I’ll be the first to admit the incredible aggravation I feel whenever liberty is trampled upon by the state’s obedient minions. Everywhere you look, government has its gun cocked back and ready to fire at any deviation from its violently imposed rules of order. A four year old can’t even open a lemonade stand without first bowing down and receiving a permit from bureaucrats obsessed with micromanaging private life. The state’s stranglehold on freedom is as horrendous as it is disheartening. The worst part is that the trend shows no signs of slowing down, let alone reversing. Politicians are always developing some harebrained scheme to mold society in such a way to circumvent the individual in favor of total dictation. If it isn’t politicians, then it’s an army of unelected bureaucrats acting as mini-dictators.
Markets are true democracies. The allocation of resources, capital and labour is achieved through the mechanism of spending, and so based on spending preferences. As money flows through the economy the popular grows and the unpopular shrinks. Producers receive a signal to produce more or less based on spending preferences. Markets distribute power according to demand and productivity; the more you earn, the more power you accumulate to allocate resources, capital and labour. As the power to allocate resources (i.e. money) is widely desired, markets encourage the development of skills, talents and ideas. Planned economies have a track record of failure, in my view because they do not have this democratic dimension. The state may claim to be “scientific”, but as Hayek conclusively illustrated, the lack of any real feedback mechanism has always led planned economies into hideous misallocations of resources, the most egregious example being the collectivisation of agriculture in both Maoist China and Soviet Russia that led to mass starvation and millions of deaths. The market’s resource allocation system is a complex, multi-dimensional process that blends together the skills, knowledge, and ideas of society, and for which there is no substitute. Socialism might claim to represent the wider interests of society, but in adopting a system based on economic planning, the wider interests and desires of society and the democratic market process are ignored. This complex process begins with the designation of money, which is why the choice of the monetary medium is critical. Like all democracies, markets can be corrupted.
Brad DeLong makes an odd claim:
So the big lesson is simple: trust those who work in the tradition of Walter Bagehot, Hyman Minsky, and Charles Kindleberger. That means trusting economists like Paul Krugman, Paul Romer, Gary Gorton, Carmen Reinhart, Ken Rogoff, Raghuram Rajan, Larry Summers, Barry Eichengreen, Olivier Blanchard, and their peers. Just as they got the recent past right, so they are the ones most likely to get the distribution of possible futures right.
Larry Summers? If we’re going to base our economic policy on trusting in Larry Summers, should we not reappoint Greenspan as Fed Chairman? Or — better yet — appoint Charles Ponzi as head of the SEC? Or a fox to guard the henhouse? Or a tax cheat as Treasury Secretary? Or a war criminal as a peace ambassador? (Yes — reality is more surreal than anything I could imagine).
Given the rather weak near-term and long-term outlook for US coal demand, it’s not surprising that within such a capital-intensive business, a number of smaller coal producers were hit recently with bankruptcy rumors. Indeed, even large cap names like Arch Coal have seen an escalation of concern over debt levels. Accordingly, many have concluded that coal -- in an era of solar, wind, and natural gas -- has finally displaced itself due to its problematic extraction, distant transportation, and overall costs. Is coal finally going away as an energy source?
Not a chance.
Indeed, everything currently unfolding for coal in the United States is precisely what is not unfolding for coal globally. Prices to import natural gas to most countries via LNG remain sky-high, easily protecting coal’s cost advantage. And the demand for coal in the developing world remains gargantuan. Accordingly, just as with oil, lower US demand simply frees up supply to elsewhere in the world. The global coal juggernaut rolls onward.
I won a bet today.
A few weeks ago I wagered with a coworker that the United States Supreme Court would uphold the Affordable Care Act otherwise known as Obamacare. He reasoned that the federal government has no authority under the Constitution to force an individual to purchase a product from a private company. My reasoning was much simpler. Because the Supreme Court is a functioning arm of the state, it will do nothing to stunt Leviathan’s growth. The fact that the Court declared no federal law unconstitutional from 1937 to 1995—from the tail end of the New Deal through Lyndon Johnson’s Great Society—should have been proof enough. He naively believed in the impartialness of politically-appointed judges. For the first time he saw that those nine individuals are nothing more than politicians with an allegiance to state supremacy.
It was a tough but valuable lesson to learn.
Journalism is about asking questions that corporations, governments and establishments don’t want to answer. It’s about reporting the full-story, no matter how many toes you step on. It’s about opening up power to real scrutiny. And that is something that the propagandists in big media are often incapable of — which of course is why big media is slowly dying. We need to know the depth and width of Fast and Furious and the programs which preceded it: how was it authorised, how was it designed, how did it go wrong, who was to blame for it going wrong. We need to know whether or not the widely-spread allegation that the Obama administration has sold guns directly to Los Zetas is true. We need to know whether or not El Chapo and the Sinaloa Cartel are working with the DEA and the Mexican government. (Both of these allegations are widely accepted as fact in Mexico). We need to know why Obama has chosen to continue the failed drug war, even in spite of overwhelming evidence that the illegality of drugs is the very thing that empowers the criminal cartels, and in spite of the fact that Obama is a former drug user.
This week may very well go down as 'connect the dots' week. Things have been moving so quickly, so let's step back briefly and review the big picture from the week's events. When you connect the dots, the next steps lead to what may soon be regarded as an obvious conclusion: the system, as it exists right now, is crumbling. No amount of self-delusion can make this go away. Rational thinking and measured action, on the other hand, can make the consequences go away... turning people from victims into spectators of the greatest bubble burst in modern times.
Today's release of the final estimate of 1st Quarter GDP came in unchanged at 1.9% at the headline which was sharply lower than the 3% growth rate in the 4th quarter of 2011. However, what was masked by the headline, was the impact of the unseasonably warm winter that boosted construction spending while the rest of the economy deteriorated. The chart shows the changes between the second and final estimates of GDP. As you will see the consumer was weaker than originally estimated along with all the areas that the consumer directly effects - goods and services. The warmest winter over the last 65 years helped to boost construction spending and investment more than originally estimated which provided the offset from the drag in virtually every other category. Had it not been for this higher estimation in construction spending our estimate of 1.7% would have been obtained.
Americans are either celebrating or damning the Supreme Court’s 5-4 ruling that the individual mandate is constitutional. It is puzzling that the individual mandate to purchase healthcare might be deemed unconstitutional when the collective mandate to collect taxes to purchase next-to-everything (including both healthcare and broccoli) has been considered constitutional for the best part of a century. If America wants to overturn current legal norms America needs to elect different politicians. But with a greater and greater welfare-bound population, it seems inevitable that more and more Americans will vote themselves greater and greater quantities of free stuff. What’s stopping Congress from mandating that patriotic Americans with any spare cash dump it into government securities (or even flagging equities)? One day, Atlas may shrug. Until that day, Congress just acquired a powerful new funding tool.
Totalitarian governments, like persistent forms of cancer, have latched onto the long history of man, falling and then reemerging from the deep recesses of our cultural biology to wreak havoc upon one unlucky generation to the next. The assumption by most is that these unfortunate empires are the product of bureaucracies gone awry; overtaken by the chaotic maddening hunger for wealth and power, and usually manipulated by the singular ambitions of a mesmerizing dictator. For those of us in the Liberty Movement who are actually educated on the less acknowledged details of history, oligarchy and globalized centralism is much less random than this, and a far more deliberate and devious process than the general unaware public is willing consider.
Unfortunately, the final truth is very complex, even for us…
What few media pundits seem to grasp is that when our trade deficits transfer hundreds of billions of dollars to other nations, those dollars have to end up in dollar-denominated assets like bonds, stocks or real estate. Many people have missed the difference between dollars used to settle accounts and dollars held as a result of trade deficits. Many of those emotionally wedded to the belief that the U.S. dollar is doomed gleefully grabbed onto the news that China and Japan will swap currencies directly (yen and yuan) rather than intermediate the trade with U.S. dollars. This was mistakenly seen as a nail in the coffin of the USD. If I am in Japan and I have yuan due to trade with China, and I want to exchange those yuan for yen, I only need USD for about 10 seconds to intermediate the exchange. Cutting out the USD simply cut the exchange costs and lowered the daily trading volume of the USD. This reduction in the transactions needed to exchange yuan for yen did nothing to change the dollars held by China or Japan as a result of their trade surpluses with the U.S. This also didn't lower the amount of assets or credit (debt) denominated in USD. In other words, the effect on the value of the dollar is trivial. No matter how many exchanges the USD sitting in overseas accounts are pushed through, they still end up in dollar-denominated assets somewhere.
Germany keeps being told that it must pay up to save the euro. But how much can Germany pay? No-one seems to have thought about that, but there is already concern about the possible size of bill – German bond yields rose soon after news of the Spanish bail out, even before it was announced where the money was going to come from. (And it was of course a bail out for Spain, regardless of what Spain’s prime minister says. If I borrow money and then lend it to someone else I’ve still borrowed it.) There is though a more basic question. How much does it make sense for Germany to pay? What sort of bill would it be reasonable to present to them? In fact the best approximation one can arrive at is a bill of zero. Why zero? What about all these exports that have been produced because Germany has a currency whose value is determined not just by Germany but also by less productive, higher cost, economies? That link has artificially depressed the prices of German exports. These net exports resulting from Germany’s Eurozone membership are actually the problem.
Only a wilful and ideological Keynesian could ignore the salient detail: as soon as the USA left the gold exchange standard, total factor productivity began to dramatically stagnate. Coincidence? I don’t think so — a fundamental change in the nature of the money supply coincided almost exactly with a fundamental change to the shape of the nation’s economy. Is the simultaneous outgrowth in income inequality a coincidence too? Keynesians may respond that correlation does not necessarily imply causation, and though we do not know the exact causation, there are a couple of strong possibilities that may have strangled productivity. It’s not just total factor productivity that has been lower than in the years when America was on the gold exchange standard — as a Bank of England report recently found, GDP growth has averaged lower in the pure fiat money era (2.8% vs 1.8%), and financial crises have been more frequent in the non-gold-standard years.
In light of the zombification that now exists in Japan and also America (and coming soon to every single QE and bailout-heavy Western economy) — zombie companies, poorly managed, making all the same mistakes as before, rudderless, and yet still in business thanks to government intervention — it is clear that the liquidationists grasped something that Keynesians are still missing. Markets are largely no longer trading fundamentals; they are just trading state intervention and money printing. Why debate earnings when instead you can debate the prospects of QE3? Why invest in profitable companies and ventures when instead you can pay yourself a fat bonus cheque out of monetary stimulus? Why exercise caution and consideration when you can just gamble and get a bailout? Unfortunately, Mellon and his counterparts at the 30s Fed were the wrong kind of liquidationists — they could not heed their own advice and leave the market be. Ironically, the 30s Fed in raising interest rates and failing to act as lender-of-last resort drove the market into a deeper depression than was necessary (and certainly a deeper one than happened in 1907) and crushed any incipient recovery.
Liquidation is not merely some abstract policy directive, or government function. It is an organic function of the market.
Forty five years after the War on Poverty began, there are 49 million Americans living in poverty. That’s a solid good return on the $16 trillion spent so far. It’s on par with the 16 year zero percent real return in the stock market. We have produced a vast underclass of ignorant, uneducated, illiterate, dependent people who have become a huge voting block for the Democratic Party. Politicians, on the left, promise more entitlements to these people in order to get elected. Politicians on the right will not cut the entitlements for fear of being branded as uncaring. The Republicans agree to keep the welfare state growing and the Democrats agree to keep the warfare state growing -bipartisanship in all its glory. And the middle class has been caught in a pincer movement between the free shit entitlement army and the free shit corporate army. The oligarchs have been incredibly effective at using their control of the media, academia and ideological think tanks to keep the middle class ire focused upon the lower classes. While the middle class is fixated on people making $13,400 per year, the ultra-wealthy are bribing politicians to pass laws and create tax loopholes, netting them billions of ill-gotten loot. These specialists at Edward Bernays propaganda techniques were actually able to gain overwhelming support from the middle class for the repeal of estate taxes by rebranding them “death taxes”, even though the estate tax only impacts 15,000 households out of 117 million households in the U.S. The .01% won again.