My Letter to the NY Times re: Krugman's "Myths of Austerity"

From: patrickbarron@msn.com
To: letters@nytimes.com
Subject: Letter re: Myths of Austerity
Date: Mon, 5 Jul 2010 09:32:55 -0400

Re: Myths of Austerity by Paul Krugman

Dear Sirs:
In his attempt to belittle those G-20 nations who spurn more wasteful stimulus spending, Mr. Paul Krugman resorts simply to name-calling and labeling (fantasy, prejudices, sheer speculation), with no substantive empirical or theoretical analysis. His evidence that more stimulus spending is the "...safest bet in a stumbling economy..." is a vague quote by the director of the Congressional Budget Office that "There is no intrinsic contradiction between providing additional fiscal stimulus today, while the unemployment rate is high and many factories and offices are underused, and imposing fiscal restraint several years from now, when output and employment will probably be close to their potential." Well, now, that is a real ringing endorsement for more paper money stimulus if ever I heard one. And equating Ireland as an example of a failed attempt at austerity is hardly convincing. It is clear that Mr. Krugman is determined to pump more paper money stimulus into the all-ready addicted U.S. economy until it collapses, at which time he undoubtedly will claim that even this was not enough.

Patrick Barron

My Letter to the NY Times re: Government Spending is NOT Stimulative!

From: Patrick Barron (patrickbarron@msn.com)
Sent: Fri 7/02/10 9:23 AM
To: NY Times (letters@nytimes.com)
Re: Pulling Back, Amid Echoes of the 1930s

Dear Sirs:
In his above-the-fold, front page "economic scene" commentary on June 30th Mr. David Leonhardt repeats your paper's oft stated misunderstanding of the effect of government spending and taxing. He takes to task those G-20 nations who will reduce spending and increase taxes in order to balance their nation's budgets. He treats both spending cuts and tax increases as anti-stimulus and, therefore, as threatening to a nascent recovery. Spending cuts and tax increases are very different things. Government spending MUST deprive the private sector of resources, for, to paraphrase Frederick Bastiat from over a century and a half ago, the government can spend only what it has already taken from the people. Therefore, REDUCING government spending is STIMULATIVE to the private, real economy. Next, prior to the age of fiat paper money, it was clear to the people that government can pay for its spending from only two sources--by taxing the people or borrowing from them. Taxing is the most politically risky, and borrowing drives up interest rates. Thusly, both methods were abhorrent. However, in this age of fiat paper money, governments now PRINT the money that they spend, just as would any counterfeiter and with the same result as any counterfeiter. The taxation on the people is conducted in a stealthy manner, but the people are robbed nevertheless. The most misunderstood and, therefore, the most damaging economic fallacy that underlies governments' so-called stimulative efforts today is that government spending PROVIDES the people with resources rather than TAKING resources from them. The source of this misunderstanding is Keynesian economic theory. To learn why this is fallacious I recommend chapter five of Hans Hermann Hoppe's book The Economics and Ethics of Private Property. (Click on the link for a free PDF download.) For the Cliff's Notes version read my brief essay on Mises.org titled "C + I + G = Baloney".

Patrick Barron

My Letter to the NY Times re: Ireland and Austerity

From: patrickbarron@msn.com
To: letters@nytimes.com
Subject: Letter-to-the-Editor re: Ireland and Austerity
Date: Wed, 30 Jun 2010 16:03:04 -0400

Re: Ireland Paying a High Price for Austerity

Dear Sirs:
Your above-the-fold article on page one of your June 29th issue takes Ireland to task for supposedly imposing unnecessary austerity on its people when the correct path is more stimulus spending as proposed by President Obama. You make the common mistake of assuming that the nation and/or government of Ireland is somehow distinct from its people and that this entity called Ireland has resources that the people of Ireland do not. Frederick Bastiat recognized this common error over a century and a half ago when he wrote "...the state can give nothing to the citizens that it has not first taken from them." Reducing the cost of government is not austerity; it is liberating resources from the predations of the state and returning them to the people where they will be employed for real economic recovery. The government of Ireland (and the U.S, for that matter) should accelerate this process and do nothing to stand in its way. It is the sure path to recovery.

Patrick Barron

My Letter to the NY Times re: Government Support of Tesla Motors

From: patrickbarron@msn.com
To: letters@nytimes.com
Subject: Letter-to-the-Editor re: Government Support of Tesla Motors
Date: Tue, 29 Jun 2010 12:03:48 -0400

Re: Tesla IPO

Dear Sirs:
Your article about the upcoming Tesla Motors IPO illustrates beautifully how our government gambles with the peoples' money. The government has "loaned" Tesla $465 million. I put the word "loan" in parentheses, because this is not a real loan. Undoubtedly the rate is below market, but there is no way of knowing, because there is no loan market for Tesla Motors. No bank board of directors would ever approve such a loan of its depositors' money. The article speaks for itself--Tesla has lost $290.2 million since it was founded in 2003. It has produced a grand total of one thousand cars, priced at over $100,000 a piece. Its current car has minimal range and few places where it can be recharged. By the time Tesla rolls out its next model, the big players such as Nissan will be offering all-electric cars at a fraction of Tesla's price. But how can there be a significant market for an all-electric car when nowhere can one find out its electricity cost per mile? And where will America get the power? The government, via the EPA, is making it almost impossible for America's utility companies to add electricity production. In fact, some current coal-fired power plants are threatened with closure. Nevertheless, the government is pushing this technology and trying to lure buyers by granting tax credits to purchasers of all-electric cars. But, there's a sucker born every minute. So, if you loved the DeLorean, you'll probably buy a Tesla.

Patrick Barron

My Letter to the NY Times re: Negative Interest Rates

To: letters@nytimes.com
Subject: Letter-to-the-Editor
Date: Thu, 24 Jun 2010 17:36:05 -0400

Re: When Caution Carries Risk

Dear Sirs:
Mr. David Leonhardt thinks that Fed Chairman Ben Bernanke is too worried about the stock market and not worried enough about unemployment and the economy in general. As a result, Mr. Leonhardt claims that Mr. Bernanke's caution carries the risk of a weak recovery that will harm millions of America's unemployed. Better to prime the old pump with yet another big dose of fiat money. To support his claim of a too-cautious Bernanke, Mr. Leonhardt refers to a San Francisco Fed report. According to its analytics, the Fed's effective benchmark rate today is a negative two- percent and it should be a negative five- percent. Negative interest rates, huh? This is a case in which one's firmly and, I might add, irrationally held economic outlook simply does not pass the test of common sense. Now it is true that a bank can lend at an effective negative rate. Let’s say that the inflation rate is ten percent and the bank lends at eight percent. Then its effective interest rate is indeed a negative two- percent. But only a person completely lacking in common sense or a dyed-in-the-wool Keynesian would advise the bank to lend at five percent in order to have an effective rate of negative five percent. The bank will slowly liquidate itself by transferring its capital to its borrowers. Yet this, apparently, is what Mr. Leonhardt advocates.

When an economic theory leads one to advocate that America liquidate its capital base in order to save itself, it is time to re-examine that theory. The Keynesian theory of lack of demand, which requires government stimulus via low rates and fiat money spending, should be discarded in favor of something that reflects reality. Artificially low interest rates in the early and middle part of the decade caused malinvestment that must be liquidated. We simply spent too much money producing stuff that people really didn't want or wanted less than other things. This is not a lack of demand of everything as much as a lack of demand for some things. Only a recession can cleanse the economy of this superfluous inventory and redirect it to meeting the real needs of the people. This takes two things--time and freedom. Zero or less-than-zero interest rates freeze malinvestment and prevents the economy from adjusting. Another big round of stimulus spending is the wrong policy.

Patrick Barron

A Quick Lesson In Understanding the Fed

My students at the University of Iowa must understand how the Fed operates. We study books and articles by great Austrian economists, such as The Mystery of Banking by Murray N. Rothbard. Even though Professor Rothbard presents his subject in about as clear and concise terms as one can imagine, it takes some serious application of one’s time and energy to comprehend all that the Fed does and how it does it. It then takes even more time and energy to comprehend the Fed’s impact on the economy to arrive at a conclusion that is greatly at odds with mainstream economists. Mainstream economists revere the Fed as the “All-wise, All-knowing Great Oz” that stabilizes the economy, prevents depressions, ensures full employment, etc. And, they have formulas and econometric models to prove it! By contrast we Rothbardian Austrians conclude that the Fed causes the boom/bust business cycle by expanding the money supply and encouraging malinvestment that must later be liquidated. This is known as the Austrian theory of the business cycle. After studying the Fed’s operation, students dive into the study of this equally serious and time-consuming subject.

The Fed as a Monopoly Counterfeiter

Well, I have come up with a much simpler way to understand what the Fed does and its impact on the economy. There are no books to read or equations to memorize. Simply think of the Fed as a counterfeiter, but a very special kind of counterfeiter. Real counterfeiters operate in secrecy, knowing that their paper money amounts to theft and that their discovery would result in jail time. Printing money does not create a resource; it merely redistributes it. But, curiously, the Fed does the same thing and, except for us Austrians, engenders great respect from both the citizens and the government. Unlike a real counterfeiter, the Fed operates in the light of day. It has nothing to fear, because it has a legal monopoly on its counterfeiting activities. This makes all the difference and makes it easy to explain its operation.

The Police Power of the State Protects the Fed…for a Price

The Fed is the only entity that is allowed to manufacture money in America. The full police power of the federal government ensures its monopoly. The federal government forces everyone in America to use the Fed’s product—the dollar—for all monetary transactions. Even if we agree with one another to use some more desirable money, such as the yuan or the Euro, we are prevented from doings so under penalty of law. Furthermore, if we refuse to accept the dollar to satisfy a debt, the debtor is released from his obligation ever to pay us! This state-enforced monetary regime is known as “legal tender law”.

Holding the monopoly of money production in America makes the Fed a very popular entity, to say the least. As a semi-independent agency, the Fed can print money in just about any amount it wishes and can give it to just about anyone it wishes. But it gives most of its money production to the government itself, and it is not hard to understand why. A symbiotic relationship exists between the Fed and the federal government. Each gives the other something that it cannot have on its own. As already mentioned, the Fed gets protection from the federal government for its monopoly counterfeiting operation. Without this protection Gresham’s law would operate to drive the Fed’s fiat currency out of circulation; i.e., no one would want to use a currency that lacks intrinsic value.

But the Fed has the full coercive power of the federal government to force the dollar upon us, because the federal government gets an equally important benefit. It gets as much newly manufactured money as it requires, without going to the people via taxation or honest borrowing. When the government must appeal to the people for the money it wishes to spend, its insatiable appetite for spending meets the reality of the marketplace. There is only so much that the government can tax and/or borrow before the people either revolt or are driven to destitution and have nothing more to give up. But when the federal government can “sell” its debt to the Fed and receive as many dollars as it desires…and its desire is unlimited…it need not appeal to the people at all!

“Shill” Economists Provide Theoretical Cover

The economics profession should be solidly against this well-known scam, as Dr. Mark Thornton, Senior Fellow at the Ludwig von Mises Institute, calls it. But Dr. Thornton has discovered why so many economists and academic publishers support this legalized theft—they are on the payroll, literally! As Dr. Thornton explained at this year’s Rothbard Memorial Lecture, held in March at the Mises Institute, both get lucrative grants to produce and publish monetary studies for the Fed, and their Keynesian outlook provides amply scope for research into the arcania of fiat money. To quote Dr. Thornton, “…government money dominates the whole process.” Like the priestly class who supported the divine right of kings in days of old, academics and publishers receive support and public recognition from the state in return for providing theoretical justification for the state’s parasitic activities. As the bought-and-paid-for shills of the Fed itself, this group provides the third leg of support for this grand-theft-auto of a system.

So don’t be impressed with all the theater of complicated sounding Fed programs that authorize the Fed to buy this asset or that asset or lend to this bank or that insurance company. These are simply the huckster’s sales pitches for disguising the Fed’s real operation—manufacturing money for the federal government in exchange for the government’s protection of its counterfeiting operation. This evil, destructive relationship is the most ingenious method ever devised for fleecing the people of their wealth and, eventually, destroying our society.

My Letter to the Wall Street Journal re: China Revalues the Yuan

Re: China's Yuan Rises to Highest Level Against the Dollar in Modern Era

Dear Sirs:
I cannot impress strongly enough upon your readers my recommendation that they read Murray N. Rothbard's The Mystery of Banking. Rothbard explains in capsulized form the means by which our central bank, the Fed, has created the conditions for a much higher price level in America (what most people wrongly call "inflation"). There is no way to stop this process now, because the Fed is intent upon reflating the economy, which is short-hand for destroying the purchasing power of the dollar by printing massive amounts of money. Why will it do this? Because it is the only way the government itself can repay its debts, at least in dollar terms. China now understands this. It has moved from confidence in the dollar to loss of confidence in the dollar. Therefore, it will reduce its dollar holdings by repatriating them to the US. Other nations will follow. This will increase our DOMESTIC money supply and push prices much higher. Do not believe that anyone is the cause of this other than our own government. We are about to reap the wages of a half century of money inflation.

Patrick Barron