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From today's Open Europe news summary:
"El País reports that the European Commission is working on a proposal to pool the issuance of sovereign debt, guaranteed by the eurozone rescue fund."
The is just another indication that no one in a position of power at the EU understands Professor Philipp Bagus' argument--in his excellent book The Tragedy of the Euro--that the Euro will succumb to the economic law known as "The Tragedy of the Commons", whereby a commonly held resource is plundered to extinction. Pooling sovereign debt absolves the most irresponsible nations from confronting their unsustainable spending by forcing more responsible nations to pick up the tab. All of the incentives are weighted in favor of irresponsibility and none to responsibility. No pie-in-the-sky plan by the EU to dictate budgets to its members will ever work. The members will either ignore such interference or, as has already happened, cook the books to make it appear that they are doing so.
Friday, January 14, 2011
Saturday, January 8, 2011
My Review of The Tragedy of the Euro, by Philipp Bagus
The Tragedy of the Euro, by Philipp Bagus
Reviewed by Patrick Barron
In this small gem of a book Professor Philipp Bagus of Universidad Rey Juan Carlos, Madrid has given us much more than an explanation of why the Euro will fail the common man in Europe. He has given us a grand lesson in power politics and economic reality that is applicable throughout the world at all times and all places.
The title of his book frames his economic argument. A resource succumbs to the “tragedy of the commons” when property rights in the resource either are missing or not sufficiently enforced. All grab for as much of the resource as quickly as they can until the resource is plundered to extinction. In this case, the Euro is the resource that is being plundered by the European elite in its bid for centralized power and special privileges at the expense of the common European citizen. This plunder has played out against a background of great change in Europe. The vision of a united post war Europe always meant two essentially different ideals—the liberal order (in the 19th century meaning of the term) of free trade and free migration, which would leave the nation states intact, vs. the statist ideal of a centralized European empire. The fall of the Soviet Union signaled the possibility that the liberal order would prevail following the brutality of 20th century socialism of the German and Russian varieties. This beneficial development would have meant the end of special privileges for the Euro-elite who had waged a several decades’ battle to hijack the post World War II European project.
The Liberal Vision of Post War Europe
The founders of modern, post war Europe had one aim in mind—the prevention of war by removing the need for war. The two 20th century European-initiated world wars had economic nationalism as their foundational cause. This process started during the so-called Progressive Era at the turn of the 19th to the 20th century and reached its zenith in the 1930s. In the heart of Europe, with an advanced industrial economy manned by an industrious people, Germany was especially vulnerable to trade barriers. Its home grown energy and food resources were inadequate to run its industrial economy and feed its dense population. As illustration, Professor Bagus reminds us that the British naval blockade of Germany in World War I doomed 100,000 Germans to the cruelest death of all—starvation. With the demise of free trade in the early 1930s, Germany was haunted by the specter of a renewal of its immediate post WWI fate of widespread famine. Therefore, it embarked on a campaign of conquest to secure lebensraum or “living room”, validating Bastiat’s dictum that when goods do not cross borders armies will. Combined with the destruction of the middle class during the 1923 hyperinflation the German people were easy targets for a tyrannical regime that promised economic security at the expense of freedom.
It was this scenario that the European integrationists hoped to avoid through four main avenues—free movement of people, capital, goods, and services within Europe. This goal has been largely achieved and has made a war between any two European states almost unthinkable today. This goal does not require a centralized enforcement mechanism or regulatory bureaucracy in order to function. It especially does not require a common currency among its members.
The Centralizing Vision of Post War Europe
Almost immediately after the formation of the first, modest European integration success, the formation of the European Coal and Steel Community, the European elite began its propaganda campaign to build a permanent European bureaucracy in order to secure special privileges for itself and its class. Dr. Bagus adds much to our understanding of this process. He explains that the European elite in different countries forms a class that transcends borders; that is, the elite in France, for example, have more in common with the elite in Germany and Spain than they do with their own countrymen who are common citizens. So French bureaucratic elite ensures that property developers in Spain and exporters in Germany get the funds they need at a low price. This is one battle line. Another battle line is composed along geographic boundaries. The Latin countries, with France as their leader, comprise a block that is less productive than the harder working and more capital intensive Nordic countries, with Germany as their leader. The goal of the Latin bloc is to institutionalize resource transfers from the north to the south. This is where the Euro proves to be a stealth weapon, for outright capital transfers are easy to see and understand and, thusly, can be limited, whereas the machinations of a central bank are not. Add to its complex dealings a propaganda campaign in which, just as in America, economists are “employed” to do research for the European Central Bank and, therefore, form a corrupt priestly class protecting the elite from honest criticism. It is shocking to learn the brazenness with which the European elite, which includes even the German courts, ignores or rationalizes away the treaty-born prohibitions that, supposedly, would prevent the European Central Bank from financing the sovereign debt of its members. This is a lesson that paper assurances mean nothing if the parties involved are dishonest and the citizenry is unwilling or unable to throw the rascals out.
Here is the heart of Professor Bagus’ contribution to our understanding. By grounding his explanation in solid Austrian economic concepts, we learn that the European Monetary Union (EMU) is both a Trojan horse for economic tyranny and, what probably is not understood even by its proponents, an impossible vehicle to sustain…it simply will fail of its inherent contradictions. Put in the simplest terms, the Euro will be plundered by the Latin bloc until inflation reaches unacceptable levels or until the Nordic bloc refuses to participate any longer and secedes from the European Monetary Union and possibly from the European Union itself.
Perhaps I lead a sheltered life, but I found The Tragedy of the Euro to read like a great adventure novel. Here we have heroes (mostly post war German bankers, resisting inflation) and villains (mostly post war Frenchmen, allied with post war German politicians, determined to keep the common German citizen paying and paying). The villains believe, falsely, that they can secure for all time their special privileges over the German citizenry—which is not the same as the German elite, who often collude with the French elite for their own privileges. But this is their great error, which Professor Bagus explains so clearly. They want to ignore the laws of economics by building coercive pan-European bureaucracies to enforce their will. But this will not work. How long it will last is the question.
The European financial crisis proceeds from day to day. This wonderful book will help everyone understand what is really happening and, we hope, provide a lesson for others. Are you listening, America?
Reviewed by Patrick Barron
In this small gem of a book Professor Philipp Bagus of Universidad Rey Juan Carlos, Madrid has given us much more than an explanation of why the Euro will fail the common man in Europe. He has given us a grand lesson in power politics and economic reality that is applicable throughout the world at all times and all places.
The title of his book frames his economic argument. A resource succumbs to the “tragedy of the commons” when property rights in the resource either are missing or not sufficiently enforced. All grab for as much of the resource as quickly as they can until the resource is plundered to extinction. In this case, the Euro is the resource that is being plundered by the European elite in its bid for centralized power and special privileges at the expense of the common European citizen. This plunder has played out against a background of great change in Europe. The vision of a united post war Europe always meant two essentially different ideals—the liberal order (in the 19th century meaning of the term) of free trade and free migration, which would leave the nation states intact, vs. the statist ideal of a centralized European empire. The fall of the Soviet Union signaled the possibility that the liberal order would prevail following the brutality of 20th century socialism of the German and Russian varieties. This beneficial development would have meant the end of special privileges for the Euro-elite who had waged a several decades’ battle to hijack the post World War II European project.
The Liberal Vision of Post War Europe
The founders of modern, post war Europe had one aim in mind—the prevention of war by removing the need for war. The two 20th century European-initiated world wars had economic nationalism as their foundational cause. This process started during the so-called Progressive Era at the turn of the 19th to the 20th century and reached its zenith in the 1930s. In the heart of Europe, with an advanced industrial economy manned by an industrious people, Germany was especially vulnerable to trade barriers. Its home grown energy and food resources were inadequate to run its industrial economy and feed its dense population. As illustration, Professor Bagus reminds us that the British naval blockade of Germany in World War I doomed 100,000 Germans to the cruelest death of all—starvation. With the demise of free trade in the early 1930s, Germany was haunted by the specter of a renewal of its immediate post WWI fate of widespread famine. Therefore, it embarked on a campaign of conquest to secure lebensraum or “living room”, validating Bastiat’s dictum that when goods do not cross borders armies will. Combined with the destruction of the middle class during the 1923 hyperinflation the German people were easy targets for a tyrannical regime that promised economic security at the expense of freedom.
It was this scenario that the European integrationists hoped to avoid through four main avenues—free movement of people, capital, goods, and services within Europe. This goal has been largely achieved and has made a war between any two European states almost unthinkable today. This goal does not require a centralized enforcement mechanism or regulatory bureaucracy in order to function. It especially does not require a common currency among its members.
The Centralizing Vision of Post War Europe
Almost immediately after the formation of the first, modest European integration success, the formation of the European Coal and Steel Community, the European elite began its propaganda campaign to build a permanent European bureaucracy in order to secure special privileges for itself and its class. Dr. Bagus adds much to our understanding of this process. He explains that the European elite in different countries forms a class that transcends borders; that is, the elite in France, for example, have more in common with the elite in Germany and Spain than they do with their own countrymen who are common citizens. So French bureaucratic elite ensures that property developers in Spain and exporters in Germany get the funds they need at a low price. This is one battle line. Another battle line is composed along geographic boundaries. The Latin countries, with France as their leader, comprise a block that is less productive than the harder working and more capital intensive Nordic countries, with Germany as their leader. The goal of the Latin bloc is to institutionalize resource transfers from the north to the south. This is where the Euro proves to be a stealth weapon, for outright capital transfers are easy to see and understand and, thusly, can be limited, whereas the machinations of a central bank are not. Add to its complex dealings a propaganda campaign in which, just as in America, economists are “employed” to do research for the European Central Bank and, therefore, form a corrupt priestly class protecting the elite from honest criticism. It is shocking to learn the brazenness with which the European elite, which includes even the German courts, ignores or rationalizes away the treaty-born prohibitions that, supposedly, would prevent the European Central Bank from financing the sovereign debt of its members. This is a lesson that paper assurances mean nothing if the parties involved are dishonest and the citizenry is unwilling or unable to throw the rascals out.
Here is the heart of Professor Bagus’ contribution to our understanding. By grounding his explanation in solid Austrian economic concepts, we learn that the European Monetary Union (EMU) is both a Trojan horse for economic tyranny and, what probably is not understood even by its proponents, an impossible vehicle to sustain…it simply will fail of its inherent contradictions. Put in the simplest terms, the Euro will be plundered by the Latin bloc until inflation reaches unacceptable levels or until the Nordic bloc refuses to participate any longer and secedes from the European Monetary Union and possibly from the European Union itself.
Perhaps I lead a sheltered life, but I found The Tragedy of the Euro to read like a great adventure novel. Here we have heroes (mostly post war German bankers, resisting inflation) and villains (mostly post war Frenchmen, allied with post war German politicians, determined to keep the common German citizen paying and paying). The villains believe, falsely, that they can secure for all time their special privileges over the German citizenry—which is not the same as the German elite, who often collude with the French elite for their own privileges. But this is their great error, which Professor Bagus explains so clearly. They want to ignore the laws of economics by building coercive pan-European bureaucracies to enforce their will. But this will not work. How long it will last is the question.
The European financial crisis proceeds from day to day. This wonderful book will help everyone understand what is really happening and, we hope, provide a lesson for others. Are you listening, America?
Sunday, December 26, 2010
The Foundation of Peace and Free Trade
I added this comment to an excellent essay by CATO's Dan Griswold:
The U.S. should declare itself a free trade nation, regardless of the actions of other nations. As we become more prosperous, our example will do more for the free trade movement than all the international agreements and excellent essays, such as this one, combined.
There is another, more basic, reason for free trade. Frederic Bastiat explained in his 1850 book The Law that man is born free. He owns himself. He is not owned by any other men or by a government, because government is formed by free men and, as such, can do only what other free men can do...and enslave another is not one of those things. From this basic and unassailable tenet Bastiat explains the limits of government. Forbidding trade among men is not a legal power that can be exercised by a legally formed government.
The U.S. should declare itself a free trade nation, regardless of the actions of other nations. As we become more prosperous, our example will do more for the free trade movement than all the international agreements and excellent essays, such as this one, combined.
There is another, more basic, reason for free trade. Frederic Bastiat explained in his 1850 book The Law that man is born free. He owns himself. He is not owned by any other men or by a government, because government is formed by free men and, as such, can do only what other free men can do...and enslave another is not one of those things. From this basic and unassailable tenet Bastiat explains the limits of government. Forbidding trade among men is not a legal power that can be exercised by a legally formed government.
Saturday, December 25, 2010
My Letter to National Review--Let Big Government Collapse
From: patrickbarron@msn.com
To: letters@nationalreview.com
Subject: Let Big Government Collapse
Date: Sat, 18 Dec 2010 20:43:15 -0500
Dear Sirs:
After devouring your December 20th issue, it is almost impossible to come to any other conclusion than that Big Government is the enemy of the people everywhere. Jim Manzi's "Unbundle the Welfare State", Andrew Stuttaford's "PIIGS to the Slaughter", and "The Enemy Within" by Ian Murray and F. Vincent Vernuccio cannot help but list case after case of the immense damage done to the common man by Big Government. The answer is NOT to figure out how to save Big Government, but how to convince the common man that he can do better without Leviathan. The common man does not need government to provide him with a retirement income or healthcare, much less oversee the terms of his employment, the quality of his children's day care, and all the other preposterous so-called "services" that supposedly protect him from the normal vagaries of life. Let the whole corrupt house of cards collapse, along with government's bought-and-paid-for supporters, from the big banks to the public sector employees and to all those who get money from the government only because the government takes it from others at the point of a gun. Return government to the American Founders' ideal of limited government that protects our lives, liberties, and property. The free market and an honest court system will take care of all the rest.
Patrick Barron
To: letters@nationalreview.com
Subject: Let Big Government Collapse
Date: Sat, 18 Dec 2010 20:43:15 -0500
Dear Sirs:
After devouring your December 20th issue, it is almost impossible to come to any other conclusion than that Big Government is the enemy of the people everywhere. Jim Manzi's "Unbundle the Welfare State", Andrew Stuttaford's "PIIGS to the Slaughter", and "The Enemy Within" by Ian Murray and F. Vincent Vernuccio cannot help but list case after case of the immense damage done to the common man by Big Government. The answer is NOT to figure out how to save Big Government, but how to convince the common man that he can do better without Leviathan. The common man does not need government to provide him with a retirement income or healthcare, much less oversee the terms of his employment, the quality of his children's day care, and all the other preposterous so-called "services" that supposedly protect him from the normal vagaries of life. Let the whole corrupt house of cards collapse, along with government's bought-and-paid-for supporters, from the big banks to the public sector employees and to all those who get money from the government only because the government takes it from others at the point of a gun. Return government to the American Founders' ideal of limited government that protects our lives, liberties, and property. The free market and an honest court system will take care of all the rest.
Patrick Barron
Friday, December 24, 2010
Another Bad Idea
From today's Open Europe news summary:
To quote a portion of the above report, the "new fund would in principle have access to 'unlimited refinancing' in order to secure the health of the single currency." This just does not make any sense. Where will the fund get the Euros for this "unlimited refinancing"? It is obvious that the European Central Bank will print the money. This will in no way strengthen the Euro, but will debased it. Further down in the same news summary was a report that Bloomberg News was suing to obtain information that the Greek government had used derivatives and swaps to hide the magnitude of its real debt. We must remember that the fund would be lending not to owners with their own financial assets at stake but to politicians and bureaucrats temporarily placed in powerful offices. The primary goal of such people is to secure their own jobs and their own well-being by buying off powerful internal constituents. Finally, the very idea that Europe should bail out failing economies reveals a complete lack of understanding of the law of moral hazard and the real purpose of a market economy. Prosperity is NOT secured through taxing profitable enterprises--even if indirectly through currency debasement--in order to allow unprofitable enterprises to continue. This is a prescription for capital consumption on a massive scale, because politicians and bureaucrats will have no objective criteria to determine where the "unlimited refinancing" line can be drawn.
Patrick Barron
German Finance Ministry outlines new eurozone bailout institution;
Euro must be based on “German stability interests” as concession for
support
Sueddeutsche reports that a leaked position paper has revealed that the German Finance Ministry has drawn up proposals for a new body, named the “European Stability and Growth Investment Fund”, to manage the permanent eurozone bailout fund planned for 2013, the European Stability Mechanism. If granted loans from the fund, countries would be required to provide 120% in collateral in the form of gold reserves, stakes in companies, or revenue rights, the newspaper said. The fund would also be able to buy existing European government bonds, freeing the ECB from this task.
Reuters quotes the Ministry’s paper saying that Germany will affirm its “national interest” rests in maintaining the single currency. The euro, however, must “orientate itself on German stability interests” as a “concession to Germany, as the largest economy in the euro zone, serving as an anchor of stability.” According to Sueddeutsche, the new fund would in principle have access to “unlimited refinancing” in order to secure the health of the single currency. The Ministry confirmed the existence of the paper but said it had not approved the proposal, nor had the German government.
To quote a portion of the above report, the "new fund would in principle have access to 'unlimited refinancing' in order to secure the health of the single currency." This just does not make any sense. Where will the fund get the Euros for this "unlimited refinancing"? It is obvious that the European Central Bank will print the money. This will in no way strengthen the Euro, but will debased it. Further down in the same news summary was a report that Bloomberg News was suing to obtain information that the Greek government had used derivatives and swaps to hide the magnitude of its real debt. We must remember that the fund would be lending not to owners with their own financial assets at stake but to politicians and bureaucrats temporarily placed in powerful offices. The primary goal of such people is to secure their own jobs and their own well-being by buying off powerful internal constituents. Finally, the very idea that Europe should bail out failing economies reveals a complete lack of understanding of the law of moral hazard and the real purpose of a market economy. Prosperity is NOT secured through taxing profitable enterprises--even if indirectly through currency debasement--in order to allow unprofitable enterprises to continue. This is a prescription for capital consumption on a massive scale, because politicians and bureaucrats will have no objective criteria to determine where the "unlimited refinancing" line can be drawn.
Patrick Barron
Friday, December 17, 2010
My Letter to the Wall Street Journal re: New Debit Card Rules
From: patrickbarron@msn.com
To: wsj.ltrs@wsj.com
Subject: Re: New Debit Card Rules
Date: Fri, 17 Dec 2010 08:27:20 -0500
Re: New Debit Card Rules
Dear Sirs:
The new debit card rules are nothing more than price fixing by government, with all the adverse consequences ignored as a matter of course--fewer merchants able to accept debit cards; fewer bank customers who qualifiy for debit cards; fewer debit card sales; and lower merchant profits. But the bigger question is this: Where in the Constitution lies the power of Congress to intevene in the relationship between merchants and their banks? The commerce clause? If this is the answer, then it is turning the commerce clause on its head, for the commerce clause was intended by our Founders to ensure free markets among the states.
Patrick Barron
To: wsj.ltrs@wsj.com
Subject: Re: New Debit Card Rules
Date: Fri, 17 Dec 2010 08:27:20 -0500
Re: New Debit Card Rules
Dear Sirs:
The new debit card rules are nothing more than price fixing by government, with all the adverse consequences ignored as a matter of course--fewer merchants able to accept debit cards; fewer bank customers who qualifiy for debit cards; fewer debit card sales; and lower merchant profits. But the bigger question is this: Where in the Constitution lies the power of Congress to intevene in the relationship between merchants and their banks? The commerce clause? If this is the answer, then it is turning the commerce clause on its head, for the commerce clause was intended by our Founders to ensure free markets among the states.
Patrick Barron
Tuesday, December 14, 2010
My Letter to National Review re: The Welfare State
From: patrickbarron@msn.com
To: letters@nationalreview.com
Subject: Why Jim Manzi is Wrong about the Welfare State
Date: Tue, 14 Dec 2010 21:58:34 -0500
Dear Sirs:
Jim Manzi's fairly typical prescription for how to reign in the welfare state--Unbundle The Welfare State--will fail because his premise about man and government is wrong. Manzi says that some men demand government interventions to relieve them of their anxieties and that it is government's legitimate role to decide where to draw the line. It is clear that Mr. Manzi has not read Frederic Bastiat, who explains that welfare is both illegitimate and impractical. It is true that some men desire to plunder others, but government's endorsement of some form of "legitimate plunder" validates this essentially criminal demand rather than regulate it and make it harmless. As Bastiat explains in the first dozen or so pages of his classic The Law, all men are born free and have a legitimate right to defend themselves from the plunder of others. Since government is a product of cooperative men, it can have no other powers except those that these men possessed themselves. Since free men do not possess the legitimate power to plunder others, they cannot pass that power to government. Therefore, government welfare is illegitimate plunder. Furthermore, rather than mitigate some men's desire to live off the fruits of others' labors, government welfare exacerbates this human weakness of character and divides men rather than unite them. We can expect all welfare states to implode under their own self-contradictions, as the ranks of the plunders grow and those of their victims shrink.
Patrick Barron
To: letters@nationalreview.com
Subject: Why Jim Manzi is Wrong about the Welfare State
Date: Tue, 14 Dec 2010 21:58:34 -0500
Dear Sirs:
Jim Manzi's fairly typical prescription for how to reign in the welfare state--Unbundle The Welfare State--will fail because his premise about man and government is wrong. Manzi says that some men demand government interventions to relieve them of their anxieties and that it is government's legitimate role to decide where to draw the line. It is clear that Mr. Manzi has not read Frederic Bastiat, who explains that welfare is both illegitimate and impractical. It is true that some men desire to plunder others, but government's endorsement of some form of "legitimate plunder" validates this essentially criminal demand rather than regulate it and make it harmless. As Bastiat explains in the first dozen or so pages of his classic The Law, all men are born free and have a legitimate right to defend themselves from the plunder of others. Since government is a product of cooperative men, it can have no other powers except those that these men possessed themselves. Since free men do not possess the legitimate power to plunder others, they cannot pass that power to government. Therefore, government welfare is illegitimate plunder. Furthermore, rather than mitigate some men's desire to live off the fruits of others' labors, government welfare exacerbates this human weakness of character and divides men rather than unite them. We can expect all welfare states to implode under their own self-contradictions, as the ranks of the plunders grow and those of their victims shrink.
Patrick Barron
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