In Fracking, Sand Is the New Gold

Energy Boom Fuels Demand for Key Ingredient Used in Drilling Wells

By ALISON SIDER and KRISTIN JONES

The race to drill for oil in the U.S. is creating another boom—in sand, a key ingredient in fracking.

Energy companies are expected to use 56.3 billion pounds of sand this year, blasting it down oil and natural gas wells to help crack rocks and allow fuel to flow out. Sand use has increased 25% since 2011, according to the consulting firm PacWest, which expects a further 20% rise over the next two years.

In Wisconsin, the source of white sand perfectly suited for hydraulic fracturing, state officials now estimate more than 100 sand mines, loading, and processing facilities have received permits, up from just five sand mines and five processing plants operating in 2010.

And the stocks of publicly traded companies that deal in sand have soared. Shares of Houston-based Hi-Crush Partners LP have jumped 59% since it began trading in August 2012. Shares of U.S. Silica Holdings Inc., based in Frederick, Md., have doubled since it went public in 2012, giving it a stock market value of $1.9 billion.

Less than a decade ago, U.S. Silica focused on sand for industrial and consumer products—plate glass for windows and, more recently, glass for iPhone and iPad screens. Now those uses account for just half the sand the company digs out of its open pits and even less of revenue.

During the first nine months of this year, the more than $245 million in sand sold to energy companies accounted for 62% of U.S. Silica's sales, up from 53% during the same period in 2012 and 33% during the first nine months of 2011.

Hydraulic fracturing is the process of pumping a mixture of sand, chemicals and water down a well at high pressure to break up dense rock formations so that oil and gas can flow to the surface. The sand left behind in the fracking process props open those tiny pathways so trapped fossil fuels can escape.

The failed Fed

A central bank vulnerable to political pressure was never intended

By Richard Rahn

“I wouldn’t start here if I were you,” is the punch line of an old Irish joke, which monetary scholar Kevin Dowd cites to illustrate the deeper and deeper hole the Federal Reserve is getting us into.

Mr. Dowd, in a paper delivered last week at the Cato Institute’s 31st annual Monetary Conference, concluded: “The modern financial system has not only kicked away most of the constraints against excessive risk-taking, but positively incentivized systemic risk-taking in all manner of highly destructive ways . We have gone from a system that managed itself to one that requires management, but cannot be managed. We have gone from a system that was guarded by market forces operating under the rule of law to one that requires human guardians instead — but we have not solved the underlying problem of how to guard the guardians themselves.” These last two lines could equally be applied to Obamacare, because both are examples of F.A. Hayek’s description of the “fatal conceit” so often exhibited by those who believe in government more than markets.

Speakers at the monetary conference included current and past Fed bank presidents, other former senior Fed officials, members of Congress and noted monetary scholars. All concluded that the Fed has gone well beyond its original mandate and has had a long record of failure, owing not only to its own misjudgments, but also as a result of pressures by various administrations and Congress to do the wrong thing.

The Fed was originally established to be a lender of last resort to stop bank runs, a payments’ processor to clear checks, and an issuer of a uniform national currency (rather than have individual banks issue bank notes). From this limited beginning, it quickly evolved into a full-fledged central bank. The list of failures is long. Once the United States went off the gold standard, the Fed was charged with maintaining the value of the currency — yet the dollar is only worth roughly one-twenty-third of what it was worth when the Fed went into operation a hundred years ago. The Fed is supposed to maintain full employment, which cannot be done by monetary policy alone when excessive government spending, taxing and regulations sap the vitality out of the economy. The Fed has been given powers to regulate banks and, most recently, to “protect consumers,” which is undefined and infinitely elastic.

A former president of the Cleveland Federal Reserve Bank, Jerry Jordan, explained the fundamental dilemma. 

“The existence, per se, of central banks with discretionary powers in a fiat-currency world creates moral hazard in the financial system. Because of the explicit and implicit ‘safety net’ offered by the existence of central banks, private financial institutions cannot be observed behaving as they would in absence of moral hazard. Because of moral hazard in the financial system — privatization of gains from risky decisions and socialization of the losses — the trend has been toward ever more regulations and calls for closer supervision of financial companies. The resulting ‘permission-and-denial’ regime opens ever wider the door to crony capitalism in the financial system.”

Again, to quote Mr. Jordan, 

“In the beginning, the U.S. central bank was supposed to be a ‘lender of last resort.’ But even after almost 100 years, there are no established rules for providing this safety net. No one can say who will and who will not be bailed out in the future.”

Other central banks are not immune to the same forces that are pushing the Fed into an ultimate death spiral. Ever-increasing debt as a percentage of gross domestic product by most countries, coupled with ever-increasing global financial regulation, means the global banking and financial system becomes less and less efficient. Central banks have become the enablers of destructive fiscal policies by buying endless quantities of government debt, rather than disciplinarians — because, in the end, they cater to irresponsible politicians. The idea of central bank “independence” is a myth. Former Fed Chairman Arthur Burns is reported to have said, “We dare not exercise our independence for fear of losing it.” Even if it were not a myth, there is no reason to think that the decision-makers in central banks can see the future any better or are wiser than markets. The evidence is to the contrary.

The fact is we do not need a central bank. Many eminent monetary and financial scholars both past — such as Friedrich Hayek, Ludwig von Mises and Milton Friedman — and present — such as Richard Timberlake, Lawrence White, George Selgin, Gerald O’Driscoll (all of whom spoke at the conference) and former International Monetary Fund official Warren Coats — have explained better ways of running a monetary system, including a return to the gold standard.

Janet Yellen appeared last week before the Senate for her confirmation hearing as new Fed chairman. The essence of her testimony was that the Fed will continue on course to keep buying government debt as long as there is less-than-full employment, and she is a very smart lady, so trust her. No doubt Ms. Yellen is smart and well-intentioned, but so are many other smart people who see the world very differently. The choice is a system based on a few “smart” people who are subject to political pressure, or one based on free markets — you choose.

The World Is Stuck Between A Rock And A Squishy Place

The Destruction of Capital Formation is Still Going Strong 

by Howard Kunstler

The rock is reality. The squishy place is the illusion that pervasive racketeering is an okay replacement for an economy. The essence of racketeering is the use of dishonest schemes to get money, often (but not always) employing coercion to make it work. Some rackets can function on the sheer cluelessness of the victim(s).

Is it fair to suppose that money management is at the heart of the sort of advanced, complex economy that developed early in the 20th century? I think so. Money is the lifeblood of trade and of investment in productive activities that support trade. Of course, in order for money to have meaning, to function in such transactional relations, the people must be convinced that it legitimately represents its face value. Otherwise, money must be labeled “money” — that is, a medium of exchange suspected of false value. An economy that uses “money” — especially an economy of rackets — is an economy in a lot of trouble, and that is where ours is in December 2013.

The trouble reached escape velocity in the fall of 2008 when a particular brand of racket among the Wall Street kit-bag of rackets got badly out-of-hand, namely the business of selling securitized bundled mortgages and their “innovative” derivative “products” to dupes unaware that they were booby-trapped for failure which would, perversely, hugely reward the seller of such trash paper. These were, in the immortal words of Senator Carl Levin (D-Mich), the “really shitty deal[s]” propagated by the likes of the Goldman Sachs crypto-bank — so-called collateralized debt obligations — pawned off on credulous pension fund managers and other “marks” around the world greedy for “yield.”

It turned out that all the large banks trafficking in such booby-trapped contracts ended up choking on them when “the music stopped” — that is, when the derivative “swaps” payoffs at the heart of this particular racket began to fail, sending up a general alarm that all such “products” were primed to blow up the entire “banking” system. By the way, the quotation marks I so liberally resort to are necessary to denote that in such a matrix of rackets things are not what they appear to be but only what they pretend to be.

Immigration versus social cohesion?

The elites benefit, so it's becoming a leftish issue

by Matt Ridley

It looks as if David Cameron is determined not to emulate Tony Blair over European immigration. Faced with opinion polls showing that tightening immigration is top of the list of concerns that voters want the Prime Minister to negotiate with Europe, he is going to fight to keep a Romanian and Bulgarian influx out as Mr Blair did not for Poles in 2004. It is the ideal ground for him to pick a fight with Brussels.

One reason is that he now has more political cover on the issue of immigration. It is no longer nearly as “right wing” an issue as it once was, though popular enough with UKIP voters. Migration as a political issue seems itself to be migrating across the political spectrum from right to centre, if not left. Where once any kind of opposition to immigration was seen by left-wing parties and the BBC as just a proxy for racism, increasingly it is now a subject for real debate.

The best example of this is the positive reception that Paul Collier’s new book Exodus has received from the bien-pensant Left. Collier has raised worries about immigration with which left-leaning commentators can sympathise: in particular social cohesion and the effect on the global poor. He is following a path pioneered by David Goodhart, whose book The British Dream argued that overzealous multiculturalism had “reinforced difference instead of promoting a common life”, putting at risk the welfare state.

Both books make the case that the generosity with which British citizens are prepared to hand welfare payments to others could be damaged if Britons no longer think of their neighbours as part of the same “country”. In effect they are voicing an old-fashioned nationalism. Collier warns that “while migration does not make nations obsolete, the acceleration of migration in conjunction with a policy of multiculturalism might potentially threaten their viability”. Nations, he points out, have fallen out of favour as “solutions to collective action problems”. It is not clear how large an unabsorbed diaspora could get before it weakened “the mutual regard on which society depends”.

British Elites Prefer Immigrants to Masses

Being ‘pro-immigrant’ is now PC code for being anti-public

By Brendan O’Neill

Spiked is about as pro-freedom of movement as it is possible to get. Never mind Romanians and Bulgarians, we think even Africans should have the freedom to travel through, work and settle in Western Europe. So you might expect us to have enjoyed the kicking David Cameron received over the past week for his anti-immigrant posturing, from commentators and campaigners claiming to be on the side of migrants to Britain. But we didn’t. On the contrary, the assaults on Cameron over his allegedly fiery rhetoric revealed how warped, even undemocratic, the pro-immigration stance has become, and how urgently we need a new, fresh, properly liberal defence of free movement.

Much about the anti-Cameron storm didn’t add up. The PM was attacked after proposing that newly arrived immigrants should not automatically qualify for welfare benefits. He was accused of stirring up unfounded fears about Britain’s welfare larder being plundered by Romanians and Bulgarians, who will have freer movement around Europe in the new year, when actually the vast majority of such Eastern migrants are fit, healthy and keen to work. This is true. It is indeed daft to fret over the alleged scrounging instincts of a foreign population who, if those from its number who are already here are anything to go by, will labour, nurse and serve for wages. But the strange thing about the Cam-bashing is that those who spearheaded it are not only far from being in favour of freedom of movement – they also actually agree with Cameron on curbing new migrants’ benefits.

So Labour’s Yvette Cooper made waves when she claimed Cameron was ‘panicking over Romanian and Bulgarian workers’. But when you dug down under the Cooper-cheering headlines, it became clear that she supports curbing benefits for new migrants - in fact, Labour thought of it first. ‘The prime minister is playing catch-up. Why has it taken him eight months to copy Labour’s proposal?’, she said. Even some of the more excoriating newspaper editorials were sympathetic to Cameron’s central idea. The Independent‘s leader was a hit with tweeting lefties, with its slamming of Cam for being ‘neurotic’ about immigration and spreading ‘hysteria’ about Eastern Europeans; yet is also said this: Cameron’s proposals are ‘not without merit’ and ‘it is not unreasonable to minimise the temptation [to migrants] of Britain’s welfare and healthcare provisions’.

Irresistible Immigration: The Lampedusa Dilemma

Television and the Kalashnikov

By Anthony de Jasay

Immigration is the joint effect of a push and a pull, though the relative strength of each can vary greatly. If one considers the great mass movements of the Western world, the first, peaking around the middle of our first millennium, was mainly a matter of "push", with one people chasing another from East to West and taking possession of its land. The second, also from East to West, was the slave trade carried on for nearly three centuries and which petered out early in the 19th century, where white slavers, usually with the complicity of tribal chiefs, caught and transported Africans to the Caribbean and the southern United States, where they produced sugar and cotton in exchange for their keep, such as it was. The main moving force was the "pull" of profitability. Its fruits were captured by the African tribal chiefs, the slave traders, and the plantation owners, but the slaves were excluded due to the weakness or lack of rules that would protect the freedoms of unarmed or poorly armed individuals. In the third major migratory wave peaking before World War I, Europeans settled North America. They were pushed by repeated periods of agricultural depression (itself partly the result of imports from the newly settled great grain producing areas of the U.S. Midwest and Canada), and partly natural calamities such as the Irish famine. However, the pull of fairly fertile land, to be had in freehold by squatting on it, was the dominant reason for crossing the Atlantic.

Migration in Europe since World War II has been too chaotic for a dominant trend to be discerned. Two of the early streams of Turks to Germany and Arabs to France, were mostly responses to the full employment opportunities in western Europe and were fully agreed to by the host countries. The flight from Soviet Russia and its satellites to the West was more due to what has come to be called "asylum seeking" than to economic calculus. It is probably fair to say that since the flood of refugees from Socialism has passed, there is practically no need for a European resident to seek asylum, and if there are still political refugees in Europe, they have come from the Middle East and Africa where the intrinsic turbulence of Islam and the inability of Muslim sects to coexist with each other or with non-Muslims unless forced to do so under some iron-handed dictator, is pushing large numbers to yield to the hostile push of religious zealotry and seek shelter in Europe. Today's migrants to Europe are of two types from the legal point of view. One type enters his target country with the latter's consent and a regular visa. They come as students, tourists, relatives of residents and other genuine reasons and false pretexts. Once their visa has expired, they remain in the chosen host country as "illegal" immigrants. They then apply for political asylum, a claim that neither they nor the authorities regard as more than a poor joke, but which both pretend to take for a genuine right. However, with ample facilities for appeals, such claims take two or more years to settle. Once rejected, the host country may expel the illegal immigrant, but appeals to human rights by a very vocal minority and the genuine compassion felt by many for hard cases make expulsion very difficult. In Britain, for instance, there is an estimated 600,000 pool of illegal immigrants with an annual intake of maybe 80,000, but the authorities succeed in expelling only about 15,000 a year. Those who remain mostly benefit from English tolerance and good faith and from their children being British-born.

The other type of today's European immigrations relies not so much on the abuse of visas, but on clandestine frontier crossings. "Illegal" immigrants to France and Germany both are around 60,000 annually. Besides the spurious claim of political asylum, compassionate grounds may be found for letting them stay. While vocal minorities make expulsion no less difficult than it is from Britain.

Why Government Doesn't—and Can't—Manage Resources Like a Private Business

Both theory and history indicate that government management of resources leads to waste and even absurdity

by Robert P. Murphy

People often lament the waste, corruption, and downright absurdities of government enterprises, wondering why they can't be "run like a business." Yet economic theory shows that this is no mere accident: Serious institutional differences make government officials much less efficient at managing scarce resources than their private-sector counterparts. We can see these theoretical lessons illustrated in numerous examples spanning a wide range of industries. This evidence should place a prima facie hurdle in the spread of government intervention into new sectors, such as health insurance.

Government versus Private Resource Management: The Theory

According to a common but naïve worldview, there are objective, well-known techniques for producing various goods and services, and the consumer preferences regarding these outputs are also common knowledge. In such a worldview—which even many professional economists, in discussing policy, seem to hold—it seems only natural to conclude that government officials could improve upon the decentralized market outcome. After all, the government has access to the same "production function" as private firms, and if it decides to be the monopoly producer of a good or service, it can avoid wasteful advertising expenses and other redundancies. Such arguments were behind the proposals for outright "market socialism" in the era between World Wars I and II, and, to this day, they guide recommendations for heavy government regulation of "natural monopolies" such as utilities.1

However, more-practical economists recognize the limits of their textbook diagrams with elegant marginal revenue and marginal cost curves. In reality, we operate in a world of uncertainty. The "least cost" method of producing a good or service is never obvious, nor is what consumers will be willing to pay for various items. In a famous lecture, "Competition as a Discovery Procedure," Friedrich Hayek explained how markets in the real world stumble upon this hidden knowledge.2 Various people with access to different information make piecemeal discoveries and constantly modify their operations accordingly; they receive feedback from market prices in the form of profit or loss. Firms mimic particularly profitable innovations, and if a firm does not adapt quickly enough, it will go out of business. Hayek thus viewed competition as aprocess rather than a condition or end-state. The state of "perfect competition" described in the textbooks—which includes the property that all firms in an industry use the identical "least-cost" method of production—is actually something that would emerge over time only because of the competitive rivalry between the firms, and only if the conditions in the real world remained static long enough for all firms to fully adapt.

From this Hayekian perspective, we have little reason to expect government provision of a good or service to reduce costs, if only because such an institutional arrangement limits the number of minds brainstorming on how to cut costs. Under competitive free entry into an industry, and even into a "natural monopoly," an outsider always has the freedom to supplant the established firms if he or she comes up with a new, cost-saving idea. Thus, in principle, the entire society contributes to solving the problem of minimizing costs in the particular industry.

In contrast, with government provision (or government anointment of one firm as a regulated monopolist), there may be only a few people who can contribute to cost-saving innovations. This insight provides a strong reason to expect government-managed enterprises to have higher costs of operation than a private-sector firm would have—out of sheer ignorance. In this view, government officials waste money and offer shoddy output relative to private managers, simply because they don't know any better.

The Cargo Cult Economy

No Shortcuts On the Path to prosperity

by Gregory Cummings

Last week, I heard about a particularly tragic example of the post hoc, ergo propter hoc logical fallacy, which Frederic Bastiat, the great 19th-century economist, called “the greatest and most common fallacy in reasoning.”

After the outbreak of World War II, many isolated islands located in the Pacific Ocean became staging grounds for Japanese and Allied forces. This development unfolded before the primitive indigenous peoples, including those on the island of Tanna, Vanuatu. According to Wikipedia:

The vast amounts of military equipment and supplies that both sides air-dropped (or airlifted to airstrips) to troops on these islands meant drastic changes to the lifestyle of the islanders, many of whom had never seen outsiders before. Manufactured clothing, medicine, canned food, tents, weapons and other goods arrived in vast quantities for the soldiers, who often shared some of it with the islanders who were their guides and hosts.

Sadly, this arrangement came to an abrupt end with the end of the war, when the Allied forces abandoned these temporary airbases. Once again, the islanders no longer had access to the myriad of consumer goods provided by visitors from distant advanced economies.

As a result, on Tanna island and elsewhere, local inhabitants formed so-called “cargo cults” in order to restore their lost prosperity:

In an effort to get cargo to fall by parachute or land in planes or ships again, islanders imitated the same practices they had seen the soldiers, sailors, and airmen use. Cult behaviours usually involved mimicking the day to day activities and dress styles of US soldiers, such as performing parade ground drills with wooden or salvaged rifles. The islanders carved headphones from wood and wore them while sitting in fabricated control towers. They waved the landing signals while standing on the runways. They lit signal fires and torches to light up runways and lighthouses. 

In a form of sympathetic magic, many built life-size replicas of aeroplanes out of straw and cut new military-style landing strips out of the jungle, hoping to attract more aeroplanes.

The indigenous peoples of Tanna island observed that material goods arrived after the presence of landing strips and aeroplanes. This led them to falsely conclude that material goods arrived because of the presence of landing strips and aeroplanes. They failed to consider other causal factors, such as the war, and based their conclusion solely on the order of events. This is the essence of the post hoc ergo propter hoc logical fallacy.

The boom and bust cycle

There is no means of avoiding a final collapse of a boom brought about by credit expansion

As is clear to all with half a brain the production of un-backed fiat money distorts the economic system. Simply told, when an entity in society is given monopoly to manufacture medium of exchange at its own discretion they will harness this power. Slowly at first, unsure about its effects, but always testing the limits of the privilege bestowed upon them.
As always, they will overexploit the power. They will manufacture money and give it to the masters that coercively secure the continuation of the power. The masters will obviously spend the money, creating a transaction in which nothing is payment for something. These transactions are by definition unsustainable because they violates Say`s law. We call them “bubbles”
In a free market supply is used to create its own demand. When people spend fiat money they exercise demand without providing supply. Said in other words, spending fiat money is tantamount to capital consumption and makes society poorer.
While the boom that follows money spending feels good, it must inevitably come to an end because the economic system cannot maintain the constellation that was induced by the money printing in the first place. Within the boom lays the seed for the necessary bust.
We have made a metric that sums up fiat money in its purest sense and compared that to the underlying trend growth of nominal GDC.
Our hypothesis is simple: if money growth exceeds the GDC metric a deflationary busts will inevitably come. If authorities refuse to accept reality and print more fiat money at the first sign of bust, they may “save the day” but they will “ruin tomorrow”!
For every action taken there will be an equal and opposite reaction! When the fiat masters go too far they create the set-up for an imminent deflation.
We looked at this relationship and as the chart below show, a boom-bust cycle based on monetary expansion is clearly visible.

 

Source: Federal Reserve of St. Louis (FRED), own calculations

Our main concern is obviously what happens when the equal, but opposite reaction comes as a consequence to the monetary experiment dubbed the “Bernanke-put”.

Central Planning for All

Germany Plans to Ban 'Flat-Rate' Offers in Brothels

Germany's biggest political parties have agreed to ban so-called flat-rate sex offered by some brothels in the country, reports AP.

They view as exploitative the special offers in some brothels where men can have unlimited sex for 100 euros ($136).

Anja Strieder, spokeswoman for the center-left Social Democrats, confirmed a report Monday by Germany's Frankfurter Allgemeine Zeitung that a ban was agreed during coalition talks with Chancellor Angela Merkel's conservative Union bloc. 

Understanding the Enemy

Republicans, Islam and Martin Luther King

by Stewart Baker 

The latest Snowden leak story is in the Huffington Post.  It says that NSA thought about exposing the hypocrisy of Islamic extremist recruiters by revealing their financial greed or predatory sexual habits.  I’m quoted in support of considering such tactics, but the backstory of the interview may be more interesting.

When one of the authors, Ryan Grim, called me for comment, he said that while Glenn Greenwald was transitioning to his new Omidyar-funded venture he was temporarily publishing his Snowden leaks with HuffPo. So when he asked for my take on the NSA story, pretty much the first words out of my mouth were, “Why wouldn’t we consider doing to Islamic extremists what Glenn Greenwald does routinely to Republicans?”  The story quotes practically everything I said to Grim except that remark, even though I returned to the point a couple of times and emphasized that it summed up my view.

I don’t think HuffPo cut the quote because they ran out of electrons.  The article itself is so tediously long that I defy anyone to read every word in a single go.

Nor because my remark was inaccurate.  It turns out that Glenn Greenwald has written an entire book devoted to exposing the contradiction between Republicans’ ideology and their private lives.  In Greenwald’s words,  “While the right wing endlessly exploits claims of moral superiority … virtually its entire top leadership have lives characterized by the most decadent, hedonistic, and morally unrestrained behavior imaginable …[including] a string of shattered marriages, active out-of-wedlock sex lives, and highly ‘untraditional’ and ‘un-Christian’ personal lives [endless detail omitted].” His book certainly makes the NSA memo sound restrained and cautious, but both are motivated by the same idea.

Grim and Greenwald very likely cut the quote because it would have undermined the narrative of the piece, which combines solicitude for the poor Islamists whose sexual and financial hypocrisy might be exposed with outrage at the NSA for even considering such a tactic.  The quote would have made them look like, well, hypocrites.

The incident makes me wonder what else Greenwald leaves out of his stories. And why we should continue to trust snippets of documents selected by someone who thinks that the difference between Islamist extremists and Republicans is that one is an enemy that deserves no quarter and the other is sort of like Martin Luther King, except for the part about wanting to kill us. 

How Peugeot and France ran out of gas

PSA's fate is now intimately wrapped up with China

BY SOPHIE SASSARD, MARK JOHN AND GILLES GUILLAUME

The rush to Paris's Charles-de-Gaulle airport for flights to China began on Friday, October 11. A first set of bankers booked onto the 10-hour overnight Air China Flight; over the next 48 hours, they were followed by top management from PSA Peugeot Citroën and the French Finance Ministry.

Peugeot was ailing - and it had just started talks about selling a stake to state-owned Chinese automaker Dongfeng.

"There's a big exodus to China right now," a bemused trade unionist at the Paris-based company told Reuters that weekend.

For the bankers, it would be just another deal, but for the car-maker, it could be a lifeline. Dongfeng and the French state are contemplating a joint investment to prop up the 200-year-old firm, which is struggling to contain losses that burnt 3 billion euros ($4 billion) of cash last year.

PSA gave the world its first series-manufactured car in 1891 - 22 years before Ford took mass manufacture to a new level with the Model "T". It has survived two world wars and become an emblem of France. After years watching its position eroded by rivals and now hit by the financial crisis, it has reached a critical point.

Its rich history and current difficulties in many ways mirror those of France, a former global power also fighting to define its role in a world of harsher economic and political forces. The parallels between Peugeot's decline and France's economic malaise are startling. Today, both the automaker and the country are struggling to bring down heavy debt and adapt to global markets. In PSA's case, the company is at stake; France's economy is a mounting worry for investors in the euro zone.

Once known worldwide for the reliability and ruggedness of its cars, Peugeot - which has also owned the Citroën brand since the 1970s - has in recent years watched rivals spot global opportunities and snatch them from under its nose.

Both France and PSA must find a way - if there is one - of competing in world marketswhile funding the labor and welfare provisions that make up the country's cherished social model. France's share of euro zone exports has fallen by a third since 2000 to just over 12 percent, while PSA's share of the Western European car market has fallen to just over 11 percent from a peak of 15 percent in 2002.

Earlier this year there were signs America's General Motors, which already has a seven percent stake in PSA, might be interested in a wider tie-up to help put the French firm back on its feet. Those talks cooled. Now China is key.

"It is the only card they have left to play," said Patrick Fridenson, car historian at France's EHESS institute.

PLUS CA CHANGE...

The group is no stranger to crisis - or to escaping it.

In the 1980s, debts accrued after an ill-starred takeover of Chrysler's European operations were about to send the company to the wall when it produced the Peugeot 205 - a first-generation "hot hatch." The car sold millions and helped save the company.

"Every time there is a crisis, people say it's worse than last time," said Jean-Louis Loubet, author of "The House of Peugeot", charting the history of the firm which after its 1810 launch made everything from saws to corsets.

The challenges facing PSA now are bigger than ever. Like many in France, the company must overcome entrenched resistance to change.

Papal Bull

Why Pope Francis Should Be Grateful For Capitalism

By Louis Woodhill

Progressives are gleeful over Pope Francis’ recent “Apostolic Exhortation,” Evangelii Gaudium.  And, why shouldn’t they be?   The Pope’s passages on economics sound like they were copied and pasted out of The Nation or Mother Jones.  Here is an example:

“Today everything comes under the laws of competition and the survival of the fittest, where the powerful feed upon the powerless. As a consequence, masses of people find themselves excluded and marginalized: without work, without possibilities, without any means of escape.”

Rather than as an “Apostolic Exhortation,” Evangelii Gaudium, should have been issued as a Papal Bull, because, at least when it comes to economics, that is what it is a load of.

While his great predecessor, Pope John Paul II, helped defeat a real tyranny, communism, Pope Francis has lent the prestige of the Catholic Church to leftist/socialist whining about the “new tyranny” of “inequality,” “exclusion,” and “marginalization.”  Obviously, the Pope is counting on the media not reminding the public about the Catholic Church’s track record in the area of economics.

For the better part of 1000 years, the Catholic Church was the government of the western world.  And, during this period, the world remained firmly mired in absolute poverty.

Absolute poverty is considered to be an income of $2/day.  This is just barely enough to buy the food necessary to sustain life.  In 1 A.D., real GDP per capita ($2012) was about $2.50/day.  By 1000 A.D., when the Catholic Church was approaching the zenith of its temporal power (which it reached circa 1200 A.D., under Pope Innocent III), real GDP per capita had declined to about $1.85/day.

In 1500 A.D., right after Pope Alexander VI granted Spain exclusive colonial rights over most of the New World, real GDP per capita was $3.32/day.  The world economy did not really get moving until the Reformation, which started when Martin Luther posted his 95 Theses in 1517.

As Jude Wanniski outlines in his classic book, The Way the World Works, the driving force behind Protestantism was economics.  The world had just grown weary of the poverty imposed upon it by Catholic economic doctrine.

Catholic economics has always stressed redistribution, rather than economic growth, as the solution for the problem of poverty.  Although arithmetic has been in use since 2000 B.C., it didn’t seem to occur to the Church that redistribution can’t do much about poverty when real GDP per capita is only $3.32/day.

Pope Francis Is No Economist

This is not “Render unto Caesar the things which are Caesar’s.” It’s stick-‘em-up politics, plain and simple.

by Bill Frezza

We all hoped this guy would be different. Jorge Bergoglio’s spontaneous ruminations upon becoming Pope revealed a humble, loving heart. Too bad that in his formal writing the new Holy Father couldn’t resist biting the invisible hand that feeds a lot more poor people than the Vatican ever has.

Most of Evangelii Gaudium, Pope Francis’s first apostolic exhortation, is an ennobling call to the faithful. Ninety percent of its 223 pages make a learned and passionate case for why Christians should spend more time calling others to Jesus, a subject on which Pope Francis is truly an expert. His writing offers a joyful and inclusive spirituality that even this atheist can appreciate.

But when it comes to economics, the Pontiff’s expertise isn’t much to go by, judging by his ahistorical, populist attack on an economic system that has done more to alleviate poverty than a thousand Mother Theresas ever could.

For example:

Some people continue to defend trickle-down theories which assume that economic growth, encouraged by a free market, will inevitably succeed in bringing about greater justice and inclusiveness in the world. This opinion, which has never been confirmed by the facts, expresses a crude and naïve trust in the goodness of those wielding economic power and in the sacralized workings of the prevailing economic system.

Never been confirmed by the facts? From which countries do the poor flee, and to which do they go? In which countries can the poor become rich, and in which are they doomed by birth to spend their lives in misery?

The culture of prosperity deadens us; we are thrilled if the market offers us something new to purchase. In the meantime all those lives stunted for lack of opportunity seem a mere spectacle; they fail to move us. One cause of this situation is found in our relationship with money, since we calmly accept its dominion over ourselves and our societies.

Where does the Pope think the money that maintain Vatican City’s splendor came from? Would he prefer to have his bills paid by feudal lords seeking indulgences rather than collect donations honestly earned by people creating wealth in a free market? Does he understand the difference between getting money and making money?

It gets worse. Here he is quoting Saint John Chrysostom.

Not to share one’s wealth with the poor is to steal from them and to take away their livelihood. It is not our own goods which we hold, but theirs.

The Pope may drive around in a modest Ford Focus , but does he wear blinkers around the Vatican’s fabulous displays of opulence? Who does more to feed and clothe the yearning masses of meager means, the Catholic Church or Walmart? Which has employed more of the poor in both developed and developing countries, giving them an opportunity to lift themselves up by their bootstraps?

In fact, wealth creation does not take from the poor. Rather, in many cases, it means employing the poor. In most cases, it means finding ways to produce goods and services more efficiently, making them accessible to more people, or producing entirely new goods and services that benefit humanity overall. In a free economy, people only get wealthy when customers value what producers create.

Today’s economic mechanisms promote inordinate consumption, yet it is evident that unbridled consumerism combined with inequal­ity proves doubly damaging to the social fabric. Inequality eventually engenders a violence which recourse to arms cannot and never will be able to resolve.

As if coupling redistributionist dogma with fear of mob weren’t bad enough, Pope Francis then engages in some liberation theology nostalgia to subject what should be the inalienable right of private property to some higher, “communal” goal.

Solidarity is a spontaneous reaction by those who recognize that the social function of property and the universal destination of goods are realities which come before private property. The private ownership of goods is justified by the need to protect and increase them, so that they can better serve the common good; for this reason, solidarity must be lived as the decision to restore to the poor what belongs to them.

This is not “Render unto Caesar the things which are Caesar’s.” It’s stick-‘em-up politics, plain and simple.

My advice to Pope Francis: Read Free to Choose before writing your next exhortation.