Friday, March 6, 2015

My letter to the NY Times re: Japan's Solar Mandates Lack Free Market Coordinating Function

Re: Japan's Growth in Solar Power Falters as Utilities Balk

Dear Sirs:
One of the prime reasons for the failure of Japan's solar power initiatives is the government's ignorance of the coordinating function of the the free market. The article lays the proximate cause of its huge untapped solar power generation capacity in the paucity of the appropriate infrastructure to bring the power to its users. This is similar to the experience time after time in the Soviet Union. For example, bumper wheat crops rotted in the fields due to the lack of transport and storage facilities. Government bureaucracy is no substitute for the millions of subtle free market coordinating processes that bring the most mundane goods and services to our doorsteps at just the right time in just the right amounts and at affordable prices.

Wednesday, March 4, 2015

My letter to the NY Times re: Keynesian macro economists are confused

Re: Saving Big on Energy Bills, People Take It to the Bank, by Nelson D. Schwartz

Dear Sirs:
Keynesian school macro economists may be scratching their heads that the spending numbers that they hold so dear are not increasing, but we Austrian school economists have a deeper understanding of the issue. First of all, it is foolish to try to psychoanalyze market participants as if they were automatons responding in predictable ways to incentives. Mr. Schwartz does recognize that viewing consumers in this way results in many diverse explanations. He hits on the better answer at the end of his article when he recognizes that increased purchasing power has helped the higher-income workers. The same can apply to those at all levels of income. But increases in purchasing power do not come from arbitrary decisions to increase wages, as Mr. Schwartz's example of Walmart and TJX Companies suggest. Increases in purchasing power can come only from increases in worker productivity. That can come from capital investment, better management practices, and other improvements in business methods. Sound money is one key ingredient, too, perhaps the most important ingredient. Under a sound money regime, worker productivity and worker purchasing power can improve without a rise in wages, because prices will fall. And if workers save more, then all the better for our collective future, which depends upon increases in real capital accumulation from real savings and not just monetary pumping via ZIRP and QE from the Fed. Therefore, the fact that the savings rate is the highest in two years is a good sign that only confused Keynesians could rue.

Thursday, February 26, 2015

The futility of bank regulation in a repressed monetary regime

I have admired the writing of Mr. Snider for some time now. His latest missive is long and detailed, but I was impressed by this passage:
"There is no way to practically regulate “risk” under the conditions of repression."
This insight is similar to number myth number five in my essay Six Myths of Money and Inflation, to wit:
Myth 5: More, better, and more vigorously enforced regulations can prevent loan and investment losses.
The purpose of monetary intervention is to fool entrepreneurs and their bankers into beginning projects that would not be seen as profitable in a sound money environment. Losses are inevitable.

Monday, February 23, 2015

The Greek deal won't solve anything

Since the Greek deal contains absolutely zero pro-market reforms, it won't fix anything. Raising taxes, cutting down on tax evasion and smuggling, even if successful in raising tax revenue, simply entrench government at its current and possibly higher level. The Greek people need economic freedom, not more government jobs and increased welfare. There are four main pillars to economic recovery--cut government spending, cut government regulations, cut taxes, and institute sound money. These reforms will increase private purchasing power and build capital, yet none are being discussed. The entire emphasis is on how to squeeze the Greeks enough so that the government can repay its sovereign debt. I have advice for the other members of the EU--Greece cannot repay its loans, and it is foolish to try to collect. Write them off. End the fallacious idea that sovereign countries can guarantee one another's debts. This institutionalizes moral hazard and leads to a tragedy of the commons. If you must keep the EU, return it to the vision of its founders as an association of sovereign countries dedicated to the free exchange of goods, services, capital, and people. Abolish the European Central Bank and reinstate sovereign currencies. Better yet, eliminate legal tender laws and allow each country to use whatever currency its citizens choose. My bet is that in relatively short order the entire continent outside the UK will become a Deutsche Mark zone.

From today's Open Europe news summary:

Greece readies list of reforms for Eurozone following late night deal on Friday

Late on Friday night Greece reached a deal with its Eurozone partners to extend its current financial assistance agreement by four months. As part of the deal Greece will today send a list of reform proposals to the Eurogroup which will need to be “sufficiently comprehensive to be a valid starting point for a successful conclusion of the [final bailout] review”, once this is approved then the deal will be confirmed. Eurozone finance ministers will hold a call tomorrow.
The list is expected to focus on structural reforms in areas such as tax evasion, corruption and public administration. Bild reports that the package will be worth up to €7bn – €1.5bn each from raising taxes on wealthy Greeks and cutting tax evasion, as well as a further €2.3bn from cracking down on fuel and cigarette smuggling.
Speaking over the weekend, Greek Prime Minister Alexis Tsipras said, “We won a battle, but not the war. The difficulties lie ahead of us,” adding that the deal marked the start of “leaving austerity, the bailouts and the Troika behind.”
However, SYRIZA MEP Manolis Glezos said in an open letter on his blog, “By renaming the troika ‘the institutions’, the memorandum as ‘agreement’ and the lenders as ‘partners’…you do not change the previous situation.” He also apologised to voters for being complicit in SYRIZA’s approach. However, on Sunday Greek daily To Vima declared the deal an “honourable compromise”.
German Finance Minister Wolfgang Schäuble said, “Being in government is a date with reality, and reality is often not as nice as a dream,” adding, “The Greeks certainly will have a difficult time to explain the deal to their voters.”
Irish Finance Minister Michael Noonan said in an interview with RTE that the biggest risk was that Greek banks would have gone “belly up” on Wednesday, adding that the deal mainly “ensures Greece doesn’t collapse next week” and there will be more negotiations on what is “effectively” a third programme for Greece. Open Europe’s analysis of the Greek negotiations drew widespread coverage, see below for more details.

Sunday, February 22, 2015

My letter to the NY Times re: Why the Fed is perplexed about interest rates

Re: Fed Appears to Hesitate on Raising Interest Rates

Dear Sirs:
Austrian School economists are not at all perplexed about what to do with interest rates, because our understanding of economics and especially monetary policy is superior to that of the Keynesian School economists, who rule not only the Fed but all the central banks of the world. We understand that money is a medium of exchange and that interest rates are the result of the interplay of supply and demand for loanable funds. Demand for funds is determined by the expected profit to be realized by the various stages of the structure of production. The supply of loanable funds is determined by the desire of the public to consume in the present vs. save for the future, what we Austrians call time preference. An honest interest rate guides entrepreneurs as to the availability of real resources for the likely successful completion of their projects. The Keynesians at the Fed believe that they can put the cart before the horse; i.e., arbitrarily set an interest rate that will direct capital to a sustainable structure of production. No, it's the other way around! Furthermore, given the Fed's underlying confusion about such basic principles, it is not surprising that no matter how it believes the economy is doing, it will keep interest rates low at all times. Either it sees the economy as weak and needing lower interest rates, or it sees the economy as doing well with low interest rates and fears the result of raising them. It is especially maddening to see the Fed denigrating falling prices and expanding the money supply in an attempt to drive prices higher. Not only is the Fed's policy contrary to the best interests of the people, for whom lower prices mean a higher standard of living, but such a policy is the path to runaway inflation in the future.

Saturday, February 21, 2015

"Gold is a noble metal..."

Re: Gold coins, at bottom of sea for millennium, go on display

A wonderful little report about a recent discovery of gold coins off the coast of Israel, which confirms why gold is the premier store of value since time immemorial.

Sunday, February 15, 2015

My letter to the Philadelphia Inquirer re: Will a new bomber bring prosperity?

Dear Sirs:
Ignore for the moment whether or not the US actually needs a new stealth bomber, which is a very complicated and difficult question of how best to protect our country, and understand that building one will NOT create prosperity. Military spending consumes capital, which is the product of private savings. But whereas most private savings go into building the capital stock of the nation in order to provide more goods later, military spending is pure consumption in the present. Oh, the people who build the bomber may find themselves flush, but their temporary prosperity comes at the cost of the rest of the nation both present and future.