Since when is $3 billion in cash relief NOT considered a bailout?

My letter to the NY Times:

Re: Senate Republicans Introduce Bill for Puerto Rico Relief

Dear Sirs:
Here’s another example of a government bill that will do exactly the opposite of its summary. Puerto Rico and bankrupt states, such as Illinois, will never reform their finances by their own volition. Allowing them to file for bankruptcy protection, as proposed by the Obama administration, would end their ability to tap the bond market and force them live within their means. It’s time to stop kicking the debt can down the road and get American government at all levels back on a sound footing.

Patrick Barron

Posted in News/ Lessons | Leave a comment

My letter to the NY Times re: An abuse of language

Re: Rubio Quietly Undermines Affordable Care Act

Dear Sirs:
Your reporter Robert Pear characterizes Marco Rubio’s amendment to the Affordable Care Act, which reduces the government’s subsidy to participating insurance companies, as a case of “quiet legislative sabotage”. Sabotage? Really? Aside from the fact that his colleagues passed the measure, which hardly constitutes sabotage, Rubio’s amendment illustrates that ObamaCare is NOT health insurance. Since the cooperating real insurance companies must pay claims on clients with pre-existing ailments, ObamaCare is nothing more than welfare on demand. Call things what they are and stop attempting to sway readers’ opinions with loaded and poorly chosen words. There’s enough of that on your Op Ed pages.

Patrick Barron

Posted in News/ Lessons | Leave a comment

My letter to the NY Times re: Safety net for regulators

Re: A Middle Ground Between Contract Worker and Employee

Dear Sirs:
Noam Scheiber’s report of how current labor laws cause unintended adverse consequences for new, digital companies should lead everyone to question the need for such regulations. Why not let employers and workers decide their own terms of employment? The safety net, so beloved of Labor Secretary Thomas E. Perez, seems designed to protect his own job, that of other labor regulators, and busy-body pundits who fret over other people’s business. Labor laws raise costs and uncertainty, destroying job creation and threatening current employment. All employment is the result of cooperative interaction between employer and worker. The employer values the employee’s services higher than the money and benefits he pays, and the employee values the money and benefits he receives higher than leisure or alternative employment options. Where is the need for a labor regulator in this transaction?

Patrick Barron

Posted in News/ Lessons | Leave a comment

Splendid Isolation: A sane foreign policy for America

A proper foreign policy for the US would be consistent with and recognize the limitations placed upon our country by the physical world in which we live.

First of all it would recognize that all countries, including the US, have limited resources. These resources are provided by the private economy; there is no other. All government spending, for whatever reason and however justified, weakens the private economy. Most importantly, the US must reject the myth of “war prosperity”. Military spending detracts from an economy’s productive capacity. It uses precious capital to produce non-consumable goods and robs the economy of some of its most productive citizens. A nation’s leaders must recognize that frugality in a nation’s military spending is as important for the nation’s long term welfare as is frugality in one’s personal household spending.

Secondly, a sane foreign policy would distinguish between what is in one’s true national interest and what is not. It would not embark on military adventures or commit the nation to future military action when national security is not threatened. Furthermore, a sane foreign policy would recognize that it is impossible for the US to judge disputes in foreign lands, as if it were an impartial jury deciding the guilt and innocence of the parties involved.

For the above reasons, the US would not intervene in the internal affairs of other nations, for it would not be able to understand the animosities which led to the conflict. Nor would it commit itself to an open-ended collective security treaty. Not only would such a treaty oblige the US to intervene militarily in long-standing foreign disputes, it would encourage new disputes to the degree that members of the alliance would feel less need to engage in difficult negotiations to find peaceful solutions to the inevitable frictions which arise among nations. Furthermore, collective security agreements suffer from moral hazard and the socialist tendency to consume the resources provided by others.

A proper foreign policy for the US is that of “Splendid Isolation“, a term that came to be synonymous with Britain’s late nineteenth century policy of eschewing both formal alliances with foreign nations and intervention in foreign affairs. Britain’s foreign secretary Edward Stanley, 15th Earl of Derby, articulated the policy succinctly in 1866:

“It is the duty of the Government of this country, placed as it is with regard to geographical position, to keep itself upon terms of goodwill with all surrounding nations, but not to entangle itself with any single of monopolising alliance with an one of them, above all to endeavor not to interfere needlessly and vexatiously with the internal affairs of an foreign country.”

Notice that the principle has two parts, both of which are necessary for either to become realized in practice–no formal alliances with a foreign power and non-intervention in the internal affairs of foreign nations. One is impossible to achieve without the other.

Alliances oblige members to intervene in matters that would not otherwise be viewed as necessary to the security of the nation, and interventions in the internal affairs of others almost always require at least the tacit cooperation of allies. An example of the former is the US’s intervention in Vietnam. It was triggered by its membership in the Southeast Asia Treaty Organization (SEATO). The US waged war in Vietnam for over a decade before abandoning the fight. Today the US and the communist regime there are on friendly terms, an astonishing development on which few supposed foreign affairs experts have commented. Were the deaths and disabilities on both sides and the expenditure of so much treasure even necessary, since the two nations exist harmoniously now? What are Gold Star Mothers to think?

An example of the second principle–that interventions require at least the tacit approval of allies–is the ultimate failure of the Anglo-French invasion of Suez in 1956. The US was not informed of the invasion and was placed in a difficult position when Russia threatened to intervene on behalf of the Egyptians. The US was forced to confront Russia, but it also demanded that the British and the French withdraw.

Some may consider the lack of formal alliances and nonintervention in the affairs of others to be a bad thing. If so, let them consider the relevant paragraph of George Washington’s famous 1796 Farewell Address:

36 The great rule of conduct for us, in regard to foreign nations, is, in extending our commercial relations, to have with them as little political connexion as possible. So far as we have already formed engagements, let them be fulfilled with perfect good faith. Here let us stop.

George Washington did not advise that the US never intervene in foreign affairs or that it never join an alliance. Later in his address he advised that the US conduct its foreign policy on an ad hoc basis “as our interest, guided by justice, shall counsel” and that “we may safely trust to temporary alliances for extraordinary emergencies.” Temporary alliances and interventions that serve our interest would require exceptional circumstances, a policy which is very similar to Edward Stanley’s dual dictum to eschew formal alliances and interfering in the internal affairs of others.

NATO is an example of an alliance that was formed to meet an exceptional circumstance. All Europe had been weakened by war, and an aggressive Soviet Union maintained a large military presence in the Eastern European countries that it liberated from Nazi rule. The Mitrokhin Archives reveal without a doubt that it had designs on the rest of Europe as well. America’s solemn treaty to defend Western Europe as if it were American soil created a stalemate and deterred Soviet designs until its economy collapsed and new leadership pulled its troops out of Eastern Europe. At this point NATO could and should have been disbanded. Western Europe’s economies had fully recovered. Two NATO nations outside the US, France and Britain, had nuclear weapons. Germany’s economy alone was greater than that of Russia, although it did not possess nuclear weapons.

The fallacy of the necessity of political control of natural resources

America’s current overseas bases and deployments are based to a large part on the great fallacy–one which has led to great conflicts–that a nation’s prosperity depends upon the political control of essential resources. This fallacy drove Nazi Germany, Shinto Japan, and the USSR to imperial overreach and eventual downfall. None of these empires realized anywhere near the pre-occupation production from their conquered lands, which probably were net liabilities from the need of onerous oversight and military protection. Just ask yourself whether it is better simply to buy Middle Eastern oil or to conquer the entire Middle East and attempt to operate the oil industry in what surely would be hostile territory. There is no reason for alarm that control of Middle Eastern oil or any other vital resource would allow America’s enemies to deprive it of essential resources. Whoever controls Middle Eastern oil, even ISIS, will sell it on the world market. Furthermore, the current oil glut is amply evidence that the so-called energy shortage was the result of decades of American price regulation and other governmental restrictions on American energy production. An oil boycott today would bankrupt even Saudi Arabia, who would lose customers to more reliable suppliers. For the same reason Western Europe need not fear undue influence from Russia as a provider of natural gas. Whatever temporary dependency that arises will be the outcome of foolish policies from Europe itself. Germany, especially, is making its economy dependent upon Russian energy supplies by practically outlawing coal and nuclear power production and relying upon wind and solar to take up the slack. The Poles know that this is a foolish policy. They are rebelling against European Union restrictions on electricity production from fossil fuels, of which Poland has ample supply.

The power of the consumer

Those who have personal concerns about foreign production methods or the intent of foreigners to use their export revenue to fund hostile groups may use the time-honored tactic of the consumer economic boycott. Examples include the “Boycott Grapes” movement, the demise of Venezuelan controlled Cities Services/Citgo retail gasoline chain following Venezuelan President Hugo Chavez’s criticism of America, and the fair trade coffee movement to raise grower incomes. (Citing these examples of the economic pressure that consumer wield is no endorsement that the movements were either just or based upon sound economics, only that consumer pressure can and does work in certain circumstances. Remember, Mises always cautioned that the consumer was king in that his preferences established the structure of the economy.)

In conclusion, pertaining to our overarching relations with others, we would do well to follow Barron’s dictum: “Mind your own business and set a good example.”


Posted in News/ Lessons | Leave a comment

My letter to the Philly Inquirer re: Learn Economic Nonsense from the Fed

Re: Fed to help teachers learn finance

Dear Sirs:
Here is what the Fed will teach about money and finance:

Lesson #1: Print money
Lesson #2: Print more money
Lesson #3: Print even more money

Here is a quote from Mr. Bill Martin, a high school teacher who has taken many Fed classes:

“We hook the students with questions about the $100,000 bill,” he said: “Where does money come from? It’s created by lending. You take some of that $100,000 bill, lend it at an interest rate, say, to 100 people, and they grow a business and it becomes $200,000. That’s how wealth is created. Growth doesn’t happen unless lenders lend. You borrow to grow, and then pay it back with interest.”

It’s magic! (Or is it?) If banks can create $100,000 of wealth at the stroke a pen (by lending), why can’t you or I do the same thing? We print $100,000 on our personal copiers and lend it at interest. Voila! Instant wealth!

Pardon me if I do not believe this nonsense. Wealth is created by hard, smart work, plus saving to build capital. It is not created at the stroke of a pen or from the rollers of a printing press.

Patrick Barron

Posted in News/ Lessons | Leave a comment

Another socialist EU proposal to reward irresponsibility

From today’s Open Europe news summary:

Commission eyes jointly funded Eurozone deposit guarantee scheme

The Financial Times reports that, according to leaked documents seen by the paper, the Commission is planning to create a Eurozone Deposit Guarantee Scheme, which would initially support national schemes but eventually replace them with a fully mutualised system by 2024. The move is strongly opposed by Germany, which is currently the only Eurozone state to have a fully funded deposit guarantee scheme, as required by EU law.

Source: The Financial Times

Despite the fact that centralization of money and banking regulation at the EU has led to nothing more than an increase in member state transfer payments funded by debt, the EU Commission continues business as usual. It is blind to the consequences of its actions and desires a steady march toward a European super state.

Germany must leave the European Monetary Union before these new laws come into existence. Its national wealth is being stolen by back door policies such as this. Furthermore, it is not in Europe’s long term interest to have Germany’s wealth destroyed. Germany needs to regain control of its own economy and can do so only by regaining control of its own money and banking system. This is not abandoning Europe but saving Europe from itself. Without German guarantees the rest of Europe would be forced to abandon the worst of their socialist policies. The best role for Germany is to set a good fiscal and monetary example for the rest of the EU (plus the US and the rest of the world) to emulate.

Posted in News/ Lessons | Leave a comment

The logic of sovereignty and unilateral free trade

From today’s Open Europe news summary:

FT: UK pushing for ‘emergency brake’ on EU laws to safeguard rights of non-Eurozone countries

The Financial Times reports that the UK is seeking to obtain an ‘emergency brake’ on future EU proposals in order to protect the rights of non-Eurozone countries. This new ‘emergency brake’ could be based on the so-called ‘Ioannina-bis mechanism’ – which already exists in the EU Treaties – and could allow non-euro countries to delay a vote on new EU legislation if it threatened their interests or the integrity of the single market, triggering additional consultations at the level of EU leaders. The ‘emergency brake’ is reportedly part of a set of UK demands to reform the relations between euro ‘ins’ and ‘outs’. Other proposals include recognising the EU as a ‘multi-currency union’ and ensuring that non-Eurozone countries will no longer have to contribute to Eurozone bail-outs. Another provision would establish the principle that non-euro countries would not be forced to take part in initiatives – such as the banking union – that are driven by the Eurozone’s integration needs.
The paper cites Open Europe’s proposals to strengthen non-Eurozone states’ rights, published last month, which argued that if three non-Eurozone countries oppose an EU proposal, EU governments should aim for consensus. If this cannot be reached within six months, the proposal should either be dropped or only be pursued by a smaller group of member states.

Source: Open Europe Intelligence The Financial Times The Financial Times 2

The logic escapes me that the UK should remain in the EU yet opt out of policies that are unfavorable to its interests. EU policies are in constant flux, which would require a UK bureaucracy just to keep track of them and somehow decide which ones are favorable and which ones are not, no easy task. Sovereign nations with free market economies have no such problem. Each sovereign nation makes its own policies based upon its own internal political situation. Every business evaluates for itself whether or not it wants to satisfy requirements of foreign trading partners. Some may and some may not.

The longer this referendum is delayed the more likely it is that UK citizens will realize that there is nothing to gain from belonging to the EU (or any trade bloc) that it cannot achieve at zero cost by adopting unilateral free trade.

Patrick Barron

Posted in News/ Lessons | Leave a comment

My letter to the WSJ re: Two kinds of refugees, people and money

Underground banks in China

Dear Sirs:
Money will flee areas where it is repressed just as people will flee areas where they are repressed. Capital controls can be seen as the monetary analogy of the Berlin Wall. Capital controls are indications of a failed economic system that benefits the politically connected elite at the expense of the people.

Patrick Barron

Posted in News/ Lessons | Leave a comment

My letter to the NY Times re: My advice to the ECB and the Fed

Re: Skepticism Prevails on Preventing Crisis

Dear Sirs:
Mr. Binyamin Appelbaum’s report of the Fed’s conference in Boston over the weekend perfectly illustrates our central bankers’ incompetence. They wring their hands over what they do not know and beg the public to forgive them when the next financial crisis strikes, which surely it must. If the Fed wishes to prevent financial crises, it only needs to stop initiating them. The Fed’s hubris that it can fathom the proper interest rate for our vast and complex economy must rank among the greatest fallacies of all time. The Fed sees the world through the completely discredited Keynesian lens which posits that aggregate demand–what the rest of us know simply as spending–is the path to prosperity. Anyone who believes this nonsense need ask himself why he has not liquidated his own savings on frivolous consumption and why the citizens of countries like Zimbabwe, Venezuela, and others are not as rich as Midas. Please allow me to answer Mr. Luc Laeven’s question, posed to the conference attendees, to wit, “Do we have other policies?” Yes, Mr. Laeven, I do. Liquidate your central bank (the European Central Bank) and recommend similar action by the Fed. Scrap legal tender laws that prevent the market from choosing the best medium of indirect exchange. Outlaw fractional reserve banking as the fraud that it is. Subject banks to the same commercial code as all other businesses. There–problem solved! Now send everyone at the conference home to look for a real job.
Patrick Barron
Posted in News/ Lessons | Leave a comment

Strict defense of private property solves the economic fact of resource scarcity

Scarcity of resources exists in many forms and is THE problem in economics. If resources were not scarce, there would be no need to economize. The existence of scarcity is true of all resources (time, human energy, natural resources, etc.) It is not intuitive that allowing scarce resources to be owned privately is the solution to this problem. Socialists would like to ignore this reality of scarcity and have all resources owned collectively for the common good. By contrast, we Austrians know that private property solves the economic fact and economic problem of scarcity, as I will now discuss.


A society which spurns private property and throws all resources open to those who wish to take them will quickly learn the terrible lesson of the tragedy of the commons; i.e., that commonly held resources will be plundered to extinction.


If society spurns allowing private ownership of resources, it must find some other means to prevent the tragedy of the commons, and historically the means chosen is the use of force. Throughout history most of mankind has been divided into a hierarchical system of masters and slaves with some graduations between the two extremes, such as priestly or aristocratic classes. The masters (pharaohs, emperors, kings, sultans, warlords, etc.) devised complex rules-based systems for resource distribution that ultimately depended upon pure terror for enforcement.


But this so-called solution to the problem of scarcity–restricting the people’s liberty through the use of force–does not work. The gradual understanding of modern economics eventually ended thousands of years of subsistence existence for the masses in the West. Modern economics explained that without private ownership of resources, a man could not hold an ordinal preference. The term ordinal , of course, means that something is prioritize from highest to lowest. Without ordinal preferences, there is no rational means to economize for the betterment of society. In other words, the masters never really knew what to order the slaves to produce, what technical means to use, what alternative materials to use, the quality desired, or how much to produce. Thus, the Commissars of the Soviet Union ordered the production of inefficiently produced, shoddy goods. The Soviet empire collapsed, despite the fact that Russia is blessed with vast resources and an industrious population .


A second fatal problem with common ownership of all resources is that few such readily available, consumable resources actually exist. There are no resources on the planet that do not require at least a minimum of effort to transform into a consumable product. Even edible berries growing in the wild must be harvested, meaning that someone must transport himself to the berries’ location and pull them from the bush at just the proper time. The cost of doing so is the value one places on forfeiting his leisure. Of course, other natural resources require much more effort to convert to consumable products, passing through uncountable stages of production. For example, timber and minerals must be extracted, harvested, etc. and then molded into something that can be consumed. Consider a hiker lost in the wild. It matters not at all to him that great stands of timber lie within easy reach or that valuable minerals lie under foot. These natural resources require great effort over very long time periods to be converted into something consumable, such as a shelter or gasoline. A lost hiker does not have the knowledge, time, or previously produced means to convert these basic resources into consumable products to ensure his survival. All this is far beyond anyone’s autarkic abilities.


Now let us assume that someone did harvest trees by felling them, transporting them to a lumber mill, milling them, storing them in a ventilated and dry place for many months before kiln-drying them (all processes that are required to turn trees into useable lumber), advertising their availability to contractors, keeping sales records, sending out bills, collecting the bills, etc. only to have a socialist call him a plunderer and confiscate his lumber for free distribution to whomever the masters deemed to be politically advantageous to their continued privileged position. No one would ever harvest another tree. In other words, production of usable lumber would cease despite the fact that trees were readily available.


Now let us consider what would happen if the commissars did order slaves to harvest the trees. Great forests would be denuded in short order, because there would be no social mechanism to prevent what would amount to a tragedy of the commons by order of the state.


Proper harvesting of timber requires that its value be capitalized


Capitalization of timber requires that it be privately owned in order that its worth can take its proper place in the ordinal hierarchy of preferences. The consequences of ignoring this fact of economic science is most evident today in China’s ghost cities, where resources, both natural and human, have been expended for no  observable benefit except to advance the careers of politicians who can claim to have met the requirements of the latest Five Year Plan.


The opposite case of resource waste comes from special interest groups who capture the political (police) apparatus of the state and prohibit exploitation of resources by private individuals. In the name of protecting  Mother Gaia from being plundered, modern environmentalists have convinced the political class that most progress is unsustainable, dangerous to our health, or any number of other specious claims. Society is prevented from benefiting from their conversion to consumable products. Private ownership insures that resources will never be plundered to extinction, because their value will have been capitalized. The process of determining a resource’s capitalized value is impossible absent free market capitalism with strict defenses of property rights.


Despite both the theoretical and empirical evidence to the contrary, socialists tell us the opposite; i.e., that state ownership of all resources will prevent their plunder and ensure prosperity for all. As Ludwig von Mises explained, socialism is not an alternative economic system of production. It is a system of consumption only, and a system of economic ignorance and economic plunder.

Patrick Barron

Posted in News/ Lessons | Leave a comment