My letter to the NY Times re: Free basic income is not a solution to unemployment

Re: Free Money for the Jobless

Dear Sirs:

Your article about Finland’s experiment in providing a free basic income to the unemployed fails to address the main question–what exactly is the cause of unemployment and what is the best way to eliminate it? The cause of unemployment is a change in the market, which, if not caused by government itself, is a natural occurrence in a dynamic economy. The great Austrian economist Joseph Schumpeter coined the phrase “creative destruction” to describe the process whereby an advancing, wealth generating economy is constantly shedding old production methods for better ones, causing malinvestment of capital and temporary unemployment of labor. Government programs such as unemployment insurance hinder the necessary and beneficial process of capital and labor adapting to the new market environment. Not only do they cause disincentives to adaptation, they must be funded out of the wealth generating sector of the economy. Finland’s experiment in going beyond unemployment payments and providing a basic income is simply the welfare state bureaucracy trying to justify its own existence after the failure of its previous programs. There is no solution to unemployment other than that provided by the market itself.

Patrick Barron

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The Chimera of Mandating Health and Safety Standards

Federal regulation of health and safety is based upon several illogical premises. Unfortunately these premises are never discussed. Instead we are bombarded with scare stories that business intends to make its profits with no consideration to the health of the public or the safety of its workers.


Illogical premise number one: There is an absolute criteria for health and safety that can be discovered.


Wrong! There is only a continuum of healthier and safer practices. For example, we accept some level of pollution and some level of worker risk. Some level of pollution escapes from factories, commercial establishments, and even homes. Likewise, there are many occupations that are obviously dangerous, such as lumberjack and commercial fisherman. Furthermore, even occupations that no one would consider to be dangerous contain some level of risk. My wife broke her foot a few years ago when she slipped on a well waxed hallway at work.


Illogical premise number two: The federal government should be responsible for conducting research into determining the extent of risks to health and worker safety.


Wrong! All research should be conducted by private means, because such research itself comes at a cost to society. Wealthier societies can afford more research than poorer ones. Yet the federal government will command resources to conduct health and safety research that the free market would direct to a higher use. Nothing should be exempt from the market test. Therefore, all research should be conducted at private expense.


Illogical premise number three: The federal government should be responsible for setting health and safety standards based upon either public or private research.


Wrong! Any standards should be set by the most local community affected. For example, pollution standards may be different in Gary, Indiana than Hollywood, California. The former is a major industrial city, and the latter is a wealthy bedroom community. Hollywood’s residents may very well set more stringent standards than Gary residents, because there is little factory-type pollution or worker risk there. Therefore, stringent standards would not affect production or jobs. Jurisdictions may even be a city block or two long and not encompass an entire city. Residents of Gary, Indiana may set more stringent noise level standards in residential neighborhoods than directly across the street from a factory. Of course, there may be natural gradations to noise level, with homes in noisier neighborhoods selling cheaper than homes in quieter neighborhoods.


Illogical premise number four: The federal government should fine and/or shut down businesses that violate its standards.


Wrong! Violations of health and safety are torts–i.e., harms–or a taking–i.e., violation of the benefits of property rights–that can be adjudicated only in a court of law based upon the standards of the local community. Standards need not be the same for every community. Any financial remedy should go entirely to the plaintiffs and not to a federal government agency. Otherwise, the federal government agency becomes a legitimate shakedown/extortion racket, funding itself through its own fines imposed for so-called violations of its own standards. (Regrettably, this is the situation today!)



Standards for health and safety are legitimate concerns. Violations are torts (harms) and/or takings (of property rights). There is no one standard that can be discovered, only a continuum of standards that may be different in different places, according to community desires. All standards impose costs that involve tradeoffs with other needs. In other words, a costly new standard may be accepted in some richer venues and rejected in poorer ones. Imposing one strict standard impoverishes the latter while perhaps having little or no effect on the former. Therefore, health and safety standards should be adopted by the smallest constituency possible.

Patrick Barron



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Germans favor a self-destructive policy

From today’s Open Europe news summary:

Majority of Germans want Merkel to take tough stance in Brexit negotiations

A poll for the Körber Foundation reveals that 58% of Germans think Chancellor Angela Merkel should ‘negotiate tough’ with the UK while 40% say she should be ‘ready to compromise’. Within Merkel’s CDU party 65% are in favour of a hardline approach whereas supporters among the leftwing parties and the AfD are more inclined towards a compromise deal. The poll also shows that 67% of Germans think that the UK’s decision to leave the EU has reduced the cohesion among the remaining members of the bloc. Meanwhile, 62% believe that the EU is not on the right track and 42% want a referendum about Germany’s EU membership.

Although this short clip never defines what constitutes a “tough stance”, I assume it means that goods and services from the UK should face restrictions–tariffs, quotas, or even outright prohibitions–regarding accessing the EU market. OK. Does that also mean that EU businesses should be restricted from exporting to the UK? I doubt that the Germans want to reduce sales, but the only way UK customers can buy EU goods is with euros obtained from exports to the EU. Of course, the Europeans could continue to sell to the UK and stockpile their British Pounds, but that is equivalent to buying something with a check that the payee never cashes. In other words, the EU would be making a gift to the UK. Let us not forget that the purpose of exporting is to import.

Patrick Barron

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Raising taxes is “tax harmonization”; lowering taxes is “Brutal Brexit”

From today’s Open Europe news summary:

European Commission plans corporate tax rule harmonisation

The European Commission will announce plans today to harmonise corporation tax policy across the EU. The plans would not mandate a single tax rate across Europe, but would instead seek to “eliminate the mismatches and loopholes between national tax systems, which companies can currently exploit,” as well as applying only to firms with an annual turnover above €750 million. An opinion piece for Expansión describes mooted reductions in UK corporation tax as ‘Brutal Brexit.’

Source: Expansión Politico

Doublespeak” is alive and well at the European Commission.

Patrick Barron

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Should the Fed Raise Interest Rates?

For some time now the Fed has been hinting that it will moderate its interventions–monetizing government debt by printing money to buy government bonds and now quantitative easing by printing money to buy corporate bonds–in order to drive down the interest rate to unprecedented low levels. The Keynesian theory behind these interventions is that lower interest rates will spur lending, which in turn will spur spending. In the Keynesian mindset spending is all important–not saving, not being frugal, not living within one’s own means–no, spend, spend, spend. The Keynesians running all the world’s banks firmly believe that it is their duty that spending not diminish one cent, even if this means going massively into debt. Keynes himself famously said that government should borrow money to pay people to dig holes in the ground and then pay them again to fill them back up.


To Austrian school economist like myself, this is childish, shallow, and ultimately dangerous thinking. Austrians understand that economic prosperity depends first of all upon savings, not spending. Savings is funneled by the capital markets into productive, wealth generating enterprises. Gratuitous spending is simply consumption. Now, there is nothing wrong with consumption…as long as one has actually produced something to be consumed. Printed money is not the same as capital accumulation. Or, as Austrian school economist Frank Shostak explains, goods and services are the “means” of exchange and money is merely the “medium” of exchange. Expanding the means of exchange through increased production–which requires increased capital, which itself requires increased savings–is a hallmark of a prosperous society. Increasing the medium of exchange out of thin air, as is current central bank policy, is the hallmark of a declining society that has decided to eat its seed corn.


Of course, the central bankers and their political friends are terrified of a recession that undoubtedly would follow an increase in interest rates. What our monetary and political masters do not understand is that the recession is both necessary and inevitable. It is necessary in order to end capital consumption and wealth destroying enterprises. Furthermore, it is inevitable in that the structure of production has been so skewed toward capital consumption that production is threatened. We are living on both borrowed money (at home and abroad), and  the accumulated capital of previous generations. This one time spending spree WILL end. The longer we try to prop up spending with borrowed and printed money, the worse will be the reckoning when it does come.


So, how far should the Fed go in raising interest rates? There is no answer for this question. The Fed must end its monetary interventions and allow the free market to determine the interest rate that balances savings with loan demand. The last time the free market was allow to work, in the era of Fed Chairman Paul Volcker, the prime rate went to over 20%. This was very hard on both business and workers, but inflation was cured and the American economy shed itself of wealth destroying enterprises and became the economic powerhouse of the world once again. The same thing can happen, if only our monetary master get out of the way.

Patrick Barron

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Italy wants other European countries to pay its unemployment bills

From today’s Open Europe news summary:

Italy to propose Eurozone joint unemployment insurance scheme

La Repubblica reports that Italian Finance Minister Pier Carlo Padoan will later this month submit to his Eurozone counterparts a draft plan for a joint unemployment insurance scheme. Eurozone countries would contribute gradually to the tune of 0.5% of their GDP – meaning that the common pot would eventually amount to around €50bn. The scheme could be tapped by any Eurozone country experiencing a sudden increase in unemployment or a slowdown in employment growth compared to the bloc’s average.

The socialists running most governments in Europe (they are all socialists in policy if not in name) keep coming up with more schemes to make all of Europe pay for their destructive economic policies. What reason will Italy or any other Eurozone country have to make its economy more robust and allow its people to work cooperatively with others, if it can draw upon a Europe-wide unemployment fund? I can’t see Germany or some other more economically successful European nations agreeing to this harebrained proposal.

Patrick Barron

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There is no such thing as a negative interest rate

We Austrian economists are used to having terms corrupted, misused and redefined by statists and others who love and advocate strong central control of money and power. The term “inflation” is a prime example. We Austrians refer to “inflation” as creating new fiat money–as in inflation of the money supply. This is in sharp contrast to what we commonly hear in the mainstream media and from all Keynesian influenced economists, who use the term to describe a general increase in prices. Now nearly everyone thinks of inflation in this sense, so much so that we Austrians must always be careful to say “inflation of the money supply” whenever we use the term “inflation”.


Those of us of a libertarian political persuasion, which includes many (but not all) Austrian economists, likewise bristle at how modern statists have hijacked and corrupted the term “liberal”. Liberal is a term that is derived from the word “liberty”. Ludwig von Mises even penned a book titled “Liberalism“. Naturally, it contains not one reference to what today’s so-called liberals advocate; i.e., erosion of property rights and statist intervention in almost all aspects of life.


However, now we Austrian economists are faced with a term that is new. It is NOT a term that has had a prior meaning and has been corrupted and re-defined.. It is a new, made up and wholly fabricated term– “Negative Interest Rate”.


Interest is founded on time preference


The rate of interest is founded on an innate trait of the human condition. All other things being equal, humans desire goods and services earlier rather than later. Austrian economists refer to this human trait as “time preference”. Those who desire things sooner rather than later are said to have a high time preference. Likewise, those who desire things later rather than sooner are said to have a low time preference.


No two people have the same time preference. In fact, time preference changes within the same individual constantly. So someone with a higher time preference, but without the resources to own the good in the present, may be willing to pay others a higher overall price in the future for access to the good today; they may be willing to pay extra to use someone else’s money in order to have it today. This “extra” is the interest rate that “someone else” will charge the person in order to allow the purchase to happen today.


Here you see a basic principle. There are TWO prices for something, a “have it now but can’t afford it now price” and a “I’ll save up to have it later price”. The “have it now but can’t afford it now price” means that the buyer must borrow–or we could call it “rent”–the money in order to buy it now. We call that “renting of money” interest.


The difference in price is the interest rate for that transaction at that place and time. One sees that there really is no single “interest rate”. Like any market, what appears to be a price of a good–money, in the most common example–is constantly in flux due to the fact that it is derived from a human trait, time preference, that itself is constantly in flux.


Stop abusing our language and insulting everyone’s intelligence


What the mainstream media and the public call a “negative interest rate” is an abuse of language. Time preference can never be negative, because that would require a total change in human nature. People will always want something sooner rather than later. It is HARD to save and delay consumption. People have to be disciplined to save and delay gratification. The idea of a “negative interest rate” is an attempt to turn reality on its head. It is another tactic in the Keynesian attempt to refute Say’s Law; i.e., that production must precede consumption and that what one produces becomes the means by which he consumes. One can neither consume nor sell something that was never produced, which is the absurdity that is implied by a negative interest rate.




It is human nature that no one is willing to give up control of what he possesses now and accept less in the future. Since time preference can never be negative, the interest rate can never be negative. What is called a negative interest rate is merely a deposit charge that is difficult to avoid. Central banks throughout the world are exploiting their ability to charge for reserves held by their bank customers. By calling its charge a negative interest rate, central banks are trying to create the impression that what they are doing is a natural market phenomenon. It is no such thing. Because the central bank has a monopoly on the kind of money that may be used–its own!–and the quantity of money that people and businesses may use within a currency zone, it has the temporary power to force its member bank customers, and by extension its member banks’ own customers, a fee for holding that which they cannot conveniently house anywhere else at the present time. This is nothing more than monetary repression, the purpose of which is to force the banks and their customers to loan, loan, loan, and spend, spend, spend respectively in order to re-inflate moribund economies.


The charade of central banking can come to an end. An important first step for all of us is to stop accepting the central controllers’ corrupt definitions of terms that we use to describe reality. Economics is not an opinion; it is a science of reality. Definitions matter.

Patrick Barron

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A wonderful new book about Austrian economics for the layman

Blind Robbery! How the Fed, Banks, and Government Steal Our Money

by Andreas Marquart and Philipp Bagus

Reviewed by Patrick Barron


The purpose of this book is nothing less than to foment a revolt against the economic and monetary status quo, which, if continued, will destroy civilization as we know it. Yes, that is a big task, but Misters Marquart and Bagus may have accomplished just that. They have given us, in a relatively short book written in a conversational style for the layman, a comprehensive explanation of how an economy really works and why our current, central bank dominated system is destroying the productive sector of Western economies, transferring wealth from the masses to the politically connected few, and which, if continued, is bound to fail spectacularly so. But Marquart and Bagus are optimistic that the layman can understand the hidden forces at work and lobby to change them for the better. Champions of the Austrian School of Economics, which many economists believe may be too difficult for the layman to understand, these worthy gentlemen have given us a treatise that brings all the elements of that school of thought together in a book that can be read and understood by those completely unversed in economic theory of any kind . They start by employing the device of considering a fictitious town that has no medium of exchange; i.e., it is an economy based on barter. From this humble start, we learn how money arises naturally as part of the market in order to solve the limitations of a barter economy. We learn that only commodity money would be chosen by the market. We learn how bankers collude with governments to destroy commodity money for their own gains, which leads to a marvelous explanation of business cycle theory that arises as a result thereof. The “blind robbery” of the catchy title refers to the inflation of the money supply by government and the banks, which leads not only to the boom-bust cycle but also to the more hidden loss of money’s purchasing power over time. But the loss of money’s purchasing power is a boon for government spending and those who are that spending stream’s recipients, mainly the military, Wall Street insiders, and welfare recipients. Perhaps the most innovative part of the book is the way the authors weave in an explanation of the steady corruption of society’s sober, hardworking culture, a sure fire death by a thousand cuts.


Read this book! Pass it along! Donate copies to schools and libraries! Let’s start the revolution!


Blind Robbery may be purchased here.


Or copy this link into your browser:



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The real lesson of Brexit

The Real Lesson of Brexit

by Patrick Barron


Following the surprise vote by the UK to leave the European Union, most commentators are trying to understand the rationale behind the British vote. Let me be a contrarian and ask, why does it matter? Undoubtedly there is no single reason that millions of British citizens voted the way they did. Furthermore, there is no objective way of determining whether or not leaving really is advantageous for Britain, although most mainstream media are wringing their hands that the British vote was “wrong”. The real lesson of Brexit is that the British citizenry exercised their sovereign right in a fair, democratic referendum and chose to change the way they are governed. This lesson is not being lost of the rest of Europe’s citizenry, who now are energized to get binding referendums on the ballots of their own countries.


The fact is that the European Union is NOT a sovereign entity. In fact Britain itself–and by extension, all the rest of the EU’s member states–are not ultimate sovereign entities either. The individual citizen is sovereign. THIS is the lesson of Brexit. THIS is the lesson that the British have given to the citizenry of Europe: i.e., that they CAN leave the EU after all, because they are the true sovereign entities.


Compared to the rest of Europe, the question of whether British citizens had a right to a Remain/Leave referendum was never very controversial. Through various venues the people were demanding a vote. To his credit Prime Minister David Cameron announced that he agreed, even though he desired that Britain stay in the EU and campaigned for this result. He even gave his cabinet members the freedom to campaign as their conscience demanded. When the Leave side won, he forthrightly stepped down. This example of statesmanship reminds me of what was said of the traitorous Thane of Cawdor in Shakespeare’s Macbeth, that “Nothing in his life became him like the leaving it.”


And what of the rest of Europe? Well, implicitly even the EU elite have accepted the British decision, although they are not above trying to modify it in ways to ensure that Britain still pays into the EU’s coffers. The last time I checked there were no reports of EU invasion barges arriving at ports in Calais, preparing for a modern Norman or Nazi invasion. There have been no reports of British subjects being arrested, their assets confiscated, and being imprisoned or expelled from the Continent. The biggest threat seems to be that the EU will erect high tariffs against British goods and restrictions on British financial services. Oh, the Humanity! If the new British government were wise– which is highly unlikely!– it would declare unilateral free trade and ignore the threats. The EU may indeed take such action, but it would harm its own citizens to just as great an extent as British citizens. Trade restrictions harm both countries, whose individual citizens wish to trade in order to better their lives.


But, again, this is NOT the main point. It is impossible and irrelevant to tally gains and losses when one country bars trade with another. The main point of the Brexit referendum has always been that the British people have a right to change their form of government in a peaceful manner. I fully expect that the citizenry of other EU countries will do what is necessary to get their own Remain/Leave referendums on their respective national ballots. Their task will not be as easy as that of the British, but now that they have seen that it can be done there is little doubt that more such referendums will follow. Whether their citizens decide to Remain or Leave, the big winner will be the reaffirmation of the peoples’ right to self government.



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Wrong solution to a misunderstood problem

From today’s Open Europe news summary:

Business Secretary says growth must take priority over deficit as Carney warns Brexit risks beginning to ‘crystallise’

Bank of England Governor Mark Carney yesterday warned that the financial risks of Brexit “have begun to crystallise” and relaxed rules on banking capital, with the aim of releasing as much as £150bn in possible loans. The heads of Barclays, Lloyds Banking Group, Royal Bank of Scotland, HSBC, Santander, Nationwide Building Society, Metro Bank and Virgin Money signed a joint statement that they would “make the extra capital available to support lending to UK businesses and households in this challenging time”. Carney said that the resilience of the UK financial system could be seen in the fact that “overall bank funding costs have not increased”.
Meanwhile, in an interview with The Financial Times, Business Secretary Sajid Javid said the focus now was on “more economic growth”, suggesting that the combination of a downturn and a new fiscal stimulus could cause the budget deficit to rise from 3% of GDP to 5%. He called for corporate and personal tax cuts. Three UK commercial property funds worth about £10 billion pounds suspended trading and redemptions yesterday as investors sought to remove their cash. The pound this morning dropped to 31-year low against the US dollar and its lowest level against the euro since 2013.

Source: Bank of England The Financial Times The Wall Street Journal: Boleat The Financial Times 2 Politico The Times

Bank of England Governor Mark Carney, the heads of major UK banks, and Business Secretary Sajid Javid propose more money printing and more debt for an economy already awash in both and which has led to no discernible benefit except to the pay packets for executives and government bureaucrats. Brexit is an opportunity to shirk off not only the discredited policies of Brussels but also the discredited Keynesian policies advocated by the London establishment. The UK DOES need to reduce its budget deficit. Like any household, government must live within its means and stop confiscating the nation’s resources through the subterfuge of money printing. Only through sound money and honest borrowing will the electorate be able to decide if it wants to continue to pay for pie-in-the-sky welfare programs and military adventurism. It would be a cruel mistake to use Brexit as a pretense for even more money printing and more uncollectible debt. The path to prosperity is through hard work and savings, not the Bank of England’s money printing press.

Patrick Barron

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