Tuesday, August 18, 2020

Poor Understanding of Monetary Theory Leads to Disastrous Government Policies

 

Austrian School economists know that unsound money has been at the heart of disastrous government policies since time immemorial. The greater the ignorance of money the greater the monetary debasement in order to fund government's latest folly.

 

Monetary debasement always ends badly, but end it will. Robert L. Shuettinger and Eamon Butler, co-founder and director of the Adam Smith Institute, wrote Forty Centuries of Wage and Price Controls: How not to fight inflation, a very readable short book that covers a vast expanse of time.  In The Ethics of Money Production Jorg Guido Hulsmann outlined all the various schemes used over the millennia by those in government to counterfeit the lifeblood of the economy for their own purposes. But Professor Hulsmann, who wrote the book in 2010 probably could not have predicted the scale of today's money expansion. What is the point of all this?

 

Well, the point is that the ignorant public and the tyrants who rule them apparently believe that all that is wanting to achieve some great goal is the lack of money. And, since government can conjure all the money that it desires out of thin air, government ought to do so. It's really as simple as that.

 

Fiat Money Makes Keynesian Economics Appear to Be Possible

 

Along the way some almost universally accepted economic principles have had to be shunted aside. John Maynard Keynes, author of The General Theory of Employment, Interest, and Money, and who is considered to be the father of modern macroeconomics, managed to concoct a new economic school of thought that completely ignored Say's Law. No longer was money an indirect medium of exchange to facilitate the transfer of real goods and services for other real goods and services, what Professor Frank Shostak calls the exchange of "something for something". No. Now money itself could be conjured out of thin air and used to confiscate real goods and services. No longer would government be forced to convince its constituents that its latest spending proposal was so necessary that it could justify an increase in taxes and/or a reduction or elimination of some other spending programs. Barring the failure of those two funding options, it would no longer be forced, as it had in the past, to convince savers that its credit was good. In other words, spending is completely unshackled from the reality of uncertainty and scarcity.

 

Fiat Money Hides the Consequences of Lockdowns

 

The coronavirus pandemic has exposed the hollowness of what is called Modern Monetary Theory (MMT). The horrible consequences of government shutdowns throughout the country have been truly "papered over" with trillions of dollars of fiat money through so-called "stimulus checks", handouts to politically connected businesses, and boosts in unemployment payments. Real money would have revealed the damage to the world economy long ago, and I am in no doubt that shutdowns as a tool for controlling the virus would have been over quickly. As it is, the shutdowns linger in many parts of the world because the consequences are not yet fully seen.

 

The End of the Credit Cycle

 

Yet the coronavirus-inspired shutdowns and helicopter money to placate a frightened populace are merely the latest example of foolish government policies made possible only by the government's ability to conjure money out of thin air. The broader background of weakening bank balance sheets has ensured a recession and possibly a depression through bank credit expansion funded not by an increase in real savings but central banks. In his latest warning that the end of the latest credit cycle is nigh, Alasdair Macleod of Goldmoney.com paints a bleak picture of the weakness of the "Globally Systemically Important Banks" (G-SIBs).

 

...the elephant in the room is systemic risk — visible to all but simply ignored. This is partly due to everyone in government and central banks, as well as their epigones in the investment industry and mainstream media, believing our economic problems are only a matter of Covid-19.

 

Governments have introduced emergency plans. The US Government is distributing money by metaphorical helicopters, and Britain has a furlough scheme and tax deferments. But they do little to alleviate the concerns of highly leveraged commercial bankers, facing the prospects of soaring bad debts. Bank balance sheet asset values to market capitalisation  ratios strongly suggest the banking system cannot cope with what is ahead.

 

Conclusion

 

There is NOTHING that government can do to help the economy other than remove barriers to wealth creation and preservation that it itself created and allowing the people the freedom to pursue their own ends. Since government creates nothing itself, all interventions interfere with what the people themselves desire and are nothing more than transfers of wealth for the benefit of some and destruction of wealth for all. Yet wealth destruction may not be the worst thing that can happen. A nation can lose its freedom entirely, when government doubles down and doubles down time and again in the pursuit of phantom fixes with ever increasing amounts of fiat money conjured out of thin air. It happened in Rome (Inflation and the Fall of Rome, a speech by Joseph R. Peden). It happened in Weimar Germany (When Money Dies, by Adam Fergusson). It certainly can happen here and now.

 

Sunday, August 16, 2020

My letter to the Wall Street Journal re: Gold Mining Is Not the Same as Owning Gold

 Patrick Barron

Sunday, August 16, 2020

Re: Gold Is Flying High, But Getting Harder to Mine

Dear Sirs:
This caption below the picture associated with Mr. Macdonald's article about the difficulty of mining gold illustrates the mistaken belief that the difficulty of mining for gold somehow makes gold unsuitable as a medium of exchange:

"The price of gold is going haywire, driving a frenzy of investment that’s calling into question the metal’s reputation as a safe-haven during times of economic uncertainty."

Gold mining is an industry and no one should expect that investing in this industry should be more profitable than investing in any other industry. A higher price of gold certainly will make it profitable to cover the increased expense associated with extracting gold from marginal deposits. This is no different from any extraction industry. Known oil deposits are opened and closed as the price of oil goes up and down. Gold mining over time is no more or less profitable as any other industry. Gold mining should not be confused with the inherent qualities of gold as a monetary medium, one of which is the difficulty and expense of bringing more gold to market through mining.

Patrick Barron
20 McMullan Farm Lane
West Chester, PA 19382

Tuesday, July 21, 2020

My Letter to CBS Sports

Sunday, July 19, 2020

Sean McManus, CEO
CBS Sports
1401 W. Cypress Creek Road
Fort Lauderdale, FL 33309

Dear Sir:
Thank you and CBS Sports for broadcasting Jack Nicklaus' Memorial Golf Tournament this week. I thoroughly enjoyed the coverage. Well, let me say that I WAS thoroughly enjoying the coverage until accosted by former Pittsburgh Steelers coach Bill Cowher for...well, I'm not really sure why he was accosting me. He yelled angrily into the camera that I must "open my eyes" to the BLM movement.

According to reliable sources, Mr. Cower makes "at least" four million dollars per year as a paid sports commentator for CBS Sports and perhaps ESPN, too. Good for him. Nevertheless, by what presumption does he--with your approval, I'm sure--feel qualified to question my personal ethics and those of all the other viewers of this great golfing event?

My reaction was much the same as if Mr. Cowher or some other lout accosted me face-to-face. I turned off the TV and walked away. I did not watch the conclusion of the tournament.

Patrick Barron
20 McMullan Farm Lane
West Chester, PA 19382

cc:
Kirt Walker, CEO, Nationwide Insurance
One Nationwide Plaza, Columbus, OH 43215-2220

Jack Nicklaus, Jr., CEO, Nicklaus Foundation
Golden Bear Plaza, East Tower
11770 U.S. Highway One, Suite 308, North Palm Beach, FL 33408

James Pitaro, CEO, ESPN
935 Middle Street, Bristol, CT 06010

Jay Monahan, CEO, PGA Tour
100 PGA Tour Blvd., Ponte Verde, FL 32082

Wednesday, June 17, 2020

The Great Lie of All Tyrants: Your Liberties Are a Threat to Others and Even to Yourselves


The forces of totalitarianism have been chiseling away feverishly at our liberties for many years now. Their efforts have taken the guise of radical equalitarianism (income redistribution), radical diversity (whom one may hire or accept into a position normally reserved for those of the greatest merit), radical environmentalism (what one may buy, sell, or freely use), and political correctness (a blatant attack on free speech). Like all totalitarian movements these forces co-opt the language of true liberty, notably "progressivism" and "liberalism". George Orwell warned us of the power of "Newspeak" in his dystopian novel Nineteen Eighty-Four.

But these forces now are taking on a new tactic, seizing the power to restrict our liberties to move about freely, peacefully associate with others, and to earn a living from peaceful, social cooperation. I refer, of course, to the lockdowns imposed in response to the coronavirus. George Orwell would recognize these tactics and, I hope, be appalled at how complacently populations all over the world have not only complied with these diktats but many have actively supported them to the point of proselytizing others for non-compliance.

The Lockdowns Violate Ethics

Principles are important. Without them a society has nothing more than arbitrary rule. That is why even dictatorships such as the now thankfully defunct Soviet Union had detailed constitutions. Constitutions outline the limits of government. Constitutional conventions are serious events and may take months. But even constitutions must be based upon an ethical foundation. Two unsurpassed explanations of the limits to which government may legitimately rule have been penned by Immanuel Kant and Frederic Bastiat.

Immanuel Kant's Humanity Formula, penned in the middle of the eighteen century, exhaustively explains that man is an end in himself and may not be used as a means to an end. In other words, due to man's inherent humanity, no man may have his liberties or property curtailed in any way in order to benefit others. A simple example will suffice. Mr. Smith is a very wealthy man, and Mr. Jones is very poor. Mr. Jones' son needs an expensive operation to save his life. He goes to Mr. Smith and asks for his financial assistance. Mr. Smith refuses. Mr. Jones does not have the right to take Mr. Smith's money in order to save his son's life. Kant would point out that taking Mr. Smith's money would be using Mr. Smith as a means to another's end, a violation of the Humanity Principle.

Frederic Bastiat wrote The Law in 1850. In this short book Bastiat explains the difference between just law and unjust law. Posted on June 11, 2020 on the Mises Wire, Lee Friday applied Bastiat's principles of just and unjust law to the current lockdown diktats: Bastiat Leads the Way on the Morality of Forced Lockdowns. Every man has a God given right to life, liberty, and property. No man nor any collective of men (government) may deprive any man of this God given right. Any law that purports to do so is unjust.

Do Your Liberties Threaten Others and Yourselves?

So much for ethics, but what about the claim that a man at liberty is acting irresponsibly by opening his business or traveling freely; that liberty does not apply to those who are a threat to others; plus, you yourself are too ill informed or just plain bloody minded to be allowed to exercise your liberties? Furthermore, to do so would mean that you are taxing the healthcare system unnecessarily and denying its resources to others who are more worthy. Or so the argument goes. Note that this is NOT an ethical argument but a practical one by which supporters of the lockdown wish to end all further debate. The argument sometimes is enhanced with the claim that one cannot place a value on human life, so sacrifices must be made, etc. Of course, this argument violates Kant's Humanity Formula, but what about meeting it on its supposed merits? Are people who open their businesses or travel freely threatening others? If so, how?

I have asked supporters of this claim to explain how one can "catch the virus" if he self isolates--i.e., does not patronize businesses or travel freely himself--or wears a mask, gloves, etc in his few necessary excursions to public places . The usual answer is that such "irresponsible people" have a greater chance of catching the virus and spreading it. But why is this a concern, whether scientifically valid or not? Do not those who do not self isolate tacitly accept the increased risk? Naturally, some people are more risk averse than others, so are we to force everyone into forced isolation until the most risk averse among us are no longer fearful of their fellow men? The most risk averse among us have the right to self isolate but they have no right to force others to do so.

No Logical Criteria for What Is Excessive Risk and Should Be Prohibited

There is no logical criteria to guide the state in what risky activities, willingly pursued, should be prohibited. Many risky vocations (lumberjacks, high iron workers, test pilots, commercial fishermen, etc.) plus many avocations (mountain climbing, sky diving, scuba diving, hang gliding, etc.) undoubtedly would be at the top of the any radical risk averse prohibited activities list. As for taxing the healthcare system unnecessarily, end socialized medicine and let the market place a price on those who engage in risky pursuits. The insurance industry already does this where not prohibited by statute law. Your automobile insurance premium will increase if you have an accident. If you live in an area of the country with severe weather, such as tornadoes, your home owners insurance premium will reflect that risk. Some insurance companies will not write life insurance for those in very risky professions. I experienced this myself in my younger days in the Air Force.

In Conclusion: More of the Same in Our Future

In conclusion, it has become clear that officeholders in our once constitutionally limited government have exceeded their bounds of authority and, once these officeholders have tasted unlimited power, it is very unlikely that this power will be relinquished voluntarily. The pronouncements of which businesses may reopen and under what kinds of restrictions would be comical if they were not so tyrannical. (One is not allowed to touch the flagstick on a golf course. One is not allowed to touch someone else's tennis balls. Park playground equipment not only was cordoned off but in some cases actually made unusable: a basketball court in a park near my son's house was sabotaged by township workers.) Now that government has found that it has unlimited powers to prohibit and regulate personal liberties that once were constitutionally protected we can expect more of the same in the future. I fear that the genie is out of the bottle and we'll have a hard time getting him back in. A so-called "second wave" of the coronavirus will be instructive. If government locks down the economy again, I personally doubt that the public will comply...and that would be a very good thing.


Sunday, June 14, 2020

No Such Thing as "The Paradox of Thrift"

My letter to "The Ethicist" at the NY Times:

Dear Sir:
Kim of Washington Township, NJ asked some guidance in curtailing spending and philanthropy when her own income was greatly reduced during the coronavirus inspired lock downs. She was concerned about others who have lost their jobs and/or depend upon charity in some way. You stated the following:

"But like most Americans, you're caught up in a version of what economists call the paradox of thrift. While cutting back on your spending may be individually prudent, it's collectively harmful."

On the contrary, what is good for you is also good for the economy. Your savings does not lie idle but is funneled mainly through the banking system into longer term production. The society that saves more prospers more through both replenishing the inevitable wear and tear of current capital goods but also the founding of new businesses. The spending does not vanish; it moves from final consumption to intermediate and long-term production.

Monday, May 25, 2020

My letter to the NY Times re: Exaggerated Monetary Consensus

From: Patrick Barron
Sent: Monday, May 25, 2020 10:29 AM
To: NY Times
Subject: Exaggerated Monetary Consensus
 

Dear Sirs:
In his May 17 article titled (print edition) "A Giant Deficit, Once Dreaded, Is Now Desired" Mr. Tankersley claims that "A legion of economists, Federal Reserve officials and even some of the most outspoken proponents of deficit reduction in recent years are now urging Congress and President Trump to continue spending trillions of dollars to prevent a long-term collapse in business activity and prolonged joblessness."

Really? Just who are these economists? Turns out that Mr. Tankersley drags out the usual suspects--two Harvard economists and an economic advisor to socialist Bernie Sanders. He did find a couple very mild quotes by semi-sound money economists who otherwise are critics of deficits. They support the fallacious idea that government should spend during recessions. Left unsaid is that these same economists recommend running budget surpluses during the good times. Of course, the spend-until-you-drop economists are much loved by the political class, because they tell politicians exactly what is manna to their ears; i.e., you do not have to economize...just spend! On what? Lord Keynes, much loved by the political class, famously advised that people be paid to dig holes in the ground and then other people be paid to fill the holes back up. Yes, he really did say this!

Well, Mr. Tankersley, there is a "legion of economists" who know that budget deficits MUST BE PAID in some fashion. We the people are paying for it now with a diminution of the purchasing power of existing dollars. There is no other possible outcome to printing money out of thin air. Please, Mr. Tankersley, look beyond the Keynesian dogma and read Mises, Hayek, and Rothbard. Why there is even a real economist right there in Manhattan: Professor Joe Salerno of Pace University. Take him to lunch sometime and have the scales removed from your eyes. You will be a better man for it.

Patrick Barron

Sunday, May 17, 2020

My letter to "The Ethicist" at the NY Times re: Popular Delusions

From: Patrick Barron
Sent: Sunday, May 17, 2020 9:32 AM
To: ethicist@nytimes.com
Subject: Popular Delusions
 
Dear Judge Hodgman,
In reference to your response to a college professor who is troubled by a colleague who "spouted bizarre conspiracy theories and generally denied the severity of this (coronavirus) virus", you recommended students read Charles Mackay's 1841 classic "Memoirs of Popular Delusions". Yes! By all means, recommend this book! May I also suggest that students read "Damned Lies and Statistics" by Joel Best. Both will open one's eyes to how public opinion can be manipulated.

Sincerely,

Patrick Barron
20 McMullan Farm Lane
West Chester, PA 19382
Phone: 610-793-3605

Judge Hodgman has a "Dear Abby" or "Ann Landers" type column in the Sunday NY Times. Frankly I find his answers not up to par with Abby and Ann. In this case, he had severely ridiculed the college professor who refused to toe the government and main stream media line about the coronavirus. I wonder if he will recognize my jibe that at the present time we really don't know which side is delusional.

Pat Barron