Radio Free Market

From today’s Open Europe news summary:

ECB lending to banks in Portugal reached €50.2bn in July, its highest level for seven months. Bloomberg WSJ Reuters Irish Independent

As explained by Professor Philip Bagus in this essay, the European Central Bank supports profligate countries via its START2 program, whereby deficit banks never really do settle accounts.  Whereas EU treaties prohibit the ECB from buying sovereign debt, the ECB bypasses this restriction by “lending” euros to still extant national central banks, taking sovereign debt as collateral.   Thus, treaties mean nothing…put your faith in gold.  Patrick Barron

Re: BIS blames Europe’s creditors for eternal euro crisis

AS usual, the same, tired, myopic monetary bureaucrats fail to dig deeper into the cause of the euro debt crisis, blaming banks for accommodating subprime debtors.  But why would they do that en masse?  The real cause is the monetary regime of fiat money controlled in various ways by governments.  Central bankers create all the fiat money that politicians desire for their short term, feel good, bubble programs.  The money thus created is legal tender, meaning that it is ubiquitous with previously create money and can be used to finance government borrowing and pie-in-the-sky investments that will never turn a profit and must be liquidated eventually due to lack of real resources in the real economy.

We need monetary freedom, not more searches for monetary criminals.  Get governments out of money production via central banks, and return money to the free market, where good money will drive out bad and boom/bust cycles will end.

Patrick Barron

Dear Sirs:
Ms. Mariana Mazzucato’s book The Entrepreneurial State: Debunking Public vs Private Sector Myths is hardly the “brilliant exploration of new ideas in business” and that “government is behind the boldest risks and biggest breakthroughs”, as Martin Wolf writes in his patronizing review on August 5th.  Ms. Mazzucato makes at least four logical errors.  Number one, the most egregious, is that she picks successful projects, finds that the public invested at some point, and then draws her supposedly brilliant conclusion of public sector innovation.  But what about all the failures?  Let me name just a few–the fast breeder reactor, the supersonic transport, the all-electric car, wind power, and solar power.  Number two, there is hardly any research anymore that one cannot find some investment by the government.  Gosh, we should expect a success or two along the way, shouldn’t we?  Number three, she assumes that some innovations would never have emerged absent government investment.  This is simply a statement with no possibility of proof.  And perhaps we would have been better off without some of government’s supposedly successful investments.  For example, what did we really gain from our massive investment in landing a man on the moon?  (And please do not attempt to tell me of all the wonderful spinoffs from that exciting boondoggle.  I’ve looked them up and they are very pedestrian indeed.)  Number four, she ignores what Frederic Bastiat explained over a century and half ago in his great essay That Which Is Seen, and That Which Is Not Seen, .  Since resources are limited and all spending involves a choice, government spending preempts some other choice.  We do not “see” all the things that never were, due to the fact that government spent our money for us on something else.  We do not see all those things that individuals would have chosen to increase their well-being, such as better housing, schooling, clothing, and health care for their families.  Instead we see billions upon billions wasted on government boondoggles too numerous to list.  As a parting shot, if those government bureaucrats are such great entrepreneurs, what are they doing pulling down a salary in public service when they could be fabulously wealthy bringing us the next big breakthrough?  Patrick Barron

About ten years ago my wife, son, and I stayed for one night with acquaintances in a small town in Queensland, Australia.  They lived on a small property and kept a donkey.  They had built a small earthen dam to trap rainwater for the donkey and watering their garden.  Periodically a tax inspector would drop by, measure the potential volume of water that could be stored behind the small dam, and then send a tax bill for the potential water that they captured.  They were not allowed to bore a well on their property to access the water table below.  A neighbor did get permission for such a well, so my friend was going to run a pipe quite a long way to his neighbor’s well and buy water.  At the time there was even talk that the government would tax rainwater that fell on the metal roofs and was captured in large metal tanks that are seen everywhere in Australia.

This madness that even the rainwater that falls on your land must be taxed is little different, in my view, from the madness of the Spanish taxing sunlight.

Here is a report that I found discussing the earthen dam tax.

Patrick Barron

Housing Prices Jump, But Headwinds Build

This Wall Street Journal article is typical of many in that it celebrates the rise in home prices.  Yet no one is happy if other costs of living increase, such as food, energy, clothing, autos, and education.  But everyone seems to want the cost of housing to increase, which hurts low income and first time home buyers.  If you already own a home and its value increases, you just have to pay higher property taxes, higher home insurance premiums, and higher maintenance costs.  And if you move, the cost of your new home will be higher, wiping out any supposed “profits”.  Considering your home an investment makes no sense.  It is occupancy expense, and we should celebrate when its costs drop, just like any other cost of living.  Patrick Barron

I have received more personal emails regarding my earlier essay Declare Detroit a Free City than all my other essays put together. Some have been especially poignant.  For example, one lady said that she and her husband, who has been unemployed for two years from a company for which he worked for twenty-five years, would move to a Free Detroit themselves, confident that her husband could find work.  I pointed out to her that Ludwig von Mises explained that the only real barrier to economic expansion was the limited supply of labor, which puts a practical limit to the expansion of the division of labor.  In other words, the larger the pool of labor, the more specialized is the economy, which results in lower costs of production.

No Unwilling Unemployment in a Free Market

By himself an individual cannot exist much above basic survival, if he can even do that.  However, larger groups who engage in peaceful cooperation develop a division of labor which allows each individual to specialize according to his comparative advantage, accumulate capital, and provide everyone else in the group with goods and services that would be impossible for them to produce in a hermit’s existence.  Given the fact of an unlimited desire to improve our condition that is limited only by the size of the labor pool, Mises explained that under free market capitalism there is no unwilling unemployment.  There is always more work to be done than there are people to it.  Therefore, the first step to freeing Detroit from its downward economic spiral is to remove whatever barriers exist that prevent people from working.

Step One–Free the Market for Labor

The greatest of these barriers to work are the myriad and complex laws that interfere in the ability for labor and capital to arrive at mutually agreeable terms of employment.  Minimum wage laws should be the first to go, but also the many costly labor regulations that business must consider when hiring.  Government has been piling on costly mandatory benefits, whether these benefits would be valued by the employee in a free labor market or not.   Again, Mises explained that business must take into account the total cost of labor, not just the wage cost.  If business must pay for other benefits, then that cost must be added to the explicit wage cost to arrive at the real, total cost of labor.

Protecting the All Important First Rung of the Ladder

Minimum wage laws and onerous regulation raise–or eliminate altogether–that critical first rung on the employment ladder for many workers, preventing them from gaining that all important first step on the road to independence and self-reliance.  The entry level employees and younger workers, those who have less marketable skills and whom labor laws are supposed to benefit, are the ones who are harmed the most by labor laws.  These workers are locked out of the labor market by the inexorable laws of economic reality.  If their skills provide business with less revenue than their total costs of employment, no business can employ them for long without running out of capital.  Hence, they never get on the ladder at all.  This is a tragedy not only for them but for all of us, too.

Dismantling the Ladder: Cooperative Relations Under Constant Attack

Our lawmakers seem to live in an alternative world where they believe that wages may be mandated ever upward with no adverse economic consequences.  In this tragic world–where unfortunately WE live–they are doing everything possible to stop new entrants from entering the labor force and gaining the skills that businesses would be willing to give them.  Currently there even is a movement afoot to outlaw the practice of “employing” interns.  Internships are one way for workers with low marginal productivity to gain skills and contacts in the careers of their choice.  Typically, an intern works either for free or perhaps for room, board, and a small stipend.  Hypocritically, Congress itself “employs” many interns.  My son was an unpaid intern for our congressman for two summers while in college.  Needless to say his eyes were opened to the ways of the world, which have served him well as an attorney.

The most egregious attempt at interference in what has always been a free labor market occurred recently in the great farm state of Iowa.  The U.S. Department of Labor, with assistance from the U.S. Department of Agriculture, attempted, unsuccessfully, to bring the children of farm families under their regulatory umbrella!  The rest of us benefited immensely when Iowa’s farm families said NO!.  Not only was this an intrusion into the hearths and homes of some of the most hard working and independently reliant people in America, it would have created a precedence for even more intrusions into American families’ everyday lives.  Tell junior to take out the garbage and mow the grass?  Make sure you pay minimum wage, buy workers’ comp insurance, and file that W-2 at the end of the year!  (Don’t think that this could not have happened!)

Detroit Could Become a New Beacon of Freedom

What might ordinary people achieve if all barriers to the free use of their labor were removed?  Might they not be inspired to move to such a place, set up shop, take on interns, establish apprenticeships, and produce the goods and services that all of us need and cannot produce for ourselves?  They would be following in the footsteps of all those who crossed an ocean to do just that, seeking only the opportunity to live and work freely.  Detroit could become the new beacon of freedom and liberty for the oppressed people of America, like the lady who told me that she and her husband would move to a Free Detroit.  She and her husband would follow in the honorable tradition of our pilgrim ancestors and all who came here later seeking only freedom.  Let us establish such a place, a haven free of the oppressive hand of the parasitic state.  And let us establish it in the most dysfunction real estate in America–the bankrupt city of Detroit.  All that our oppressors have to fear is our success.

We who advocate the free market as the sure path to peace and prosperity and decry the seeming never ending interventions of government often hear the response that the US economy has to get much, much worse before any real reforms will be allowed to cure it.  When I ask why we must wait for the deluge before taking serious action to throttle back parasitic government, I usually hear a weak response that America always waits until the last minute when no one will be able to deny that government is the problem and not the answer.  Then even died-in-the-wool socialists will give the free market a chance.  Well, what if we get the deluge but, along with the deluge, we get even more government and not less?  Would not a people be so shocked at their economic plight that they would readily accept what can only be called a fascist economic order?  Given a choice, I for one prefer not to wait for such an eventuality.  I would rather have an American test case to illustrate that radically less government leads to peace and prosperity.

Detroit as a test case for economic freedom

The decades’ growing tragedy of a now bankrupt Detroit provides a unique opportunity to test our fundamental principles.  What if Detroit became a free city in which government provided for public safety, honest courts, protection of property rights, and little else?  Might not unabated free enterprise take hold as it always has in America?

Detroit is bankrupt, and its problems appear to be unsolvable.  Its population peaked in 1950 at 1,850,000 only to fall to 706,000 in 2011, surely representative of people voting with their feet.  As British politician Daniel Hannan has written, the Detroit disease may be well advanced in the rest of American cities and perhaps in all of America as well.  Before the disease can kill the rest of America we have the opportunity to give free market reforms a chance in a fairly controlled setting–the bankrupt and dysfunctional city of Detroit.

All that Detroit really needs is economic freedom and secure property rights.  Give Detroit its freedom from all manner of government, including the federal government.  Declare Detroit a free city.  (You can rest assured, Detroit, that America will come to your rescue if those bloodthirsty Canadians attack!)  In other words, no one would pay any federal taxes whatsoever or be subject to any federal regulations whatsoever.  Wouldn’t it be nice not to pay federal taxes, not even Social Security and Medicare taxes?  Do the same with Michigan taxes.  No taxes BUT also no federal or state aid either.

A Free Detroit would have absolutely no labor and workplace regulations, including minimum wages, mandatory insurance, equal opportunity rules, occupational safety rules, etc.  People would be allowed to work together cooperatively for whatever terms their marginal productivity of labor will secure.

End all red tape that thwarts business startups and hobbles its expansion, such as licensing, public health regulations and inspections, zoning restrictions, etc.  Do not be concerned that people may be employed in low wage, dangerous jobs against their will.  The reality is that business owners must recruit workers and not dragoon them and chain them to their workplaces.  Nor are business owners interested in harming either their workers or their customers.  If they do, normal civil and commercial law will suffice.

Privatize all government services, such as garbage pickup, water and sewage services, and allow for unbridled competition in these and other areas, even fire protection. Sell off city property (who needs offices that are empty of government bureaucrats anyway?) and deed public housing to its current occupants, making them responsible for their own abodes. You may be surprised how responsible people can be with their own property.  End public education and all its costs.  Allow the people to get the kind of education that they desire, whatever that may be.  Since half the current population of Detroit is functionally illiterate, what’s the risk?

Do you want a safe society? Then let people arm themselves without any licensing requirements.  Since it takes Detroit police approximately an hour to answer a typical 911 call, this is simply a practical solution to the basic human right of self defense.  Above all end welfare.  The destructive cycle of dependency is driving American cities to the financial and cultural wall.

Do not expect overnight success, but who knows?  A free market always surprises us with new innovations.  At first one can expect lots of mom and pop startups, sidewalk vendors, unlicensed and untaxed services such simple property repair, home schools, private taxis, etc.  But if Nike and other American businesses are enticed by lower costs and fewer regulatory burdens to outsource their manufacturing operations overseas, why would they not take a good look at a Free Detroit?  Expect to be amazed.

Allow Detroit to become a safe, cooperative city that represents the best that America can be.  Economic freedom will ensure the rebirth of Detroit.  This city can become the beacon of true prosperity to the rest of America and to the world.  Patrick Barron

Re: Change of Heart Over Detroit

I’m sure that you have heard, as have I, people saying that the US economy has to get much, much worse before any real reforms will be allowed to cure it.  Well, we have before us the opportunity to give reforms a chance in a fairly controlled setting–the city of Detroit.  The problems of Detroit seem unsolvable, but all Detroit really needs is economic freedom.  Reduce local government to its primary function of providing public safety and honest courts only.  Leave the rest to the free market.  End all labor and workplace regulations, including minimum wages, mandatory insurance, equal opportunity rules, etc.  In other words, allow people to work together cooperatively.  End all red tape that thwarts business startups, such as licensing and public health regulations, zoning restrictions, etc.  You may be surprised to learn that business owners are not interested in harming their workers and customers!  If they do, then the normal civil and commercial law will suffice.  Privatize garbage pickup, water and sewage services, and allow for unbridled competition in these and other areas, even fire protection.  Sell off city property and give public housing to its current occupants, making them responsible for their own abodes.  You will be surprised how responsible people can be with their own property.  End public education and all its costs.  Allow the people to get the kind of education that they desire, whatever that may be.  Do you want a safe society?  Then let people arm themselves without any licensing requirements.  An armed society is a safe and polite society.  Above all end welfare.  End the destructive cycle of dependency that is driving American cities to the financial and cultural wall.  Don’t expect overnight success and don’t expect huge capital inflows.  But expect lots of mom and pop startups, sidewalk vendors, unlicensed and untaxed services such simple property repair, home schools, etc.   Allow Detroit to become a safe, cooperative, and, most importantly, a low-cost city.

Patrick Barron

Re: Eco   Blowback: Mutiny in the land of wind turbines.

A thorough and   interesting report on Germany’s headlong rush to phase out nuclear power and replace it with wind power.

When free market capitalism no longer governs investment, economic calculation becomes impossible and capital is squandered.  Germany is squandering capital in two forms–it is scrapping the huge capital investment in nuclear power (along with the human capital that is required to produce and maintain nuclear power) while it dumps new capital down the rat hole of wind power.  In the end Germany will find that its productive base is much less competitive worldwide, due to the high cost of energy.

On a recent trip to Britain and France, I saw many wind turbines.  About one in ten would actually be turning.  Patrick Barron