by Gary North: Dear
Miss V: About Your College Scholarship. . . .
Back in the
era of World War II, a goldbrick was a slacker in the military.
He was the guy who always seemed to be able to find a reason not
to pull his own weight, as the phrase went.
Army grunts who wore the boots that were on the ground had a saying:
"Never volunteer for anything." But you weren't supposed to be a
slacker. Somewhere in between unofficial status as a red hot and
a goldbrick was where most people wanted to be.
The term "goldbricking"
has been extended to life outside the military. We read this on
in today's terms, generally refers to staff who use their work internet
access for personal reasons while maintaining the appearance of
working, which can lead to inefficiency. The term originates from
the confidence trick of applying a gold coating to a brick of worthless
is the creation of an illusion of value. The successful goldbrick
keeps his employer in the dark about his productivity. He seems
to be working. He isn't. He seems to be producing value. He isn't.
people can hide in the shadows of the salary system. If you work
100% on commission, you can't hide. The reality of your output is
measurable and objective. But salaried positions are not equally
clear. Goldbricks operate in the zones of guesswork.
PREMIER GOLDBRICK ECONOMIST
formerly Third World nations are rapidly becoming competitive in
world markets. They are Brazil, Russia, India, and China. Their
acronym is BRIC.
It may seem
strange that Russia is on the list. For two generations, from 1900
to 1930, economists told the world that the Soviet Union was a powerful
competitor. The USSR proved that central planning was effective.
In fact, it was a charade. The USSR was a basket case economically.
It was a facade. It was, in fact, the greatest goldbrick nation
in history. It was a giant illusion. It appeared to be productive,
but it wasn't. The government published fake statistics. Western
academics believed these statistics.
A few economists
issued warnings about the unreliability of the Soviet statistics,
but their peers did not take these warnings seriously. It took a
journalist, Richard Grenier, to correctly identify the reality of
Soviet economy. He called the USSR "Bangladesh with missiles."
Right up until
the collapse of the USSR, Nobel Prize-winning economist Paul Samuelson
wrote in his widely assigned textbook on economics that the USSR
proved that central planning could achieve high output. Economist
Thomas DiLorenzo has offered two choice quotations from Samuelson's
economy has its contradictions …. What counts is results, and there
can be no doubt that the Soviet planning system has been a powerful
engine for economic growth." 1985 edition.
to what many skeptics had earlier believed, the Soviet economy
is proof that … a socialist command economy can function and even
thrive." 1989 edition.
Yet by 1989,
it was clear to everyone that the USSR was bankrupt. Soviet Premier
Gorbachev was coming to Western governments and bankers, begging
for more aid.
Two years earlier,
the unknown economist Judy Shelton had sounded the warning: the
USSR was about to collapse economically. She got a polite hearing,
but there was no bandwagon effect. Samuelson tried to head off this
loss of faith among economists.
Samuelson may not have written these words. Maybe co-author William
Nordhaus wrote them. By that stage, Samuelson had long since retired.
The book's royalties had made him a multimillionaire. Intellectually
speaking, he was by 1985 a very rich goldbrick. He appeared to be
working, but he wasn't.
But his view
on the USSR had not changed. One
critic has reminded us of this.
the 1973 edition of his famous textbook Economics he predicted that
though the Soviet Union then had a per capita income roughly half
that of the United States, it would catch up to the United States
in per capita income by 1990, and almost certainly would by 2015
because of its superior economic system.
was the premier goldbrick in the economics profession in the second
half of the twentieth century. He appeared to be working hard, but
his output was substandard. He got very rich teaching millions of
freshmen how to have careers as goldbricks: how to give the illusion
of valuable work, but never producing anything that could be applied
profitably to the economy. Keynesianism is goldbrick economics.
AND ITS DISCONTENTS
In recent days,
we have been fed news reports about a meeting of officials of the
BRIC nations. They supposedly are about to abandon the U.S. dollar.
They supposedly will establish trading agreements with each other
based on a currency other than the dollar. An April 14 report published
by Reuters is typical.
BRICS group of emerging-market powers kept up the pressure on Thursday
for a revamped global monetary system that relies less on the dollar
and for a louder voice in international financial institutions.
precisely nothing. Whose louder voice? What is a loud voice? What
is the exchange rate of loud voices?
on the southern Chinese island of Hainan, they said the recent financial
crisis had exposed the inadequacies of the current monetary order,
which has the dollar as its linchpin.
needed, they said in a statement, was "a broad-based international
reserve currency system providing stability and certainty"
thinly veiled criticism of what the BRICS see as Washington's
neglect of its global monetary responsibilities.
I see: stability
and certainty. Certainty. How do we get certainty in a changing
world? The only certainties are death, taxes, and central bank currency
There was a
system that brought some stability and reduced uncertainty. That
was the international gold standard. It ended in 1914, when World
War I began. It had been a compromised system. It rested on fractional
reserve banking and central banking. That is, it rested on IOUs
from banks: "Yes, you can withdraw your gold coins at any time."
It was a fraud, and World War I exposed this fraud. The banks quit
redeeming the IOUs for gold, and the central banks confiscated the
gold from the commercial banks.
are worried that America's large trade and budget deficits will
eventually debase the dollar. They also begrudge the financial
and political privileges that come with being the leading reserve
I see. But
how, exactly, does the United States run these annual trade deficits?
Because the central banks of the BRIC nations buy U.S. Treasury
debt with newly created fiat money.
Why do they
do this? To keep up the value of the dollar in relation to their
currencies. Why do they do this? To subsidize their own export sectors.
The BRIC nations
can bring down the American trade deficits at any time. They stop
buying Treasury debt. Simple. But that will reduce exports to the
United States, because it will make their currencies more expensive.
The politicians in the BRIC nations do not want that.
So, they gripe.
Something must be done something that does not reduce exports,
something that keeps the dollar high, and something that does not
give an advantage to American consumers. What might that be?
In a word,
nothing. There are no free lunches. There are no mercantilistic
policies to subsidize exports that do not thereby subsidize the
lifestyles of the customers in the other nations that buy the exports.
world economy is undergoing profound and complex changes," Chinese
President Hu Jintao said. "The era demands that the BRICS countries
strengthen dialogue and cooperation."
SYNDICATES IN THE BLOC
Bureaucrats will talk to each other. I ask: What is the exchange
value of talk among bureaucrats? How many flat-screen TVs will a
week of dialogue purchase?
another dig at the dollar, the development banks of the five BRICS
nations agreed to establish mutual credit lines denominated in their
local currencies, not the U.S. currency.
of China Development Bank (CDB), Chen Yuan, said he was prepared
to lend up to 10 billion yuan to fellow BRICS, and his Russian
counterpart said he was looking to borrow the yuan equivalent
of at least $500 million via CDB.
Can you believe
this? The banker is named Chen Yuan. That would be like an American
banker named Dollar Bill.
will lend the Russians money. How does he think he will get this
money back? The Russians are notorious for not repaying. The country
is run by ex-Communist apparatchiks Putin being #1
and criminal syndicates. It has moved from being Bangladesh with
missiles to Sicily with missiles.
this will undoubtedly broaden the opportunities for Russian companies
to diversify their loans," Vladimir Dmitriev, the chairman of
VEB, Russia's state development bank, told reporters.
are about to make the Chinese an offer they can't refuse.
These are criminal
syndicates with printing presses.
leaders reviewed the global role of the Special Drawing Right, the
IMF's accounting unit and reserve asset, which some experts believe
could grow into a partial substitute for the dollar.
stepped around the issue of whether the yuan should join the SDR,
saying only that they welcomed discussion of the composition of
the SDR's basket of currencies.
We are seeing
the equivalent of a meeting among the gangs in "The Godfather."
They all came to China to talk over how they will divide up the
territories. They all want a say in the matter.
IMF AS THE COSA NOSTRA
The IMF is
supposed to be the cover. The problem is this: the IMF has no power.
It is a clearing house for loans. Western nations, mainly the United
States, have provided the cover. They guarantee loans made to the
IMF. Investors in the West who want secure loans buy IMF bonds.
Governments toss in extra money from time to time. There is no IMF
currency. There are no futures exchanges in SDRs. The IMF is said
to have gold. But this gold was contributed by Western governments
long ago in order to bail out emerging nations.
member-country official said the group was split on whether China's
currency, which cannot be freely exchanged except for trade and
investment purposes, met the criteria for being part of the SDR.
We have China,
which issues IOU nothings, looking to be a player. What does the
IMF issue? Promises to lend IOU nothings issued by Western nations.
This has been
going on for 60 years.
is a need for a broad-basing of the international monetary system.
The SDR is an instrument to do that, but we still have no unanimity
on the inclusion of the Chinese currency in the SDR as of now,"
said the official, who declined to be identified.
gutless functionary tells the reporter that China's IOU nothings
that you cannot present at a bank for redemption may not qualify
for entrance into the SDR world, where the IMF extends loans in
various IOU nothings loans that can be redeemed at Western
more IOU nothings from Western governments than any other nation,
yet the other BRICs don't think China's IOU nothings qualify.
on a more diverse global monetary order, Beijing has given no
indication that it is ready to make the yuan freely tradable or
to dismantle capital controls as the price for the prestige of
being part of the SDR.
This is Alice
through the looking glass. This is Abbott and Costello doing "Who's
on first?" This is the world of international central banking.
BRICS caucus is a work in progress. Thursday's brief meeting, held
under tight security at a beach-front hotel, was only its third
summit and the first to include South Africa.
I'll say it's
a work in progress. It's a goldbrick work in progress. People are
going through the motions of working. Nothing of value is being
the exercise gets reported in the media.
economic potential, political influence and our development prospects
as an alliance are exceptional," Russian President Dmitry Medvedev
This is sound
and fury, signifying little. This is grist for journalistic mills.
This is chaff, not wheat.
We live in
a world of illusion. The goldbrick central banks with their paper
gold and endless promises keep us dancing to their tunes. But there
is not one tune. There are many. Cacophony rules.
have only two policies, as gold coin dealer Franklin Sanders has
pointed out: inflation and blarney. We are getting lots of both.
North [send him mail]
is the author of Mises
on Money. Visit http://www.garynorth.com.
He is also the author of a free 20-volume series, An
Economic Commentary on the Bible.
2011 Gary North
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