Friday, October 30, 2015

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.

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.

Tuesday, October 27, 2015

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.

Tuesday, October 20, 2015

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!

Thursday, October 8, 2015

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.

Wednesday, October 7, 2015

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.