Wednesday, July 19, 2017

The Real Aim of EU Brexit Talks and Why It Will Fail

From today's Open Europe news summary:



German MEP says EU wants to punish UK in Brexit talks

Writing in The Times, German MEP Hans-Olaf Henkel argues that the European Parliament Brexit negotiator, Guy Verhofstadt, and the EU’s chief Brexit negotiator, Michel Barnier, want to “punish” Britain in the Brexit talks. He adds, “The reason is simple. They would seek to make sure that Brexit is such a catastrophe that no country dares to take the step of leaving the EU again.” Henkel stressed that he would like the UK to stay a member of Euratom but warned if it chooses to do so it would “will mean paying in and abiding by the rules, as Britain does now, and accepting the jurisdiction of the European Court of Justice when it comes to overseeing Euratom.” Henkel is a member of Germany’s far-right AfD party.
Source:  

The only tool that the EU can wield is to forbid the importation of British goods. But that is self-defeating. The EU punishes its own citizens by forbidding them from purchasing British goods and services. I doubt that the EU will try to forbid its exporters from selling into the British market, so the European Central Bank will accumulate British Pounds. It's tantamount to selling someone a good or service and telling him that you promise never to cash his check.

                                  

Monday, June 26, 2017

Why Sound Money Does Not Need a Central Bank, Only the Rule of Law


The money that all nations use today is composed either of reserves created by a central bank and/or credit money created by banks via fractional reserve banking. In the first case, a central bank can create reserve money via open market operations, whereby the central bank buys an asset--any asset--with reserves that it creates out of thin air. These reserves land in a bank and allow the banking system to create credit money in multiples of the new reserves via the fractional reserve lending process. Both methods of money creation are fraudulent, if done by any entity other than a central bank, in the case of open market operations, or a bank member of that central bank system, in the case of fractional reserve lending. All nations have thrown the rule of law out the window for these monetary counterfeiters.

 

A sound money system does not sanction counterfeiting money, either via creating reserves out of thin air or via creating credit money via fractional reserve lending. In a sound money system there is only commodity money; i.e., gold, silver, bails of tobacco, etc. Commodity money may be spent, as in using gold or silver coins in everyday transactions, or other receipts may be exchanged which represent commodity money that is stored in a safe and trusted facility. Issuing a coin that does not contain exactly the weight and purity as represented is fraud in a society governed by the rule of law. Issuing certificates or bank receipts in excess of the stored commodity also is fraud in a society governed by the rule of law.

 

A society governed by the rule of law does NOT exempt any entity, including the government itself, from the law. Thus, a central bank that creates reserves out of thin air is committing a crime, as recognized by Sir Robert Peel in his famous Bank Charter Act of 1844. A member bank that pyramids these reserves into multiples of credit money via the lending process is committing a crime, as cogently explained by Jesus Huerta de Soto in his Hayek Memorial Lecture at the London School of Economic in 2010.

 

In a free society governed by the rule of law any entity can create money and offer its use to the public. I can offer the public the use of my wife's delicious quart jars of homemade pickles as money, either in direct exchange (for example, a jar of pickles for a box of nails at our local hardware store) or as indirect exchange (a certificate that may be redeemed for a jar of pickles upon demand). However, I have violated the law if I hand over a jar that I claim contains my wife's pickles but instead contains something else. Likewise, I  have violated the law if I issue more certificates for my wife's pickles than jars of pickles in her larder, which fraud would be revealed should too many people try to redeem their certificates at my house.

 

Of course, for transactions among people who do not know one another personally, unlike the local recipients of my wife's pickles, a more generally accepted commodity would be used and certificates and/or book entry receipts would have to be issued by more widely known entities. For example, Citibank or Bank of America might issue gold certificates and maintain book entry gold accounts that would be generally accepted by a wide group of strangers as long as these strangers had confidence that Citibank or Bank of America had not engaged in fraud. Gold in their vaults equaled the certificates plus book entry accounts to the gram.

 

All that is required to convert to the rule of law is the repeal of legal tender laws granting special exemptions from normal commercial law to the central bank and its system of member banks. The reverse of Gresham's Law would prevail. i.e., sound money would drive out bad.

Sunday, April 16, 2017

No Nation Can Harm Another Economically


My recent Mises Daily Article titled Two Common Objections to Unilateral Free Trade drew some criticism that I would like to answer.

 

Unilateral free trade rewards the country that adopts it

 

Several commented that my use of the term "unilateral" negated my argument. They resurrected the argument that free trade is beneficial to both parties only if both agree to remove trade barriers to the other's products. Otherwise, the party that removes its trade barriers suffers economically by having its industries destroyed by the party that keeps its trade barriers in place. This argument stands all of economics on its head by asserting that consumers are required to support producers; whereas, the purpose of production is to meet consumer demand. If one producer, whether domestic or foreign, wishes to lower its price, accept a lower return on capital, obtains an agreement from its employees to work for less, and thusly is able to capture more market share, no one is harmed. Even if a government taxes its citizens in order to provide subsidies to some producers, this is no concern of the consumers or producers in another country. It is no business of anyone other than the taxpayers of the subsidizing government. These people have a legitimate gripe, for they are being robbed to pay privileged insiders within their own country. Producers in the country that lowered its trade barriers have the choice to redirect their capital to other uses and employees have the freedom to work in other industries. The country's cost of living drops, and its standard of living rises. Even those workers temporarily unemployed will benefit from this lower cost of living.

 

Concentrate solely on freeing one's own economy

 

Others commented that my use of the term "unhampered market" negated my argument. I pointed out that there is always more work to be done and that there is opportunity for all in an unhampered market. These commentators pointed out that no country has an unhampered market; therefore, unilateral free trade would cause permanent unemployment. This makes two false assumptions. One, that workers can only train for one job in a lifetime and, two, that it is futile to lower barriers to employing capital and labor efficiently in one's own country. The obvious proper response is to insist that one's own government allow its citizens full economic freedom and not waste its time trying to persuade other governments to adopt economically sound policies. If other countries wish to punish their own citizens, that is their business and not ours. In fact we are made richer by their poor policies which provide us with subsidized products.

 

Conclusion

 

The only just policy that any government can take is to free its own economy to allow its citizens to purchase any legal product no matter where produced. This provides investors and workers with the only government help they need; i.e., the freedom to employ their capital and labor wherever it may achieve the greatest return. A nation's citizens will enjoy the highest possible standard of living that adopts low taxes, the few regulations that merely support normal commercial law to protect citizens from fraud, and sound money to allow producers and consumers alike to correctly value their present transactions and expected future returns.

 

A corollary to freeing a market economically is to reduce public expenditures that discourage rational actors from engaging in socially destructive behavior. Welfare payments of all kinds, taxpayer supported public schools, unsound and unfunded government mandatory retirement schemes all reduce socially beneficial behavior. In fact our nation's so-called immigration problem would go a long way to being solved if neither immigrants nor native born citizens had access to welfare, so-called free public schooling, free or subsidized housing, etc. on demand, nor could they trespass on either public or private property. This may not solve the immigration problem to everyone's satisfaction, but it would be a huge step in the right direction.

 

The only economic problems that this country or any country faces come from its own misguided attempts to thwart the free market within its own borders. Stop complaining about what other countries are doing for the simple reason that they cannot harm us. Our economic future lies in our own hands.

Friday, March 31, 2017

Two Unfounded Objections to Unilateral Free Trade


 

Recently I forwarded to my circle of friends what I considered to be a concise and accurate argument in favor of unilateral free trade. The author was Professor Don Boudreaux of George Mason University, writing in his daily blog Cafehayek.com. He responded to Mr. Daniel Dimiccio, former CEO of Nucor Steel, who was defending tariffs on foreign steel. Professor Boudreaux explained that arguments in favor of tariffs place all of economics on its head; i.e., that consumers were required to support producers rather than the other way around.

 

After sending Professor Boudreaux's article, I have been hearing two common objections to his article from friends who consider themselves generally to be in favor of free trade, even unilateral free trade. The first objection I will call the Donald Trump objection; i.e., that imports have cost Americans good paying jobs, from which the nation has never recovered and cannot recover as long as we allow imports to replace American made products. The second I will call the essential industries objection; i.e., that there are some products that America must produce itself, no matter what the cost or inefficiency, in sufficient quantities to ensure access to these products in time of war.

 

Objection number one: Free trade causes unemployment

 

The first objection is easiest to dismiss, for it attempts to refute the "Law of Comparative Advantage", postulated exactly two hundred years ago by the great English economist David Ricardo. Peaceful cooperation among peoples of the earth has no limit. Just as we Pennsylvanians find it advantageous to import pineapples from Hawaii rather than attempt to grow them ourselves, Americans find it advantageous to import many goods from people who just happen to live in foreign countries. Absent government intervention to restricts one's own citizens from entering into peaceful cooperation to produce any legal product or service, all will find employment and all will be wealthier. A simple example will suffice. Let's assume that Michael Jordan, the greatest basketball player of his generation (and perhaps of any generation) desired a new home. Let's also assume that Mr. Jordan was a skilled carpenter, electrician, plumber, etc. Would Mr. Jordan become wealthier by quitting basketball for a year or two at the height of his career in order to build his own home? Of course not. Even if we assume that Mr. Jordan not only was a skilled craftsman but just happened to be the best craftsman in the world, he still would be wealthier paying less skilled workmen to build his new home while he earned much higher wages playing basketball. The corollary is that even those who are less skilled in ALL things can find useful employment in an unhampered market.  This is the "Law of Absolute Advantage", a corollary to the "Law of Comparative Advantage".

 

The Law of Comparative Advantage is also revealed once producers create a surplus. Savings produces capital, which produces more wealth when individuals are allowed to engage in the productivity enhancing division of labor via trade. The resulting products and services cost less than previously, yet employment is not destroyed. It is transferred to better uses, which enrich all. Both sides expect that trade is beneficial and must be allowed to freely trade their surplus product. The political location of individuals engaged in such trade is completely irrelevant to the wealth enhancing benefits of trade.

 

The logical conclusion of restricting international trade for just one or two so-called threatened industries is the demand that all products be protected. Advocating an autarkic society is to argue in favor of the fallacy of composition; i.e., that what might be good for one industry--for example, allowing domestic steel producers to extort higher prices from customers--cannot be extended to all industries.

 

This is akin to standing in a giant circle with everyone picking the pocket of the person in front while having his pocket picked in return.

 

The source of our societal problems, even those correctly identified, such as persistent unemployment, must be found elsewhere. As Ludwig von Mises would advise, one must find the proper means to arrive at the ends desired. If the US really does suffer from collapsing industries, restricting trade is not the solution but will exacerbate the problem. In other words, trade restrictions to cure unemployment are the wrong cure and will cause even more harm to society.

 

Unfortunately in modern day America there are many suspects to which one can assign economic decline. American industry is hampered by a panoply of regulatory red tape and outright restrictions at federal, state, and local levels. One needs only to consider the effects of the Environmental Protection Agency, the Occupational Health and Safety Administration, the Federal Food and Drug Administration, not to mention similar agencies at the state level, plus the disaster that is public education (regulated mostly by the states) and ever increasing regulations on economic life at the local level. (My tiny township government in southeast Pennsylvania recently informed us homeowners that we needed to obtain a township issued permit in order to resurface our driveways. So, now I need government permission to maintain my home in good repair!)

 

Objection number two: Essential industries must be protected

 

This is the national security objection; i.e., that the US must maintain a minimum production level of essential war related products.  This is not an argument in favor of economic efficiency. Quite the opposite. Furthermore, little or no evidence is offered that nations have lost wars due to running out of essential products, although it undoubtedly is true that denying the enemy all kinds of goods and services does reduce a nation's war-making capability. Nevertheless, one can make a good case that this concern is unlikely to be a factor by taking a closer look below the surface of this argument.

 

Stating the "essential industries" case:

Let's assume that China wants to drive US steel manufacturers out of business. It succeeds by offering US steel users--manufacturers of buildings, bridges, autos, etc-- high quality products at low prices for an extended period of time. After US steel production has been reduced to zero, China suddenly refuses to sell steel to us and, as a consequence we cannot build essential war material that requires steel components. We surrender to China, withdraw our military protection to allies, and/or accede to China's demands, whatever those may be.

 

The response:

Note that for a long period of time, perhaps years or even decades, China must subsidize steel production, which drains its public coffers and actually reduces its own war making capacity. (China can't build its own battleships, for example, if it is subsidizing construction of ours.)  In the meantime, the US enjoys an increase in its standard of living. We build up our country in many ways, from new and improved bridges to a revitalized domestic auto industry (remember, cheap, high quality Chinese steel is subsidizing US car makers). Now China embargoes steel shipments to the US and makes threats of some kind. Our modern battle fleet, the product of cheap Chinese steel, is at our immediate disposal.

 

Meanwhile, our modern infrastructure, built with cheap Chinese steel, allows us to rush stockpiled war material, also built with subsidized Chinese steel, to our fleet and onward to our overseas bases and the battle area. We then gear up for the possibility of a protracted war by placing orders for steel with the other thirty-odd nations of the world who are eager to sell us high quality steel but who have been shut out of the American market by subsidized Chinese steel.

 

Now, I ask you...is this not the more likely scenario?

 

Importing subsidized products--perhaps especially products essential for war--increase a nation's war making capacity rather than diminish it. We build up all aspects of our nation's economy, including the defense sector, by using products with the best combination of quality and price, whether imported or not. Doing so allows us either to spend less for the same level of defense or increase our defense by spending the same amount of money but getting more war material in return. Our theoretical potential enemy has actually helped us defend ourselves and our vital interests abroad.

 

Conclusion

 

In conclusion, these two common objections to unilateral free trade do not stand up to closer scrutiny. For two hundred years David Ricardo's Law of Comparative Advantage has informed us that in an unhampered market economy all will be employed to the limit of their capabilities. Furthermore, rather than reduce a nation's security, imports of what we might consider to be "essential materials" actually enhance our security. We need to tax our own citizens less for the same level of security while building up our nation at the expense of potential enemies.

 

Let us end such nonsensical worries and trade freely with the world, especially with those whom we might currently fear, such as China. It wasn't that long ago our nation feared Germany, Japan, and even Great Britain. It's good to remember that peaceful cooperation provides its own momentum for everyone.

 

Thursday, March 23, 2017

The true goal for the EU's call to beef up financial regulation

From today's Open Europe news summary:


European Commission considers beefing-up powers of pan-EU financial supervisors

The Financial Times reports that the European Commission is considering plans to beef-up the powers of the three pan-EU financial supervisors, in a bid to address potential supervisory loopholes ahead of Brexit. Valdis Dombrovskis, a vice-president of the Commission, is quoted as saying, “Already you hear there are some disagreements among [EU] member states whether or not some kind of regulatory arbitrage is taking place, so indeed it strengthens the need of the case for regulatory convergence.” The article notes that one of the options under consideration would see the European Securities and Markets Authority (ESMA) been given powers to directly supervise clearing houses, as well as greater oversight over cross-border investment funds.
                                           
Let's all consider the true meaning of the Commission's goals by examining these phrases:

"potential supervisory loopholes"
"regulatory arbitrage"
"the need for regulatory convergence"
The EU is terrified that Brexit will mean that it is losing its stranglehold on ever increasing financial regulation.



 


Tuesday, March 21, 2017

End Banks' Exemption from Normal Commercial Law

Mr. Burke asked me to respond to the article below about how banks engage in money creation. Like many such articles, the one by Mr. Werner seems almost designed to be confusing and obtuse. My short explanation attempts to inform the layman of what is actually happening; i.e., that banks are exempt from normal commercial law and we all suffer.


Pat Barron



From: Patrick Barron
Sent: Tuesday, March 21, 2017 10:33 AM
To: Dan Burke
Subject: Re: Richard Werner
 
Banks are exempt from normal commercial law; i.e., they are allowed to engage in fractional reserve banking. In other words, a new dollar of reserves can be pyramided into approximately ten dollars of new bank deposits. Austrian economists call such money created out of thin air as fiduciary media in order to differentiate it from deposits backed by actual reserves. A loss of confidence in a bank can cause a bank run in which there are more claims for deposit withdrawals in the form of actual reserves (Federal Reserve Notes) than the bank actually owns. The bank's bankruptcy is exposed. Bank runs are rare today, because the Federal Reserve promises, via Federal Deposit Insurance, to lend the bank as many reserves as necessary. Nevertheless, this does not fix the fundamental error, which is legal tolerance for fractional reserve banking, and merely causes an expansion of base money (cash and bank reserve balances at local Federal Reserve offices) and sets the stage for another round of money expansion via banks' fractional reserve lending capability. Furthermore, the expansion of base money leads to malinvestment of capital and a rising price level, commonly and mistakenly called inflation. (The real inflation is inflation of the money supply via fractional reserve banking.)


The solution is to withdraw the banks' exemption from normal commercial law and prosecute fractional reserve banking as the fraud that it is. Banking would divide itself naturally into deposit banking, with one hundred percent reserve backing, and loan banking, in which the depositor gives up access to his money for a certain period of time so that the loan banker can find credit worthy customers.


Such a system would lead to the immediate end of federal deposit insurance and government bank examiners. Deposits would become bailments. Loans would be subject to full loss, just as today there is full risk of loss of one's investment in corporate bonds, corporate stock, real estate, etc.


Patrick Barron



From: Dan Burke
Sent: Tuesday, March 21, 2017 9:08 AM
To: PatrickBarron@msn.com
Subject: Richard Werner
 
Would you please react to Mr. Werner's article? http://www.sciencedirect.com/science/article/pii/S1057521914001434

www.sciencedirect.com
How do banks create money, and why can other firms not do the same? An explanation for the coexistence of lending and deposit-taking ☆ Richard A. Werner

Thursday, February 23, 2017

A Sensible Economic and Foreign Polciy: Part II


A Sensible Foreign Policy: Mind Your Own Business and Set a Good Example

 

For the sake of peace and prosperity in the world, the US should take the true leadership role in proving to the world that free trade and non-interventionism are all that is required. In other words, all nations should simply mind their own business and set good examples. Just as laissez faire policies work within a nation's boundaries, free cooperation between individuals of different nations will quickly reveal which policies work and which do not. It is important to remember that there is nothing that a nation can do internally to force other nations to subsidize its economy. All subsidies, currency manipulations, etc. are self-defeating. Therefore, the US should take the following actions to remove government interference with peaceful, cooperative trade between its citizens and the citizens of other nations.

 

 

1.  Adopt unilateral free trade.

 

Completely eliminate all restrictions on the importation and export of legal products. For trade purposes treat the rest of the world as if it were part of one's own country; i.e., the freedom to buy and sell all legal products anywhere in the world. It is a mercantilist fallacy that a nation becomes wealthy by selling more than it imports, thereby accumulating gold (now foreign exchange). On the contrary, mercantilist nations deny their citizens the right to become wealthy. They do not allow their citizens to exchange the product of their labor for the most goods and services. Rather they deny their citizens a higher standard of living by forcing them to purchase higher priced and/or lower quality domestic goods. If this were not the case--i.e., if a nation could produce all things that it needed at the lowest worldwide price--trade barriers would  not be needed, since no one would wish to purchase inferior/higher priced foreign goods. Of course, this is not the case at all. The division of labor is a natural, beneficial process that knows no international, political boundaries. If Hawaii were not a state of the union, but rather a foreign nation under its own political system, would Americans be better off by denying themselves Hawaiian grown pineapples and instead grow inferior pineapples at higher prices somewhere in the remaining forty-nine states? Of course not. Free trade allows for the most efficient allocation of worldwide capital to produce the most goods and services for those who participate.

 

 

2. Do not lobby foreign governments to allow one's own citizens' goods into their countries.

 

A nation that restricts imports harms its own citizens. Allow them to correct their own government's errors themselves. A nation that denies its citizens the right to import goods from other countries yet encourages its citizens to sell goods into those same countries, (and may even subsidize these sales in some way), has adopted an illogical and unsustainable policy. It is similar to selling one's wares and never cashing the customers' checks. Foreign exchange accumulates in the protectionist nation's central bank. But to what end? If that government buys the national debt of the same nation, then the fallacy becomes even more clear. It denies its citizens the right to buy that nation's goods and services, yet when the government itself buys that same nation's debt it is funding that nation's spending--infrastructure, defense, etc.--with the fruit of its own citizens' toil. Nothing could be more illogical, and this policy will be abandoned eventually or the protectionist nation will fail economically.

 

 

3. Do not prevent one's own citizens from buying so-called subsidized or "dumped" products.

 

This oft-used policy is a consequence of mercantilism. Nation A prevents its citizens from buying products that it claims nation B subsidizes in some way. The US/Canadian softwood dispute is a good example. The reciprocal tariffs that emanated from this dispute have caused Americans to pay more for softwoods, reducing their standard of living. The "seen" consequence is that American softwood producers get higher prices for their product, but at the "unseen" expense of their fellow countrymen. The US consumer suffers and capital is used in less productive ways than if the tariff were not in place. If Canadians are foolish enough to subsidize exports, the beneficiaries are Americans. Canadians are taxed so that Americans can enjoy cheaper softwoods.

 

 

4. Do not subsidize in any way any good, whether sold domestically or to foreigners.

 

The flip side to number three above is that a nation should not subsidize exports. All the citizens of the exporting nation bear the cost, and the citizens of the importing nation reap the benefit. What could be more illogical?

 

 

5. Scrap all existing trade treaties, agreements, etc. and defund and close down all trade offices and personnel.

 

Free trade is incompatible with managed trade. All trade agreements are "managed" trade. If they aren't managed, then what is the point of the agreement itself? There is nothing to manage. But, if the point of the agreement is that a nation will open its doors to another nation's products only if that nation reciprocates, then each nation is still pursuing the illogical and self-defeating precepts of a mercantilist trade policy.

 

 

6. Do not intervene in any way into the internal affairs of any country.

 

If one's own citizens are disgusted with the governmental policies of another country, they can privately boycott that country's goods and refuse to invest in that country's economy. This is the international equivalence of boycotting some local vendor. (A good domestic example of this policy is the boycott organized by Cesar Chavez. See The 1965-70 Delano Grape Strike and Boycott.) A good international example is the closing over the last decade of most Cities Services (Citgo) gas stations. Venezuela owned Citgo, and Americans were disgusted with Venezuelan policies. No governmental policy was necessary for US citizens to register their disgust. The fact that the Venezuelan government has not changed its policies is no reason for the American government to take action. Americans can simply be reassured that they are not supporting Venezuela by purchasing it most recognizable product--oil.

 

 

7. Do not use military force except to retaliate against attack upon one's own territory or the right of one's own ships, planes, etc. to travel in international waters or airspace.

 

No nation has a right to intervene, especially militarily, in the internal affairs of others. This is the non-aggression principle extended to the behavior of nations. Of course, if no nation intervened in the affairs of another and no nation attacked another's territory, war between nations would end. There are many caveats to this policy--genocide of minorities by majorities, for example--but nations must beware of the slippery slope toward continuous interventions that so-called "special cases" seem to authorize.

 

 

8. Do not enter into unlimited and/or ill-defined collected security agreements.

 

Just as a nation should not intervene militarily into the affairs of others on its own accord, so the speak, it should be even more circumspect about not becoming legally tied to intervene in the affairs of others as a result of a collective security agreement. This would be second hand intervention, whereby the nation itself is not attacked but acts as if it were. Collective security agreements should be written very carefully. Carte blanche agreements remove the incentive of one's allies to resolve agreements peacefully. There are few disputes in which side is completely innocent and the other is completely guilty. There are few disputes in which there are only one of two alternatives. Furthermore, collective security agreements may backfire; i.e., reducing the security of current members and admitting new members with ancient animosities that they now find no reason to attempt to resolve peacefully. Collective security agreements suffer the same adverse consequences of other socialist policies.

 

 

Conclusion

 

Most of the issues confounding Americans today are the result of government hubris and overreach. Government apologists believe that the economy can be improved by intervening into the free market. But sound economic theory reveals that government intervention is both unnecessary and destructive. It reduces market transactions that participants believe will benefit both parties. Furthermore, it misdirects capital to unsustainable investment, resulting in capital deccumulation. Complete laissez faire is the only rational policy that remains.

 

Internationally, government should follow the maxim "Mind your own business and set a good example." Avoid intervening into the affairs of others and allow your good example to speak for itself. In trade avoid the fallacies of mercantilism. Avoid or strictly limit collective security agreements and follow the non-aggression principle.

Wednesday, February 22, 2017

A Sensible Economic and Foreign Policy: Part I


 
A Sensible Economic Policy: Laissez Faire

 

The Misesean insight that all economics is based upon methodological individualism plus the no harm principle calls into question the raison d' entre of the regulatory state, including legal tender laws; i.e., the mandatory and exclusive use of state produced and controlled money within the sovereign boundaries of the state.

 

Since every economic transaction is between private parties who believe that they will benefit from the transaction, how can any other individual--much less some remote burreaucrat--even know what these transactions might be or their terms? All that is required for peaceful cooperation among people everywhere is ordinary commercial law to define contracts, fraud, etc. and the law of torts to define harms. These laws arose out of the common law over the centuries and not out of the hubris of self-aggrandizing bureaucrats.

 

There is no harm that can be visited upon the population that the common law has not addressed. It follows, then, that the people should take the following actions to defund and remove from power the expensive and business-stifling regulatory state.

 

 

1. Eliminate all federal cabinet level agencies related to regulating economic life.

 

Of the current cabinet level bureaus, the following should be eliminated immediately, including all departments within these bureaus, such as OSHA (within the Department of Labor) and the EPA (customarily accorded cabinet rank):

 

a. Agriculture

b. Commerce

c. Labor

d. Energy

e. Education

f. Housing and Urban Development

g. Transportation

 

The above seven agencies spent $667 billion in 2010, representing 23% of all federal spending.

 

 

2. Eliminate the central bank--the Fed--and scrap legal tender laws.

 

Of course, a free market must include freedom of its participants to use whatever medium of exchange--money--that it chooses. Money is part and parcel of the market economy. It arises naturally to break the limits of a barter economy, also known as direct exchange. Commodity money becomes indirect exchange, whereby market participants trade for the most widely accepted commodity rather than trade directly to satisfy their ultimate goals. There is no need for the state to dictate what may be used for indirect exchange. Market participants themselves are in the best position to determine which commodity makes the best money.

 

Furthermore, central bank produced and controlled money has allowed government to act like a common counterfeiter, producing money out of thin air to fund its own spending programs and/or reward its supporters, all at the expense of society as a whole. It is much easier to fund wars and welfare out of printed money than taxes, or borrowing from real savings. The steady erosion of money's purchasing power hits retirees the hardest, diminishing their ability to plan for a retirement of comfort and dignity. Furthermore, the Austrian Theory of the Business Cycle places fiat money expansion as the root cause of the Boom/Bust cycle that misallocates and eventually destroys capital.

 

 

3. Eliminate government licensing of occupations and products.

 

The best regulator of occupation quality is the free market. Government agencies protect the status quo, erecting unnecessary barriers to cheaper, affordable alternative services. There is no objective standard for determining service quality. This is a judgment of market participants themselves. In a free market unscrupulous and incompetent practitioners are weeded out by competition and ordinary commercial and tort law.

 

 

4. Eliminate standing in court of third parties.

 

Environmental groups and other anti-business, anti-development groups file suits to stop projects over which they are not parties; i.e., they do not own property, cannot show that they are suffering real, as opposed to hypothetical or psychological harm, such as the loss of scenic views. Such groups are always at liberty to solicit funds from their members to buy and set aside what they consider special, scenic areas. Like licensing of occupations under the banner of consumer protection, there is no objective standard of what is and is not a scenic view or special area. Only the market can decide such things. Environmental groups cannot assume to have a superior, or more insightful position outside the market, because there is no standard for determining such things as beauty. These are subjective evaluations which change constantly. If you think this is not the case, just study the rural cemetery movement of the nineteenth century in which the world's best landscape architects were hired to design cemeteries where families would spend many hours each weekend among their ancestors.

 

 

5. Restrict monetary damages for violations of commercial law, torts, and other harms.

 

Only the parties to a dispute who have standing in court as suffering real damages should be compensated financially for violations of the common law, and these compensations should go entirely to the parties involved, not third party whistleblowers and/or their attorneys. Current friend-of-the-court rules allow meddling by third parties who can delay business projects almost indefinitely or drive up costs until the projects are abandoned.  Those who suffer are the project developers, of course, plus all the unseen employees who never became employees and all the projects' happy customers who never became happy customers.

 

 

6. End all subsidies.

 

If a business cannot produce a profit acceptable to its investors, then the investors should close it down and invest their scarce capital in a business whose product is more highly desired. Businesses that produce losses are prima facie evidence that capital is being consumed rather than accumulated. Private investors will close down such businesses or lose all their capital. Government subsidies plunder existing capital in order to prop up those businesses that are consuming it. But subsidies do not stop capital deccumulation, only those who suffer the loss. Typically high profile businesses, those with large union workforces, or those politically connected are the recipients of capital provided by common, working people. In other words, subsidies are theft.

 

Saturday, January 21, 2017

Theresa May leads the singing of "Kumbaya" in Davos


(Here's my response to British Prime Minister Theresa May's speech at the recent World Economic Forum in Davos, Switzerland. Find the full text of her speech below my comments.)

Oh, boy...where to start?...

If May wants to promote free trade and globalization, then why not just declare unilateral free trade for Britain and forget about negotiating trade deals that may never happen or, if they do, will simply protect the status quo? Set a good example.

"Shared Society"...sounds very socialist to me, and it probably is.

She doesn't like "the cult of the individual", huh? Well, guess what, we are all individuals. I'm fed up with groups. How about you?

"You don't want a government that will get out of the way..." Oh, yes, we do!

As for business:

1. "It must pay its fair share of taxes." Oh, yeah? What are those? And guess who really pays corporate taxes? The consumer.

2. "Business has an obligation to its employees and supply chains"  Huh? Well, yeah, business has an obligation to pay its employees, but what are its obligation to its supply chains other than paying them, too? What gobbledygook. Of course, there is no mention of business' obligations to its customers. Isn't that why business is in business?

3. "Business must trade in the right way." Another great big HUH? What is the right way?

4. "Business must invest in communities." She's just another shake down artist; i.e., you want to build a factory here, then you must pay to play. We need parks, community centers, etc. and we don't want to tax our constituents to provide them.

5. And she wants to "address executive pay". Another big fat UH OH. Government will decide how much people can make, not shareholders. That will really attract the best and the brightest.

My conclusion...just another pie in the sky call for more socialism disguised in the garb of free trade. But I bet they were all singing Kumbaya in Davos.

Pat Barron

 

This is the full text of the speech delivered by British Prime Minister Theresa May to the World Economic Forum in Davos, Switzerland on Thursday, January 19 2017:

 

This is an organisation that is, as it says in the very first line of your Mission Statement, committed to “improving the state of the world”. Those of us who meet here are all – by instinct and outlook – optimists who believe in the power of public and private cooperation to make the world of tomorrow better than the world of today. And we are all united in our belief that that world will be built on the foundations of free trade, partnership and globalisation.

 

Yet beyond the confines of this hall, those forces for good that we so often take for granted are being called into question. The forces of liberalism, free-trade and globalisation that have had – and continue to have – such an overwhelmingly positive impact on our world…

 

That have harnessed unprecedented levels of wealth and opportunity…

 

That have lifted millions out of poverty around the world…

 

That have brought nations closer together, broken down barriers and improved standards of living and consumer choice…

 

Forces that underpin the rules-based international system that is key to our global prosperity and security, are somehow at risk of being undermined.

 

And as we meet here this morning, across Europe parties of the far left and the far right are seeking to exploit this opportunity – gathering support by feeding off an underlying and keenly felt sense among some people – often those on modest to low incomes living in relatively rich countries around the West – that these forces are not working for them.

 

And those parties – who embrace the politics of division and despair; who offer easy answers; who claim to understand people’s problems and always know what and who to blame – feed off something else too: the sense among the public that mainstream political and business leaders have failed to comprehend their legitimate concerns for too long.

 

This morning, I want to set out a manifesto for change that responds to these concerns and shows that the politics of the mainstream can deliver the change people need.

 

I want to show how, by taking a new approach that harnesses the good of what works and changes what does not, we can maintain – indeed we can build – support for the rules-based international system.

 

And I want to explain how, as we do so, the United Kingdom – a country that has so often been at the forefront of economic and social change – will step up to a new leadership role as the strongest and most forceful advocate for business, free markets and free trade anywhere in the world.

 

Brexit

 

For that is the unique opportunity that Britain now has.

 

I speak to you this morning as the Prime Minister of a country that faces the future with confidence.

 

For a little over six months ago, millions of my fellow citizens upset the odds by voting – with determination and quiet resolve – to leave the European Union and embrace the world.

 

Let us not underestimate the magnitude of that decision. It means Britain must face up to a period of momentous change. It means we must go through a tough negotiation and forge a new role for ourselves in the world. It means accepting that the road ahead will be uncertain at times, but believing that it leads towards a brighter future for our country’s children, and grandchildren too.

 

So while it would have been easy for the British people to shy away from taking such a path, they fixed their eyes on that brighter future and chose a bold, ambitious course instead.

They chose to build a truly Global Britain.

 

I know that this – and the other reasons Britain took such a decision – is not always well understood internationally, particularly among our friends and allies in Europe. Some of our European partners feel that we have turned our back on them. And I know many fear what our decision means for the future of the EU itself.

 

But as I said in my speech earlier this week, our decision to leave the European Union was no rejection of our friends in Europe, with whom we share common interests and values and so much else. It was no attempt to become more distant from them, or to cease the cooperation that has helped to keep our continent secure and strong.

 

And nor was it an attempt to undermine the European Union itself. It remains overwhelmingly and compellingly in Britain’s national interest that the EU as an organisation should succeed.

It was simply a vote to restore, as we see it, our parliamentary democracy and national self-determination. A vote to take control and make decisions for ourselves.

And – crucially – to become even more global and internationalist in action and in spirit too.

Because that is who we are as a nation. Britain’s history and culture is profoundly internationalist.

 

We are a European country – and proud of our shared European heritage – but we are also a country that has always looked beyond Europe to the wider world.

 

That is why we are among the most racially diverse countries in Europe, one of the most multicultural members of the European Union, and why – whether we are talking about India, Pakistan, Bangladesh, America, Australia, Canada, New Zealand, countries in Africa, Asia or those that are closer to home in Europe – so many |of us have close friends and relatives from across the world.

 

And it is why we are by instinct a great, global, trading nation that seeks to trade with countries not just in Europe but beyond Europe too.

 

So at the heart of the plan I set out earlier this week, is a determination to pursue a bold and ambitious Free Trade Agreement between the UK and the European Union. But, more than that, we seek the freedom to strike new trade deals with old friends and new allies right around the world as well.

 

I am pleased that we have already started discussions on future trade ties with countries like Australia, New Zealand and India. While countries including China, Brazil, and the Gulf States have already expressed their interest in striking trade deals with us.

 

It is about embracing genuine free trade, because that is the basis of our prosperity but also the best way to cement the multilateral partnerships and cooperation that help to build a better world.

For the challenges we face, like terrorism, climate change and modern slavery, don’t stop at national borders. Nor do they stop at the borders of continents. The challenges and opportunities before us, require us to look outwards in a spirit of cooperation and partnership.

 

That is why, as I said in my speech on Tuesday, I want the UK to emerge from this period of change as a truly Global Britain – the best friend and neighbour to our European partners, but a country that reaches beyond the borders of Europe too; a country that gets out into the world to build relationships with old friends and new allies alike.

 

And that is exactly what we are going to do.

 

Global Britain

 

We are going to be a confident country that is in control of its own destiny once again.

And it is because of that that we will be in a position to act in this global role.

Because a country in control of its destiny is more, not less able to play a full role in underpinning and strengthening the multilateral rules-based system.

 

A Global Britain is no less British because we are a hub for foreign investment. Indeed, our biggest manufacturer, Tata, is Indian – and you still can’t get more British than a Jaguar or a Land Rover.


Britain is no less British because it is home to people from around the world. In fact, we derive so much of our strength from our diversity – we are a multi-racial, multi-ethnic, multi-faith democracy, and we’re proud of it.

 

And Britain is no less British because we have led the way in multilateral organisations like the UN, NATO, IMF and the World Bank over many years.

 

Membership of these bodies magnifies all their members’ ability to advance the common goods of peace, prosperity and security.

 

I believe strongly in a rules based global order. The establishment of the institutions that give effect to it in the mid twentieth century was a crucial foundation for much of the growing peace and prosperity the world has enjoyed since. And the tragic history of the first half of the last century reminds us of the cost of those institutions’ absence.

 

The litany of follies of that time are mistakes that we should never forget and never repeat.
So we must uphold the institutions that enable the nations of the world to work together.

And we must continue to promote international cooperation wherever we can.

 

One example of that is modern slavery – a scourge of our world, which we can only defeat if we work together, changing attitudes, rooting out such abhorrent practices and prosecuting the perpetrators.

 

That is why at Davos this year I have convened a high-level panel discussion to continue our co-ordinated effort to save those many lives which are, tragically, being stolen.

 

International cooperation is vital. But we must never forget that our first responsibility as governments it to serve the people. And it is my firm belief that we – as governments, international institutions, businesses and individuals – need to do more to respond to the concerns of those who feel that the modern world has left them behind.

 

Economic reform

 

So in Britain, we have embarked on an ambitious programme of economic and social reform that aims to ensure that, as we build this Global Britain, we are able to take people with us. A programme that aims to show how a strong Britain abroad can be a better Britain at home.

Because talk of greater globalisation can make people fearful. For many, it means their jobs being outsourced and wages undercut. It means having to sit back as they watch their communities change around them.

 

And in their minds, it means watching as those who prosper seem to play by a different set of rules, while for many life remains a struggle as they get by, but don’t necessarily get on.

And these tensions and differences are increasingly exposed and exploited through the expansion of new technologies and the growth of social media.

 

But if we are to make the case for free markets, free trade and globalisation, as we must, those of us who believe in them must face up to and respond to the concerns people have.

And we must work together to shape new policies and approaches that demonstrate their capacity to deliver for all of the people in our respective countries.

 

I believe this challenge demands a new approach from government. And it requires a new approach from business too.

 

For government, it means not just stepping back and – as the prevailing orthodoxy in many countries has argued for so many years – not just getting out of the way. Not just leaving businesses to get on with the job and assuming that problems will just fix themselves.

 

It means stepping up to a new, active role that backs businesses and ensures more people in all corners of the country share in the benefits of its success.

 

And for business, it means doing even more to spread those benefits to more people. It means playing by the same rules as everyone else when it comes to tax and behaviour, because in the UK trust in business runs at just 35% among those in the lowest income brackets. And it means putting aside short-term considerations and investing in people and communities for the long-term.

 

These are all things that I know the vast majority of businesses do already. Not just by creating jobs, supporting smaller businesses, training and developing people, but also by working to give something back to communities and supporting the next generation.

 

Businesses large and small are the backbone of our economies, and enterprise is the engine of our prosperity. That is why Britain is – and will always be – open for business: open to investment in our companies, infrastructure, universities and entrepreneurs. Open to those who want to buy our goods and services. And open to talent and opportunities, from the arts to technology, finance to manufacturing.

 

But, at the same time as promoting this openness, we must heed the underlying feeling that there are some companies, particularly those with a global reach, who are playing by a different set of rules to ordinary, working people.

 

So it is essential for business to demonstrate leadership. To show that, in this globalised world, everyone is playing by the same rules, and that the benefits of economic success are there for all our citizens.

 

This work is absolutely crucial if we are to maintain public consent for a globalised economy and the businesses that operate within it.

 

That is why I have talked a great deal about our country delivering yet higher standards of corporate governance, to help make the UK the best place to invest of any major economy.

That means several things.

 

It means businesses paying their fair share of tax, recognising their obligations and duties to their employees and supply chains, and trading in the right way;

 

Companies genuinely investing in – and becoming part of – the communities and nations in which they operate, and abiding by the responsibilities that implies;

 

And all of us taking steps towards addressing executive pay and accountability to shareholders.

 

And that is why I welcome the World Economic Forum’s ‘Compact for Responsive and Responsible Leadership’ that businesses are being asked to sign up to at this conference.

 

It is this change – setting clear rules for businesses to operate by, while embracing the liberalism and free trade that enable them to thrive – which will allow us to conserve the ultimate good that is a globalised economy.

 

I have no doubt at all about the vital role business plays – not just in the economic life of a nation, but in society too. But to respond to that sense of anxiety people feel, I believe we – business and government working together – need to do even more to make the case.

 

That is why in Britain, we are developing a new Modern Industrial Strategy. The term ‘industrial strategy’ has fallen into something approaching disrepute in recent years, but I believe such a strategy – that addresses the long-standing and structural weaknesses in our economy – is essential if we are to promote the benefits of free markets and free trade as we wish.

 

Our Strategy is not about propping up failing industries or picking winners, but creating the conditions where winners can emerge and grow. It is about backing those winners all the way to encourage them to invest in the long-term future of Britain.

 

And about delivering jobs and economic growth to every community and corner of the country.

We can’t leave all this to international market forces alone, or just rely on an increase in overall prosperity.

 

Instead, we have to be practical and proactive – in other words, we have to step up and take control – to ensure free trade and globalisation work for everyone.

 

Social reform

 

At the same time, we have embarked on an ambitious agenda of social reform that embraces the same principles. Active, engaged government that steps up and works for everyone.

Because if you are someone who is just managing – just getting by – you don’t need a government that will get out of the way. You need an active government that will step up and champion the things that matter to you.

 

Governments have traditionally been good at identifying – if not always addressing – the problems and challenges faced by the least disadvantaged in our societies.

 

However, the mission I have laid out for the government I lead – to make Britain a country that works for everyone – goes further. It is to build something that I have called the Shared Society – one that doesn’t just value our individual rights but focuses rather more on the responsibilities we have to one another. That respects the bonds that people share – the bonds of family, community, citizenship and strong institutions.

 

And that recognises the obligations we have as citizens – obligations that make our society work.

It is these bonds and obligations that make our society strong and answer our basic human need for definition and identity.

 

And I am absolutely clear that it is the job of government to encourage and nurture the relationships, networks and institutions that provide that definition, and to correct the injustice and unfairness that divides us wherever it is found.

 

Too often today, the responsibilities we have to one another have been forgotten as the cult of individualism has taken hold, and globalisation and the democratisation of communications has encouraged people to look beyond their own communities and immediate networks in the name of joining a broader global community.

 

To say this is not to argue against globalisation – nor the benefits it brings – from modern travel and modern media to new products in our shops and new opportunities for British companies to export their goods to millions of consumers all around the world.

 

But just as we need to act to address the deeply felt sense of economic inequality that has emerged in recent years, so we also need to recognise the way in which a more global and individualistic world can sometimes loosen the ties that bind our society together, leaving some people feeling locked out and left behind.

 

Conclusion

 

I am determined to make sure that centre-ground, mainstream politics can respond to the concerns people have today. I am determined to stand up for free markets, free trade and globalisation, but also to show how these forces can work for everyone.

 

And to do so, I turn to the words of the 18th century philosopher Edmund Burke who said “a state without the means of some change is without the means of its own conservation”.

That great Conservative principle – change in order to conserve – is more important than ever in today’s complex geopolitical environment.

 

And I feel it is of huge relevance to those of us here in Davos this week.

 

And it is the principle that guides me as I lead Britain through this period of change.

 

As we build a new, bold, confident Global Britain and shape a new era of globalisation that genuinely works for all.

 

As we harness the forces of globalisation so that the system works for everyone, and so maintain public support for that system for generations to come.

 

I want that to be the legacy of our time.

 

To use this moment to provide responsive, responsible leadership that will bring the benefits of free trade to every corner of the world; that will lift millions more out of poverty and towards prosperity; and that will deliver security, prosperity and belonging for all of our people.