My letter to the NY Times re: Coal to the Rescue, but Mr. Sommer Doesn't Like It

 Re: Coal Stocks Rise, Even as the Planet Warms by Jeff Sommer

Dear Sirs:

Even Jeff Sommer's highly politicized report cannot hide the fact that the Green Energy Movement has failed and that coal--Yes! Coal!--has come to the rescue. Coal-fired electricity generation in the US has expanded by twenty-one percent over 2020, due to the failure of "significant global investment in green energy". 

Mr. Sommer is more worried about the long-term future of the planet than whether people alive right now will be able to afford heat this winter. Mr. Sommers would have us believe that burning more coal in order to stay warm and keep the lights on will cause "impaired health, catastrophic floods and heat waves, species extinction, and on and on". Really?  Even the government's own NOAA scientists predict that the planet will warm by only one-third of one-degree Fahrenheit per decade in the next fifty years. Oh, my...

Mr. Sommer places his hopes on this week's UN's climate conference in Glasgow to set new targets that will halt coal's rescue of an artificially fuel-starved planet. Even if they do, how could anyone believe that this is anything more than posturing? The conference's biggest cheerleader, British Prime Minister Boris Johnson, doesn't even know how to get his country's lorry drivers back in their cabs.

All the so-called "investment" in green energy has proven one thing, though: that reality is not optional. Coal works; green energy doesn't.

Sound Money Is a Pre-requisite to Peace, Prosperity, and Freedom

 

There are many good recommendations promoted by Austrian school economists for improving the  economy. Although we enjoy successes periodically, most--such as deregulating trucking and airline pricing--involve eliminating previous government interventions. These successes are to be celebrated, of course. But no one can deny that government intervention into the economy has continued, despite these occasional success stories.

 

The reason Big Government has continued to grow is that it controls money production. Not only does government grow in terms of spending, regulations, and interventions everywhere (both internally and overseas), but it threatens our very freedoms. In other words, government's control of money is diametrically opposed to peace, prosperity, and freedom and eventually will destroy our republican democracy. For this reason, returning to sound money--i.e., money that is created by the private market, is part and parcel of the market, and is controlled by no one--should be goal number one for every lover of peace, prosperity, and freedom. Nothing less than the survival of our western-style way of life is at stake.

 

Here are a few examples of how unsound money progresses and masks its destructive power.

 

·         One, unsound money allows government to confiscate resources at will. For example, in 2020 America's bloated military spent as much as the next eleven nations of the world combined. Of course, military spending went up in 2021 and will continue to increase in 2022. America's annual budget deficit is projected to be somewhere between $1.84 trillion and $3.4 trillion, depending upon whether you ask the Biden administration or the Congressional Budget Office. All of this money is created out of thin air. Americans' taxes will not increase enough to cover even a fraction of the Biden estimate, and there is no appetite in the bond market for more American debt. Therefore, the Fed will monetize the new debt onto its balance sheet. The resulting increase in base  money will cause the prices of most goods and services to rise. This impoverishment of the American people through the hidden tax of inflation is possible only because money is completely fiat; i.e., produced out of nothing except the government's printing press and computer terminals.

 

·         Two, unsound money masks the destructive power of government market interventions. An example is former President Trump's tariffs on Chinese goods. According to a friend of mine, the data is irrefutable that the tariffs worked. Well, as Mark Twain said, there's lies, damned lies, and statistics. What really is irrefutable is the economic law of opportunity cost; i.e., that choosing one thing means the giving up of another. Another is individual preference. The very fact that people must not be allowed to purchase Chinese goods means that they valued those goods to a higher extent than American goods. The reason does not have to be financial. There's always service, availability, quality, etc. So preventing Americans from buying Chinese goods means less satisfaction for Americans. This is just one example. Another is keeping zombie companies in business through artificially lower interest rates means that capital is misallocated to less productive uses. There's a whole panoply of labor laws that artificially raises the cost of American labor, reduces American productivity, and lowers business income. Some workers are priced out of the market through minimum wage and mandatory benefit packages. Business has less capital to invest for expansion. New business starts are discouraged. There's something there for everyone! The destruction is masked by monetarily inflated GDP numbers, artificially suppressed Consumer Price Index (CPI) statistics, increased unemployment payments, and other government programs and manipulated data.

 

·         Three, and most importantly, Americans' freedom is threatened. Government can print enough money to buy unlimited enforcers of its rules. More IRS agents. More agents for enforcing arbitrary rules of the Occupational, Safety, and Health Administration (OSHA). More agents for enforcing new environmental regulations and laws arbitrarily established by the Environmental Protection Agency (EPA). More Drug Enforcement Agency (DEA) agents. Perhaps even agents to confiscate guns.

 

Conclusion

 

Returning to limited government, creating a more free market order, having a less intrusive government, etc. requires sound money. Sound money is not a guarantee of a free society, but a free society is impossible without sound money.

 

I conclude with these quotes from The Quotable Mises. The last quote is especially pertinent to the point of this brief essay. (Emphasis is mine.)

 

·         The gold standard alone makes the determination of money’s purchasing power independent of the ambitions and machinations of governments, of dictators, of political parties, and of pressure groups. The gold standard alone is what the nineteenth-century freedom-loving leaders (who championed representative government, civil liberties, and prosperity for all) called “sound money.”

 

·         All those intent upon sabotaging the evolution toward welfare, peace, freedom, and democracy loathed the gold standard, and not only on account of its economic significance. In their eyes the gold standard was the labarum, the symbol, of all those doctrines and policies they wanted to destroy.

 

·         The classical or orthodox gold standard alone is a truly effective check on the power of the government to inflate the currency. Without such a check all other constitutional safeguards can be rendered vain.

 

I do not want to close on a pessimistic note. Therefore, I offer this final quote from Ludwig von Mises, ever the optimist and ever the gentleman.

 

·         Every nation, whether rich or poor, powerful or feeble, can at any hour once again adopt the gold standard.

Government Spending Cannot Stimulate the Economy

 

Government economic policy is completely backwards. We are told that massive deficit spending, interest rates driven to zero, and now higher taxes on the "rich" will bring the American economy out of the doldrums or whatever fake malady seems to be popular. It is hard to imagine an economy in the doldrums when unemployment, the scourge of mankind for decades, is so low that businesses cannot attract enough workers. That's number one; i.e., is the US economy really so bad? I admit that it always could be better, but we are not in the Great Depression of the 1930's in which one fourth of those seeking work could not find a job. At least not yet. Stay tuned though.

 

Stimulus Spending and the Cantillon Effect

 

But let's get back to the main point; i.e., that whether or not the US economy is underperforming, can government spending help? That has been the mantra since Keynesianism swept the economic and then government hallways shortly after World War II. So, we may ask ourselves, just how does government stimulus spending work? Well, from what I can conclude, the government sells its debt to the Fed (called monetizing the debt, which increases the monetary base), spends it on all kinds of programs, some (but not all) of us get more money in our pockets and spend it. So, we can see that, from government's perspective, spending is the key. More spending MUST mean that the economy is doing better. Keynesian economists call this increasing aggregate demand, just a fancy name for more spending.

 

The implied mechanism is that more spending via money created out of thin air somehow draws more goods out of hiding. Why these goods were hiding is not quite clear, except that aggregate demand was deemed to be too low. On the face of it, it appears logical. Let's say that you are the surprise inheritor of a great deal of money from a distant relative. Your personal lifestyle certainly will be stimulated. But let's consider the source of this windfall--your distant relative. He certainly did not print buckets of money that he left you in his will. Either he earned the money himself or inherited it from someone who did. In other words, the source of your new found wealth was previous production. You are the new owner of that wealth. Whether you produced it or someone else, you are the new owner of what Professor Frank Shostak calls "something for something". This is in contrast to receiving stimulus dollars printed by the government. Now you have received "something for nothing". It is pure monetary inflation without any previous production in exchange. Therefore, any stimulus in the form of increased spending is pure smoke and mirrors, masking capital decumulation. The result is rising prices, at a minimum, and possibly hyperinflation if carried too far.

 

But let me give you two thought experiments. For the first one, let's assume that you and some others are marooned on an uncharted island, similar to the plot of the hit TV comedy Gilligan's Island. The only resources you have are whatever washed ashore when your ship sank, whatever natural resources are at hand on the island, and whatever survival skills you possess. Now let's suppose that some large boxes wash ashore later. You rush to open them and find that they contain millions and millions of dollars in paper Federal Reserve notes. Not knowing when, or even if, you will be found, what good are these millions to you and your fellows? Do you all cheer, because now you all are rich? Since your most urgently desired goods certainly are not paper dollars, I doubt it. You all are left with the original resources--natural resources at hand, whatever goods were washed ashore earlier, and your survival skills. But, you may say, I do not live on an uncharted island. I certainly can spend the millions and enrich my life. OK, now let's assume that in the middle of the night Federal Reserve Chairman Jerome Powell wakes you and slides a suitcase with a million dollars in Federal Reserve notes under your bed. Wow! What would you do? You might spend a little time thinking how to spend the money, but sooner or later you will take your suitcase of money and start to spend. Then you are shocked to find out that Mr. Powell, like a magical Santa Claus, visited every one of America's three hundred plus citizens and gave everyone of them a suitcase with a million dollars in Federal Reserve notes, too. You find that all the luxury cars are gone from dealers' lots. When you enquire about ordering one, you find that the price has skyrocketed. When government engages in stimulus spending, the same thing happens only on a smaller scale. A fortunate few, mostly bankers and bond dealers, get the newly printed money first. They buy current goods at current prices. Good for them! But subsequent receivers of the new money find that prices have gone up and their newly acquired money really doesn't do them that much good. Then people much further down the line as recipients of the new money find that prices have gone up and their incomes haven't gone up nearly as much or not at all (think of retirees on fixed pensions). Rather than enticing production out of hiding, government stimulus spending has caused a transfer of wealth from the later receivers of new money to the earlier receivers of new money. This is know in economic circles as the Cantillon Effect.

 

A Four Point Plan from Forty Years Ago

 

So, what can government do, if anything, to aid the economy? I have four main points, all from the Republican platform of 1980. (These four points were articulated by Vice Presidential candidate George Herbert Walker Bush on the steps of the Capital Building in Springfield, IL in the summer of 1980. I was in attendance.)

 

·         Number one, return to sound money by freezing the money supply. That requires two reforms. First, do not increase the monetary base by selling government debt to the central bank. Government must spend only what it raises in taxes or obtains through honest borrowing in the bond market. Secondly, forbid the ability of banks to engage in credit expansion through fractional reserve banking, whereby banks themselves create money out of thin air when they increase lending.

 

·         Number two, cut government spending. Of course, this is exactly opposite of what government does today, but government spending is parasitical on the real economy. Government does not create goods and services itself. It can only hand out what it has taken from others. It is the private economy that brings people what they most urgently want, not what government thinks they want or what government wants them to have.

 

·         Number three, reduce regulations. The free market economy and the legal system are all that is needed to bring people what they most urgently want . Disputes are best resolved in the commercial and criminal justice systems.

 

·         Number four, once the budget is balanced, finally goes into surplus and the debt is slowly being reduced, government can begin to cut taxes. Tax reductions will take money from the destructive power of government spending and increase the capital accumulation power of the private sector. Since the money supply has remained the same, increased production will result in a slow and steady fall in prices, benefiting all levels of society. The cost of living will fall and the standard of living will rise.

 

The American people need to be told the truth. Government can help the economy only by protecting you and your property. A free market economy, limited government, and the rule of law are the keys to prosperity and peace.

The Greatest Threat to the US Is NOT What Most People Think

 

Here's a challenge for readers: Stop reading right now and write down at least five threats to the US. Rank them in order of most serious at the top. Ask family members or friends to help you. Then come back and read the rest of the article.

OK. Did you write them down? No cheating! I'll bet that most people wrote down some of the following:

1. China's growing military power.

2. Terrorist attacks emanating from "sanctuary countries" like Afghanistan.

3. Global warming/climate change causing rising ocean levels and massive flooding.

4. Pandemics.

5. Societal unrest of the right or the left political spectrum.

Am I right? Well, although all of the above may or may not be real threats, the most serious threat--i.e., the threat that is almost certain to happen and cause real, lasting damage--is excessive money printing by the Fed that causes a collapse of the dollar.

Money as an Indirect Medium of Exchange

Here's the short course in monetary theory. Money is a  medium of exchange. Its other functions--store of value and unit of account--are dependent upon its acceptance as a medium of exchange. A medium of exchange is something that people are willing to accept temporarily in order to exchange it later for something else. Therefore, we can add the adjective "indirect" to "medium of exchange". For example, I have apples and want a pair of shoes. I don't have to find a cobbler who just happens to want a lot of apples. I can sell my apples to a wholesaler or to a whole lot of retailers in exchange for money, which I then present to the cobbler, who surrenders the shoes. Now the cobbler, in turn, can shop for something other than apples.

No One Invented Money

But who invented money? Surprisingly, no one did. Through trial and error market participants used many things for money before settling on the most widely accepted commodity. From time immemorial that commodity has been gold and sometimes silver. But today, money is completely unhinged from any precious metal. It is produced in whatever quantities central bankers desire. Not surprisingly, central bankers believe that they are doing their job--adding enough liquidity to smooth the gears of progress. If only it were so!

 

Whereas gold and silver are part and parcel of the economy; thusly, representing a sound relationship (price) between itself and all goods, today's money is completely fiat. It can be produced in whatever quantities are desired, and--OH, MY--how the Fed does accommodate that endless desire. This means that the relationship between the dollar and all other goods is constantly changing. The dollar in your pocket or bank account deteriorates in its purchasing power for every dollar the Fed produces out of thin air, and the Fed has been producing dollars in unprecedented quantities. (For example, in January 2020 the monetary base was $3.4 trillion. Today it is over $6.0 trillion. That's a 43% increase in just twenty months. The components of the monetary base are cash and bank reserves held at the Fed that can be exchanged for cash.)

The Fed is not the first, nor I fear the last, entity to try its hand at alchemy; i.e., create something out of nothing. No previous attempts have succeeded. In fact, all have failed in spectacular fashion, even recently in Zimbabwe and Venezuela. But money printing out of thin air has been around a long time. Hyperinflation destroyed mighty Rome under Diocletian and the highly industrialized Weimar Republic of Germany shortly after World War One.

The US Is in Hyperinflation

Most of the public believes that hyperinflation is a complete collapse of money's purchasing power. But Alasdair Macleod of Goldmoney.com points out that the complete collapse of money is the result of hyperinflation. Macleod defines hyperinflation as the condition that exists when the only way for government to meet its budgetary promises is through printing ever increasing amounts of money, which reduces the purchasing power of money already in existence. The Biden administration projects that the 2022 year deficit will be $1.84 trillion. But the Congressional Budget Office projects that the deficit will be $3.4 trillion! Regardless of who is right and with promises of spending even more on welfare programs, clearly the US has no plans to reduce its budget deficit and end hyperinflation. When this fact becomes apparent to all holders of dollars, probably our foreign trading partners first, it will start an irreversible scramble to shed dollars for real goods. Regrettably there is nothing that can stop this from happening, because there is no political will and no public support to reduce government spending.

The only safe haven is in gold, and possibly silver, not ETF's (electronically traded funds) but the real stuff...specie. Gold always survives as the one medium of exchange that cannot be manufactured out of thin air. It has survived all attempts to make it either illegal or irrelevant. 'Nuf said.

A Natural Rights and Logic Approach to Pandemic Policy

 

Government officials at all levels--federal, state, and local--feel impelled to adopt some sort of pandemic policy, from outright lockdowns to mandates for wearing masks under certain circumstances. It all seems quite arbitrary, because it is! I contend that defending natural human rights and using logic can guide us to adopting a proper pandemic policy, even if that policy is to do nothing at all.

 

First of all, one must accept that the foundation of natural rights is the right to our own bodies. Many people reading this short article may agree with me at this point but will disagree with me as to where this leads via logic. Number one, if we own our own bodies, then no can tell us what to put in our bodies or, conversely, what NOT to put in our bodies. Many may agree that, if we own our own bodies, then no one can force us to "take the jab". OK. Now let's expand that to agreeing that no one can prevent us from putting whatever we want into our bodies, including additive drugs. I'm sure I lost a few supporters after this statement, but it is undeniable from the standpoint of the "we own our own bodies" principle.

 

Most objections to this hands off policy fall into two categories. One, that drug addicts will cause harm to others and, two, that drug addicts will cause our taxes to rise in order to support those who harm themselves and now must be "taken care of". I do not deny that drug addicts may cause harm to others, but they should be prosecuted for the harms they cause, just as we prosecute those who drive while intoxicated and cause harm to others. Being under the influence of a mind altering substance, whether alcohol or drugs, does not absolve anyone from paying society's proscribed penalty for the harm that one causes. Secondly, society should be under no obligation to provide drug and alcohol rehabilitation programs or to support those who now cannot care for themselves due to their self-inflicted harms. Sounds rather severe, doesn't it? But notice that I said that society should be under no obligation to provide such serves. I did not say that private individuals should not provide them voluntarily. But, you may counter, what if private individuals do not provide these services voluntarily? What now? Well, you have just answered your own question. If we will not provide a service voluntarily, what right does government have to force us to provide it? Who decides what government may force us to provide? If government is our servant and not our master, then it has no natural right to force us to provide for others against our will for any reason, whether it is from self harm due to drug addiction or because we must support some European style aristocratic class.

 

Now let us return to natural rights and the pandemic. Does government have a right to force businesses to close against their will and against the will of their customers? Of course not! The business owners and their patrons have internalized the risk and have chosen either to continue to patronize these businesses or not. But, you may say, doing so may cause the pandemic to spread. That may or may not be true, but it makes no difference. Avoiding patronizing businesses is your right, but you have no right to prohibit others from doing so, either from a logic or natural rights approach. If others internalize the risk and continue to patronize businesses, they do not harm those who do not continue to patronize businesses. How can they? If someone wants to reduce his own risk of infection, all he has to do is protect himself by staying home. He may not force others to do the same, because they cannot harm him if he stays home. This logic becomes even stronger, but is not necessarily required, if a vaccine become available. Now those who feared infection and now are vaccinated can patronize businesses and mingle with others without fear. The fact that others may not want to get vaccinated is no one else's business. We may look upon people who refused to be vaccinated, came down with Covid, and perhaps died as having exercised poor judgment, but that is their right. The argument that the unvaccinated spread the disease is of no relevancy either, because they spread it only to like minded, unvaccinated people.

 

The bottom line is this: Take whatever action you may think is suitable to your own circumstances and leave others to do the same. Let natural rights and logic guide your actions. Those fearful of mingling with others may stay home. Remember the wise words of my favorite philosopher, Yogi Berra: "If people don't want to go to the ballpark, no one's going to stop them."