Radio Free Market

Re: Now you can sue over flight delays in Europe

This is just another governmental intervention that fails to consider the unintended consequences of fining airlines for flight delays.  Now there will be an additional incentive to fly aircraft that have mechanical problems or push pilots to fly beyond crew rest requirements.  When money is on the line, not only for the airline but for the crew also, the grey areas will be decided in favor of taking the bird into the skies.  The market is sufficient to weed out inefficient air carriers.

My comment on this Open Europe blog:

Patrick Barron said…

The French charge the British with the crime of desiring a larger free market  but one without additional rules and obligations. If this is the charge, then  there truly is a fundamental difference of opinion. Why does trading freely with  more people in more countries require that the traders bail one another out of  financial jams? As an American I desire to trade freely with my neighbor Mexico,  for example, but I feel no obligation to bail Mexico out of its financial  messes. This strikes at the heart of the matter. The UK can achieve everything  it desires by leaving the EU and declaring itself a free trade nation. That  means that the UK would NOT require reciprocal free trade agreements in order to  allow goods from other countries to be brought into Britain duty free.

Re: Fed Risks Losses from Bonds

Dear Ms. Mcgrane and Mr. Hilsenrath,
With all due respect, you really don’t understand that the current so-called Fed profit from bonds is just funny money anyway.   The Fed buys a government bond and places it in its portfolio.   The interest that it gets is well in excess of its rather modest operating expenses, so it sends the so-called profits back to the Treasury.  But where did the Treasury get the money to pay the interest?  From the Fed itself through monetizing even more government debt!  So the Fed creates the money out of thin air that it calls profits and remits to the Treasury.  Nice work, if you can get it, I suppose….

Patrick Barron

Dear Sirs:
Your article on the rise of Representative Eric Cantor states that he embodies the Republican Party’s proposed “softer track” to gain electoral support.  This raises the question of why it appears that a party cannot succeed with the electorate by stating the obvious fact that federal government spending is out of control and must be reduced.  The answer appears on the same day in this article about the Fed’s asset buying program.  The Fed has made it clear that it can and will create $85 billion of new base money per month until unemployment falls below its desired benchmark.  No one asks where the Fed will get this money, because everyone knows that the Fed can create unlimited amounts out of thin air.  Since the electorate believes that Fed asset buying proves that there is no barrier to government spending, why should it vote for a party that will limit spending in any way?  But we Austrian economists warn that the laws of economic science have not been suspended.  New money cannot escape the law of diminishing marginal utility; i.e., new money causes the purchasing power of existing money to fall.  Another word for this process is “theft”.  Patrick Barron

Re: Bill Gates on the Importance of Good Measurement

Dear Sirs:
The most important measurement device for all members of society is that provided by its money.  Money is involved in at least one half of every financial transaction; sometime it is involved in both halves, as in insurance contracts.  But what happens when the value of money is debauched?  When governments and central banks print money, they invoke the law of diminishing marginal utility, making all money currently extant in the market worth less.  But how much less?  And what can we do about it, when money is fungible?  This is a worldwide crime.  Patrick Barron

Bundesbank President
Jens Weidmann

Re: Bundesbank Head Cautions Japan

Bundesbank President Jens Weidmann’s criticism of Japanese politicians’ meddling in central bank affairs can be seen as a veiled criticism of ECB policy.  Weidmann warns against exchange rate wars, whereby central bankers worldwide engage in a destructive race to drive their currencies’ exchange values lower than everyone else, in the fallacious theory that doing so will spur an exports driven economic recovery.  This places sound monetary theory on its head and makes central bankers no better than counterfeiters.  Who would believe that a counterfeiter’s printing press would spur REAL economic output and make ALL members of society better off?  Counterfeiters cause wealth to be transferred internally to the early receivers of the newly printed money at the expense of later receivers.  In other words, each nation’s citizens pay the entire cost of making exports cheaper; the foreign importer gains at the expense of the exporting nation’s common citizens.  Patrick Barron

Re: Goldman Bonuses Won’t Be Timed to Ease a Tax

Dear Sirs:
So Bank of England’s Mervyn King finds it “a bit depressing that people who earn so much seem to think that it’s even more exciting to adjust the timing of it.”  Really?  He’s being disingenuous, of course.  Like every other parasite supported by confiscation of legitimately owned wealth, he just wants more of your money and he wants it now.  And it’s not enough that he wants more of your future earnings; he wants you to apply higher taxes in the future to your past earnings–a self-imposed ex post facto tax.  I wonder if he took his own advice and made a voluntary payment to the British Treasury in 2012?  Silly question, I know.  Patrick Barron

Re: China Again Is Growing, More Slowly Than in Past

Dear Sirs: Your recent report that China’s economy is growing, but more slowly than in the past, contained this shocking statement:

“China is awash in cash, since the government has expanded the broadly measured money supply over the past five years much more rapidly than the United States, even though the Federal Reserve’s moves have attracted considerably more international attention. China’s money supply is now larger than that of the United States, even though China’s economy is half as large.”

China’s slow growth despite greater injection of monetary stimulus is a warning sign that its growth is a transitory bubble about to burst.  Austrian economic theory explains that monetary stimulus will indeed cause a temporary expansion of GDP but that monetary expansion must accelerate to prevent a bust.  There is no preventing the bursting of the bubble once the monetary expansion has begun.  The earlier the monetary expansion stops the less damage to the real economy.  Trying to prevent the bursting of the bubble, which appears to be China’s policy, would require greater and greater monetary injections until the monetary system crashes per Germany in 1923 and Zimbabwe in more recent times.

Patrick Barron

Re: Clouds Seen in Regulators’ Crystal Ball for Banks

Dear Sirs:
Modeling of bank credit risk based upon empirical analysis of past events is an inappropriate tool for predicting future bank crises.  Austrian business cycle theory, which requires no such empirical analysis, explains that once the central bank expands bank credit by driving the interest rate below its natural level, the subsequent boom must be followed by a bust.  Empirically based “Agent-based modeling”, which assumes that a “shock on a vulnerability of the financial system” is the root cause of the crisis, ignores this more fundamental cause.  Even if regulators were successful in earlier identification of excessive leverage in a particular segment of the market, the damage has been done.  Shutting off credit to one market segment will merely cause the excessive credit to flow to other market segments.  The resulting continuous series of smaller, sector specific crises would be no better than a general crisis that occurs less often.  If regulators wish to prevent a bust, they should tell the central bank to refrain from initiating the boom.

Patrick Barron