Friday, May 20, 2016

Defending property rights cures the bathroom controversy


The current tempest in a teapot among the "rights" advocates is that no one should be restricted from using the gender specific bathroom of his choice. The "rights" advocates want to use the police power of the state to ensure this outcome. The federal government has come down on the side of the "rights" advocates, with regional and local governments sometimes taking the opposite side. Once again, Americans are being told that there are only two sides to this issue, and both sides claim to defend what is proper.


But are there only two sides? Perhaps we are looking at this issue in the wrong way. Instead of assuming that some level of government can make this decision for all of society, there is the alternative solution of defending the right of the property owner (of the bathroom in question) to make this decision. After all, someone actually paid for the bathroom in order to satisfy his preference. And there are precedents. We all have seen signs that tell us that bathrooms are reserved for customers only. There is no movement that I have seen that demands that any bathroom anywhere be accessible to whoever desires to answer the call of nature. We all accept that limiting bathroom facilities to customers is the right of the business owner. Why should not the business owner be allowed to decide which bathroom his patrons use? If his patrons are not happy with his decision, they are perfectly free to refrain doing further business there. And other business owners could adopt a different policy and reap the rewards that come from satisfying this subset of society.


Already there are unisex bathrooms everywhere. My wife and I patronize a very nice French restaurant in Philadelphia which provides only private stalls. Anyone can use whichever stall is available in complete privacy. Each stall is a little room unto itself, similar to a Porta-Potty. Outside the stalls are lines of sinks, towels, mirrors, etc. that are used by everyone. Seems to me that this common sense solution can be adopted by business owners who wish to avoid antagonizing any possible segment of their customer base, rather than be forced to comply with a government mandated solution. Some very small businesses provide only one bathroom, which is unisex. The toilet, sink, towel, and mirror are located inside the one private bathroom. Again, we see these just about everywhere in America and even more predominately in Europe.


Come on, America! Let's stop fighting among ourselves and then demanding that government set universal rules. Let's defend the property rights and business incentives of the owners of bathrooms to find solutions that we all can accept. It's already happening for those wishing to see.

Monday, May 16, 2016

Another reason to get rid of the euro

From today's Open Europe news summary:

European Commission considering new tools to prevent cash outflows from failing banks

According to a document seen by the Financial Times, the European Commission is considering proposing a new ‘moratorium tool’ that would give national regulators the power to freeze payments to bondholders and potentially halt depositor withdrawals in order to prevent huge cash outflows from failing banks before national authorities can intervene.
This is the typical answer from the elite running the EU and the ECB. When their policies lead to failure, the people's assets will be seized. In typical Orwellian New Speak fashion, such action will be hailed as the necessary and proper solution to the problem.

Wednesday, May 11, 2016

My response to an email blast by Roger Helmer, member of the European Parliament

Per your recent email:

"But the key point is that the UK is a massive importer (and net importer) of EU goods.  We will in fact be the EU's largest export customer.  Bar none.  This is undesirable from a balance-of-payments point of view, but it gives us enormous negotiating clout."

Dear Roger,
One of the greatest fallacies in all of economics is that buying more from one customer than he buys from you is a bad thing; i.e., a balance of payments/trade deficit. Unfortunately, you commit this error in your recent email blast, copied above. What are the EU countries to do with all those pounds that they accept in payment for vendible goods? They will buy something in Britain, maybe even British national debt. If they let the pounds stack up in their central banks as foreign reserves, all they have done is present a gift to the British people, similar to a merchant never cashing your check.

Warmest regards from an friend in the US,

Patrick Barron

Tuesday, May 10, 2016

Is an increase in German exports a good thing for Germany?

From today's Open Europe news summary:

German exports rise unexpectedly

German exports rose by 1.9% month-on-month in March 2016, according to new data released by the National Statistics Office (Destatis) yesterday. It was the largest monthly increase in half a year, and came as a surprise to analysts who did not expect any growth at all. Imports in March dropped by 2.3% to €80.9bn, leaving Germany with a trade surplus of €26bn.
A rise in German exports is seen as a positive development, but is it? What does Germany get in return for sending its products abroad, especially if it sends these products to other members of the Eurozone; i.e., that countries using the euro? It gets an increase in its euro-denominated credit at the European Central Bank, known as its TARGET2 balance. In other words, Germans work hard to produce real, vendible goods in exchange for a debased and depreciating currency.
Patrick Barron

Thursday, May 5, 2016

Another step toward cash confiscation in Europe

From today's Open Europe news summary:

ECB to halt production of €500 note, but it will retain its value

The European Central Bank announced yesterday that it would stop printing the €500 note from the end of 2018 due to, “concerns that this banknote could facilitate illicit activities.” However, the bank confirmed that the note will always remain legal tender and will therefore continue to retain its value.
Once cash has been eliminated, the ECB can implement its negative interest rate program on a large scale. In fact it probably doesn't have to eliminate small bills, since it may be impractical and/or impossible for anyone to hold and use cash denominated in small bills for anything other than petty purchases.

Tuesday, May 3, 2016

Can rules prevent money printing?


Two ways to increase money


Today's fiat dollar is created by two methods. One, the central bank (The Fed) creates new money when it purchases an asset. This money is credited to someone's bank account, a liability on some bank's books, and is matched on the bank's asset side by new reserves held at the Fed. Two, these new reserves can be pyramided by the banking system's fractional reserve rules into many multiples of new money. When the bank loans money, it creates a demand deposit on the liability side of its balance sheet, offset by the loan on the bank's asset side. Historically, banks have been the biggest money manufacturers, due to the leverage effect of fractional reserve rules.


The moment of money creation


Notice that the banks' ability to create new money depends upon the central bank's power to create reserves. Therefore, we may consider that bank money creation is a secondary and dependent power, even though its impact on the money supply has been great. The moment of money creation is the central bank's ability to print reserves. Even if the banks demurred in making new loans--which creates new money--the central bank can still increase the money supply by injecting reserves into the system. This power is no different than that recommended by the so-called "Greenbackers", who call for the Department of the Treasury to issue currency itself, as did the Lincoln administration during America's Civil War. In fact, when the Fed buys an asset, it is acting exactly the same as a "greenback" issuer. The money with which it buys the asset was created out of thin air.


Keynesians support fiat money creation


An implicit justification for continued support of a central bank or a treasury that can print money is that money is different--i.e., it is not part of the market, like wheat and automobiles-- and that special situations can arise in which money printing is warranted. It is a tenant of Keynesian orthodoxy that there must be a lender of last resort to stop  a death spiral of deflation; i.e., falling prices. All those who desire that fiat money printing power be given to any agency, whether government treasury office or central bank, may be considered a Keynesian of some stripe, for they are convinced that there are special circumstances that require fiat money creation. They differ only in what they consider to be such special circumstances.


Even Fed icons printed money


Many of us "old timers" revere Paul Volcker, Fed Chairman from 1979 to 1987, who refused to print money, thereby driving a stake through the heart of runaway inflation. Some even older "old timers", such as David Stockman, revere William McChesney Martin, Fed Chairman from 1951 to 1970. But let me point out that neither of these courageous gentlemen kept complete control over reserves, the building blocks of fiat money. Both were subject to political pressure to inflate reserves. Martin was fortunate to serve during the presidency of Dwight Eisenhower, a fiscal conservative and inflation hawk. But when Ike left office in 1960, Martin succumbed to political pressure by first President Kennedy and most ominously by President Johnson to inflate. By the end of Martin's long reign, the run on the Fed's gold reserves had begun, and only one year later President Nixon threw in the towel and took the US off what little was left of the gold standard.


The lesson that may be drawn is that no one is exempt from the pressure to print money. No human can withstand the political pressure to inflate reserves. Thus, the relative small increase in reserves during the Martin and Volcker eras have morphed into outright helicopter money by subsequent Fed chairmen, who were convinced that circumstances almost always require the creation of more reserves. I contend, furthermore, that no one can withstand the political and social pressure to print fiat reserves. Inflating the money supply is just a matter of degree.


Even the "right" people have no need of money printing power


Fortunately, there is no need for concern that that no human can withstand the political pressure to inflate reserves.  Austrian economic science explains that money is a product of the market. Markets are conceptual devices, a sort of short hand to describe millions and perhaps billions of individual, discreet exchanges. Money is that commodity or commodities that are most marketable and, therefore, are chosen by the market as mediums of indirect exchange. There is no room and no need for anyone to control or direct markets of any kind, and this applies to money, too. Therefore, if there is no need for anyone to control money production, why tolerate an institution that promises to behave itself and honor rules? Even if we thought that the right people could be found to occupy positions of such power, why create the positions in the first place?


No logical justification for unsound money


The Austrian position that money printing is never warranted is an a priori, deductive conclusion that requires no evidence to be proven correct and that no evidence can prove to be incorrect. It is based upon the irrefutable axiom that "man acts". Therefore, it is both illogical and a violation of justice to create an institution that is not subject to normal commercial law of the market.




A  complete abandonment of legal tender laws--i.e., laws that allow citizens to use only one money in a monopolized political zone--would allow the inverse of Gresham's Law to prevail. Good money would drive out bad. Return money production to the market process, where money is that commodity or commodities which are most widely desired by the market as media of indirect exchange. There is no praxeological reason to grant any institution monopoly power to produce money; therefore, there is no reason to create an institution that can do so and there is no reason to draw up rules that would prevent such an institution from doing so. This is a logical absurdity. The market itself and normal commercial law will ensure that the best money alternatives will prevail.

Draghi espouses the old "excess savings" nonsense

From today's Open Europe news summary:

Draghi rebukes ECB German critics

In a speech on Monday, the President of the European Central Bank, Mario Draghi, delivered a blunt rebuke to German criticism of the ECB’s low interest rate policy saying “There is a temptation to conclude that…very low rates…are the problem… But they are not the problem. They are the symptom of an underlying problem.” The real problem, Draghi argued, was the excessive amount of global savings a significant part of which was caused by Germany’s large current account surplus.  In what was seen as a thinly veiled attack on Germany’s finance minister, who has argued for an end to ECB stimulus, Draghi also noted that “Those advocating a lesser role for monetary policy or a shorter period of monetary expansion necessarily imply a larger role for fiscal policy.”
It is time for ECB president Mario Draghi to go home. He has run out of ideas and excuses. To wit, the above criticism of German bankers who, he says, do not understand that the real cause of low interest rates is not the ECB's massive interventions into the bond market, but that the world saves too much and the Germans produce too much of what the rest of the world wants to buy.
Let's get one thing very clear--there is no such thing as saving too much, just as there is no such thing as too much capital accumulation.  Capital accumulation is the foundation of all economic progress. Without capital accumulation there can be no further division of labor and no further increases in the productivity of labor. Savings--real savings, not fiat money creation--are required for capital accumulation; i.e., postponing consumption today in order to enjoy a higher standard of living tomorrow. In a free market the level of saving is determined by the purposeful desires of billions of individuals.
It is time (it is PAST TIME!) for Germany to leave the Eurozone and reinstate the deutsche mark before Draghi succeeds in destroying its economy.