The Real Problem with San Francisco

In the latest New York Times Book Review Wes Enzinna reviews Michael Shellenberger's San Fransicko: Why Progressives Ruin Cities. Mr. Enzinna, who is critical of the book, acknowledges that one in one hundred of San Francisco's residents is homeless. Nevertheless, not surprisingly for a New York Times book reviewer, he calls the book a failure and claims that Mr. Shellenberger is waging a culture war. He concludes his full page review by claiming that "A proper accounting of California's housing and homeless crisis remains to be written." Although this may not satisfy Mr. Enzinna any more than did the book by Mr. Shellenberger, I know what's wrong with San Francisco. But before I give you the answer, let me tell you a story.

One of my favorite movies is Twelve O'clock High, a World War II story of a hard luck B-17 squadron in England early in the war. The squadron commander is called onto the carpet by the wing commander, his boss, to find out why this squadron isn't achieving its goals as are most of the other B-17 squadrons under his command. He hears a long litany of troubles: bad weather, maintenance problems, sick aircrew, heavy defenses near the target, etc. Finally the squadron commander leaves and the wing commander turns to his adjutant, General Frank Savage, played by star Gregory Peck, who sat quietly during the meeting, and asks his opinion of what's wrong. General Savage says that what's wrong is what's always wrong--poor leadership. The squadron commander is a good guy--personally courageous, caring, etc--but he identifies and empathizes too much with his men. This has led to failure to hit the target, which means that his squadron must expose itself repeatedly to enemy fire to accomplish a job that should require fewer missions. This leads to even more losses and mission failure. The wing commander agrees, fires the squadron commander, and places the adjutant in charge of the squadron. The rest of the movie details the sometimes difficult steps that the new squadron commander must take to fix his squadron. Some crew are relieved of duty and sent home to the States in disgrace. Others are demoted from intermediate command within in the squadron. But some are promoted. Eventually what appears to be a brutal house cleaning plus many other changes leads to success. But the process was not without pathos. Watch the movie and see why.

So, what's wrong with San Francisco? The answer is simple. Leadership. Mr. Enzinna is like the failed squadron commander at the beginning of "Twelve O'clock High". Like many others, he identifies and empathizes with the homeless and rationalizes the failures of San Francisco's leaders to deal with the problem as something caused by a lack of a "proper accounting". But San Francisco is no different than other, more successful, American cities of its size. Geographically it sits in one of the most hospitable parts of the country. It lacks for nothing in the way of resources, of which untold millions have been lavished upon it. The growing homeless have been tolerated, much to the chagrin of the other ninety-nine out of a hundred residents . Therefore, San Francisco needs to change leaders. In "San Fransicko" Mr. Shellenberger may not be offering the policy answers that will work, but he's pointing out the obvious; i.e., current leadership will not solve San Francisco's homeless problem. New leadership is required. Notice that, like the wing commander mentioned above, I do not deign to know what policies will work. I just know that the past and current leaders have failed and that new leadership is needed. There is no other option.

The change process probably will not please everyone. Nevertheless, as General Frank Savage says, the problem is always the leader.

My letter to the Wall Street Journal re: Why Do Prices Keep Going Up and What's the Cause of Inflation?

 Patrick Barron

Fri 11/26/2021 8:34 AM

To:

•  Wall Street Journal

Re: Why Do Prices Keep Going Up and What's the Cause of Inflation?

 

Dear Sirs:

I find it hard to believe that the Wall Street Journal would post an article such as this and not mention the unprecedented increase in the money supply. In fact, the real definition of "inflation" is not rising prices. Higher prices are the consequence of inflation in the money supply. Just take a look at this Fred chart of M3. In fifty years, the broadest measure of the US money supply has risen from $.700 trillion to over $21.000 trillion. M3 has risen by $2.000 trillion in the last twelve months alone.

 

Patrick Barron

20 McMullan Farm Lane

West Chester, PA 19382

Phone: 610-793-3605

The Most Dangerous Organization on the Planet

 

If asked to name the most dangerous organization on the planet, I doubt that few outside of the Austrian economic community would respond "America's central bank--The Federal Reserve Bank (The Fed)". Nevertheless, there is no other organization with such a pervasive and malignant impact over almost all developed civilization than the Fed. I list here four avenues by which the Fed wreaks havoc upon the word--economically, militarily, morally, and politically. Undoubtedly others could list more.

 

Economic Havoc--Higher Prices and the Austrian Business Cycle

 

The Fed is the only entity in America with the right to produce base money out of thin air, forgetting for the moment the power of banks to produce fiduciary media via the lending process (not the same thing as base money). The inflation of the money supply leads to higher prices for most goods, of course, but not before enriching the early receivers of the new money--banks, bond dealers, government contractors, etc.--who get the money before prices have risen. Higher prices impoverish the later receivers--main street businesses, retirees, etc. This is known as the Cantillon Effect. In addition, because it sends out faulty time preference signals, the new money disrupts and distorts the time structure of production, leading to malinvestment of capital that ultimately must be liquidated--the Austrian Business Cycle Theory. Higher unemployment follows, because workers were enticed to leave sustainable occupations for unsustainable ones. The capital losses and worker disruptions can never be recovered; i.e., although the economy may recover after money inflation is ended, there is a dead weight loss due to the goods and services that were not produced during the inflationary times. Plus, the economy's capital base is weakened, meaning that the economy will never be as robust as it would have been absent the money inflation no matter how rosy things looked during the inflationary times.

 

But the economic disruptions from the Fed's money printing are not confined to America. We may scoff at Zimbabwe or Venezuela, who destroyed their economies via money inflation but had little worldwide impact. The Fed's money printing is a different kettle of fish entirely due to the dollar's position as the world's premier reserve currency. The dollar is the world's monetary medium of choice for settling international trade. (According to the International Monetary Fund, In US dollar terms of the $12.8 trillion total central bank reserves $7.1 are held in US dollars. The next most commonly held reserve currency is the euro at $2.5 trillion. Japan is number three at $.7 trillion, and China was number four at $.3 trillion.) Whereas country A's currency may not be in demand in country B and vice versa, countries A and B can still settle trade accounts in dollars held in their respective central banks. Since the dollar accounts for around fifty-five percent of total central bank reserves, the Fed's inflationary money printing becomes a pandemic virus that infects the world.

 

Military Adventurism

 

America spends more on its military than the next nine nations of the world combined. This is made possible by several special factors, primarily the above mentioned special privilege of the dollar as the world's premier reserve currency and the Fed's ability to monetize the government's debt, whereby it takes Treasury Department debt onto its balance sheet in exchange for new base money for the Treasury Department to spend on the military. It is commonly acknowledged that the US spent trillions of dollars on its failed twenty year military intervention in Afghanistan. (See this Brown University study.) The US military continues to bomb Somalia to this day. It intervenes in Syria and is still involved in Iraq. The justifications for these interventions are getting harder and harder to swallow, since none of these countries pose an existential threat to the US or its allies. Rather, it is vast migration of refugees from these war torn nations that threaten the peace and stability of Europe and America. Our reflex use of the military, fully funded by newly created money from the Fed, short circuits any discussion of America's need to get involved in these far off disputes. For example, the US seems to be determined to side with Ukraine in its disputes with Russia. In 2014 the US was instrumental in overthrowing an elected pro-Russia head of state in Ukraine in the so-called Maidan Revolution. Russia is a nuclear power and will be very unlikely to back down in a real shooting war without using all the weapons in its arsenal.

 

Moral Corruption

 

Just as the truth is said to be the first casualty of war, equally so is that truth a casualty of money inflation. This is so due to the ability of the Fed to paper over consequences of poor economic policy. Windmills and solar panels don't work? No problem. Subsidize them with more money. Raising the minimum wage and foisting more expensive labor regulations on business cause unemployment? No problem. The government will send checks. Naturally, the list of market and personal corruption caused by money inflation is a long one. Market corruptions are always accompanied by propaganda that private capitalism is bad and government socialism is the answer. Personal corruption is worse. Government largess entices many of the working poor to quit working in order to go on welfare.  Welfare simply pays more than working, so who can blame them? It is rational self-interest, but at the cost of  independence, self-reliance, and pride. These are not the only personal costs, though. Welfare is responsible for the breakup of the family, as documented by Thomas Sowell. Plus, those not on welfare must labor for those who are on welfare, reducing capital accumulation. All this is made possible by money printed by the Fed.

 

Rule of the People Thwarted

 

In a sound money environment government spending must be funded by taxes or by honest borrowing, meaning selling debt in the open market in competition with others. Taxes and honest debt create a natural limitation on government spending. People may rebel against higher taxes, and government borrowing crowds out private borrowing by raising the interest rate. A recession is inevitable. By bypassing this essential discipline of the people and the market over government actions, the Fed successfully thwarts the rule of law and diminishes the people's relationship to their government. Few understand the complicity of the Fed in its ability to buy our acquiescence with money printed in any amount needed to keep us quiet.

Ours is no longer a government of the people, whereby government is our servant. Now the people are ruled by their government. This is a fundamental change that has escaped most Americans.

Conclusion--A Criminal Gang Operating in the Open

 

It is no exaggeration to say that the real criminal gang destroying our civilization operates mostly in the open and is very proud of its work. Private counterfeiters operate in the shadows. No one claims that they provide a benefit to society. They are thieves. But the Fed is lauded for counterfeiting the dollar on a scale never imagined by private thieves. High officials at the Fed are lionized by a corrupt main stream media for having attained the pinnacle of their professions. There is no reason for these economic charlatans to re-examine the consequences of their policies. For this reason alone it is safe to say that...

 

THE FED IS THE MOST DANGEROUS ORGANIZATION ON THE PLANET

Why Prices Will Continue to Increase

 M3 for the US

When Nixon took the US off the gold exchange standard in August 1971, M3 was around $.650 trillion. In August 2021 it was $21.8 trillion. That's 33 times its 1971 value. The bad news is that this number continues to increase as the Fed continues its Quantitative Easing (QE) program and continues to monetize the US deficit.

There is no better method for destroying our economy than debasing the currency. There is no one in government who understands the danger; therefore, there is no reason to believe that monetary inflation, which is the primary cause of price inflation, will not continue to increase until the dollar becomes worthless.

Many thanks to Alasdair Macleod of GoldMoney.com for sending me the link to this chart of M3.

My letter to the NY Times re: Those hard-nosed Russian capitalists

 Re: A Russian Pipeline Changes Direction, and Energy Politics Comes to the Fore by Andrew E. Kramer

Dear Sirs:

In his fear-mongering report that something evil this way comes in regard to the real purpose of Russia's Nord Stream 2 natural gas pipeline from Russia, under the Baltic Sea, to Germany, Mr. Kramer should have stopped his report with this sentence in the second paragraph:

"In themselves, the Russian reports were no cause for alarm, and the giant Russian energy firm, Gazprom, said Saturday that it is filling all European orders."

Thereafter, Mr. Kramer regurgitates every possible fear that Russia wants Germany and the EU to become dependent upon Russian natural gas in order to...well, we don't know quite what. Nowhere does Mr. Kramer mention that perhaps, just perhaps, Russia has spent all this time and money on Nord Stream 2 in order to...wait for it...sell natural gas at a profit!

The case for Russian perfidy falls apart if Germany and the rest of the EU simply diversify their energy supplies. Regrettably, Germany has thrown all its hopes onto Green Energy, which is supposed to make it energy independent while saving the planet. But Green Energy hasn't worked, and Europeans may freeze this winter. Drum roll, please, while we cue the Russians to the rescue. But, according to Mr. Kramer, the Russians will sell their gas "only if European companies and governments agree to lock in long-term contracts." Golly, whoever would have thought that the West one day would accuse the Russians of being hard-nosed capitalists?

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.