needs to point out that appointed bureaucrats and elected officials are NOT owners of the property that they presumptuously deign to control for some more altruist purpose. Without true preferences derived from ownership, the titular managers of resources would  not know what to produce, how much to produce, what quality to produce, or what factors to use in the production process. As for the moral basis, in section 27 of his Second Treatise of Civil Government, John Locke explained that property accrues legally to "he who hath mixed his labor with, and joined to it something that is his own, and therefore makes it his property." Austrian economists have labelled this the homesteading principle. Thereafter homesteaded property may be transferred only via social cooperation under the free market. All else is theft.

The owners, workers, and paid lobbyists of those American refineries who wish to maintain the crude oil export ban seek to employ the police power of the state to prevent consumers from improving their standard of living by purchasing similar goods from foreigners at lower prices. The weakness and vapidity of their argument is evident in their admission that American oil can be transported to foreign refineries, repatriated in the form of refined products, and still sold at lower prices on the US  market. Why must Americans be held hostage to inefficient, high cost domestic producers?

My letter to the NY Times re: New icebreakers to the Arctic for what purpose?

Re: Obama Calls for More Coast Guard Icebreakers to Gain Foothold in Arctic

Dear Sirs:

President Obama's call for Congress to fund new icebreakers for the Arctic is troubling. Whereas, most nations of the world see the receding icecap as an opportunity to gain cheaper access to previously inaccessible natural resources and/or a shorter path to markets, President Obama worries about endangering the environment. In other words, most of nations want to build a better world for mankind, whereas President Obama wants to prevent anyone from doing so. A true statesman would see that the real threat to the Arctic comes from the lack of an international agreement over who may claim what resources. The Austrian economists have long had the answer. Property rights attach to those who "mix their labor" with the previously unused resource. It does not matter to the people of the world whether an American, a Russian, or an international consortium obtains title to resources that they secure as long as these resources are brought to market.

The implications of a reduction of Chinese holdings of US government debt

Dear Readers,

Below is my response to a reader of my blog, who asked about the implications of China reducing its holdings of US treasury debt.

Pat Barron

Dear Lawrence,

I think that in the simplest terms, China is exiting the market for US Treasuries, which means that the US government must offer a larger yield in order to entice buyers who are still in the market to make up for the loss of Chinese demand. That means that US interest rates would have to rise, because the T Bill is the base upon which all other rates are set. Why would someone buy a corporate bond at a lower yield when he can buy a T Bill, which has less risk, for the same or even higher yield? Alternatively, the Fed could monetize the debt, which would cause US prices to rise (eventually) due to the increase in the money supply.

I have contended for some time that this event would lead to a crisis. When the world market eschews T Bills, the government is left with difficult choices. It can raise taxes to pay off the debt that it can't roll over. It can cut spending to decrease the amount of debt that is required to fund all the government's programs. It can increase interest rates to suck more money out of the private economy and into government bonds. Or it can monetize the whole thing. Of course, it could do a combination of all these things. My least favorite option is that the government monetizes the debt; i. e., prints more money. My favorite option is for government to drastically reduce its expenditures, but this is probably the most politically difficult option.

Pat

My letter to the Financial Times, London re: The FT sides with counterfeiters and confiscators

Re: The case for retiring another barbarous relic

Dear Sirs:

I was appalled at your supposed "case" for eliminating cash, which you yourselves describe as the peoples' "go-to safe asset". And what IS your case?

One, "cash...limits the central banks' ability to stimulate a depressed economy." Really? Although I am not in favor of debasing money as a path to prosperity, I see no limit to the central banks' ability to hit the "enter" key on their computer screens in order to manufacture out of thin air as much money as they dare. Two, banks cannot impose a negative interest rate--what we common folk call stealing--on the cash in one's pocket. Your preposterous goobledygook that a negative interest rate is required by central banks in order to have sufficient "ammunition" when tightening from a "lower band" is as vacuous a statement, although often heard, that one can imagine. Three, that unlike electronic money, cash cannot be tracked...to which I answer "so what?" and "thank God for that!" Four, that former chief economist of the International Monetary Fund, Kenneth Rogoff, thinks eliminating cash is a wonderful idea. Let's set the record straight. The IMF gets its money from sovereign states, who tax their people against their will in order to give the money to the IMF to squander and give bad advice around the world. Any self-respecting economist would try to hide the fact that he had anything to do with such an institution; therefore, I find little comfort in Mr. Rogoff's endorsement of the cash-confiscation scheme. Four, the state can more easily levy a Value added tax in order to make tax collection easy. Oh, how nice! Here...let me put my cash in the bank in order to make it easier for government to tax it away. Ah, but then you conclude your support of the cashless society with the caveat that we minions might, just might, be allowed to carry some cash...but at a cost. Our cash could carry an expiration date, for example. As you state: "The benefits of cash are significant--but they need not be offered for free." A more Orwellian statement would be hard to find.

My letter to The Times, London re: Legal tender laws protect unsound money

Dear Sirs:

I will not take the time required to refute point-by-point Mr. Ed Conway's latest attack upon a gold-backed currency. It is obvious that he is completely ignorant of monetary theory and history. Rather, I will ask Mr. Conway why governments must erect legal tenders laws around their fiat currencies, using the police power of the state to force citizens to use their currencies? The answer is obvious: were it not for legal tender laws, sounder private monies would drive governments' fiat monies out of the market. I do not advocate a gold-backed, government currency, because I know that all governments will suspend specie redemption for any myriad of reasons, all of which can be placed into two general categories: fund wars or buy votes with welfare payments. Only private monies can be trusted, because they would be subject to the rule of law. Money issuers who did not surrender specie upon demand would be declared bankrupt and thrown in jail. When governments do the same thing, they are lionized as patriots and philanthropists of the public purse. I repeat--if Mr. Conway believes in the superiority of government issued fiat money, then abolishing legal tender laws would have no effect upon the pubic's demand to use government money. I dare Mr. Conway to recommend such a policy.

Oh, the horror of cheaper Chinese goods!

Re: Cheaper Chinese Currency Has Global Impact

China's money dictators have decided to put all Chinese exports on sale, allowing people in foreign countries to buy more Chinese goods for the same amount of local currency or invest in any manner of other financial transactions that will increase their quality of life including (dare I say the name?) saving! Oh, the horror of it all.American politicians are fretting that prices actually may fall, benefiting everyone from the unemployed to the rich. This, my friends, is a situation that cannot be tolerated, for the politicians' supporters in industry do not wish to allow their fellow Americans to enjoy a higher standard of living. Oh, no. We Americans must pay higher prices for fewer American goods of lower quality. This is the path to prosperity. If you cannot understand this logic, then it is obvious that you do not have a degree in economics from a large American university.

My letter to the Wall Street Journal re: A strange definition of "good news"

Re: Consumers Prime the U.S. Pump

Dear Sirs:

Your definition of "good news" for the U.S. economy is defined as an increase in "real, or inflation-adjusted, personal-consumption expenditure", which was driven by a "savings rate, which slipped to 4.8% from 5.2%." An economy can expand only from savings; i.e., deferring consumption in order to invest capital resources in productive assets that will provide more goods in the future. Your definition assumes the opposite. Surely, you would not recommend such a policy for individuals: i.e., that one should spend one's savings in order to be more financially secure in the future. And, please, do not resort to the fallacious argument of the "paradox of savings" and/or the "savings glut", which assumes that what is bad for the individual somehow is good for the economy as a whole.

My letter to Wolfgang Munchau of the Financial Times, London

Re: The make believe world of eurozone rules

Dear Sir:

In your otherwise fine column today--Monday, July 27, 2015--you conclude with this statement:

"...Germany does not want to grant Greece debt relief for political reasons, and is using European law as a pretext."

Earlier in your column you pointed out that Article 125 of the European Treaty on the Functioning of the European Union prohibits countries from taking on other members' sovereign debt. You criticize--rightly, in my opinion--the ECJ for ruling that this very clear prohibition can be violated. You then point out that the German Constitutional Court twice had not supported the ECJ's position. It seems to me that the German view can be interpreted as a defense of the rule of law, which your column says has been ignored by the ECJ, and that Germany's objection to another bailout is more than merely a political pretext. Not only has the violation of the rule of law by the EU led to the Greek financial crisis, it strikes at the heart of Western civilization.

Economic Fallacies about Greece

There has been much unscientific economic pronouncements about Greece's financial problems and especially how to solve them. Below is a short list of three of these economic fallacies.

1. The euro is too strong a currency for Greece.

This statement usually is accompanied by a reference to Greek productivity being lower than that of the northern tier EU countries. The logic, such as it is, states that the euro is not a suitable currency for countries with vastly different levels of productivity. This is followed by a recommendation that Greece leave the European Monetary Union and reinstate the drachma. The National Bank of Greece then would set a very low exchange rate between the drachma and the euro, making Greek products more competitive.

 Well, there is a semester's worth of economic fallacies embedded in this chain of logic. A currency is an indirect medium of exchange. Two countries with different levels of productivity can use the same medium of exchange just as two individuals can do so. You may pay the kid next door to mow your lawn with dollars that you earned in a highly skilled and highly compensated profession. Yet you both use dollars. There is no reason that the Greeks and the Germans cannot use the same currency. In the age of the gold standard, national currencies were defined by their exchange rates to gold and were redeemable in specie; therefore, in effect, all countries were using the same currency-- gold.

2. Debasing the currency will help the Greeks export their way to recovery.

Correlated to the above fallacy is the notion that debasing the currency will aid the Greek economy by the stimulative effects of an increase in exports. The idea is that the Greeks can give more drachma for the currency of its trading partners, making Greek exports cheaper in terms of the foreign currency. Increased exports will stimulate the entire economy. But currency debasement merely causes a transfer of wealth within the monopolized currency zone. The Cantillon Effect tells us that the early receivers of the newly printed money benefit by their ability to purchase resources at existing prices. The losers are those furthest removed from the initial increase in spending, such as pensioners. They will find that their money doesn't buy as much, due to price increases that are an inevitable consequence of an increase in money spending. Eventually the exporters find that the cost of their resources has risen, at which point they demand another round of money debasement in order to prop up foreign sales and avoid business losses. They will be forced to pay more for their factors of production and must raise prices in local currency terms. In order to avoid losing sales they need their foreign buyers to receive more local currency so that their goods do not increase in price in foreign currency terms. This policy masks real structural problems. It is not a currency problem.

3. Instituting one's own currency will enable government to avoid unpopular spending cuts.

In other words, debasing the currency is a way avoid the dreaded austerity monster. Governments would have the people believe that there are sufficient real resources to redistribute from the wealthy to alleviate all poverty. It is assumed that the wealthy have nefariously confiscated the people's wealth, and redistributing it along socialist lines will result in plenty for all. The socialist "plenty for all" slogan has been around a long time and has yet to prove its worth in alleviating poverty.

The Greeks (and Europe) Need Monetary Freedom

In conclusion, too much of the commentary about the Greek crisis has focused on whether or not Greece should drop the euro and not enough on the structural problems arising out of decades of socialism. The Greek government has borrowed more money than the Greek people can possibly repay. Debased money will not make this fact disappear and, on the contrary, will cause even more harm. It is telling that in poll after poll the Greeks themselves show that, although they do not desire austerity, they also do not wish to abandon the euro. They know that such a move will allow the government to destroy what little wealth remains in the country. The Greeks see the euro, with all its flaws, to be superior to a reinstated drachma. The best alternative for Greece right now is to abolish legal tender laws, which would allow the Greek people to trade in whatever currencies they deem most desirable. The Greek government may be forced to default on its euro loans. It is hard to imagine what good can come from another bailout just as it is hard to imagine what good can come from harnessing the Greek people to the yoke of high taxes. The Greek government itself responded rationally to the structure of the European Union and the European Monetary Union. It borrowed heavily at low rates of interest from willing lenders. It accepted all the newly printed euros so eagerly offered by these flawed organizations' various funds. It is not the only country to do so, merely the first in which the adverse consequences of the EU's flawed structure became apparent. There will be others and the adverse consequences will be greater. What is important now is that Europe stop destroying its capital base in pursuit of a socialist dream that has become a nightmare.

An economic myth that just will not die

An excerpt from today's Open Europe news summary:

Luc Coene, a member of the ECB’s supervisory board and a former Belgian Central Bank Governor, told Belgian daily De Tijd that a Grexit may have been a better option, arguing, “Because of the depreciation of the currency, one can achieve more through increased exports in a less painful manner.”

No. Debasing one's currency does NOT solve anything. There is no way that a country can force others to subsidize its economy through debasing one's own currency or that one can "jump start" or "stimulate" one's own economy by debasing the currency. All currency debasement accomplishes is a transfer of wealth from the non-exporting sectors of an economy to exporting sectors and foreigners. In other words, increased exports are subsidized by one's own citizens.

Greece wants to burden its people with even more debt!

Specifically, $5,400 more per person!

It wants 53.5 billion euros. With a population of only 11 million, that works out to another $5,400 per person at an exchange rate of $1.11 per euro. Insanity! It cannot and will not ever be repaid. It is just more kicking the can down the road. There is little enthusiasm from the common people of Europe to throw away even more money, although that may not prevent Europe's elite from doing so.

Pat Barron

From today's Open Europe news summary:

Greece makes further concessions to creditors as it seeks €53.5bn 3-year bailout

Greece yesterday submitted a proposed list of reforms in return for the €53.5bn new three-year bailout package the country is seeking from its creditors. The Greek government has made further concessions on VAT and pensions, although some discrepancies with the creditors’ proposal remain – notably on labour market reform and military spending cuts. According to the International New York Times, France sent a technical team to Athens to assist the Greek government in drafting the new plan. The new proposals are being assessed by the three institutions – the European Commission, the ECB and the IMF – and are expected to be put to a vote in the Greek parliament today, ahead of tomorrow’s meeting of Eurozone finance ministers and Sunday’s meeting of EU leaders.

The depth of the European problem is stating to get recognized

From today's Open Europe news summary:

William Hague: Greek crisis could be only the beginning

Writing in The Daily Telegraph, former UK Foreign Secretary William Hague argues that “this is not just about one country. It is in Greece that the fundamental tensions created by a single currency have first broken through, because Greece is a particularly indebted and less competitive country. But the same tensions will ultimately surface in other nations facing a less immediate crisis but a similar prognosis.” He adds, “There is a clear risk that the economic performance of the south will diverge from, not converge with, the north. Unless this is averted in the coming years, it will bring problems to Europe for which Greece has only been a minor rehearsal.” His comments resonate with an op-ed written by Open Europe Co-Director Stephen Booth for The Daily Telegraph last week, in which he argues that the Greek crisis shows the need to redefine ‘ever closer union.’

Source: The Daily Telegraph: Hague Open Europe: Booth

Hague believes that the problem is the old "north-south" issue, whereby the northern countries supposedly are industrious and productive and the southern countries are not. But this is not the case, because productivity is a relative term. The problem is the structure of the European Union, which gives an implicit guarantee by all members to honor whatever profligate debt any of its members may incur. Greece is just the tip of the iceberg, the canary in the coal mine. No one in Europe quite yet seems to be willing to admit that it is foolish to place entire nations on welfare. The real instigators of this problem are the European socialists, who just cannot bring themselves to recognize that socialism will not work, even if practiced on a grand, continent-wide scale with the ability to print fiat money in vast quantities. I humbly disagree with Mr. Booth that the Greek crisis shows the need for an "even closer union". It shows just the opposite. Each sovereign nation must balance its own books and live within its means. No collective of nations will be willing to tax its own citizens to support the lifestyle of the citizens of other nations for long, which is what the "ever closer union" implies.

Pat Barron

Greece should repeal legal tender laws and not print drachma

From today's Open Europe news summary:

Ruparel: Greece is going to have to start printing its own money

Open Europe’s experts have been widely cited in the UK and international media discussing the latest developments in the Greek crisis. Writing for The Daily Telegraph, Open Europe Co-Director Raoul Ruparel argues that “The negotiations may rumble on for a bit but the gaps between Greece and creditors as well as within the creditors look too large to bridge. Ultimately, if Greece ever wants to reopen its banks it will have to start printing its own currency, marking an important step towards full Grexit.” Raoul also appeared on BBC Radio Four’s Today programme and on BBC Radio Two’s Jeremy Vine Show arguing that it will be very hard for Greece to avoid leaving the Euro now, since its demands remain incompatible with the political situation and democratic mandates of most other Eurozone governments. Raoul is also quoted by the International New York Times and El País. Open Europe’s Co-Director Stephen Booth is quoted by Die Welt arguing that Grexit would reinforce David Cameron’s argument in favour of a more flexible EU.

With all due respect I most vigorously challenge Mr. Ruparel that the Greeks should start printing their own money. Greece should repeal legal tender laws, as a starter, and allow the people to use whatever money they deem most useful. There is little doubt that the world, including the Greeks themselves, will have no confidence in a new drachma; it will be worthless upon arrival.

Pat Barron

My Advice for Greece

1. Leave both the European Union (EU) and the European Monetary Union (EMU).

These are very flawed institutions. In his prescient book Tragedy of the Euro, Professor Philip Bagus uses the term "misconstructed", which I think is very descriptive of the EU and the EMU. There is nothing that the European Union can offer any member that it cannot grant to itself by adopting unilateral free trade. EU economic regulations are  systematically destroying what little remains of free market capitalism in Europe. The Euro is a fiat currency without any real political protection. All members can abandon the euro at any time, which would relegate the euro's purchasing power to that of the Zimbabwean dollar...in other words, worthless. Greece is running out of euros, which is causing the Greek economy to come to a standstill. Staying in the EU and the EMU will perpetuate Greece's loss of sovereignty.  Leaving will force the Greeks to rely upon themselves. It very well may end the Greek welfare state, because it will become clear that the welfare state is at the heart of Greece's financial problems.

2. Repeal legal tender laws in Greece.

Allow Greeks to use whatever money they find useful. Do not reinstate the drachma. Forcing a people to use one currency is a form of tyranny, because whoever controls the currency controls the economy, and whoever controls the economy controls the people. Freeing the Greeks to use whatever currency they find useful will immediately get the economy moving back to some form of stability.

3. Liberalize ALL business and labor regulations.

Greece needs free market capitalism. Business and labor regulations are the means to enforce the socialist welfare state's predations upon the people. All Greece needs is enforcement of normal criminal and commercial law to prosecute theft, fraud, negligence, etc. These concepts are the result of the common law and can be different in different countries.

4. Scrap all government agencies that enforce the regulatory state.

These agencies are nothing more than predators upon the people. They do not contribute to the capital wealth of the nation, but destroy it instead. Obviously, scrapping all of these unnecessary and counterproductive agencies will go a long way to solving Greece's budget deficits by shedding their unnecessary yet highly paid bureaucrats.

5. Welcome investment from the entire world.

This is a crucial part of becoming a free trade nation. Allow outside capital to invest in Greece and give such investment maximum legal protection. Above all resist the temptation to nationalize or heavily tax foreign investment once it become clear that such investment is productive and profitable.

6. Reduce taxes to the minimum required to protect life, liberty, and property.

The sole purpose of the state is to provide such protection to its citizens and to provide an honest court system to punish criminals and resolve honest disputes. Extend such protection to foreigners and foreign investments. Again, shrinking government to these essential services will help cure the budget deficit.

7. Scale back and eventually eliminate all state provided pensions.

It may be inhumane to eliminate all old age pensions in one swift repeal, but the government should adopt policies that will end the provision of state pensions entirely over time. In his magnum opus Capitalism: A Treatise on Economics, Professor George Reisman presents one such method to eliminate Social Security in America. This method could become a template for Greece.

Patrick Barron interviewed by Mises.org re: The Greek Crisis

Patrick Barron: The Greek Crisis and the Impossibility of the Euro

Published on Jul 2, 2015

Jeff Deist and Patrick Barron discuss European integration, which pits creditor nations like Germany against hapless debtors like Greece under the yoke of the Eurozone. With the Euro operating as a political project rather than a real currency, spendthrifts like Greece chronically find themselves unable to service debt. Greece, says Patrick, represents an example of Say's Law in action and a clear refutation of Keynes's belief that creating artificial demand via cheap credit stimulates production.

Think Greece can't happen here? Look no further than California, with its public pension crisis and huge debts.

If you're looking for a sober and hard-hitting analysis of what's really at issue in Greece, stay tuned for a great discussion with Patrick Barron.

https://www.youtube.com/watch?v=h5g9i9Y_mqs

https://mises.org/library/patrick-barron-greek-crisis-and-impossibility-euro

http://www.stitcher.com/podcast/mises-weekends/e/39588738?autoplay=true