A Question for Ford Motor Company

Re: Ford threatens to leave Britain if Britain leaves the EU

Would Steve Odell change his mind if, at the same time that Britain left the EU, it adopted unilateral free trade?  I don't see why he would not (change his mind, that is).  If he wants to meet the EU regulations in order to export there, nothing would stop him.  He would be in the same position as if Britain were still a member.  But unilateral free trade would liberate from costly and burdensome EU regulations those British companies that do NOT want to export to the EU.  Local companies with only British customers, such as many small farmers, could ignore EU regulations altogether.  The same logic would apply to those who exported to non-EU countries.

There's a bigger world than the EU out there for British goods.

Two Economic Lessons

From today's Open Europe news summary:

In a new report released today Business for Britain calls for UK firms which do not export to the EU to be exempt from EU regulation as part of a renegotiation over the UK’s membership of the EU.
Open Europe research: Regulation Open Europe research: Trade Mail Guardian Sun

Of course, if Britain leaves the EU its businesses that do not export to the EU would not be subject to EU regulations anyway.  Those UK businesses that did want to export to the EU could decide for themselves if the cost of compliance was worth the cost.  Then the only real harm would fall on the EU citizens who either were denied British products that they would otherwise have purchased or were required to pay a higher price due to the increased cost of regulatory compliance.

There are two economic laws that emerge from this small report.  One, there is nothing that a trading bloc can offer that free trade does not already provide.  Two, the cost of regulation always falls on a country's own citizens and not on those who wish to sell to that country.

The problem with wind and solar as energy sources

Re: Renewable energy fiasco in Germany

Here are the basics of electricity generation--it must provide either base power or on-demand power, and it cannot be stored.  Base power today is provided mostly by nuclear and coal plants and some hydroelectric.  On-demand power is provided mostly by natural gas driven utilities.  In other words, an energy source must provide power either all the time or whenever demand spikes up.  WIND AND SOLAR PROVIDE NEITHER ONE!  Read the short article that illustrates the problem in Germany, a real life test case of wind and solar drawbacks.

My letter to National Review Magazine re: Misunderstanding Savings

Re: Raising Savings, by Allison Schrager

Dear Sirs:
Although Ms. Schrager's heart is in the right place and she says many good things about the need for a higher level of savings, she makes apparent in many places that she really doesn't understand the role of savings in the market process.  I believe that she is blinded by the GNP numbers, which are little more than aggregations of, mostly, consumer spending.  By relying upon GNP as the barometer of the economy, then of course any reduction in spending appears to be harmful.  But this is not the case.  No one would disagree that what is spent cannot be saved.  But where does the savings go?  It goes into the investable funds pool to finance stages of the production process that are further removed from final consumption.  Spanish economist Jesus Huerta de Soto estimates that business to business spending accounts for over seventy percent of economic activity. Very little of this is captured by GNP statistics.

Government should not try to guide the economy in any way.  It should not try to encourage either spending or savings.  Such decisions are the personal choice of millions of Americans, based upon their "time preference"; i.e., their preference for consuming in the present rather than delaying consumption, saving now, and consuming more in the future.  Time preference is different for different people and changes constantly for a variety of reasons.  No economic czar can determine the right amount of savings, because to do so assumes that it is possible for him to determine the aggregate time preference for the entire economy. But we don't need a czar, because we have the market, which does the job for us, as long as government keeps its grubby hands off, that is.

A Sobering Calculation on the Dollar / Gold Price Ratio

 Re: Jim Rickards predicts the price of gold

In this four minute interview Jim Rickards predicts that the price of gold will go to "$7,000 or $9,000 or even higher".  (The price becomes infinite if all confidence is lost in the dollar.)

How does Jim make this prediction?  Well, consider these facts:

M1 = $2.611 trillion (cash and bank checking accounts)
M2 = $10.934 trillion (M1 plus bank savings accounts and short term certificates of deposit)
Gold owned by the Fed: 261.5 million ounces

Therefore, the price at which the Fed would have to price gold in order to honor all of M1 without running out of gold is determined by the following calculation:  M1 / ounces of gold

$2.611 trillion (M1) / 261.5 million (gold ounces) = $9,985 per ounce

Here's the calculation using M2:

$10.934 trillion (M2( / 261.5 million (gold ounces) = $41,813 per ounce

Remember...until the US abandoned the Bretton Woods Agreement in 1971, the dollar was pegged to gold at $35 per ounce! 

My letter to the Philadelphia Inquirer re: Mark Zandi ignores reality

Re: Good Times Ahead, by Mark Zandi

Dear Sirs:
According to Mark Zandi, chief economist for Moody's Analytics, the only possible bump in the inevitable road to economic recovery in 2014 is another threatened government shutdown.  Mr. Zandi, like all good Keynesians, sees increased spending by consumers as the road to recovery.  And consumers are more likely to spend if the spigot of federal dollars, created out of thin air when the Fed "purchases" government's trillion dollar per year debt, remains wide open.  He is unconcerned about the risk of hyperinflation or the dislocations caused to the capital structure of production as businesses are enticed by low, manipulated interest rates to begin expansions for which there are insufficient resources for profitable completion.  Mr. Zandi has no theory of economics more sophisticated than that of a child who demands a bigger allowance from his father.  Like a child he does not care where the money comes from or how it is spent.  For Mr. Zandi, spending alone is the key and savers are completely unnecessary.  How anyone can believe this nonsense is beyond me.

The Collapse of the Irish Housing Boom

Re: Irish Try to Eradicate Ghosts of a Housing Crash

Lord Keynes famously said that paying people to dig holes and fill them back up was necessary for recovery.  His disciple Paul Krugman wants Martians to attack earth so that we can spur the economy via war spending.

Read the above NY Times report, if you have a strong enough stomach.  Keynes would have applauded the Irish housing boom, and von Mises would have explained that such malinvestment leads to bankruptcy and poverty.  I would add that it leads to despair, as the wealth, hopes, and dreams of hard working people are shattered.