Fixing the Euro

Everybody knows what’s wrong with Euro. It’s not even worth posting a link. Okay, here’s one link to FT. Everybody knows what’s wrong with the Euro, and how to fix it. The problem is that the fix is totally unrealistic. Here, we look outside the box for a different solution.

The problem with the Euro is that a common monetary policy does not suit all participants. France could use looser money as stimulus and to monetize some debt. Germany and the northern countries have much less debt and lower bond yields. They don’t need their currency devalued.

Common monetary policy only works if the participants have similar fiscal policy. This is why the Maastricht treaty set limits (which were ignored) on national debt and deficits. France is a deficit country, with debt at 94% of GDP. Germany, at 78%, is a fiscal discipline country.

The popular solution is “ever closer union,” which means taking fiscal policy away from the nation states, with the European Parliament setting the budget for all. There would even be a Europe tax, levied over the heads of national governments, to pay interest on Euro bonds.

This is a swell idea, if you’re the kind of person who prefers giant federal governments to quaint national ones. Unfortunately, about 500 million people suspect an undemocratic plot to disenfranchise them and abridge their national identity.

Furthermore, everyone knew in 1992 that the Euro would not hold together unless the nation states surrendered to European fiscal authority. One could even say that the common currency was a Trojan horse for “ever closer union,” lying in wait for a crisis like 2008.

I am sure the euro will oblige us to introduce a new set of economic policy instruments. It is politically impossible to propose that now. But some day there will be a crisis and new instruments will be created – Romano Prodi

So, we wondered why the revolutionary governments of Virginia, Georgia, et al., would surrender their monetary independence to the new federal government of the United States in 1787. Surely, the democratic impulse was at least as strong in early America as in modern Europe.

Indeed, the currency trap has operated in America exactly as it is operating in Europe, with the states subordinated to federal policy. It took almost two hundred years, though, for monetary policy to be invented.

This brings us to our iconoclastic solution for the Euro. Peg it to gold, or – since gold is a barbarous relic – palladium. Instead of a Euro budget to mesh with monetary policy, take the power entirely out of federal hands. Think of the management effort that would be saved.

No one could whine about fiscal discipline dictated by Germany. Once the peg were set, discipline would come from the bond market. National leaders would have full responsibility for their own budgets, and no excuses.

See also: Why EU superstate conspiracy theories are nonsense

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Bogus Capitalism

HappyBankerThe expression “crony capitalism” is misleading. Capitalism is all about competition, which drives innovation and keeps prices low. Cronyism means using government connections to stifle competition. This leads to confusion on both sides of the aisle.

Republicans believe uncritically in helping business, which often means protecting entrenched companies from the rigors of competition. Democrats generally want more power to regulate companies, which only produces more opportunities for rent seeking.

The result is a vicious cycle, in which big government abets monopolistic companies. Here are a few of the cases we’ve looked at recently:

Here is how the cycle works. Someone says capitalism isn’t working – we need to step in and regulate, bail them out, form a new agency, or whatever. Connected companies then soak up the bailout money and capture the regulator – at the expense of taxpayers, consumers, et al.

This drives our economy farther down its thirty year death spiral, and soon someone observes that capitalism isn’t working, again. Wash, rinse, repeat.

Jeremiah’s reaction to “capitalism isn’t working,” is incredulity. Capitalism? Where?

See also: You Say You Want a Revolution

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The Cost of Water

WaterBarrelHere is another sad story about the drought in California. It’s an even better example of catastrophe theory than Nassim Taleb killing chickens. The water table can fall steadily for one hundred years, until one day it falls below your well shaft and then suddenly you are out of water. The goal of good policy, of course, is to see the catastrophe coming and avoid it.

On the other side of the country, Detroit has no running water because the city is bankrupt, can’t pay its bills, and has already mortgaged the water works. Detroit, by the way, lies on a strait between two huge freshwater lakes.

I think water is a right. However, if all of our customers took that stand — that it’s a human right and we’re not going to pay — then no one would have water.

The UN says that water should be free, because it’s essential to life. That’s only true if you have a rain barrel on the roof. City water entails plant and equipment, and workers who must be paid. What the UN means is that, if you live in a “rich” country, someone else can be taxed to provide you with free water. If you live in a poor country – the UN will hunt up a rich country to pay for your water.

No one questions the morality of using tax coercion to make something “free” which is obviously not free. It’s essential for life, after all. Jeremiah doesn’t question the morality. He questions the arithmetic.

Should water be free for people to grow lettuce in the California desert – and then sell it for three dollars a head? To Jeremiah, this sounds like an arbitrage opportunity. You take water as a factor cost of zero, and then convert it to something you can sell at a profit. Why grow almonds when you can grow broccoli? Water is free!

Should water be free to irrigate lawns and golf courses? How about pumping millions of gallons into shale strata, instead of hydraulic fluid? Hell, hydraulic fluid is $20 per gallon – and water is free. Maybe, since water is a “human right,” we could pump it from the Detroit River to go frack the Permian Basin. It’s too bad for cold and thirsty Detroit that natural gas isn’t also a human right.

Fortunately, no one takes the UN seriously on this. All municipalities charge something for household water, enough to cover their costs, and generally they charge more for higher volumes.   If anything, water charges need to be higher – and ramp steeply for commercial use. Even among ordinary bankrupt Detroiters, providing water for free is an invitation to waste it.

See also: Cost of water from desalination

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Rule of Law

RuleOfLaw2014Remember that bit where Jon Stewart makes fun of Uruguay? Shown here is the latest Rule of Law ranking from the World Justice Project. Once again, Uruguay comes in just below America. They should be ashamed, although – their government is not quite as corrupt as ours.

Rule of Law does not mean a Congress full of lawyers churning out bespoke laws – or, worse, federal agencies writing arbitrary regulations. What it means is that everyone is treated equally by the law, everyone understands the law, and laws are reasonably stable over time.

Law experts say that average citizens routinely break federal law without any knowledge they are committing a crime.

Apart from the obvious impact on personal freedom, Rule of Law – or lack of it – has profound implications for our economy. Companies, especially foreign ones, will not hire if they face a shifting and arbitrary environment.

If the actions of the state are to be predictable, they must be determined by rules fixed independently of the circumstances – F.A. Hayek

Corruption figures prominently in the WJP report. When a big company can rent a government agency, as Comcast did here, that distorts the whole idea of capitalism.

This particular distortion of capitalism leads to secular stagnation. Big, obsolete companies use the government to protect their positions in the market, at the expense of new companies and new jobs. Below is the BLS chart of jobs created by startups.


The Rule of Law survey ranks America twentieth out of thirty in our income class – and lower on corruption. This means that a new employer entering from abroad, or a new startup company, will think twice about “country risk” before hiring here.

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Piling On

Janay_RicePity Janay Rice, wife of ex-footballer Ray Rice. Not only is she in an abusive relationship, but now her husband – formerly worth millions – is unemployed. Public outrage is natural enough, but it is counterproductive. An NFL wife, like any other wife in this situation, should have the option to call the police, get a TRO, etc. – without the prospect of losing a fortune.

When you see the video of this guy punching his wife, it’s natural to think – that SOB should go to jail, and he should lose his lucrative contract. No, wait. He should lose his job, never work again – and his boss should lose his job, too. Let’s crack down on the whole league, and have a zero tolerance policy.

It’s natural enough, but it’s bad policy because it will discourage other NFL wives from seeking help. A confidential outreach program, maybe with court supervision, would be more useful. The focus on punishment, sadly, reflects our spiteful attitude toward – well, everybody, from drug addicts to rich people.

We were shocked and disgusted by the images we saw this week of one of your players violently assaulting his wife – Congress’ letter to NFL commissioner Goodell, emphasis added

Furthermore, holding the NFL responsible for its players’ conduct says something about how we view the league. Athletes should face the same justice as the rest of us – no more and no less. Rice’s case belongs in the courts. It’s not up to his employer to sanction his behavior off the field.

Suppose your doctor is found beating his wife. Are they going to take away his doctor’s license? Will the head of the AMA have to step down? What makes the doctor different from the footballer? Surely doctors –and congressmen – should be held to a higher standard than athletes.

Unspoken in the public’s cry for retribution is the idea that footballers are dumb thugs whom the league must babysit, as the coach babysat them in college ball, and in high school. They are gladiators owned by the league, which must take responsibility for them. Since the gladiators are mostly black, and the owners are white, there may also be a racial element.

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Cable Company Thievery

Bad_DingoJohn Oliver has the last word on net neutrality, which is a clear example of our government for sale to the highest bidder. Net neutrality, in brief, means that when you pay your cable company for internet access, the price includes whatever content you care to download – even if that is Netflix, which competes with content offerings from the cable company.

Verizon alone spent $100 million to lobby Congress on net neutrality since 2009

The cable companies would prefer to charge you extra for Netflix, or charge Netflix directly – and YouTube and Hulu – which amounts to the same thing. Because the cable companies are a monopoly (technically, a cartel) you are already paying more than most viewers elsewhere on the planet. Watch Mr. Oliver for the details. He’s entertaining and informative.

Obviously, weakening net neutrality would strengthen the cartel – and raise prices, reduce quality, stifle innovation, and block new entrants. The cable companies have no argument for their position except vague promises about using the extra money to build more bandwidth – something they would have to do anyway, if there were competition.

The cartel does not claim to be safer, greener, help the poor, or protect free speech. The only argument they have is the millions they have spent buying influence in Washington. That is why, in interviews, their answers are muddled, arrogant, and condescending. They are not talking to you. They are talking to Washington – and money talks.

See also: Washington Skills

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Planning for War

Jeremiah is neither anti-war, as here, nor pro-war. A centrist is concerned with finding the correct policy for the situation. At the risk of sounding remedial, correct war policy means:

  • Identify a compelling mission
  • Match the strategy to the mission
  • Plan two exit strategies

A compelling mission need not directly threaten America. We have legitimate interests abroad, which are worth fighting for. We have treaty obligations to protect Poland, for instance. It might be legitimate to fight for oil, if want of it existentially threatened our way of life (it doesn’t). A compelling mission is one that history requires you to face. This means the alternative is potentially worse than sending American soldiers to fight and die.

The reason that presidents make … totally unachievable pronouncements says more about American political culture than providing realistic military objectives.

If the mission is something like “invade Iraq and seize their nuclear weapons,” then the smallish, mostly air force organized by Sec. Rumsfeld will suffice. If the mission is “occupy Iraq until democracy sets in,” then a much larger force is needed, as originally requested by Gen. Franks. Here, the strategy would be different. You would want to keep the infrastructure intact, as with our successful occupation of Japan.

Everybody has a plan until they get punched in the mouth – Mike Tyson

Invading with a force designed for one mission, and then discovering a larger mission, is the key to failure. This is why running your plan by Congress is a good idea. Starting with a clear sense of costs, timing, and objectives, is a good way to gauge whether the war effort is on track. This brings us to the exit strategies.

There are … towns which must not be besieged, positions which must not be contested, and commands of the sovereign which must not be obeyed – Sun Tzu

The exit strategy begins when the mission is accomplished. If the mission was defined properly, then you can state unequivocally that it has been accomplished. Now bring the troops home. No excuses, no mission creep. On the other hand, if the mission turns out to be impossible, then you must know when to quit. This is the other exit strategy. Victory is easy to recognize. Knowing when to cut your losses is much harder.

General Dempsey … was referring to a hypothetical scenario in which there might be a future situation in which he might make a tactical recommendation … use of ground troops – W.H. Press Sec. Earnest

You can decide for yourself who is speaking truth about this latest Iraq war. Gen. Dempsey’s remarks have been “interpreted” an awful lot, lately.

See also: Why the United States Will Never Defeat ISIS

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