From the March 2016 issue of Spectrum, the magazine of the Institute of Electrical and Electronics Engineers

Wind turbines are the most visible symbols of the quest for renewable electricity generation. And yet, although they exploit the wind, which is as free and as green as energy can be, the machines themselves are pure embodiments of fossil fuels.

Large trucks bring steel and other raw materials to the site, earth-moving equipment beats a path to otherwise inaccessible high ground, large cranes erect the structures, and all these machines burn diesel fuel. So do the freight trains and cargo ships that convey the materials needed for the production of cement, steel, and plastics. For a 5-megawatt turbine, the steel alone averages 150 metric tons for the reinforced concrete foundations, 250 metric tons for the rotor hubs and nacelles (which house the gearbox and generator), and 500 metric tons for the towers.

If wind-generated electricity were to supply 25 percent of global demand by 2030 (forecast to reach about 30 petawatt-hours), then even with a high average capacity factor of 35 percent, the aggregate installed wind power of about 2.5 terawatts would require roughly 450 million metric tons of steel. And that’s without counting the metal for towers, wires, and transformers for the new high-voltage transmission links that would be needed to connect it all to the grid.

A lot of energy goes into making steel. Sintered or pelletized iron ore is smelted in blast furnaces, charged with coke made from coal, and receives infusions of powdered coal and natural gas. Pig iron is decarbonized in basic oxygen furnaces. Then steel goes through continuous casting processes (which turn molten steel directly into the rough shape of the final product). Steel used in turbine construction embodies typically about 35 gigajoules per metric ton. To make the steel required for wind turbines that might operate by 2030, you’d need fossil fuels equivalent to more than 600 million metric tons of coal.

A 5-MW turbine has three roughly 60-meter-long airfoils, each weighing about 15 metric tons. They have light balsa or foam cores and outer laminations made mostly from glass-fiber-reinforced epoxy or polyester resins. The glass is made by melting silicon dioxide and other mineral oxides in furnaces fired by natural gas. The resins begin with ethylene derived from light hydrocarbons, most commonly the products of naphtha cracking, liquefied petroleum gas, or the ethane in natural gas. The final fiber-reinforced composite embodies on the order of 170 GJ/t. Therefore, to get 2.5 TW of installed wind power by 2030, we would need an aggregate rotor mass of about 23 million metric tons, incorporating the equivalent of about 90 million metric tons of crude oil. And when all is in place, the entire structure must be waterproofed with resins whose synthesis starts with ethylene.

Another required oil product is lubricant, for the turbine gearboxes, which has to be changed periodically during the machine’s two-decade lifetime. Undoubtedly, a well-sited and well-built wind turbine would generate as much energy as it embodies in less than a year. However, all of it will be in the form of intermittent electricity—while its production, installation, and maintenance remain critically dependent on specific fossil energies.

Moreover, for most of these energies—coke for iron-ore smelting, coal and petroleum coke to fuel cement kilns, naphtha and natural gas as feedstock and fuel for the synthesis of plastics and the making of fiberglass, diesel fuel for ships, trucks, and construction machinery, lubricants for gearboxes—we have no nonfossil substitutes that would be readily available on the requisite large commercial scales. For a long time to come—until all energies used to produce wind turbines and photovoltaic cells come from renewable energy sources—modern civilization will remain fundamentally dependent on fossil fuels.

About the author: Vaclav Smil does interdisciplinary research in the fields of energy, environmental and population change, food production and nutrition, technical innovation, risk assessment, and public policy. He has published 40 books and nearly 500 papers on these topics. He is a Distinguished Professor Emeritus at the University of Manitoba and a Fellow of the Royal Society of Canada (Science Academy). In 2010 he was named by Foreign Policy as one of the top 100 global thinkers and in 2013 he was appointed as a Member of the Order of Canada. He has worked as a consultant for many US, EU and international institutions, has been an invited speaker in more than 400 conferences and workshops in the USA, Canada, Europe, Asia and Africa, and has lectured at many universities in North America, Europe and East Asia. His wife Eva is a physician and his son David is an organic chemist.

Wind Turbine Under Construction

[Image not part of Vaclav Smil essay from IEEE Spectrum]

The post What I See When I See A Wind Turbine first appeared on Capitalism: The Liberal Revolution.

Mass shootings are almost invariably perpetrated with rapid-fire rifles. Consequently, public discussion has focused on actions that could be taken to make it against the law for civilians to own such weapons. However, despite the enactment of laws in some states of the United States intended to restrict access to such weapons, according to an editorial in the New York Times, “there are currently around 15 million military-style rifles in civilian hands in the United States.” ¹

Consequently, the focus of this essay is the means available for protection of people in the absence of political actions that would eliminate the ability of malevolent people to obtain lethal weapons such as rapid-fire rifles.

Police action cannot prevent mass shootings. All that the police can do is to respond to reports of the shooting. That is always too late to stop fatalities.

In any one year the mass shooters are few, a handful in number out of a population of more than 300 million at present. With the likelihood low of a shooting at any one of the hundreds of thousands or millions of public places in the U.S., understandably many if not most of such places lack the security that would prevent the occurrence of a mass shooting.

James Alan Fox, a professor of criminology at Northeastern University stated that multiple-victim shootings are on the rise but not in schools. There is an average of about one a year in schools—in a country with more than 100,000 schools.

There is a useful model for mitigation of the problem of security in public places. That model is in the nation of Israel, which has faced this problem throughout its history and has addressed it effectively. The Israelis provide continual security at vulnerable places. Whether it is the national airline of Israel, airports wherever in the world that airline receives passengers, schools, or places where the public gathers. Security is in place to prevent an attack before it happens, rather than responding after people have been killed.

In America, effective security exists at a significant number of locations by controlling access to buildings and grounds, mobile security patrols, closed circuit television (CCTV) security monitoring and surveillance, and continual presence of well-trained security guards. Security services of that kind are provided by companies and property owners themselves or by contract with private security companies.

Some people may doubt that private security can be more effective than the police in protecting the public. After all, the police are accountable to the public and private security is not. Private security is accountable only to the people who hire them for protection.

There are thousands of private security companies in America precisely because their mission is to prevent harm to persons and property. The mission of police on the other hand is law enforcement after a crime has been committed.

It is noteworthy that often it is police officers who establish a private security business in order to meet a demand for security that conventional policing does not satisfy.

Effective security for schools is feasible, but achieving it would require facilities, equipment, and personnel to control and restrict access by would be intruders. The resources are available.

According to data published by the U.S. Department of Education, in the second decade of the 21st century Americans were spending for public high schools at the rate of more than $12,000 per student per year.

For a high school with 625 students, the U.S. national average, annual spending is nearly $8 million dollars per year for all expenses — salaries, employee benefits, purchased services, and supplies. A reasonable estimate of the cost of effective security would be perhaps $200,000 per year for such a school, including amortizing the cost of equipment plus the cost of two full-time security officers forty hours per week for a typical 40-week school year. The total costs would amount to a little over $300 per student per year. That is about 2½% of annual cost of a typical American high school.

The cost may seem high for schools operating already within budgetary constraints, but the trade-off is clear. Take the very low risk that there will be a mass shooting at school or spend the money, as a form of insurance against that risk occurring.

The post Security—Protecting People from Mass Shootings first appeared on Capitalism: The Liberal Revolution.

“I spent many hours listening to tape recordings of lectures by Andrew Galambos. My decision to pursue education and a career in science was the direct consequence of Galambos’ influence.  My original formal education was in the design and art fields, so this was a major divergence. Such was the power of his motivation.  My specialty was in the field of biomaterials, with 8 patents and a number of papers.  I retired from science after my final position which was the 6 years needed to launch a new research institute, from the ground up.  

“I salute your effort to provide sanity to the climate change intellectual brainwashing.  When I was working in the world of science I was stunned by the lack of receptivity to any questions that might suggest doubt.  ‘Are you a skeptic?’ would be a typical reply and end of discussion.

“I understand the basis of the anthropogenic global warming hypothesis as CO₂ reacts with water to affect pH.

“You can easily do a demonstration in a closed system such as an aquarium.  To generalize from that to the oceans of the planet is not rational, in my opinion.  The conditions of the ocean have numerous variables.

“Many scientists are environmentalists and easily accede to an anti-industrial position.  An enormous amount of public funds is now available for climate change topics.  This funding politicizes research and conclusions—and results in requests for more funding.  In my opinion, there should be no public funding of science.  However, I’m in the minority.

“The funding issues with science are frustrating for scientists. Government agencies are the source of both largesse and endless grant writing stress.

“Peter Thiel, founder of PayPal and other things, and libertarian in his leanings, observed that science is now driven by those ‘who can write the most clever grant applications — which is not the same thing as doing the best science.’

“It becomes a perverse game of persuasion and then spinning of results for the next grant application.”

The post Comment of a scientist on Landscapes & Cycles first appeared on Capitalism: The Liberal Revolution.

The police had been called by a merchant who believed Mr. Floyd had attempted to pay for merchandise with counterfeit money.

The police came. They arrested Mr. Floyd, and subdued him, handcuffed him and pushed him down to the ground. While Mr. Floyd was down, police officer Derek Chauvin had his knee on Mr. Floyd’s neck, holding him down for nearly nine minutes.

A bystander with a cell phone filmed the whole incident. Her video went viral on the internet. She can be heard telling the policeman to get off Mr. Floyd, who can be heard saying “I can’t breathe.”  Three other police officers watched and did nothing.

Seeing this going on, the merchant called the police department, asking for more police to come to save Mr. Floyd. The merchant said afterwards that he would never again call for police protection.

The death of George Floyd caused an outpouring of massive protests across the length and breadth of America—protests that continued for more than two weeks. Rioting and looting occurred near some protest locations.

The President of the Minneapolis City Council stated after the killing of Mr. Floyd that nine of the Council’s thirteen members had committed to dismantling policing as it is known in the city of Minneapolis—and are committed also to building a new model of public safety that actually keeps the community safe.

There have been calls to “defund” police departments across America. Defunding a city’s police would amount to abolishing the police. To do that without providing otherwise for public safety would result in rampant criminal activity far worse than the riots and looting that occurred during some of the protests of Mr. Floyd’s death.

Until better means of public safety are in place, America needs police, but policing with a primary function of protecting lives and property, not enforcing laws.

Police in America enforce the War on Drugs, a futile endeavor that has made it extremely lucrative to engage in the illicit drug trade. Those in political power in the United States seem to have learned nothing from the failure of prohibition of alcoholic beverages (1920-1933). The risk of punishment for violating the alcoholic beverage prohibition laws made it extremely lucrative to do so. Gangsters of the American Mafia took advantage of alcohol prohibition to take over the distribution of alcoholic beverages, thereby expanding their criminal organization.

Police in America stop motorists and issue citations for driving infractions that have harmed no one and endangered no one. These traffic citations are financially burdensome to poor people, without any offsetting public safety benefit.

Eliminating just those two activities of police would free up many police officers to protect the public from attacks on persons and property.

In the United States, the function of the police is to enforce the law by arresting a suspected law violator and bringing the violator before a court of law for prosecution and punishment. Punishment occurs after an accused violator has been charged with an offense, and convicted after trial by a jury.

What the police did to Mr. Floyd was an extrajudicial killing. Prosecutors in Minneapolis charged all four police officers with homicide.

The killing of George Floyd epitomizes incidents in which police officers have acted brutally during an arrest, or against prisoners in custody.

Incidents of police brutality are relatively small in number compared to all police activity, but they occur with enough frequency to have become a serious concern in the United States. It appears that police brutality may happen more to black people in proportion to their number, than to others.

Most police officers, probably the overwhelming majority, would not act in the way that occurred in the killing of George Floyd.

The problem of police brutality arises when the power of the police has been entrusted inadvertently to someone who should not be a police officer, someone who abuses that power.

The book of which this website is a part, Capitalism:  The Liberal Revolution (CTLR) contends that there should be no police and no one having  legally sanctioned power of forcible treatment of others that police possess and routinely exercise—arrest, detention, handcuffing, and jailing. Police exercise those powers frequently in cases of non-violent violations of the law that have not harmed anyone, or caused the risk of harm to anyone.

The position of CTLR on policing is:

• The state’s police are law enforcement officers. Only incidental to law enforcement do they protect people and their property.
• There are far too many laws specifying criminal sanctions for violation of the law, over 5,000 federal crimes alone, and multiples of that number of such laws in the several states of the United States of America.
• Punishment is the basis of criminal law in the United States. Much, much better would be restitution based protection of persons and property.
• CTLR advocates against punishment-based justice and in favor of restitution-based justice.

It is theft to use counterfeit money to pay for a purchase. That was George Floyd’s presumed offense. A thief should make restitution. No punishment. No arrest. No handcuffs. No jail. People would be protected from theft losses by insurance and credit—insurance to reimburse someone who has suffered a loss due to theft; and credit to provide notice to the world that a certain individual committed a theft and did not make or offer restitution.

CTLR advocates proprietary governance. In terms of protecting persons and property this means there would be no political state and no state police. Instead, security would be provided by contracting with professional security companies. There are over 6,000 private security companies in the United States and many thousands more in other nations. In aggregate, the private security industry in America employs more security personnel than all the police officers of the various jurisdictions in the United States.

Jeff and Julie Thomas of Concierge Home & Business Watch, Grants Pass, Oregon

Jeff and Julie Thomas (pictured above) had retired to Grants Pass, Oregon (population 38,000) after more than fifty combined years of police experience. In 2009, when local police service became inadequate due to budgetary constraints, Mr. and Mrs. Thomas established a security business, Concierge Home & Business Watch, in Grants Pass. The Thomas’ company employed more than fifty security officers as of 2019.

The thousands of security companies in the United States range in size from Securitas, AB, a large, Sweden-based, multi-national company active throughout the world, to small, local companies employing a half dozen or so security officers.

The existence of such a large private security industry attests to widespread dissatisfaction with lack of assured, prompt, and effective protection provided by the state’s police. Why else would businesses or individuals pay for private security?

Readers may object that there would be no protection for people who could not afford to pay for private security. However, private security is a deterrent to all attacks on persons and property. It usually protects people who are not subscribers—as a means of protection of subscribers.

For example, Concierge Home & Business Watch of Grants Pass, Oregon (above) provides neighborhood patrols in residential and business neighborhoods. The existence of regular security patrols is a deterrent to crime. Patrolling security officers may approach an individual engaged in suspicious activity to make inquiry about what is going on. That alone could put an end to the activity without need for additional action.

In the absence of a state’s law enforcement, a thief could not avoid responsibility by fleeing to another community. There would be records of wrongdoing that would be shared among security organizations and insurers.

To effect restitution, private security companies could pursue fleeing wrongdoers wherever they go. That is what happened to the real life train robbers whose story is depicted in the movie Butch Cassidy and the Sundance Kid (1968). At present, bounty hunters hired by private bail bond companies pursue fugitives who have failed to appear in court, as depicted in the movie Midnight Run (1988).

Repeat perpetrators of violent acts would be isolated from the community. Self-defense is not coercion. Isolating such violent repeat offenders is defense of everyone else in the community.

People unwilling or unable to pay for private security could provide it for themselves by banding together to protect their community from criminals. That is what happened in San Francisco during the gold rush of the 1850s. Because there was no effective municipal policing, citizens organized to track down and expel wrongdoers.

Concurrently there came into existence the San Francisco Patrol Special Police. It is a private security enterprise organized in 1847 and still in existence. It was formed to protect people from widespread criminality that plagued San Francisco at the time. The legal authority of the Patrol Special Police was incorporated into the city’s charter in 1856. It is still in existence, operating to protect the people of San Francisco.

In New York City in the 1970s, crime was a big problem on the subway system. The city’s police had failed to keep the subways safe. In 1979, an individual named Curtis Sliwa created an all-volunteer organization called Guardian Angels, still in existence over 40 years later, that successfully combatted crime on the subways.

In the state of Michoacan, Mexico, drug cartels had ruled the region for over a decade (2000-2013), subjecting the people to extortion, kidnapping, arson, rapes and killings. There had been no protection from any level of the Mexican government—federal, state, or local. People suspected that police and the army were colluding with the drug cartels.

In 2013, all around Michoacan, citizens formed spontaneous community self-defense organizations called Autodefensas (self-defenders). The autodefensas drove the drug cartel out of Michoacan. Concurrently, Autodefensas came into existence in several other Mexican states.

In sparsely populated communities, private security may not be available. Security companies, like other businesses, need enough customers to justify their existence. In sparsely populated areas of the United States there is almost always a local Sheriff’s office that citizens can call upon. However, the response time of Sheriff’s deputies may be quite slow in such areas. The Sheriff’s deputies may have too large a geographical area of responsibility to provide a prompt response to citizens’ calls.

In sparsely populated areas there could be volunteer policing in a community, similar to the volunteer fire departments found in America where there is no municipal fire department.

Here are links to chapters of CTLR on Governance and the Natural Republic in which proprietary protection of persons and property is proposed to be accomplished by free enterprise.

The post Ending Police Brutality first appeared on Capitalism: The Liberal Revolution.

This is the most down to earth science book that one can imagine as it shows a scientist at work in his field, using the tools of the scientific method in a search for better explanations. Readers can learn a lot from this book’s 283 pages of text that includes 182 illustrations (graphs, pictures, maps, and diagrams). The text is documented by 999 source notes.

Jim Steele’s special fields of interest and expertise are biology, wildlife, and ecology. From 1983 to 2013 he was Director of the science field campus of San Francisco State University. The field campus is located at an elevation of 5000 feet (1524 meters) in the northern Sierra Nevada Mountains of California, 200 miles (320 km) northeast of San Francisco and 40 miles (64 km) northwest of Lake Tahoe.

The book is based on Jim Steele’s lifetime spent teaching students from elementary school through the university level about natural systems and wildlife habitats.

In the early 1990s Steele was engaged by the U.S. Forest Service to study the bird communities in high mountain meadows of the Tahoe National Forest. In 1998 he witnessed a sudden collapse of the bird population in a meadow in Carman Valley, California.

At first Steele suspected that global warming was the most likely cause. However, 100 years of local climate records showed that (1) the region was no warmer than in the 1900s, a century earlier; and (2) local maximum temperatures had decreased significantly since the 1930s.

Temperatures shown in this graph are the yearly average maximum and minimum temperatures at the USHCN Tahoe City weather station

The graph shows 110 years of temperature at the Tahoe City, California weather station that is part of the United States Historical Climate Network (USHCN). Tahoe City is located on the north shore of Lake Tahoe. It is the closest USHCN weather station to the mountain meadow in Carman Valley California where there was a sudden collapse of the bird population.

Steele states “like much of the United States, the average temperature for Tahoe City has never significantly exceeded the 1930s and 1940s. [Furthermore] local maximum temperatures had decreased significantly since the 1930s. [Emphasis in original text] Many other surrounding USHCN weather stations . . . exhibited the same pattern.”

Steele discovered that heavy logging in the Carman Valley region 100 years previously had caused a deterioration of the watershed that supported the bird population in the mountain meadow where birds had disappeared. To remediate the damaged watershed Steele worked with the US Forest Service, the Environmental Protection Agency and a local restoration organization. Once the watershed was restored most species of birds rebounded immediately and in greater numbers than had been observed previously.

Steele told friends that the crash in bird population in the Sierra Nevada meadow had nothing to do with climate change and everything to do with an abused watershed. Most of his friends celebrated the successful habitat restoration. However, a few accused him of letting global warming off the hook. When he responded that there had been no warming in the region he was called a denier and accused of helping Big Oil. He asked that those antagonists look at the temperature records for themselves, but they refused to do so.

This experience motivated Steele to investigate other claims that global warming was causing extinction of species. Among the species and their habitats he examined were butterflies, the Pika (a small rabbit-like rodent found in mountainous regions of the American west), frogs and toads, penguins in Antarctica; and polar bears and walruses in the Arctic.

In this book Steele examines not only wildlife and habitats but also climate and weather. The discussion includes phenomena such as El Niño and La Niña, extreme weather (tornadoes, droughts and flooding), and climate variability through thousands of years of climate and geologic history.

The reader learns that seventy-five percent of all tornadoes occur in the United States. This is due to the parallel north-south alignment of the Rocky Mountains and the Appalachian Mountains that makes the Great Plains a funnel for cold dry arctic air that can move southward while warm moist air from the Gulf of Mexico is drawn northward. When a cold front from the north encounters warm air advancing from the south, thunderstorms may occur that develop into tornadoes.

Steele’s view is that wildlife is not threatened with extinction by global climate change, and that climate is not changing any more than it ever has. The species examined have persisted and survived through thousands of years of variability in climate. Steele points rather to threats to wildlife from abuse of habitats through humans’ land use, as well as excessive fishing and hunting.

This is a book that can be enjoyed on several levels: as a description of human land uses that disturb wildlife habitats; as a clear and articulate presentation of important aspects of climate science; and as an examination of human nature displayed in the abuse and perversion of climate science and biological science.

The misuse of climate and biological science has been sometimes innocent and well meaning, and sometimes otherwise. Steele identifies widespread and deliberate manipulation of data to make observations fit the human-caused global warming hypothesis rather than testing to see if the hypothesis is consistent with observation.

In a particularly illuminating discussion, Steele examines what he calls hypothesis obsession syndrome (HOS). This is the propensity of some contemporary climate and biology scientists to see only human-caused global warming as the cause of extinction of wildlife, disregarding other possible causes as unworthy of investigation. Two examples illustrate how this happens. 

Edith’s checkerspot butterfly

In 1996 a biologist published a study entitled “Species and Climate Range.” The study claimed that global warming had caused the extermination of several colonies of the Edith’s checkerspot butterfly in southern California and that the survivors were likely moving northward and upward in elevation to cooler locations. This study made its author a celebrity in climate-change research.

Jim Steele investigated the checkerspot butterfly extinction claim. A renowned butterfly specialist commented that there was absolutely no evidence of butterfly migration northward or to higher elevations.

Steele found that other scientists had identified the cause of disappearance of Edith’s checkerspot butterfly in some locales as habitat degradation and loss due to the rapid urbanization of southern California during the 20^th century. The butterflies had disappeared from Orange County California by the 1970s but reappeared in areas of nearby Riverside County and San Diego County and still further south in Baja California, Mexico.

Butterfly species had experienced and survived more extreme warming during the Holocene Optimum period 9000 to 5000 years ago when the earth’s average temperature was 3° F to 6 ° F higher than at present.

Controlled experiments demonstrated that higher temperatures enhance the survival of the butterfly.

When Steele undertook to replicate the study in question he asked its author to disclose the locations of her butterfly research sites. On the basis of her study, the author had become famous and highly praised in academia and in popular science journals. She refused to share the data or to amend her study or ask that it be retracted from the journal in which it had been published.

The pika 

Pikas are found in mountainous regions of the western United States. They are hamster-like animals, a cousin of rabbits, also known as the “whistling hare” and “boulder bunny.”

Environmental activists assert that the pika’s survival depends on achieving immediate reductions in greenhouse gas emissions. However, Steele cites respectable sources indicating that there is a plethora of evidence that the pika is flourishing.

An activist scientist claimed that brief exposure to temperatures of 78 ° F or warmer can cause death of the pika. Another pika expert replied that it was false to say “. . . that pikas perish when ambient temperatures reach 78° F. They do not die at these temperatures; they retreat to the cool interstices of the talus.” The talus is a slope consisting of rock piles, beneath which temperatures are significantly lower.

An activist proponent of heat death of the pika had trapped pika and in three experiments had confined them at dawn to a large wire mesh cage. Each animal died around noon when air temperature reached 78° F. Steele comments that it was direct exposure to the sun, not the ambient air temperature that killed the pikas. When running free, at hot hours of the day pikas retreat to the shade of the talus slopes that are part of their habitat. Beneath the rocks there is dense, colder air from the previous night that has settled into the talus, creating a naturally cool environment during the heat of the day.

These few examples are just a small part of the richness of Jim Steele’s excellent book, a work that deserves wide circulation.

The post LANDSCAPES & CYCLES first appeared on Capitalism: The Liberal Revolution.

• Reduce its corporate tax
• Abolish Fannie Mae and Freddie Mac
• Abolish occupational licensing
• Abolish minimum wage laws
• Eliminate taxes on property, gifts, and inheritance
• Reform Social Security from defined benefits to defined contributions and introduce private accounts.
• Adopt a school voucher system where private schools get the same per‐​pupil funding as public schools.
  

Before the 1950s Sweden had free enterprise social and economic policies. It prospered under them. After the 1950s the majority Swedish Social Democratic Workers’ Party (“Social Democrats”) intervened in education and health care and created social programs that provided pensions, unemployment benefits, paternal leave, and sick leave benefits.

Between 1960 and 1980, public spending more than doubled and taxes skyrocketed. The government started regulating the business and labor market in detail.

Talent and capital stormed out of Sweden to escape taxes and red tape. Swedish businesses moved headquarters and investments to more hospitable places. For example, IKEA left for the Netherlands and Tetra Pak for Switzerland.

Björn Borg and other sports stars fled to Monaco. The legendary filmmaker Ingmar Bergman left for Germany after having been falsely accused of tax evasion.

The previously celebrated Swedish work ethic was eroded in new generations who had only experienced high taxes when they worked and generous benefits when they didn’t.

The share of Swedes who said it is acceptable to lie to obtain public benefits increased from 5 percent in 1960 to 43 percent in 2000. After generous sick leave benefits were implemented, Swedes who were objectively healthier than any other population on the planet were suddenly “off sick” from work more than any other population.

In 1990, Sweden suffered a spectacular crash. Unemployment surged and the budget deficit soon reached 11 percent of GDP. The value of the Swedish currency plummeted. 

Voicing a conclusion of people across the political spectrum, the Social Democratic Minister of Finance Kjell‐​Olof Feldt stated “That whole thing with democratic socialism was absolutely impossible. It just didn’t work.”

From 1991 to 1994 a center‐​right government implemented radical reforms.  The government reduced its size by a third. It implemented a surplus target in public finances. Taxes were reduced. Taxes were abolished on wealth, property, gifts, and inheritance.

State‐​owned companies were privatized. Markets in financial services, electricity, media, telecom, and others were liberalized. Sweden joined the European Union to get tariff‐​free access to its most important markets.

Sweden created a school voucher system where private schools get the same per‐​pupil funding as public schools

Social Democrats and center‐​right parties agreed to end the pay‐​as‐​you‐​go system in social security, like that of the United States, and replace it with defined contributions and private accounts.

The Swedish government still provides citizens health care, childcare, free colleges, and subsidized parental and medical leave.

The Social Democrats returned to power in 1996. However, they had already embraced many of these reforms.

Between 1970 and 1995, when the world thought of Sweden as a worker’s paradise, inflation ate almost all the workers’ wage increases. Since 1995, on the contrary, real wages have increased 65 percent.

The tax system is not built to squeeze the rich — they are too few, and the 1970s showed that the economy was too dependent on them.

Ninety‐​seven percent of Swedish tax revenue from incomes comes from proportional payroll taxes and flat regional taxes, set at around a third of everybody’s income. Just 3 percent of the total income tax revenue comes from “taxing the rich.” The top 10 percent in the United States pay 45 percent of the income taxes. In Sweden, they pay less than 27 percent.

More than a quarter of government income derives from taxes on consumption, in which everybody pays just as much as the rich for every item bought.

So that is the real story of the Swedish model. Free enterprise economics prior to the 1950s turned a poor backwater into one of the richest countries on the planet. Then it experimented with socialism briefly in the 1970s and ‘80s. This made the country famous, but it almost destroyed it. Learning from this disaster, the left and the right have cooperated to liberalize Sweden’s economy more than other countries, even though it is still far from its classical liberal past.

Note: Johan Norberg is a Swedish author, lecturer and documentary filmmaker. This is an abridged version of “Sweden’s Lessons for America,” originally published in Cato Policy Report January/February 2020. For the complete essay go here

The post Sweden’s Lesson for America by Johan Norberg first appeared on Capitalism: The Liberal Revolution.

In 1977, Dan was the owner of a trucking business in San Francisco. In June 1977, Dan and his wife Pauline R. Lutkenhouse (1928-2017) visited the Big Island of Hawaii for the first time. They were shown the property on Onomea Bay, seven miles (11 km) northeast of Hilo, that has since become Hawaii Tropical Botanical Garden.

Dan and Pauline were captivated by the seclusion and beauty of the place. The area receives annual rainfall averaging 129 inches (3281 mm), creating a tropical jungle environment. They decided to buy a 17-acre (42 ha) parcel that descends to the ocean at Onomea Bay.

Oneoma Bay at Hawaii Tropical Botanical Garden

When the Lutkenhouses acquired the property, it was overgrown and virtually impenetrable, choked with wild invasive trees, weed and thorn thickets, and strangling vines.

Dan decided to establish a botanical garden to preserve the valley and its beauty forever. In order to devote himself full time to the development of the Garden, Dan sold the trucking business. Dan and Pauline moved to a home near the valley, where they lived the rest of their lives.

Every day for eight years, Pauline would pack Dan a brown bag lunch and he would disappear into the jungle, returning at night dirty and tired, but happy. During that time Dan, his assistant Terry Takiue, and two helpers worked with cane knives, sickles, picks, shovels, and a chain saw clearing paths through the jungle.

Dan and Pauline Lutkenhouse in the Hawaii Tropical Botanical Garden

All the work was done by hand to avoid disturbing the natural environment or destroying valuable plants and tree roots. The men kept a slow and easy pace, so as not to suffer heat stroke or dehydration in the steamy jungle.

Trails were hewn from hard lava rock with picks and shovels. To keep the soil from compacting and the natural beauty from being destroyed, no tractors were used; excess rock was removed and gravel brought in by wheelbarrow. Dan followed the contours of the land in designing the Garden trails, which curve and wind their way through the jungle. Gradually, secret landscapes revealed themselves. It took years of carefully clearing the jungle before the discovery of the crown jewel of the Garden—a three-tiered waterfall said to be the most beautiful in all Hawaii.

Lily Lake

The development work continued seven days a week until the Garden opened to the public in 1984. Thereafter, for another ten years Dan and Pauline traveled the world collecting additional plants for the Garden from tropical jungles around the world. Dan chose the location of every plant and tree introduced to the Garden.

Dan and Pauline invested $2 million of their own funds to acquire and develop the property. To protect the Garden site, Dan and Pauline established a nonprofit charitable corporation. Over time the original 17-acre property was expanded to sixty acres. In 1995 they conveyed the land to the corporation. They made legal arrangements to assure that the land would never be sold or commercially developed. Dan said, “It’s too precious a valley to be developed. We’re preserving the valley so that mankind can enjoy it forever. I believe that we should all try to leave the world a better place than we found it.”

The Garden has been described as the most beautiful accessible tropical jungle garden in the world.

Entrance to the Garden

The Garden takes no funding from any political governance entity. Its continued operation is financed entirely by admission fees and donations. As of 2020 the Garden had 17 full-time employees and had welcomed more than 700,000 visitors.

To visit the Garden’s website, click here.

The world famous Butchart Gardens in Victoria, British Columbia, were created in a similar manner, by members of the family of Jenny Butchart who had previously used the property as a quarry. For the story of the creation of the Butchart Gardens, click here.

The post Hawaii Tropical Botanical Garden first appeared on Capitalism: The Liberal Revolution.

Welcome address by Lord Lawson, chairman of the Global Warming Policy Foundation

Good evening everybody. Thank you all for coming to this great annual event, the GWPF Lecture.

In recent years we have tended to have politicians give this lecture; last year, for example, we had former Prime Minister of Australia, Tony Abbott. This is not surprising, because the main focus of the GWPF is policy; that’s what the ‘P’ in ‘GWPF’ stands for. But I thought this year it was about time to have a scientist come and talk to us, and Professor Lindzen is the most distinguished living climate scientist on the planet.

He is – which is less well known – to a certain extent responsible for the creation of the GWPF. I first came across Dick some 14 years ago, when I was appointed by accident to the Economic Affairs Committee of the House of Lords, which was then chaired by my good friend Lord Wakeham, who I am glad is here this evening.

We had to decide what the subject of the inquiry would be, and I thought it might be a good idea to look into the economics of climate change. I was interested in it because it was something that I knew nothing about; it had not been an issue during my time as a minister, but it had suddenly become a major issue and a major talking point. So we had an inquiry.

The most impressive witness we had was Dick Lindzen, Professor of Atmospheric Physics at MIT in the United States, a chair he held for some 30 years. Now he is Emeritus Professor.

His evidence pointed out all the complications that the media never mentioned and don’t understand; this not only impressed me, but it impressed the committee. As a result of this we had a unanimous, all-party report, which was the first report on the subject that expressed any caution and qualification about jumping to policy conclusions.

It was on the basis of that report that I wrote my book ¹ and on the basis of that book that I founded the GWPF. So Dick, you are responsible for us. It is with the greatest of pleasure that I, on this particularly opportune day, with the IPCC having just published its latest and most alarmist report on the climate, welcome you to give this lecture. There could be no better time to have a lecturer of Dick Lindzen’s distinction, and there could be nobody more distinguished.

About the lecturer  

Richard S. Lindzen was Alfred P. Sloan Professor of Meteorology at the Massachusetts Institute of Technology until his retirement in 2013. He is the author of over 200 papers on meteorology and climatology and is a member of the US National Academy of Sciences and the Academic Advisory Council of GWPF.

GLOBAL WARMING FOR THE TWO CULTURES

© Copyright 2018 The Global Warming Policy Foundation

Over half a century ago, C.P. Snow (a novelist and English physical chemist who also served in several important positions in the British Civil Service and briefly in the UK government) famously examined the implications of “two cultures:”

“A good many times I have been present at gatherings of people who, by the standards of the traditional culture, are thought highly educated and who have with considerable gusto been expressing their incredulity at the illiteracy of scientists. Once or twice I have been provoked and have asked the company how many of them could describe the Second Law of Thermodynamics. The response was cold: it was also negative. Yet I was asking something which is the scientific equivalent of: Have you read a work of Shakespeare’s?”

“I now believe that if I had asked an even simpler question – such as, what do you mean by mass, or acceleration, which is the scientific equivalent of saying, Can you read? – not more than one in ten of the highly educated would have felt that I was speaking the same language. So the great edifice of modern physics goes up, and the majority of the cleverest people in the western world have about as much insight into it as their Neolithic ancestors would have had.”

I fear that little has changed since Snow’s assessment 60 years ago. While some might maintain that ignorance of physics does not impact political ability, it most certainly impacts the ability of non-scientific politicians to deal with nominally science-based issues. The gap in understanding is also an invitation to malicious exploitation. Given the democratic necessity for non-scientists to take positions on scientific problems, belief and faith inevitably replace understanding, though trivially oversimplified false narratives serve to reassure the non-scientists that they are not totally without scientific “understanding.” The issue of global warming offers numerous examples of all of this.

I would like to begin this lecture with an attempt to force the scientists in the audience to come to grips with the actual nature of the climate system, and to help the motivated non-scientists in this audience who may be in Snow’s “one in ten” to move beyond the trivial oversimplifications. 

The climate system

The following description of the climate system contains nothing that is in the least controversial, and I expect that anyone with a scientific background will readily follow the description. I will also try, despite Snow’s observations, to make the description intelligible to the non-scientist.

The system we are looking at consists in two turbulent fluids (the atmosphere and the oceans) interacting with each other. By ‘turbulent,’ I simply mean that it is characterized by irregular circulations like those found in a gurgling brook or boiling water, but on the planetary scale of the oceans and the atmosphere. The opposite of turbulent is called laminar, but any fluid forced to move fast enough becomes turbulent, and turbulence obviously limits predictability. By interaction, I simply mean that they exert stress on each other and exchange heat with each other.

These fluids are on a rotating planet that is unevenly heated by the sun. The motions in the atmosphere (and to a lesser extent in the oceans) are generated by the uneven influence of the sun. The sun, itself, can be steady, but it shines directly on the tropics while barely skimming the Earth at the poles. The drivers of the oceans are more complex and include forcing by wind as well as the sinking of cold and salty water. The rotation of the Earth has many consequences too, but for the present, we may simply note that it leads to radiation being distributed around a latitude circle.

The oceans have circulations and currents operating on time scales ranging from years to millennia, and these systems carry heat to and from the surface. Because of the scale and density of the oceans, the flow speeds are generally much smaller than in the atmosphere and are associated with much longer timescales. The fact that these circulations carry heat to and from the surface means that the surface, itself, is never in equilibrium with space. That is to say, there is never an exact balance between incoming heat from the sun and outgoing radiation generated by the Earth because heat is always being stored in and released from the oceans and surface temperature is always, therefore, varying somewhat.

In addition to the oceans, the atmosphere is interacting with a hugely irregular land surface. As air passes over mountain ranges, the flow is greatly distorted. Topography therefore plays a major role in modifying regional climate. These distorted air-flows even generate fluid waves that can alter climate at distant locations. Computer simulations of the climate generally fail to adequately describe these effects.

A vital constituent of the atmospheric component is water in the liquid, solid and vapor phases, and the changes in phase have vast impacts on energy flows. Each component also has important radiative impacts. You all know that it takes heat to melt ice, and it takes further heat for the resulting water to become vapor or, as it is sometimes referred to, steam.

The term humidity refers to the amount of vapor in the atmosphere. The flow of heat is reversed when the phase changes are reversed; that is, when vapor condenses into water, and when water freezes. The release of heat when water vapor condenses drives thunder clouds (known as cumulonimbus), and the energy in a thundercloud is comparable to that released in an H-bomb. I say this simply to illustrate that these energy transformations are very substantial.

Clouds consist of water in the form of fine droplets and ice in the form of fine crystals. Normally, these fine droplets and crystals are suspended by rising air currents, but when these grow large enough they fall through the rising air as rain and snow. Not only are the energies involved in phase transformations important, so is the fact that both water vapor and clouds (both ice- and water-based) strongly affect radiation. Although I haven’t discussed the greenhouse effect yet, I’m sure all of you have heard that carbon dioxide is a greenhouse gas and that this explains its warming effect. You should, therefore, understand that the two most important greenhouse substances by far are water vapor and clouds. Clouds are also important reflectors of sunlight.

The unit for describing energy flows is watts per square meter. The energy budget of this system involves the absorption and reemission of about 200 watts per square meter.

Doubling CO2 involves a 2% perturbation to this budget. So do minor changes in clouds and other features, and such changes are common.

The Earth receives about 340 watts per square meter from the sun, but about 140 watts per square meter is simply reflected back to space, by both the Earth’s surface and, more importantly, by clouds. This leaves about 200 watts per square meter that the Earth would have to emit in order to establish balance.

The sun radiates in the visible portion of the radiation spectrum because its temperature is about 6000K. “K” refers to Kelvins, which are simply degrees Centigrade plus 273. Zero K is the lowest possible temperature (−273◦ C). Temperature determines the spectrum of the emitted radiation. If the Earth had no atmosphere at all (but for purposes of argument still was reflecting 140 watts per square meter), it would have to radiate at a temperature of about 255K, and, at this temperature, the radiation is mostly in the infrared.

Of course, the Earth does have an atmosphere and oceans, and this introduces a host of complications. So be warned, what follows will require a certain amount of concentration.

Evaporation from the oceans gives rise to water vapor in the atmosphere, and water vapor very strongly absorbs and emits radiation in the infrared. This is what we mean when we call water vapor a greenhouse gas.

The water vapor essentially blocks infrared radiation from leaving the surface, causing the surface and (via conduction) the air adjacent to the surface to heat, and, as in a heated pot of water, convection sets on. Because the density of air decreases with height, the buoyant elements expand as they rise. This causes the buoyant elements to cool as they rise, and the mixing results in decreasing temperature with height rather than a constant temperature.

To make matters more complicated, the amount of water vapor that the air can hold decreases rapidly as the temperature decreases. At some height there is so little water vapor above this height that radiation from this level can now escape to space. It is at this elevated level (around 5 km) that the temperature must be about 255K in order to balance incoming radiation. However, because convection causes temperature to decrease with height, the surface now has to actually be warmer than 255K.

It turns out that it has to be about 288K (which is the average temperature of the Earth’s surface). This is what is known as the greenhouse effect.

It is an interesting curiosity that had convection produced a uniform temperature, there wouldn’t be a greenhouse effect. In reality, the situation is still more complicated. Among other things, the existence of upper-level cirrus clouds, which are very strong absorbers and emitters of infrared radiation, effectively block infrared radiation from below. Thus, when such clouds are present above about 5 km, their tops rather than the height of 5 km determine the level from which infrared reaches space.

Now the addition of other greenhouse gases (like carbon dioxide) elevates the emission level, and because of the convective mixing, the new level will be colder. This reduces the outgoing infrared flux, and, in order to restore balance, the atmosphere would have to warm.

Doubling carbon dioxide concentration is estimated to be equivalent to a forcing of about 3.7 watts per square meter, which is little less than 2% of the net incoming 200 watts per square meter. Many factors, including cloud area and height, snow cover, and ocean circulations, commonly cause changes of comparable magnitude.

It is important to note that such a system will fluctuate with time scales ranging from seconds to millennia, even in the absence of an explicit forcing other than a steady sun.

Much of the popular literature (on both sides of the climate debate) assumes that all changes must be driven by some external factor. Of course, the climate system is driven by the sun, but even if the solar forcing were constant, the climate would still vary. This is actually something that all of you have long known – even if you don’t realize it. After all, you have no difficulty recognizing that the steady stroking of a violin string by a bow causes the string to vibrate and generate sound waves. In a similar way, the atmosphere–ocean system responds to steady forcing with its own modes of variation (which, admittedly, are often more complex than the modes of a violin string).

Moreover, given the massive nature of the oceans, such variations can involve timescales of millennia rather than milliseconds. El Niño is a relatively short example, involving years, but most of these internal time variations are too long to even be identified in our relatively short instrumental record.

Nature has numerous examples of autonomous variability, including the approximately 11-year sunspot cycle and the reversals of the Earth’s magnetic field every couple of hundred thousand years or so. In this respect, the climate system is no different from other natural systems.

Of course, such systems also do respond to external forcing, but such a forcing is not needed for them to exhibit variability. While the above is totally uncontroversial, please think about it for a moment. Consider the massive heterogeneity and complexity of the system, and the variety of mechanisms of variability as we consider the current narrative that is commonly presented as “settled science.”

The popular narrative and its political origins

Now here is the currently popular narrative concerning this system. The climate, a complex multifactor system, can be summarized in just one variable, the globally averaged temperature change, and is primarily controlled by the 1-2% perturbation in the energy budget due to a single variable – carbon dioxide – among many variables of comparable importance.

This is an extraordinary pair of claims based on reasoning that borders on magical thinking. It is, however, the narrative that has been widely accepted, even among many sceptics. This acceptance is a strong indicator of the problem Snow identified.

Many politicians and learned societies go even further: They endorse carbon dioxide as the controlling variable, and although mankind’s CO2 contributions are small compared to the much larger but uncertain natural exchanges with both the oceans and the biosphere, they are confident that they know precisely what policies to implement in order to control carbon dioxide levels.

While several scientists have put forward this view over the past 200 years, it was, until the 1980s, generally dismissed. When, in 1988, the NASA scientist, James Hansen, testified to the US Senate that the summer’s warmth reflected increased CO2, even Science magazine reported that the climate science community was sceptical.

The establishment of this extreme position as dogma during the present period is due to political actors and others seeking to exploit the opportunities that abound in the multi-trillion-dollar energy sector.

One example was Maurice Strong, a global bureaucrat and wheeler-dealer (who spent his final years in China apparently trying to avoid prosecution for his role in the UN’s Oil for Food program scandals). Strong is frequently credited with initiating the global warming movement in the early 1980s and he subsequently helped to engineer the Rio Conference that produced the UN Framework Convention on Climate Change. This was the agreement that endorsed the CO2-climate narrative, and initiated the series of international meetings (that continue to the present) to plan the control of climate.

However, others like the Swedish Prime Minister, Olaf Palme, and his friend and science advisor, Bert Bolin, who was the first chairman of the Intergovernmental Panel on Climate Change (IPCC), had also begun exploiting this issue as early as the 1970s. Their motivation was to overcome the resistance to nuclear energy by demonizing coal.

Political enthusiasm has only increased since then as political ideology has come to play a major role. A few years ago, Christiana Figueres, then executive secretary of UN Framework Convention on Climate Change, said that mankind was, for the first time in history, setting itself the task of intentionally changing the economic system. ²

Ms. Figueres is not alone in believing this. Pope Francis’ closest adviser castigated conservative climate change skeptics in the United States, blaming capitalism for their views. Speaking with journalists, Cardinal Oscar Rodríguez Maradiaga criticized “movements” in the United States that had preemptively come out in opposition to Francis’s planned encyclical on climate change. “The ideology surrounding environmental issues is too tied to a capitalism that doesn’t want to stop ruining the environment because they don’t want to give up their profits,” he said.

This past August, a paper appeared in the Proceedings of the National Academy of Sciences. Littered with “could bes” and “might bes,” it conclude that “Collective human action” is required to “steer the Earth System away from a potential threshold” and keep it habitable. The authors said that this would involve “stewardship of the entire Earth System– biosphere, climate, and societies,” and that it might involve “decarbonization of the global economy, enhancement of biosphere carbon sinks, behavioral changes, technological innovations, new governance arrangements, and transformed social values.”

Remember, in a world that buys into the incoherent “precautionary principle,” even themere claim of remote possibility justifies extreme action.

Presumably, the power these people desperately seek includes the power to roll back the status and welfare that the ordinary person has acquired and continues to acquire through the fossil fuel generated industrial revolution and return them to their presumably more appropriate status as serfs. Many more among the world’s poorest will be forbidden the opportunity to improve their condition.

Nevertheless, when these claims are presented to the leaders of our societies, along with the bogus claim that 97% of scientists agree, our leaders are afraid to differ, and proceed, lemming-like, to plan for the suicide of industrial society. Again, nothing better illustrates the problem that Snow identified.

Interestingly, however, “ordinary” people (as opposed to our “educated” elites) tend to see through the nonsense being presented. What is it about our elites that makes them so vulnerable, and what is it about many of our scientists that leads them to promote such foolishness? The answers cannot be very flattering to either. Let us consider the “vulnerable” elites first.

1. They have been educated in a system where success has been predicated on their ability to please their professors. In other words, they have been conditioned to rationalize anything.

2. While they are vulnerable to false narratives, they are far less economically vulnerable than are ordinary people. They believe themselves wealthy enough to withstand the economic pain of the proposed policies, and they are clever enough to often benefit from them.

3. The narrative is trivial enough for the elite to finally think that they “understand” science.

4. For many (especially on the right), the need to be regarded as intelligent causes them to fear that opposing anything claimed to be ‘scientific’ might lead to their being regarded as ignorant, and this fear overwhelms any ideological commitment to liberty that they might have.

None of these factors apply to “ordinary” people. This may well be the strongest argument for popular democracy and against the leadership of those “who know best.”

What about the scientists?

1. Scientists are specialists. Few are expert in climate. This includes many supposed “climate scientists” who became involved in the area in response to the huge increases in funding that have accompanied global warming hysteria.

2. Scientists are people with their own political positions, and many have been enthusiasticabout using their status as scientists to promote those positions (not unlike celebrities whose status some scientists often aspire to). As examples, consider the movements against nuclear weapons, against the Strategic Defense Initiative, against the VietnamWar, and so on.

Scientists are also acutely and cynically aware of the ignorance of non-scientists and the fear that this engenders. This fear leaves the “vulnerable” elites particularly relieved by assurances that the theory underlying the alarm is trivially simple and that “all” scientists agree.

Former senator and Secretary of State John F. Kerry is typical when he stated, with reference to greenhouse warming, “I know sometimes I can remember from when I was in high school and college, some aspects of chemistry or physics can be tough. But this is not tough. This is simple. Kids at the earliest age can understand this.”

As you have seen, the greenhouse effect is not all that simple. Only remarkably brilliant kids would understand it. Given Kerry’s subsequent description of climate and its underlying physics, it was clear that he was not up to the task.  

The evidence

At this point, some of you might be wondering about all the so-called evidence for dangerous climate change. What about the disappearing Arctic ice, the rising sea level, the weather extremes, starving polar bears, the Syrian Civil War, and all the rest of it?

The vast variety of the claims makes it impossible to point to any particular fault that applies to all of them. Of course, citing the existence of changes – even if these observations are correct (although surprisingly often they are not) – would not implicate greenhouse warming per se. Nor would it point to danger.

Note that most of the so-called evidence refers to matters of which you have no personal experience. Some of the claims, such as those relating to weather extremes, contradict what both physical theory and empirical data show. The purpose of these claims is obviously to frighten and befuddle the public, and to make it seem like there is evidence where, in fact, there is none. If there is evidence of anything, it is of the correctness of C.P. Snow’s observation. Some examples will show what I mean.

First, for something to be evidence, it must have been unambiguously predicted. (This is a necessary, but far from sufficient condition.) Figure 1 [below] shows the IPCC model forecasts for the summer minimum in Arctic sea ice in the year 2100 relative to the period 1980–2000. As you can see, there is a model for any outcome. It is a little like the formula for being an expert marksman: shoot first and declare whatever you hit to be the target.

Turning to the issue of temperature extremes, is there any data to even support concern? As to these extremes, the data shows no trend and the IPCC agrees. Even Gavin Schmidt, Jim Hansen’s successor at NASA’s New York shop, GISS, has remarked that “general statements about extremes are almost nowhere to be found in the literature but seem to abound in the popular media.” He went on to say that it takes only a few seconds’ thought to realise that the popular perceptions that “global warming means all extremes have to increase all the time” is “nonsense.”

At the heart of this nonsense is the failure to distinguish weather from climate. Thus, global warming refers to the welcome increase in temperature of about 1◦C since the end of the Little Ice Age about 200 years ago. On the other hand, weather extremes involve temperature changes of the order of 20◦ C.

Such large changes have a profoundly different origin from global warming. Crudely speaking, they result from winds carrying warm and cold air from distant regions that are very warm or very cold. These winds are in the form of waves. The strength of these waves depends on the temperature difference between the tropic and the Arctic (with larger differences leading to stronger waves).

Now, the models used to project global warming all predict that this temperature difference will decrease rather than increase. Thus, the increase in temperature extremes would best support the idea of global cooling rather than global warming. However, scientifically illiterate people seem incapable of distinguishing global warming of climate from temperature extremes due to weather.

In fact, as has already been noted, there doesn’t really seem to be any discernible trend in weather extremes. There is only the greater attention paid by the media to weather, and the exploitation of this “news” coverage by people who realize that projections of catastrophe in the distant future are hardly compelling, and that they therefore need a way to convince the public that the danger is immediate, even if it isn’t.

This has also been the case with sea-level rise. Sea level has been increasing by about 8 inches per century for hundreds of years, and we have clearly been able to deal with it. In order to promote fear, however, those models that predict much larger increases are invoked.

As a practical matter, it has long been known that at most coastal locations, changes in sea level, as measured by tide gauges, are primarily due to changes in land level associated with both tectonics and land use.

Moreover, the small change in global mean temperature (actually the change in temperature increase) is much smaller than what the computer models used by the IPCC have predicted. Even if all this change were due to man, it would be most consistent with low sensitivity to added carbon dioxide, and the IPCC only claims that most (not all) of the warming over the past 60 years is due to man’s activities. Thus, the issue of man-made climate change does not appear to be a serious problem.

However, this hardly stops ignorant politicians from declaring that the IPCC’s claim of attribution is tantamount to unambiguous proof of coming disaster.

Cherry picking is always an issue. Thus, there has been a recent claim that Greenland ice discharge has increased, and that warming will make it worse. ³ Omitted from the report is the finding by both NOAA and the Danish Meteorological Institute that the ice mass of Greenland has actually been increasing. ⁴ In fact both these observations can be true, and, indeed, ice build-up pushes peripheral ice into the sea.

Misrepresentation, exaggeration, cherry picking, or outright lying pretty much covers all the so-called evidence. 

Conclusion 

So there you have it. An implausible conjecture backed by false evidence and repeated incessantly has become politically correct “knowledge,” and is used to promote the overturn of industrial civilization.

What we will be leaving our grandchildren is not a planet damaged by industrial progress, but a record of unfathomable silliness as well as a landscape degraded by rusting wind farms and decaying solar panel arrays.

False claims about 97% agreement will not spare us, but the willingness of scientists to keep mum is likely to much reduce trust in and support for science. Perhaps this won’t be such a bad thing after all – certainly as concerns “official” science.

There is at least one positive aspect to the present situation. None of the proposed policies will have much impact on greenhouse gases. Thus we will continue to benefit from the one thing that can be clearly attributed to elevated carbon dioxide: namely, its effective role as a plant fertilizer, and reducer of the drought vulnerability of plants. Meanwhile, the IPCC is claiming that we need to prevent another 0.5◦C of warming, although the 1◦C that has occurred so far has been accompanied by the greatest increase in human welfare in history.

As we used to say in my childhood home of the Bronx: “Go figure.”

Figure 1: Climate model projections of rate of Arctic sea ice loss.
Source: Eisenman et al., J. Clim., 2011.

The post Global Warming for the Two Cultures first appeared on Capitalism: The Liberal Revolution.

Note: The focus of this essay is access to energy via wind power and solar power. The laws of nature dealing with energy apply to all human undertakings to achieve access to energy, including mining, petroleum exploration and production, and the operation of power plants that use energy from fossil fuels to generate electricity.

In physics, energy is defined as the capacity to do work. The first and second laws of thermodynamics inform us that access to renewable and alternative energy sources entails costs (first law) and is not reliably available without continuing inputs of energy (second law).

The First Law of Thermodynamics, known as the principle of conservation of energy, states that energy cannot be created or destroyed.

The Second Law of Thermodynamics, known as the law of entropy, states that order in a closed system deteriorates into a disorderly state unless more energy is input to maintain order.

The two laws have been epitomized in simple terms as follows.

First law: you can’t get something for nothing.

Second law: You can’t even break even.

Firewood as a source of energy illustrates the operation of the first two laws of thermodynamics. Burning wood releases heat energy for warming and for cooking. As a wood log is burned it turns to ash which is not a further source of energy in the form of heat. That is entropy.

In every step of the processes of accessing energy via sunlight and wind, there is consumption and processing of resources and energy. Large amounts of energy are needed to extract raw materials from the crust of the earth  by mining, to build wind turbines and solar collectors, and to build a power plant installation. That is the first law of thermodynamics in operation. One cannot access energy without spending energy.

Solar and wind generating facilities must be maintained to prevent degradation and loss of efficiency. This is the Second Law of Thermodynamics in operation.

Fossil fuels provide the energy to build and maintain wind and solar power generation facilities.

All things considered, generation of electricity by wind and solar power may cause as much emission of carbon dioxide as is saved by the consumers of electricity.

According to Richard A. Muller, professor of physics at the University of California at Berkeley, wind turbines will produce far more usable energy than solar collectors. Wind could provide about 15% of world energy use, although that is a projected outcome that has not yet been attained.

The U.S. Department of Energy concluded that solar electric systems could not meet the energy demands of an urban community or industry because of their cost, and the variability of sunlight—less in winter except in the tropics, less on cloudy days, and none at night.

Wind power 

Wind power is accessed by towers holding three propeller-like blades. The wind turns the blades around a rotor, which spins a generator that creates electricity.

A typical wind turbine has a base, a tower, a nacelle and three blades. Its foundation is made of concrete, the tower of steel or concrete, the nacelle from steel and copper and the blades from composite materials.

Wind towers are tall, ranging from 400 to over 600 feet. Wind turbine blades span 300 feet and sometimes more. Their operation kills birds and bats.

Wind turbines are anchored in steel and rebar platforms that typically exceed a thousand tons in weight. They are buried 6 to 30 feet in the ground. Turbines are fitted with lights so they can be visible.

The Altamont Pass wind facility in California covers approximately 234 square miles. 7,000 wind turbines have been installed there of which about 5,000 are operating at present.

Construction of a wind turbine facility requires preparation of the land for installation of concrete bases for each turbine. Fossil fuels are required to quarry the raw materials for a turbine’s concrete base and to transport them to a construction site.

Wind turbines are situated in rural and forest areas. The turbines require land clearing for the facility and new access roads. Plants and animals lose their habitats when a wind turbine facility is built.

Wind industrial complexes emit large amounts of carbon dioxide in their construction and maintenance.

At times there is no wind. For those times it is necessary to have a backup power source that is usually fired by fossil fuels.

When the turbine is not spinning it still requires energy for controls, lights, communications, sensor, metering, data collection, oil heating, pumps, coolers and gearbox filtering systems. This energy comes from the grid.

Wind turbine blades can last 15 to 20 years. Wind turbine blades are very large. They wear out or break. They are not suitable for recycling. When discarded they are deposited in landfill where they emit toxins. Incinerating the blades produces toxic gases and soot.

Solar power 

Industrial-scale solar power plants use hundreds of large mirrors, The mirrors are placed on the ground to concentrate sunlight and reflect it onto water-filled boilers that sit hundreds of feet above ground on top of towers well over 300  feet in height, taller than the Statute of Liberty. When the sunlight hits the boilers, the water inside is heated and creates high temperature steam. The steam is then piped to conventional steam turbines, which generate electricity.

The largest industrial-scale solar facility is located at Ivanpah, in the Mojave Desert of southeastern California.

According to a source on the internet, the construction cost of the Ivanpah facility was $2.2 billion dollars, which is $18 per watt of capacity. In comparison, a similar capacity nuclear power plant “. . . had an inflation-adjusted construction cost that worked out to $0.50 per watt of capacity, making Ivanpah 36 times more expensive.” Ivanpah is not producing enough revenue from sale of electricity to pay its operating costs.

The other method of accessing electricity from sunlight is via photovoltaic (PV) cells made of silicon. A silicon solar cell converts one wavelength of the spectrum of solar energy into electrical energy. A serious problem with solar power from PV cells is inefficiency. Only 15% of the sun’s energy is converted into electricity with the best PV technology.

At present there are no cost-effective batteries to store solar energy for use at night.

PV cells are cost effective for generating electricity in small-scale applications. According to Australian geology professor Ian Plimer, “in remote areas with small power needs and where regular maintenance is prohibitively expensive, solar power is sensibly used for lighting, telecommunications, navigation beacons, recording equipment, marine buoys, electric fences, pumps at bores and satellites.”

To produce the highest efficiency PV cells requires use of rare-earth elements such as germanium, gallium, indium and cadmium. These metals are byproducts of the zinc, aluminum and tin smelting and refining industries, all energy intensive users of fossil fuels.

There are numerous poisonous, flammable and hazardous chemicals used in the manufacture of a silicon solar panel. To manufacture PV cells requires fossil fuel power and large amounts of water. The useful life of solar power station ranges between five and twenty years.

Solar power, like wind power, requires infrastructure construction that produces emissions of carbon dioxide.

To maintain efficiency of the PV cells they must be cleaned regularly to remove dust and plant spores from the glass surface covering the PV cells.

A typical solar power station would be designed for a generating capacity of 1,000 megawatts (MW). That is about the capacity of typical fossil fuel or nuclear fired power stations. A 1,000 MW solar power facility requires far more space than fossil fuel or nuclear power facilities because, to prevent shading that blocks the sun, the space between solar panels plus the area needed for maintenance roads requires a total land area of fifty square miles.

Rooftop solar facilities are very expensive in comparison to the electricity they produce. According to California attorney Dennis Beaver, consumers have not been served well by rooftop solar PV installations. Although they reduce the cost of electricity from a utility company, often they malfunction, the seller may not be available to service them, and they end up with liability to a bank secured by a lien on their home.

A rooftop PV solar appliance, while not effective to generate adequate electricity for a home, could be used as an adequate source of heating water for home use.

The post Energy–renewable sources and thermodynamics first appeared on Capitalism: The Liberal Revolution.

The situation is much the same in Los Angeles, Seattle, New York, Boston, Washington, D. C., the more desirable suburbs of Chicago, and many other cities and regions. In the more expensive places, costs to buy or rent a home or an apartment are four to twenty times higher than in less expensive regions. 

The solution for unaffordable housing costs is not to be found in laws of the state or in federal subsidies for lower cost housing or in low-cost housing built by cities and subsidized by the United States of America. Those initiatives have failed to produce housing that is both affordable and free of squalid living conditions and dangerous criminal activity.

According to Portland, Oregon City Councilman and Housing Commissioner Dan Saltzman, “. . . the public-housing blocks that [some] cities built during the 1960s and 1970s . . . turned into crime-ridden slums almost everywhere they were tried.”

For people who are priced out of an expensive real estate market where they live, relocation to a less expensive housing market is a solution. For many people, relocation may be unattractive in some respects, such as employment opportunities, but it is a solution within the power of individuals to achieve. There is an increasing number of Americans who are moving away from big and expensive cities to smaller, less costly cities, not just to find lower housing costs, but also to enjoy a higher quality of life.

The reason for the extreme differences in housing costs across the United States is the relative ease or difficulty of building new housing. In the most expensive areas of the U.S. there are restrictions on building that are not present elsewhere, such as:

• limitations and requirements imposed by local zoning laws
• unrealistically high construction standards for new housing for low-income renters
• opposition of existing residents to new construction of lower-cost homes and rental properties
• rent controls that make it a losing proposition for entrepreneurs to build and maintain multi-tenant residential properties

The United States has a long history of construction of affordable housing including the following:

• Between 1865 and 1937 entrepreneurs built many hundreds of thousands of low-cost, affordable multi-family homes and apartment houses in Chicago, Brooklyn, Boston, Oakland, California, and elsewhere.
• After World War II, affordably priced new homes and apartments were built in large numbers by entrepreneurial builders such as William Lyon and Nathan Shapell in California, Del Webb in Arizona, and Levitt and Sons in the northeastern U.S.
• Between 1976 and 2018, Habitat for Humanity, a not for profit enterprise, built 100,000 low cost homes in the United States and eventually expanded its construction internationally.

In all these examples individual homes were built to sell at prices equivalent to approximately $90,000 in constant 2019 U.S. dollars, including land costs. $90,000 is the average cost of a modest-sized home built contemporaneously by Habitat for Humanity. $90,000 is an affordable cost of a home for Americans earning the $40,000 annual median U.S. income.

To move from a high-cost housing area to a low-cost housing area involves giving up the employment one has and searching for work in the new location—an often daunting prospect.  However, this is the tradeoff that exists in finding affordable housing. It is being done by many Americans, who because of housing costs leave expensive places such as Los Angeles and San Francisco to relocate to less expensive places.

All across America at present, there are many places with median home prices between $85,000 and $160,000, for example Huntsville, Alabama; Tucson, Arizona; Fort Smith, Arkansas; Evansville, Indiana; Sioux City, Iowa; Kalamazoo,  Michigan; Hattiesburg, Mississippi; Plattsburgh, New York; Tulsa, Oklahoma; Omaha, Nebraska; Memphis, Tennessee; El Paso, Texas; and Huntington, West Virginia. In each of these cities there is an active cultural life associated with one or more nearby four year colleges or universities.

Moving one’s residence to a more affordable location has become so common that in some previously lower-cost places, for example Boise, Idaho, and Corvallis, Oregon, housing costs have been rising rapidly in recent years due to influx of people from higher cost areas in search of more affordably priced housing.

The post Coping with Unaffordable Housing Costs first appeared on Capitalism: The Liberal Revolution.

A professor of forestry at a California University wrote in a University publication that “for thousands of years prior to Euro-American settlement, Native American tribes and lightning fires burned as much as 10 to 12 million acres in California every year [five times greater in area than the California fires of 2018] . . .  These fires were typically more benign, burning more often but at lower intensities. The federal government’s focus on fire suppression has resulted in denser forests with more continuous fuel to burn in an intense fire.” [Emphasis added]

The Forest Foundation of Sacramento states on its website that “Prior to European settlement in California . . . generally low-intensity fires  . . . helped to clear the understory, keep the forest canopy open, and as a result guarded against mega fires . . .

“Starting in the early 1900s land managers were successful in controlling many of the fires, but the result was a tremendous build-up of dense brush and overly-stocked forests.

• Historically, our forests have contained 50 – 70 trees per acre, and today our forests have more than 500 – 1,000 trees per acre – increasing the risk of catastrophic wildfire.
• Without natural thinning, forests grew more crowded and shade tolerant trees filled the understory, providing ladder fuels for today’s crown fires that jump to the crown of the trees and spread quickly.

“[W]e can reduce the risk of wildfires with the help of healthy forest management—which includes forest thinning and the removal of excess ‘fuels’ that can feed and increase the size of a fire.”

The author of this Post has an Australian friend who is a professor emeritus of geology and earth science at one of the major universities of Australia. At yearend 2019 he wrote as follows to friends and family about the destructive Australian bushfires of late 2019.

“Previous farming and forest management policy was to have small cold burns in winter to remove the fuel load. This no longer happens because what were previously managed forests in national parks, with harvesting and regular fuel load reduction programs are now isolated overgrown wilderness areas where fire vehicles cannot enter.

“About 50% of fires are deliberately lit, another 35% are from human stupidity (welding, grinding, barbecue, burning off etc. on hot windy days) and the rest are from lightning and embers from existing fires that can travel up to 30 kilometers.

“Local and state governments have restrictions on burning off undergrowth [and] cutting in fire breaks . . . In my own case, I lost a 8 Ha [20 acre] property, fences, outbuildings and a plantation [to fire] on 9th November 2019 . . .

“For years we had been seeking permission for a winter cold small burn to reduce the fuel load and were refused every time. There was a 30-year dead tinder dry fuel load in the adjacent national park . . . [20 years ago] we had burning embers dropping onto our property . . .

“[A]fter this event, I cut in a fire break and cut back the undergrowth. I was fined $7,000 and warned that if I cut back any regrowth over the following decade, I would again be fined but more heavily.

“Temperatures have been far higher in the past (e.g. 1896) . . . Drought has been more intense in the past. Drought is normal in Australia as is flooding rain. Drought makes the forests tinder dry . . . Our drought/rain cycle is also related to the El Nino-La Nina cycles. . . As per usual, we can expect flooding rains after drought. . .

“Previous bushfires have burned out a greater area and more people have died in previous bushfires than at present, especially in [the Black Thursday bushfire of] 1851.

“Native vegetation in Australia contains volatile flammable oils, burns easily and can explode. Some fires ‘crown’ with the burning of volatile gases above the ore canopy followed by a lower level intense fire. Nothing survives a crown fire because of the radiant heat. . .

“Enquiries commonly followed previous catastrophic fires, deaths and property losses. The recommendations are always the same (i.e. manage forests, cut in fire breaks and reduce fuel loads) and every time nothing is done.”

The post Climate and Wildfires first appeared on Capitalism: The Liberal Revolution.

“People are suffering. People are dying and dying ecosystems are collapsing [due to climate change]. We are in the beginning of a mass extinction, and all you can talk about is the money and fairy tales of eternal economic growth. How dare you! For more than 30 years the science has been crystal clear. How dare you continue to look away and come here saying that you’re doing enough when the politics and solutions needed are still nowhere in sight.”

Thunberg has been needlessly frightened by media coverage about the climate projections published by the United Nations Intergovernmental Panel on Climate Change (IPCC). The IPCC reports do not say what Greta said. The IPCC reports say:

• Near the end of the 19^th century, referred to as the “pre-industrial” time, the global average temperature was 0.8° Celsius (C) lower than today. [0.8° C is equivalent to 1.4° Fahrenheit (F).]
• According to the IPCC it is highly probable that this 0.8° C. rise in temperature was caused in significant part by an increasing atmospheric concentration of CO₂ induced by human combustion of fossil fuels.
• The IPCC did not rule out natural climate variability as part of the cause for higher temperatures.
• By the end of the 21st century, computer models of the IPCC project that due to human use of fossil fuels, the temperature of Earth is likely to experience a further rise in temperature of 0.7° to 3.7° C above the present level. That would take the total rise since the pre-industrial level to temperatures between 1.5° C and 4.5° C above the pre-industrial level.

The IPCC says that these are not predictions, but rather are projections based on various scenarios for computer modeling of hypothetical future climate.

The computer model temperature projections so far have been significantly higher than actually observed temperatures.

A rise of 3.7° C in global average temperature could not harm Greta Thunberg, the people of her homeland, Sweden, or anybody in the world.

A warming climate will not end winter, or eliminate the change of seasons. Summer, winter, and the seasons are a consequence of annually recurring variation in the amount of the solar radiation of heat from sunlight that reaches the various parts of Earth. Less heat from the sun reaches Sweden in winter, so it is colder there in January than in July.

An additional 3.7° C in global average temperature would bring temperatures in Sweden to about the present level of average annual temperature in northern Italy. Accordingly, median mid-summer and mid-winter temperatures in Stockholm, Sweden would be similar to present day median mid-winter and mid-summer temperatures in Milan, Italy.

Earth does not absorb enough sunlight for a runaway hothouse Earth to be a credible possibility even if humans burned all of the Earth’s fossil fuel reserves. Therefore, Earth is in no danger of experiencing a runaway hothouse effect that would make it uninhabitable by humans.

What about sea level rise? Sea level is rising so slowly, according to IPCC projections, that humans should have no trouble adapting to it. The IPCC projects annual sea level rise of three millimeters (mm) per year over the rest of the 21^st century. At the rate of 3 mm. per year it would take one hundred years for sea level to rise 300 mm. which is about the same as one foot in the English systems of measurement commonly used in America.

What about concerns regarding extreme weather—the supposed possibility that higher global temperatures could cause more unusually stormy weather with unusually high rainfall and consequent flooding, and also could increase the frequency, power and destructiveness of cyclones, tornados and hurricanes. This idea is a false alarm.

Storms and extreme weather events are natural phenomena that have always happened everywhere on Earth from the Tropics to the Poles. The IPCC has stated consistently that there is little or no basis for the idea that extreme weather events are increasing due to increasing concentrations of atmospheric CO_2.

Humanity is facing a global threat, but the danger is not from a warmer climate. Rather, the danger is from unjustified and misguided policies regarding climate and from the demonizing of dissent from the ideas on which those policies are based.

The post Dear Greta, A Warming Climate Will Not Harm You first appeared on Capitalism: The Liberal Revolution.

*Megan Kimble is a senior editor at Austin Monthly and the author of Unprocessed: My City-Dwelling Year of Reclaiming Real Food.

Richard Devore loves “the fact that I’m supposed to be here,” says Devore, who was homeless for the 13 years before he moved in. “I can relax and belong here.”

Devore lives at Community First! Village, a 27-acre master planned community just outside Austin, Texas, where more than 200 people who were once chronically homeless live in tiny homes and RVs. Everyone who lives at Community First! pays rent, ranging from $225 to $430 per month; many residents are employed on-site.

“Before I moved here, I honestly didn’t think my life would have anything other than being a homeless drug addict,” Devore says. . . [O]ld habits were hard to break. “I hung out with the same people. I didn’t know any of my neighbors. I was living the same life, just with shelter,” he says. “Eventually I decided I wanted to get high more than I wanted to pay rent. If nothing changes in someone’s life, when the money runs out, they’re going right back to where they were.”

This is the idea that fuels Community First! Village. “They have a saying upstairs,” Devore says. ‘Housing will never cure homelessness, but community will’ . . .  While there are several tiny-home villages built for the formerly homeless across the United States, Austin’s Community First! Village is distinct in its communal focus.

It’s also the largest such community—and it’s about to double in size. In October, Community First! broke ground on a 24-acre expansion, which will add 110 RV sites and 200 micro-homes, alongside a permanent 20,000-square-foot health facility. That would bring the village’s total population to 480 people—roughly 40 percent of the estimated 1,200 chronically homeless people living in Austin, according to the Ending Community Homelessness Coalition—and make it considerably larger than any other tiny-home community for the homeless.

Community First! Village is the brainchild of founder Alan Graham, a real estate developer who started feeding people out of a pickup truck with four friends from Austin’s St. John Neumann Catholic Church two decades ago. They called it Mobile Loaves & Fishes and stocked the truck with fresh food and clean clothes. In 2003, Graham started spending nights out on the streets, deepening the relationships he’d formed through the food truck. “We started asking: What is it that you desire?” he says. “Community was what emerged.”

For seven years, Graham searched for a plot of land in Austin to build his vision of an RV park for the chronically homeless. . . In 2008, Austin’s City Council voted unanimously to grant Community First! a long-term ground lease on 17 acres of city-owned land. But neighborhood resistance was intense: After a community meeting “exploded into Armageddon,” Graham says, he gave up on building within the city, and, in 2014, purchased 27 acres just outside city limits in Travis County. One year later, he started moving people into RVs and tiny homes.

Located in a sparsely populated area about 10 miles northeast of downtown Austin, the village today bustles with activity. There’s an outdoor movie theater, donated by Alamo Drafthouse and the site of Friday evening screenings, free and open to the public. Beyond the 200 full-time residents, the little town hosts volunteers from church groups, visitors touring the development or attending art classes, and AirBnb guests staying in an assortment of stylishly designed tiny homes and an Airstream trailer that are all listed as vacation rentals—part of the village’s mission to bring more people into regular contact and conversation with the homeless.

While the village is operated by a faith-based nonprofit and has a distinctly Christian vibe—45 people live on-site as missionaries—residents of all faiths are welcome, including none. . .

Maintenance of these shared spaces is one source of employment for residents, who can earn anywhere from $350 to $900 a month to clean the kitchens and bathrooms and contribute to general upkeep around the village. Some residents make jewelry or pottery in the art studio to sell in the Community Market; there’s also a woodworking studio and blacksmithing shop. Community First! Car Care employs half a dozen people who will change your oil or rotate your tires while you wait. Graham says that the community distributed nearly a million dollars of “dignified income” to residents in 2017 and 2018.

But many residents, Graham admits, aren’t capable of holding traditional nine-to-five jobs—“they’re going to have to be subsidized for life,” he says. “The question becomes where does that subsidy come from? Does it come from the federal government, or does that subsidy come from the community?” It’s a philosophical question as much as an economic one, but Graham believes that responsibility should fall to the community.

The number-one rule is that you have to pay rent, which covers roughly 40 percent of the village’s $5 million operating budget. Miss a payment, and you will be asked to leave. Graham says that doesn’t happen much—the retention rate at Community First! is 86 percent. When it does happen, substance abuse is usually to blame. “You can’t make drugs and alcohol your preference,” Graham says. “This isn’t the right place for you to be.” To Graham, that’s where the village’s focus on socialization and shared space comes in. “None of us can do anything around here without being caught,” he says. “There’s a level of human accountability to that.”

Among the village’s newer full-time residents is founder Graham and his wife: Last year, they sold their home in West Austin and moved into a 399-square-foot RV in the village. “Our hope is that not only do people come to a different understanding of how we can mitigate homelessness,” he says, “but how do we change our own lives from being so isolated and disconnected from each other?”

The post HOMELESS NO MORE in Austin, Texas first appeared on Capitalism: The Liberal Revolution.

With the current concerns about possible changes in global climate, unusual local weather events are cited often as circumstantial evidence of a change in the climate of the Earth. While earth scientists have identified twenty-nine separate regional climates on earth, climate in the largest sense is considered to be a global phenomenon, while weather is considered a local phenomenon. 

Just as variations in global climate are most meaningfully considered in the context of geological time that extends over thousands, millions, hundreds of millions, and even billions of years, local weather variability is most meaningfully understood in historical context over periods extending hundreds and even thousands of years. 

Author Joel Engel examines rainfall in Los Angeles in historical context, in an essay that appeared in The Wall Street Journal in March 2019 near the end of an unusually wet and rainy season in southern California. The article is reproduced here with the consent of the author. Readers can view it on the website of The Wall Street Journal by clicking here.

Los Angeles Dries Out After a Wild, Wet Winter: 

When it comes to precipitation in Southern California, there’s no such thing as “normal,” by Joel Engel, The Wall Street Journal, March 15, 2019.

 At long last, Los Angeles has been enjoying a rainy winter—over 18 inches of rainfall and counting, according to the National Weather Service. What a shock this must have been to Angelenos who could be excused for fearing that water falling from the sky had become a thing of the past.

“L.A. was not built in the desert, but the desert may be coming to us,” a Los Angeles Times editorial declared last November, echoing countless other media outlets. “We’ve had a worrisome number of dry winters.” 

Worrisome to whom? Only to those who believe that there’s anything “normal” about Los Angeles rainfall. The fact is that dry winters are the statistical norm. In 141 years of recorded Los Angeles weather history, 85 years (60%) have received below the NWS calculated average of 14.7 inches. Those dry years (measured July 1 through June 30) are counterbalanced by a smaller number of very wet ones, sometimes even biblically so—38 inches in 1884, and nearly that much in 2005. Only three times in that century and a half (1934, 1974 and 1975) have the recorded amounts been close enough for statisticians to call them “average” years. 

Still, that doesn’t deter the climate alarmists, especially those eager to tie the lack of rainfall to a supposed uptick in the number and frequency of damaging wildfires. “The desiccated ground beneath us was an important factor in the deadly Malibu and Woolsey fires,” a Times editorial claimed last year. That seems logical, since less than 5 inches fell in the 2018 season. But before Woolsey, the Santa Monica Mountains’ two most destructive blazes had been the Kanan Fire, which burned 25,000 acres and 230 homes, killing two, in Los Angeles’ fourth-rainiest year, 1978; and the Old Topanga Fire that burned 17,000 acres and 369 homes, killing three, in 1993, a year that enjoyed 27.36 inches—nearly twice the annual average.

But hasn’t climate change increased the length of dry stretches? That depends what you’re measuring against. Since 1877 there have been two five-year stretches (1987-91 and 2012-16) and one seven-year stretch (1945-51) of consecutive below-average rainfall. Of the 21 years between the 1944-45 season and the 1964-65 season, an alarming 17 years fell short of reaching the statistical average rainfall. Then, in 1969, the city was drenched by 27 inches of rain, twice the average. 

As a longtime L.A. resident, I consider it entirely fitting that our rain is as eccentric and unpredictable as the city itself. But that volatility plays into the hands of those who would purvey fear of drought. Today this is typically done for political gain, but in the past it was often done for financial gain.

In 1905, Los Angeles Times owner Harrison Gray Otis used his newspaper to campaign for a $1.5 million bond measure that would allow the city’s chief water engineer, William Mulholland, to study the feasibility of building a 240-mile aqueduct. The aqueduct would connect Central California’s Owens Valley to the north end of the San Fernando Valley—where, it just so happened, Otis and a consortium of associates (whose names now appear on Los Angeles streets and suburbs) owned thousands of acres of arid land. Stories in the Times flogged the risk of drought and warned of sand someday coming out of taps if new sources of water couldn’t be found. Given how rapidly the city was growing—from 9,000 residents in 1877 to more than 200,000 in 1905—it wasn’t a hard sell. The measure passed easily, though more than 19 inches of rain had fallen that year.

Two years later, in 1907, the Times published a rash of similar alarmist stories while pushing an additional bond measure that would raise $21.5 million to fund construction of the aqueduct. The measure passed, though nearly 20 inches of rain had fallen that year.

For the rest of the country, wild weather in Los Angeles may amount to nothing more than confirmation that almost everything about the place is odd. For Angelenos, it means we’d do well to consider “the end is nigh” warnings in historical context and enjoy the rain for as long as it lasts. After all, next year will probably be back to normal—you know, below average.

The post Rainfall in Los Angeles first appeared on Capitalism: The Liberal Revolution.

Richard S. Lindzen, born in 1940, earned three degrees, B.A., S.M. and Ph.D., from Harvard University from 1960 to 1964. At Harvard Lindzen studied physics and applied mathematics. His Ph. D. degree is in applied mathematics.

At present Dr. Lindzen is emeritus professor of meteorology at the Massachusetts Institute of Technology.  At MIT he was the Alfred P. Sloan Professor of Meteorology, beginning in 1983. Prior to that he was the Robert P. Burden Professor of Dynamic Meteorology at Harvard University.

Professor Lindzen is a dynamical meteorologist with interests in the broad topics of climate, planetary waves, monsoon meteorology, planetary atmospheres, and hydrodynamic instability.  He is the author or co-author of 243 scientific publications including books and articles published in important scientific journals.

He was a lead author of Chapter 7, “Physical Climate Processes and Feedbacks,” of the Intergovernmental Panel On Climate Change’s Third Assessment Report of climate change (2001).

Dr. Lindzen has developed models for the Earth’s climate with specific concern for the stability of the ice caps, the sensitivity to increases in CO₂, the origin of the 100,000 year cycle in glaciation, and the maintenance of regional variations in climate. He is a recipient of several prizes in science. He is a member of the National Academy of Sciences (NAS), and the Norwegian Academy of Sciences and Letters, and a fellow of the American Academy of Arts and Sciences, the American Association for the Advancement of Sciences, the American Geophysical Union and the American Meteorological Society. He is a corresponding member of the NAS Committee on Human Rights, and has been a member of the National Research Council Board on Atmospheric Sciences and Climate and the Council of the American Meteorological Society.  He has been a Distinguished Visiting Scientist at California Institute of Technology’s Jet Propulsion Laboratory.

Global Warming: The Origin and Nature of the Alleged Scientific Consensus,

by Richard S. Lindzen, Cato Institute Regulation Spring 1992

Richard S. Lindzen is the Alfred P. Sloan Professor of Meteorology at the Massachusetts Institute of Technology 

Most of the literate world today regards “global warming as both real and dangerous.”  Indeed, the diplomatic activity concerning warming might lead one to believe that it is the major crisis confronting mankind. The June 1992 Earth Summit in Rio de Janeiro, Brazil focused on international agreements to deal with that threat, and the heads of state from dozens of countries attended. I must state at the outset, that, as a scientist, I can find no substantive bases for the warming scenarios being popularly described. Moreover, according to many studies I have read by economists, agronomists, and hydrologists, there would be little difficulty adapting to such warming if it were to occur. Such was also the conclusion of the recent National Research Council’s report on adapting to global change. Many aspects of the catastrophic scenario have already been largely discounted by the scientific community. For example, fear of massive sea-level increases accompanied many of the early discussions of global warming, but those estimates have been steadily reduced by orders of magnitude, and now it is widely agreed that even the potential contribution of warming to sea-level rise would be swamped by other more important factors.

To show why I assert that there is no substantive basis for predictions of sizeable global warming due to observed increases in minor greenhouse gases such as carbon dioxide, methane, and chlorofluorocarbons, I shall briefly review the science associated with those predictions.

Summary of Scientific Issues

Before even considering “greenhouse theory,” it may be helpful to begin with the issue that is almost always taken as a given—that carbon dioxide will inevitably increase to values double and even quadruple present values. Evidence from the analysis of ice cores and after 1958 from direct atmospheric sampling shows that the amount of carbon dioxide in the air has been increasing since 1800. Before 1800 the density was about 275 parts per million by volume. Today it is about 355 parts per million by volume. The increase is generally believed to be due to the combination of increased burning of fossil fuels and before 1905 to deforestation. The total source is estimated to have been increasing exponentially at least until 1973. From 1973 until 1990 the rate of increase has been much slower, however. About half the production of carbon dioxide has appeared in the atmosphere.

Predicting what will happen to carbon dioxide over the next century is a rather uncertain matter. By assuming a shift toward the increased use of coal, rapid advances in the third world’s standard of living, large population increases, and a reduction in nuclear and other nonfossil fuels, one can generate an emissions scenario that will lead to a doubling of carbon dioxide by 2030–if one uses a particular model for the chemical response to carbon dioxide emissions. The Intergovernmental Panel on Climate Change Working Group I’s model referred to that as the “business as usual” scenario. As it turns out, the chemical model used was inconsistent with the past century’s record; it would have predicted that we would already have about 400 parts per million by volume. An improved model developed at the Max Planck Institute in Hamburg shows that even the “business as usual” scenario does not double carbon dioxide by the year 2100. It seems unlikely moreover that the indefinite future of energy belongs to coal. I also find it difficult to believe that technology will not lead to improved nuclear reactors within fifty years.

Nevertheless, we have already seen a significant increase in carbon dioxide that has been accompanied by increases in other minor greenhouse gases such as methane and chlorofluorocarbons. Indeed, in terms of greenhouse potential, we have had the equivalent of a 50 percent increase in carbon dioxide over the past century. The effects of those increases are certainly worth studying–quite independent of any uncertain future scenarios.

The Greenhouse Effect.

The crude idea in the common popular presentation of the greenhouse effect is that the atmosphere is transparent to sunlight (apart from the very significant reflectivity of both clouds and the surface), which heats the Earth’s surface. The surface offsets that heating by radiating in the infrared. The infrared radiation increases with increasing surface temperature, and the temperature adjusts until balance is achieved. If the atmosphere were also transparent to infrared radiation, the infrared radiation produced by an average surface temperature of minus eighteen degrees centigrade would balance the incoming solar radiation (less that amount reflected back to space by clouds). The atmosphere is not transparent in the infrared, however. So the Earth must heat up somewhat more to deliver the same flux of infrared radiation to space. That is what is called the greenhouse effect.

The fact that the Earth’s average surface temperature is fifteen degrees centigrade rather than minus eighteen degrees centigrade is attributed to that effect. The main absorbers of infrared in the atmosphere are water vapor and clouds. Even if all other greenhouse gases (such as carbon dioxide and methane) were to disappear, we would still be left with over 98 percent of the current greenhouse effect. Nevertheless, it is presumed that increases in carbon dioxide and other minor greenhouse gases will lead to significant increases in temperature. As we have seen, carbon dioxide is increasing. So are other minor greenhouse gases. A widely held but questionable contention is that those increases will continue along the path they have followed for the past century.

The simple picture of the greenhouse mechanism is seriously oversimplified. Many of us were taught in elementary school that heat is transported by radiation, convection, and conduction. The above representation only refers to radiative transfer. As it turns out, if there were only radiative heat transfer, the greenhouse effect would warm the Earth to about seventy-seven degrees centigrade rather than to fifteen degrees centigrade. In fact, the greenhouse effect is only about 25 percent of what it would be in a pure radiative situation. The reason for this is the presence of convection (heat transport by air motions), which bypasses much of the radiative absorption.

What is really going on is schematically illustrated in Figure 1. The surface of the Earth is cooled in large measure by air currents (in various forms including deep clouds) that carry heat upward and poleward. One consequence of this picture is that it is the greenhouse gases well above the Earth’s surface that are of primary importance in determining the temperature of the Earth. That is especially important for water vapor, whose density decreases by about a factor of 1,000 between the surface and ten kilometers above the surface. Another consequence is that one cannot even calculate the temperature of the Earth without models that accurately reproduce the motions of the atmosphere. Indeed, present models have large errors here–on the order of 50 percent. Not surprisingly, those models are unable to calculate correctly either the present average temperature of the Earth or the temperature ranges from the equator to the poles. Rather, the models are adjusted or “tuned” to get those quantities approximately right.

It is still of interest to ask what we would expect a doubling of carbon dioxide to do. A large number of calculations show that if this is all that happened, we might expect a warming of from .5 to 1.2 degrees centigrade. The general consensus is that such warming would present few, if any, problems. But even that prediction is subject to some uncertainty because of the complicated way the greenhouse effect operates. More important, the climate is a complex system where it is impossible for all other internal factors to remain constant. In present models those other factors amplify the effects of increasing carbon dioxide and lead to predictions of warming in the neighborhood of four to five degrees centigrade. Internal processes within the climate system that change in response to warming in such a manner as to amplify the response are known as positive feedbacks. Internal processes that diminish the response are known as negative feedbacks. The most important positive feedback in current models is due to water vapor. In all current models upper tropospheric (five to twelve kilometers) water vapor–the major greenhouse gas–increases as surface temperatures increase. Without that feedback, no current model would predict warming in excess of 1.7 degrees centigrade–regardless of any other factors. Unfortunately, the way current models handle factors such as clouds and water vapor is disturbingly arbitrary. In many instances the underlying physics is simply not known. In other instances there are identifiable errors. Even computational errors play a major role. Indeed, there is compelling evidence for all the known feedback factors to actually be negative. In that case, we would expect the warming response to carbon dioxide doubling alone to be diminished.

It is commonly suggested that society should not depend on negative feedbacks to spare us from a “greenhouse catastrophe.” What is omitted from such suggestions is that current models depend heavily on undemonstrated positive feedback factors to predict high levels of warming. The effects of clouds have been receiving the closest scrutiny. That is not unreasonable. Cloud cover in models is poorly treated and inaccurately predicted. Yet clouds reflect about seventy-five watts per square meter. Given that a doubling of carbon dioxide would change the surface heat flux by only two watts per square meter, it is evident that a small change in cloud cover can strongly affect the response to carbon dioxide. The situation is complicated by the fact that clouds at high altitudes can also supplement the greenhouse effect. Indeed, the effects of clouds in reflecting light and in enhancing the greenhouse effect are roughly in balance. Their actual effect on climate depends both on the response of clouds to warming and on the possible imbalance of their cooling and heating effects.

Similarly, factors involving the contribution of snow cover to reflectivity serve, in current models, to amplify warming due to increasing carbon dioxide. What happens seems reasonable enough; warmer climates presumably are associated with less snow cover and less reflectivity–which, in turn, amplify the warming. Snow is associated with winter when incident sunlight is minimal, however. Moreover, clouds shield the Earth’s surface from the sun and minimize the response to snow cover. Indeed, there is growing evidence that clouds accompany diminishing snow cover to such an extent as to make that feedback factor negative. If, however, one asks why current models predict that large warming will accompany increasing carbon dioxide, the answer is mostly due to the effect of the water vapor feedback. Current models all predict that warmer climates will be accompanied by increasing humidity at all levels. As already noted, such behavior is an artifact of the models since they have neither the physics nor the numerical accuracy to deal with water vapor. Recent studies of the physics of how deep clouds moisturize the atmosphere strongly suggest that this largest of the positive feedbacks is not only negative, but very large.

Not only are there major reasons to believe that models are exaggerating the response to increasing carbon dioxide, but, perhaps even more significantly, the models’ predictions for the past century incorrectly describe the pattern of warming and greatly overestimate its magnitude. The global average temperature record for the past century or so is irregular and not without problems. It does, however, show an average increase in temperature of about .45 degree centigrade plus or minus .15 degree centigrade with most of the increase occurring before 1940, followed by some cooling through the early 1970s and a rapid (but modest) temperature increase in the late 1970s. As noted, we have already seen an increase in “equivalent” carbon dioxide of 50 percent. Thus, on the basis of models that predict a four degree centigrade warming for a doubling of carbon dioxide we might expect to have seen a warming of two degrees centigrade already. If, however, we include the delay imposed by the oceans’ heat capacity, we might expect a warming of about one degree centigrade–which is still twice what has been observed. Moreover, most of that warming occurred before the bulk of the minor greenhouse gases were added to the atmosphere. Figure 2 shows what might have been expected for models with differing sensitivities to a doubling of carbon dioxide. What we see is that the past record is most consistent with an equilibrium response to a doubling of about 1.3 degrees centigrade–assuming that all the observed warming was due to increasing carbon dioxide. There is nothing in the record that can be distinguished from the natural variability of the climate, however.

If one considers the tropics, that conclusion is even more disturbing. There is ample evidence that the average equatorial sea surface has remained within plus or minus one degree centigrade of its present temperature for billions of years, yet current models predict average warming of from two to four degrees centigrade even at the equator. It should be noted that for much of the Earth’s history, the atmosphere had much more carbon dioxide than is currently anticipated for centuries to come. I could, in fact, go on at great length listing the evidence for small responses to a doubling of carbon dioxide; there are space constraints, however.

Consensus and the Current “Popular Vision”

Many studies from the nineteenth century on suggested that industrial and other contributions to increasing carbon dioxide might lead to global warming. Problems with such predictions were also long noted, and the general failure of such predictions to explain the observed record caused the field of climatology as a whole to regard the suggested mechanisms as suspect. Indeed, the global cooling trend of the 1950s and 1960s led to a minor global cooling hysteria in the 1970s. All that was more or less normal scientific debate, although the cooling hysteria had certain striking analogues to the present warming hysteria including books such as The Genesis Strategy by Stephen Schneider and Climate Change and World Affairs by Crispin Tickell—both authors are prominent in support of the present concerns as well–“explaining” the problem and promoting international regulation. There was also a book by the prominent science writer Lowell Ponte (The Cooling) that derided the skeptics and noted the importance of acting in the absence of firm, scientific foundation. There was even a report by the National Research Council of the U.S. National Academy of Sciences reaching its usual ambiguous conclusions. But the scientific community never took the issue to heart, governments ignored it, and with rising global temperatures in the late 1970s the issue more or less died. In the meantime, model calculations–especially at the Geophysical Fluid Dynamics Laboratory at Princeton–continued to predict substantial warming due to increasing carbon dioxide. Those predictions were considered interesting, but largely academic, exercises–even by the scientists involved.

The present hysteria formally began in the summer of 1988, although preparations had been put in place at least three years earlier. That was an especially warm summer in some regions, particularly in the United States. The abrupt increase in temperature in the late 1970s was too abrupt to be associated with the smooth increase in carbon dioxide. Nevertheless, James Hansen, director of the Goddard Institute for Space Studies, in testimony before Sen. Al Gore’s Committee on Science, Technology and Space, said, in effect, that he was 99 percent certain that temperature had increased and that there was some greenhouse warming. He made no statement concerning the relation between the two.

Despite the fact that those remarks were virtually meaningless, they led the environmental advocacy movement to adopt the issue immediately. The growth of environmental advocacy since the 1970s has been phenomenal. In Europe the movement centered on the formation of Green parties; in the United States the movement centered on the development of large public interest advocacy groups. Those lobbying groups have budgets of several hundred million dollars and employ about 50,000 people; their support is highly valued by many political figures. As with any large groups, self-perpetuation becomes a crucial concern. “Global warming” has become one of the major battle cries in their fundraising efforts. At the same time, the media unquestioningly accept the pronouncements of those groups as objective truth.

Within the large-scale climate modelling community–a small subset of the community interested in climate–however, the immediate response was to criticize Hansen for publicly promoting highly uncertain model results as relevant to public policy. Hansen’s motivation was not totally obvious, but despite the criticism of Hansen, the modelling community quickly agreed that large warming was not impossible. That was still enough for both the politicians and advocates who have generally held that any hint of environmental danger is a sufficient basis for regulation unless the hint can be rigorously disproved. That is a particularly pernicious asymmetry, given that rigor is generally impossible in environmental sciences.

Other scientists quickly agreed that with increasing carbon dioxide some warming might be expected and that with large enough concentrations of carbon dioxide the warming might be significant. Nevertheless, there was widespread skepticism. By early 1989, however, the popular media in Europe and the United States were declaring that “all scientists” agreed that warming was real and catastrophic in its potential.

As most scientists concerned with climate, I was eager to stay out of what seemed like a public circus. But in the summer of 1988 Lester Lave, a professor of economics at Carnegie Mellon University, wrote to me about being dismissed from a Senate hearing for suggesting that the issue of global warming was scientifically controversial. I assured him that the issue was not only controversial but also unlikely. In the winter of 1989 Reginald Newell, a professor of meteorology at the Massachusetts Institute of Technology, lost National Science Foundation funding for data analyses that were failing to show net warming over the past century. Reviewers suggested that his results were dangerous to humanity. In the spring of 1989 I was an invited participant at a global warming symposium at Tufts University. I was the only scientist among a panel of environmentalists. There were strident calls for immediate action and ample expressions of impatience with science. Claudine Schneider, then a congressman from Rhode Island, acknowledged that “scientists may disagree, but we can hear Mother Earth, and she is crying.” It seemed clear to me that a very dangerous situation was arising, and the danger was not of “global warming” itself.

In the spring of 1989 I prepared a critique of global warming, which I submitted to Science, a magazine of the American Association for the Advancement of Science. The paper was rejected without review as being of no interest to the readership. I then submitted the paper to the Bulletin of the American Meteorological Society, where it was accepted after review, rereviewed, and reaccepted–an unusual procedure to say the least. In the meantime, the paper was attacked in Science before it had even been published. The paper circulated for about six months as samizdat. It was delivered at a Humboldt conference at M.I.T. and reprinted in the Frankfurter Allgemeine.

In the meantime, the global warming circus was in full swing. Meetings were going on nonstop. One of the more striking of those meetings was hosted in the summer of 1989 by Robert Redford at his ranch in Sundance, Utah. Redford proclaimed that it was time to stop research and begin acting. I suppose that that was a reasonable suggestion for an actor to make, but it is also indicative of the overall attitude toward science. Barbara Streisand personally undertook to support the research of Michael Oppenheimer at the Environmental Defense Fund, although he is primarily an advocate and not a climatologist. Meryl Streep made an appeal on public television to stop warming. A bill was even prepared to guarantee Americans a stable climate.

By the fall of 1989 some media were becoming aware that there was controversy (Forbes and Reader’s Digest were notable in that regard). Cries followed from environmentalists that skeptics were receiving excessive exposure. The publication of my paper was followed by a determined effort on the part of the editor of the Bulletin of the American Meteorological Society, Richard Hallgren, to solicit rebuttals. Such articles were prepared by Stephen Schneider and Will Kellogg, a minor scientific administrator for the past thirty years, and those articles were followed by an active correspondence mostly supportive of the skeptical spectrum of views. Indeed, a recent Gallup poll of climate scientists in the American Meteorological Society and in the American Geophysical Union shows that a vast majority doubts that there has been any identifiable man-caused warming to date (49 percent asserted no, 33 percent did not know, 18 percent thought some has occurred; however, among those actively involved in research and publishing frequently in peer-reviewed research journals, none believes that any man-caused global warming has been identified so far). On the whole, the debate within the meteorological community has been relatively healthy and, in this regard, unusual.

Outside the world of meteorology, Greenpeace’s Jeremy Legett, a geologist by training, published a book attacking critics of warming—especially me. George Mitchell, Senate majority leader and father of a prominent environmental activist, also published a book urging acceptance of the warming problem (World on Fire: Saving an Endangered Earth). Sen. Gore recently published a book (Earth in the Balance: Ecology and the Human Spirit). Those are just a few examples of the rapidly growing publications on warming. Rarely has such meager science provoked such an outpouring of popularization by individuals who do not understand the subject in the first place.

The activities of the Union of Concerned Scientists deserve special mention. That widely supported organization was originally devoted to nuclear disarmament. As the cold war began to end, the group began to actively oppose nuclear power generation. Their position was unpopular with many physicists. Over the past few years, the organization has turned to the battle against global warming in a particularly hysterical manner. In 1989 the group began to circulate a petition urging recognition of global warming as potentially the great danger to mankind. Most recipients who did not sign were solicited at least twice more. The petition was eventually signed by 700 scientists including a great many members of the National Academy of Sciences and Nobel laureates. Only about three or four of the signers, however, had any involvement in climatology. Interestingly, the petition had two pages, and on the second page there was a call for renewed consideration of nuclear power. When the petition was published in the New York Times, however, the second page was omitted. In any event, that document helped solidify the public perception that “all scientists” agreed with the disaster scenario. Such a disturbing abuse of scientific authority was not unnoticed.

At the 1990 annual meeting of the National Academy of Sciences, Frank Press, the academy’s president, warned the membership against lending their credibility to issues about which they had no special knowledge. Special reference was made to the published petition. In my opinion what the petition did show was that the need to fight “global warming” has become part of the dogma of the liberal conscience–a dogma to which scientists are not immune.

At the same time, political pressures on dissidents from the “popular vision” increased. Sen. Gore publicly admonished “skeptics” in a lengthy New York Times op-ed piece. In a perverse example of double-speak he associated the “true believers” in warming with Galileo. He also referred, in another article, to the summer of 1988 as the Kristallnacht before the warming holocaust.

The notion of “scientific unanimity” is currently intimately tied to the Working Group I report of the Intergovernmental Panel on Climate Change issued in September 1990. That panel consists largely of scientists posted to it by government agencies. The panel has three working groups. Working Group I nominally deals with climate science. Approximately 150 scientists contributed to the report, but university representation from the United States was relatively small and is likely to remain so, since the funds and time needed for participation are not available to most university scientists. Many governments have agreed to use that report as the authoritative basis for climate policy. The report, as such, has both positive and negative features. Methodologically, the report is deeply committed to reliance on large models, and within the report models are largely verified by comparison with other models. Given that models are known to agree more with each other than with nature (even after “tuning”), that approach does not seem promising. In addition, a number of the participants have testified to the pressures placed on them to emphasize results supportive of the current scenario and to suppress other results. That pressure has frequently been effective, and a survey of participants reveals substantial disagreement with the final report. Nonetheless, the body of the report is extremely ambiguous, and the caveats are numerous. The report is prefaced by a policymakers’ summary written by the editor, Sir John Houghton, director of the United Kingdom Meteorological Office. His summary largely ignores the uncertainty in the report and attempts to present the expectation of substantial warming as firmly based science. The summary was published as a separate document, and, it is safe to say that policymakers are unlikely to read anything further. On the basis of the summary, one frequently hears that “hundreds of the world’s greatest climate scientists from dozens of countries all agreed that . . .” It hardly matters what the agreement refers to, since whoever refers to the summary insists that it agrees with the most extreme scenarios (which, in all fairness, it does not). I should add that the climatology community, until the past few years, was quite small and heavily concentrated in the United States and Europe.

While the International Panel on Climate Change’s reports were in preparation, the National Research Council in the United States was commissioned to prepare a synthesis of the current state of the global change situation. The panel chosen was hardly promising. It had no members of the academy expert in climate. Indeed, it had only one scientist directly involved in climate, Stephen Schneider, who is an ardent environmental advocate. It also included three professional environmental advocates, and it was headed by a former senator, Dan Evans. The panel did include distinguished scientists and economists outside the area of climate, and, perhaps because of this, the report issued by the panel was by and large fair. The report concluded that the scientific basis for costly action was absent, although prudence might indicate that actions that were cheap or worth doing anyway should be considered. A subcommittee of the panel issued a report on adaptation that argued that even with the more severe warming scenarios, the United States would have little difficulty adapting. Not surprisingly, the environmentalists on the panel not only strongly influenced the reports, but failing to completely have their way, attempted to distance themselves from the reports by either resigning or by issuing minority dissents. Equally unsurprising is the fact that the New York Times typically carried reports on that panel on page 46. The findings were never subsequently discussed in the popular media–except for claims that the reports supported the catastrophic vision. Nevertheless, the reports of that panel were indicative of the growing skepticism concerning the warming issue.

Indeed, the growing skepticism is in many ways remarkable. One of the earliest protagonists of global warming, Roger Revelle, the late professor of ocean sciences at Scripps Institution of Oceanography who initiated the direct monitoring of carbon dioxide during the International Geophysical Year (1958), coauthored with S. Fred Singer and Chauncy Starr a paper recommending that action concerning global warming be delayed insofar as current knowledge was totally inadequate. Another active advocate of global warming, Michael McElroy, head of the Department of Earth and Planetary Sciences at Harvard, has recently written a paper acknowledging that existing models cannot be used to forecast climate.

One might think that such growing skepticism would have some influence on public debate, but the insistence on “scientific unanimity” continues unabated. At times, that insistence takes some very strange forms. Over a year ago, Robert White, former head of the U.S. Weather Bureau and currently president of the National Academy of Engineering, wrote an article for Scientific American that pointed out that the questionable scientific basis for global warming predictions was totally inadequate to justify any costly actions. He did state that if one were to insist on doing something, one should only do things that one would do even if there were no warming threat. Immediately after that article appeared, Tom Wicker, a New York Times columnist and a confidant of Sen. Gore, wrote a piece in which he stated that White had called for immediate action on “global warming.” My own experiences have been similar. In an article in Audubon Stephen Schneider states that I have “conceded that some warming now appears inevitable.” Differences between expectations of unmeasurable changes of a few tenths of a degree and warming of several degrees are conveniently ignored. Karen White in a lengthy and laudatory article on James Hansen that appeared in the New York Times Sunday Magazine reported that even I agreed that there would be warming, having “reluctantly offered an estimate of 1.2 degrees.” That was, of course, untrue.

Most recently, I testified at a Senate hearing conducted by Sen. Gore. There was a rather arcane discussion of the water vapor in the upper troposphere. Two years ago, I had pointed out that if the source of water vapor in that region in the tropics was from deep clouds, then surface warming would be accompanied by reduced upper level water vapor. Subsequent research has established that there must be an additional source–widely believed to be ice crystals thrown off by those deep clouds. I noted that that source too probably acts to produce less moisture in a warmer atmosphere. Both processes cause the major feedback process to become negative rather than positive. Sen. Gore asked whether I now rejected my suggestion of two years ago as a major factor. I answered that I did. Gore then called for the recording secretary to note that I had retracted my objections to “global warming.” In the ensuing argument, involving mostly other participants in the hearing, Gore was told that he was confusing matters. Shortly thereafter, however, Tom Wicker published an article in the New York Times that claimed that I had retracted my opposition to warming and that that warranted immediate action to curb the purported menace. I wrote a letter to the Times indicating that my position had been severely misrepresented, and, after a delay of over a month, my letter was published. Sen. Gore nonetheless claims in his book that I have indeed retracted my scientific objections to the catastrophic warming scenario and also warns others who doubt the scenario that they are hurting humanity.

Why, one might wonder, is there such insistence on scientific unanimity on the warming issue? After all, unanimity in science is virtually nonexistent on far less complex matters. Unanimity on an issue as uncertain as “global warming” would be surprising and suspicious. Moreover, why are the opinions of scientists sought regardless of their field of expertise? Biologists and physicians are rarely asked to endorse some theory in high energy physics. Apparently, when one comes to “global warming,” any scientist’s agreement will do.

The answer almost certainly lies in politics. For example, at the Earth Summit in Rio, attempts were made to negotiate international carbon emission agreements. The potential costs and implications of such agreements are likely to be profound for both industrial and developing countries. Under the circumstances, it would be very risky for politicians to undertake such agreements unless scientists “insisted.” Nevertheless, the situation is probably a good deal more complicated than that example suggests.

The Temptation and Problems of “Global Warming”

As Aaron Wildavsky, professor of political science at Berkeley, has quipped, “global warming” is the mother of all environmental scares. Wildavsky’s view is worth quoting. “Warming (and warming alone), through its primary antidote of withdrawing carbon from production and consumption, is capable of realizing the environmentalist’s dream of an egalitarian society based on rejection of economic growth in favor of a smaller population’s eating lower on the food chain, consuming a lot less, and sharing a much lower level of resources much more equally.” In many ways Wildavsky’s observation does not go far enough. The point is that carbon dioxide is vitally central to industry, transportation, modern life, and life in general. It has been joked that carbon dioxide controls would permit us to inhale as much as we wish; only exhaling would be controlled. The remarkable centrality of carbon dioxide means that dealing with the threat of warming fits in with a great variety of preexisting agendas–some legitimate, some less so: energy efficiency, reduced dependence on Middle Eastern oil, dissatisfaction with industrial society (neopastoralism), international competition, governmental desires for enhanced revenues (carbon taxes), and bureaucratic desires for enhanced power.

The very scale of the problem as popularly portrayed and the massive scale of the suggested responses have their own appeal. The Working Group I report of the Intergovernmental Panel on Climate Change suggested, for example, that a 60 percent reduction in carbon dioxide emissions might be needed. Such a reduction would call for measures that would be greater than those that have been devoted to war and defense. And just as defense has dealt with saving one’s nation, curbing “global warming” is identified with saving the whole planet! It may not be fortuitous that this issue is being promoted at just the moment in history when the cold war is ending.

Major agencies in the United States, hitherto closely involved with traditional approaches to national security, have appropriated the issue of climate change to support existing efforts. Notable among those agencies are NASA, the Department of Defense, and the Department of Energy. The cold war helped spawn a large body of policy experts and diplomats specializing in issues such as disarmament and alliance negotiations. In addition, since the Yom Kippur War, energy has become a major component of national security with the concomitant creation of a large cadre of energy experts. Many of those individuals see in the global change issue an area in which to continue applying their skills. Many scientists also feel that national security concerns formed the foundation for the U.S. government’s generous support of science. As the urgency of national security, traditionally defined, diminishes, there is a common feeling that a substitute foundation must be established. “Saving the planet” has the right sort of sound to it. Fundraising has become central to environmental advocates’ activities, and the message underlying some of their fundraising seems to be “pay us or you’ll fry.”

Clearly, “global warming” is a tempting issue for many very important groups to exploit. Equally clearly, though far less frequently discussed, are the profound dangers in exploiting that issue. As we shall also see, there are good reasons why there has been so little discussion of the downside of responding to “global warming.”

A parochial issue is the danger to the science of climatology. As far as I can tell, there has actually been reduced funding for existing climate research. That may seem paradoxical, but, at least in the United States, the vastly increased number of scientists and others involving themselves in climate as well as the gigantic programs attaching themselves to climate have substantially outstripped the increases in funding. Perhaps more important are the pressures being brought to bear on scientists to get the “right” results. Such pressures are inevitable, given how far out on a limb much of the scientific community has gone. The situation is compounded by the fact that some of the strongest proponents of “global warming” in Congress are also among the major supporters of science (Sen. Gore is notable among those). Finally, given the momentum that has been building up among so many interest groups to fight “global warming,” it becomes downright embarrassing to support basic climate research. After all, one would hate to admit that one had mobilized so many resources without the basic science’s being in place. Nevertheless, given the large increase in the number of people associating themselves with climatology and the dependence of much of that community on the perceived threat of warming, it seems unlikely that the scientific community will offer much resistance. I should add that as ever greater numbers of individuals attach themselves to the warming problem, the pressures against solving the problem grow proportionally; an inordinate number of individuals and groups depend on the problem’s remaining.

In addition to climatologists, are there other groups that are at risk? Here, one might expect that industry could be vulnerable, and, indeed, it may be. At least in the United States, however, industries seem to be primarily concerned with improving their public image, often by supporting environmental activists. Moreover, some industries have become successful at profiting from environmental regulation. The most obvious example is the waste management industry. Even electric utility companies have been able to use environmental measures to increase the base on which their regulated profits are calculated. It is worth noting that about 1.7 trillion dollars have been spent on the environment over the past decade. The environment, itself, qualifies as one of our major industries.

If Wildavsky’s scenario is correct, the major losers would be ordinary people. Wealth that could have been used to raise living standards in much of the world would be squandered. Living standards in the developed world would decrease. Regulatory apparatuses would restrict individual freedom on an unprecedented scale. Here too, however, one cannot expect much resistance to proposed actions–at least not initially. Public perceptions, under the influence of extensive, deceptive, and one-sided publicity, can become disconnected from reality. For example, Alabama has had a pronounced cooling trend since 1935. Nevertheless, a poll among professionals in Alabama found that about 95 percent of the participants believed that the climate had been warming over the past fifty years and that the warming was due to the greenhouse effect. Public misperceptions coupled with a sincere desire to “save the planet” can force political action even when politicians are aware of the reality.

What the above amounts to is a societal instability. At a particular point in history, a relatively minor suggestion or event serves to mobilize massive interests. While the proposed measures may be detrimental, resistance is largely absent or coopted. In the case of climate change, the probability that the proposed regulatory actions would for the most part have little impact on climate, regardless of the scenario chosen, appears to be of no consequence.

Modelling and Societal Instability

So far I have emphasized the political elements in the current climate hysteria. There can be no question, however, that scientists are abetting this situation. Concerns about funding have already been mentioned. There is, however, another perhaps more important element to the scientific support. The existence of modern computing power has led to innumerable modelling efforts in many fields. Supercomputers have allowed us to consider the behavior of systems seemingly too complex for other approaches. One of those systems is climate. Not surprisingly, there are many problems involved in modelling climate. For example, even supercomputers are inadequate to allow long-term integrations of the relevant equations at adequate spatial resolutions. At presently available resolutions, it is unlikely that the computer solutions are close to the solutions of the underlying equations. In addition, the physics of unresolved phenomena such as clouds and other turbulent elements is not understood to the extent needed for incorporation into models. In view of those problems, it is generally recognized that models are at present experimental tools whose relation to the real world is questionable.

While there is nothing wrong in using those models in an experimental mode, there is a real dilemma when they predict potentially dangerous situations. Should scientists publicize such predictions since the models are almost certainly wrong? Is it proper to not publicize the predictions if the predicted danger is serious? How is the public to respond to such predictions? The difficulty would be diminished if the public understood how poor the models actually are. Unfortunately, there is a tendency to hold in awe anything that emerges from a sufficiently large computer. There is also a reluctance on the part of many modellers to admit to the experimental nature of their models lest public support for their efforts diminish. Nevertheless, with poor and uncertain models in wide use, predictions of ominous situations are virtually inevitable–regardless of reality.

Such weak predictions feed and contribute to what I have already described as a societal instability that can cascade the most questionable suggestions of danger into major political responses with massive economic and social consequences. I have already discussed some of the reasons for this instability: the existence of large cadres of professional planners looking for work, the existence of advocacy groups looking for profitable causes, the existence of agendas in search of saleable rationales, and the ability of many industries to profit from regulation, coupled with an effective neutralization of opposition. It goes almost without saying that the dangers and costs of those economic and social consequences may be far greater than the original environmental danger. That becomes especially true when the benefits of additional knowledge are rejected and when it is forgotten that improved technology and increased societal wealth are what allow society to deal with environmental threats most effectively. The control of societal instability may very well be the real challenge facing us.

The post Global Warming: The Origin and Nature of the Alleged Scientific Consensus first appeared on Capitalism: The Liberal Revolution.

The essay addresses the conventional narrative that human activity is causing potentially dangerous global warming. In the current politicized debate about the Earth’s climate, an internet search will turn up detailed commentary criticizing the essay and impugning the author’s motives. Dr. Plimer’s credentials and his analysis speak to the validity of his argument. He has had a long and distinguished academic career. For nearly twenty years Professor Plimer has devoted much of his thought to the hypothesis that human activities are causing a change in climate that will lead to dangerous global warming.

Repeat After Me: Carbon Dioxide Is Good for Us, by Ian Plimer

Climate policy is underpinned by two fallacies. The first is that human emissions of carbon dioxide drive global warming. The second is that future climate can be predicted from computer models.

It has yet to be shown that human emissions of carbon dioxide drive climate change. More than 100 climate models over the past 30 years did not predict what actually happened because it was assumed carbon dioxide had the pivotal role in driving climate change and that the effects of clouds, back-radiation and the sun were trivial.

Climate projections also assume that planet Earth is not dynamic and that a temporary terrestrial vertebrate on an evolving planet can change major planetary and extraterrestrial systems

Unless the past is understood, climate projections can be only highly speculative. Even in our own lifetimes, there is no relationship between temperature and carbon dioxide emissions by ­humans, yet there is a very close relationship between solar activity and temperature.

Since the beginning of time, water vapour has been the main greenhouse gas and carbon dioxide has had a minuscule effect on global climate.

Carbon dioxide is a trace gas in the atmosphere. We are expected to believe that emission of traces of a trace gas into the atmosphere is a major planetary driving force. If the atmosphere comprised 85,000 molecules, the total carbon dioxide emissions added annually would be 33 molecules, of which only one molecule would be from human emissions and the other 32 from natural emissions. Do we really believe that one bellowing fan in a crowd of 85,000 at the MCG can completely change the course of a game? ¹

For the past 4567 million years, the sun and the Earth’s orbit have driven climate change cycles. In the past, the atmospheric carbon dioxide content has been orders of magnitude higher than now, yet there were ice ages.

We currently live in an interglacial during an ice age with alternating cycles of glaciations and interglacials. The current interglacial reached a peak about 5000 years ago. Since then, the planet has been cooling on a millennial scale and no amount of hot air, agreements, taxes, environmental wailing or legislation can change the fact that the Earth’s orbit is slowly taking us farther from the sun.

Just 1.25 per cent of the carbon dioxide in the atmosphere-ocean system has been released by ­humans in the past 250 years. The ­atmospheric residency time of carbon dioxide is five years and it is quickly sequestered into plants, marine life, oceans and sediments. ²

If human emissions of carbon dioxide drive global warming, why have there been slight warmings and coolings since the Industrial Revolution? Why is it that human emissions of carbon dioxide drive global warming yet natural emissions do not?

Carbon dioxide is plant food. Horticulturalists pump warm carbon dioxide into glasshouses to stimulate growth. Over the past 30 years, planet Earth has greened due to a slight increase in atmospheric carbon dioxide.

Without carbon dioxide, there would be no complex life on earth. It is neither pollution nor a poison, and in the past the atmospheric carbon dioxide content has varied enormously.

When the atmospheric carbon dioxide content was low, plants struggled. When it was high, there was an expansion and increasing diversity of vegetation.

In addition, when it was warm, life expanded, whereas when it was cold, life contracted. Over historical times, when it was cold there was human depopulation. When it was warm, economies thrived.

Biological, geological and planetary systems are extremely robust. Our evolving dynamic planet has survived sea level changes of hundreds of metres, super volcanoes filling the atmosphere with dust, asteroid impacts, mass extinctions, ice ages and global warming. For most of time, Earth has been a warm, wet volcanic planet with no polar ice.

Australia has uranium, coal and gas for generations. Fracking for tight gas and oil could further extend energy resources. We are the envy of the world. Australia once had cheap, reliable electricity and the states competed to provide cheap, long-term, reliable energy to attract industry.

Now the states rely on the weather and compete to reach the bottom. South Australia is winning: it has the most unreliable grid in the world outside Africa and the most expensive electricity. When South Australians buy electricity at $14,200/MWh, they are paying the equivalent of $400 a litre for petrol.

As soon as the word emissions entered the language and became part of a religious ideology, electricity prices skyrocketed, electricity supply became more unreliable, subsidies for wind and solar energy went through the roof and employers and consumers had massive cost increases. Never mind that the emissions of carbon dioxide to make and maintain a wind or solar industrial complex are far greater than they will ever save.

The Paris accord is non-binding. This is recognised by the major carbon dioxide emitters such as China, India and the US, which don’t comply. No EU state has met its target. Why should Australia be the only country out of step and aim for an impossible, bankrupting reduction of 26 per cent or more of our 2005 carbon dioxide emissions?

Pragmatism and principled inaction is the correct policy to ­address the non-problem of human-induced climate change promoted by the Paris accord. But do our politicians have the courage to thoughtfully do nothing?

We are in an electricity crisis because we are trying to decrease human emissions of carbon dioxide and have tied climate policy and electricity generation costs to emissions. A reality check is needed. Even if human-induced global warming could be shown, a reduction in Australian emissions, comprising 1.3 per cent of global annual emissions, is dwarfed by annual increases of 2 per cent globally and 4 per cent by China.

Australia’s symbolic suicidal climate policy just makes everybody poorer.

We face further turnover of prime ministers and governments until the costs and reliability of electricity are addressed and until the fundamentalist religious mantra that emissions drive global warming is rejected.

Politicians need to realise that the electorate wants cheap electricity and a reduction of emissions concurrent with subsidies for unreliable weather-dependent electricity can neither reduce costs nor increase reliability.

Meanwhile, employment-generating businesses will close, household costs will become impossibly high, international competitiveness will fall and governments will change.

Emissions must be banned. From the language. Not from coal-fired power stations that have provided cheap, reliable electricity for generations. It is only then that we will have stable government and cheap reliable electricity again.

Emeritus professor Ian Plimer’s latest book, Climate Delusion and the Great Electricity Rip-Off, is published by Connor Court.

The post Repeat After Me: Carbon Dioxide Is Good for Us, by Ian Plimer first appeared on Capitalism: The Liberal Revolution.

The misery and plight of the people of Venezuela in the second decade of the 21^st century is virtually beyond belief and unimaginable for most residents of the United States. What is the cause of this misery? It is the belief of a self-selected ruler that he could improve life for most citizens by taking from the rich to give to the poor.

To accomplish this he used the institution of political democracy to obtain the sanction of the majority. Once in power he abolished political democracy and established an apparatus of coercion that is crushing the lives of most Venezuelans and bringing ruin to the entire nation.

Venezuela is a South American nation of 30 million people living in an area of 352,000 square miles, larger than France or Germany. Venezuela has the largest proven oil reserves in the world. Despite its petroleum wealth, since 2014 Venezuela’s economy has collapsed. 

Until recently Venezuela was a prosperous country by Latin America standards. It was governed by a political democracy. However, democracy was ended in Venezuela by the ruling party headed by former President Hugo Chavez and his successor Nicolas Maduro.

According to the editors of The New York Times, “The devastation [Maduro] and his leftist firebrand predecessor, the late Hugo Chávez, have visited on Venezuela is hard to fathom, especially as the country has the world’s largest oil reserves . . . The economy has shrunk by more than 30 percent since the collapse of oil prices in 2014, and the [Venezuelan] oil industry is collapsing; the inflation rate is by far the world’s highest, set to reach 13,000 percent this year, according to the International Monetary Fund.

“More than a million people have fled the country since 2015; the health care system is in such dire straits that malaria, once almost wiped out, is soaring; about three quarters of the population has involuntarily lost nearly 20 pounds of weight and people scrounging for food in garbage has become, according to the Brookings Institution, the new normal.” ¹

Hunger has gripped the nation for years. Only 10% of the people have adequate food. The poor are suffering the most. Infants are dying of starvation in unprecedented numbers. ² 

As conditions worsened in Venezuela, people began fleeing the country in record numbers to escape hardship and the hopelessness of political change as a means of ridding the nation of the ruling regime. Around one million Venezuelans have emigrated in recent years, with 5,000 per day leaving in the first part of 2018. ³

Mother feeding her children at a state-run soup kitchen in Venezuela. Photo: Meridith Kohut for The New York Times

An obviously well-nourished President Nicolas Maduro has not shared in the hunger experienced by the victims of his regime’s policies.

Inflation, always high in Venezuela, has accelerated into hyperinflation that the International Monetary Fund estimated will be 13,000 percent in 2018.

Venezuela’s government is bankrupt; it is unable to service its debt obligations to foreign creditors, and the debt problem is getting worse.

The cause of this misery is the policies of Venezuela’s ruling political party, the United Socialist Party of Venezuela. The regime’s policies were once popular with many voters, but corruption and irresponsible spending to implement those policies led the nation into bankruptcy. Furthermore, the regime wasted national resources by providing oil without charge to Cuba, Nicaragua, and other countries headed by dictators sympathetic to Venezuela’s regime.

All attempts of the people to make political changes by peaceful and democratic means have been frustrated by political repression.

Frustration with inability to bring about a peaceful political change in government led to massive public protests in 2017. The protests were put down by police and armed gangs supporting the state, resulting in the deaths of more than 100 protestors. ⁴

Update: According to a report published The Economist on September 7, 2019, “Venezuelans . . . have many compelling reasons to leave Venezuela. Its government admits that it killed 5,287 people last year for ‘resistance to authority’, inflation has reached as high as 2,700,000% and by early 2018 the average person had lost 11kg (24lb) from hunger. Perhaps 13% of the population has fled—over 4 million people.” [Emphasis added]

According to reports of May 2 and May 17, 2019 in the New York Times, in Venezuela, “Shortages have sunk much of the population in a deepening humanitarian crisis, though a core group of military top brass and high-level officials who remain loyal to Mr. Maduro are able to tap into the remaining resources to survive — or even enrich themselves through illicit means.”

CHAVISMO and the BOLIVARIAN REVOLUTION

The end of democracy in Venezuela started with the political ascendancy of Hugo Chavez (1954-2013). Chavez was an army officer who participated in a failed coup d’état in 1992, for which he was imprisoned for two years and was forbidden to rejoin the military. Upon release he sought power by political activity, espousing a program of using the state to help the lower economic classes.

In 1998 Chavez was elected President of Venezuela. His fifteen years as President ended only with his death in 2013. Shortly before his death Chávez named Nicolas Maduro (born 1962) as his successor.

Chavez called his political ideology the Bolivarian Revolution and Socialism for the 21^st Century which became known also as “Chavismo.” The policies of Chavismo consisted in large part in spreading money around low-income neighborhoods as well as among business elites and top army officers.

The state acted to stifle criticism of itself by imposing heavy fines on television and print media, and forcing them to publish propaganda supporting the state. The judicial system is highly politicized at all levels so that journalists and private media outlets cannot rely on impartial adjudication of cases affecting press freedom. ⁵

Chavez used the military and the police to buttress his political power. He purged the armed forces leadership in 2002 and replaced fired officers with those loyal to his regime. To gain the loyalty of the top military officers Chavez saw to it that they were well paid.

He took over the police force in the capital, Caracas, and elsewhere. He imported Cuban intelligence agents to create a system of domestic spying. People were recruited and paid to spy on their neighbors and report those who spoke out in protest of the state’s actions.

The regime paid armed gangs known as Colectivos to intimidate and assault citizens who spoke out against the regime.

Acting in the name of the Venezuelan state, Chavez seized scores of energy, banking and telecommunications companies in addition to more than one million acres of farmland, calling these seizures “nationalization.”

In an election in 2015, opponents of the regime won a majority in the National Assembly, Venezuela’s legislature. President Maduro made the National Assembly powerless by establishing a new lawmaking body, known as the Constituent Assembly, composed entirely of supporters of the regime. The Constituent Assembly granted itself wide-ranging powers to enact legislation. ⁶

According to the editors of the New York Times, “Mr. Maduro has packed crucial state institutions, including the Supreme Court, with loyalists and has stymied the opposition-run Parliament at every turn. His government has kept political opponents arbitrarily jailed for years.” ⁷

The state recognized no limit on its spending, but there was a limit on its tax revenues which were inadequate to pay for the state’s spending. Therefore, the state resorted to monetary inflation to create funds to pay for its spending.

Inflation devalued the money, leading to price increases. Farmers and merchants who produced or acquired food or other products for sale, would lose money and be forced out of business by accepting payment in bolivars, the national currency, at the state-mandated exchange rate. Therefore producers and merchants raised prices in amounts they deemed necessary to protect themselves from losses on sale.

When public outcry arose against rapidly rising prices, the regime instituted price controls. The combination of high inflation plus price controls stifled productivity and production in Venezuela. By continuing production under the circumstances of high inflation plus price controls farmers and manufacturers would suffer ruinous losses. Consequently, producers stopped producing and merchants went out of business.

The regime’s hostility to business devastated the nation’s economy. The state nationalized hundreds of companies and trumped up charges against their owners, causing much of Venezuela’s private sector to shut up shop and flee. As a result, the country has seen vast capital flight, and must import many goods that it used to produce. Non-oil exports have ground to a virtual halt.

Price control plus inflation and the effect of the state’s taking over hundreds of companies, farms, and ranches, made Venezuela’s economy among the least productive in the world. The decline in production and productivity made the nation more and more dependent on oil sales at a time when oil production was collapsing.

HEALTH CARE: THE PROMISE AND THE REALITY

A new Constitution for Venezuela adopted in 1999 provided that free comprehensive health care would be made available to all Venezuelans. ⁸ However, since 1999 health care has virtually disappeared in Venezuela due to the economic collapse which has caused shortages of doctors, medical supplies and medicines, food, water, and electricity.

Doctors at leading hospitals are no longer able to perform surgeries because of lack of medicines and medical supplies. Patients are dying avoidable deaths from easily treatable illnesses that go untreated. The incidence of malaria and other diseases is rising to high levels. Thousands of doctors have left the public health system because of shortages of drugs and equipment and poor pay. Maternal and infant mortality have risen to unprecedented levels. One third of Venezuela’s physicians have left the country due to the difficulties of medical practice and physical danger to physicians from violence. ⁹

WRECKING THE NATIONALIZED PETROLEUM INDUSTRY

Venezuela’s difficulties have been aggravated by the pillaging of the national oil company, Petróleos de Venezuela S.A. (PDVSA), as a source of money to fund the regime’s spending. The regime packed PDVSA with political supporters, starved it of investment capital, failed to maintain petroleum refineries, mismanaged the company and suffered a consequent drastic reduction in output. ¹⁰

PDVSA is burdened by immense debt. It has been effectively in default on its $26.5 billion in unsecured bonds since November 2017. It owes roughly $60 billion more to service companies that drill and maintain its fields.

At the Paraguaná Refining Center, one of the largest refinery complexes in the world, the refineries, like most of the company’s facilities around the country, have fallen into grave disrepair. This has forced severe cutbacks in operations, leading to layoffs and an increase in accidents and injuries. A lack of investment compounded by cash flow problems and chronic shortages of spare parts have crippled operations, The refineries do  not have the computer software to diagnose its production problems, nor the money to fix them if they did.

Production in recent years has fallen so far that PDVSA is no longer able to meet domestic demand for diesel and gasoline, forcing the country to import increasing amounts of both.

China has lent the Venezuelan state billions of dollars that are being repaid in oil shipments, cutting PDVSA’s annual revenues.

In 2002 PDVSA workers staged a protest against Chavez. In response, he fired 18,000 PDVSA employees, including senior managers. He had the company hire tens of thousands of people loyal to his regime. A general with no energy experience was installed as the head of PDVSA. Arrests, firings, and emigration have gutted top talent. Oil facilities are crumbling, while production is plummeting.

Wage increases have lagged far behind soaring inflation and workers have seen the purchasing power of their wages drop markedly and benefits reduced sharply. At the nearby town where workers live, roads are plunged into darkness at night because thieves have made off with the wires that carry power to the street lamps. Shops in the city’s downtown, once abuzz with commerce, are now shuttered. Residents have migrated abroad in search of work and better lives. ¹¹

WATER AND ELECTRICITY SERVICE UNRELIABLE

Incompetence of the ruling regime has caused interruptions in the supply of water and electricity. In May of 2018 the five million people in the capital city, Caracas, were without regular water even though water reservoirs had been filled by ample rains. According to The Economist magazine, Soledad Rodriguez, a graphic designer living in Caracas said, “I’ve forgotten what it is like to bathe in running water. . .

“‘The city is getting less water than it did in 1999,’ says José de Viana, who in pre-Chávez days was president of Hidrocapital, a state-owned water utility. The main job requirement for workers is loyalty to the leftist regime. This has led to its ‘de-professionalization,’ says Mr. de Viana . . .

“The company cannot afford spare parts for vehicles. The minimum salary at Hidrocapital is worth less than three dollars a month at the market exchange rate. For that pay, many employees do not even pretend to work. Just 20 of Hidrocapital’s 400 maintenance teams are functioning. Two aqueducts are supplying Caracas with less than half the normal amount of water because the firm has not maintained pumping stations. . .

“Drier parts of Venezuela have both water shortages and power cuts. Domenico Clara, who runs a bakery in Maracaibo, capital of the oil industry, says power is cut off five to seven times a day. Without refrigeration ingredients spoil; electronic payment systems don’t work so customers can’t pay (there is a shortage of cash, too).” ¹²

INFLATION AND REGRESSION TO A BARTER ECONOMY

Oil revenues together with taxes were not enough to pay for all the expenditures made to buy political favor among the voters so the regime resorted to inflating the money supply to pay its expenses.

Money is one of humanity’s most important inventions. The Chavez-Maduro regime made money worthless in Venezuela.

Before the development of money, people had to make a direct exchange of goods or services, for example food could be exchanged for a tool. This is known as barter. Money allows people to make indirect exchanges of goods and services by sale for money that would be acceptable as payment for any available goods or services.

With the advent of money and rapid transportation of goods, people were enabled to make indirect exchanges for anything produced anywhere in the world. Absent money and effective transportation of goods, one could purchase only products made locally.

Money and the division of labor facilitate ever increasing specialization in work and consequent ever increasing productivity. Increasing productivity causes an increase in the standard of living because the more that is produced the more there is available for consumption.

Hyperinflation in Venezuela has destroyed the value of the national currency, relegating people to barter to make exchanges. ¹³ A nation that can only barter has been pushed back in time thousands of years, to the time when people could acquire very little by exchanges with others.

In the time since Hugo Chavez took office in 1998 through 2014, inflation averaged 25.5% per annum. Consequently Venezuela’s currency, the Bolivar, lost 95% of its purchasing power from 1998 to 2014.

Since 2015 Venezuela’s Bolivar has been in a hyperinflation that has reduced the purchasing power of its currency by over 99%. ¹⁴

This inflation affects everybody who depends on money and money income to pay for the necessities of life. One air force lieutenant said that the collapse of the currency had reduced the purchasing power of his monthly paycheck to the equivalent of $10. Unable to afford a car or an apartment, he rode a bicycle to the base and moved in with his wife’s parents. ¹⁵  

A law professor in Maracaibo found his teaching career unsustainable, in part because his monthly salary was worth $5 by the time he left the country. ¹⁶ People with limited incomes find that the money they can get their hands on will buy very little in the way of food or other necessities, so that a typical week’s salary might buy only a couple of eggs and a bit of corn meal.

The worthlessness of a nation’s money causes a breakdown in all economic activity. Production virtually ceases. It becomes impossible to save and invest in the absence of reliable money. Economic exchanges are limited to bartering.

THE CAUSE OF FOOD SHORTAGES IN VENEZUELA

The hunger in Venezuela is incredible to those living in the United States where stores with food and restaurants serving food are found in adequate supply even in the remotest and most sparsely populated regions of the country.

Food is readily available everywhere in the world except for the poorest districts of the poorest countries in Asia and Africa, and except for Venezuela and Cuba. ¹⁷ Food is available worldwide because food producers and owners of stores and restaurants seek to sell their food to earn money to buy other things. Food is not readily available in Venezuela because of the combination of inflation, price controls, and the state’s extreme hostility to business.

Venezuela is not suffering a famine caused by war or any natural cause. It is suffering a man-made shortage of food caused by political action.

Large farms that were nationalized and taken over by the state have become unproductive. Due to inflation and price controls individual Venezuelan farm families are out of the business of producing food for anything but their own subsistence needs.

Grocery stores in Venezuela have virtually no food to sell. When stores still had food they were ransacked and looted by hungry people. According to a report in The New York Times “With delivery trucks under constant attack, the nation’s food is now transported under armed guard. Soldiers stand watch over bakeries. The police fired rubber bullets at desperate mobs storming grocery stores, pharmacies and butcher shops.” ¹⁸ Privately owned stores cannot continue acquiring food to sell if they are unable to sell it because it is stolen by hungry people. Under such conditions, suspending business or going completely out of business are the only possibilities.

According to a report in the Miami Herald, children in significant numbers are to be found on the streets of Venezuela, working, sleeping, and begging for food or money. It is not uncommon for some of these children to be the sole source of food for their families. The children carry home anything marginally edible, such as rancid fish, meat and cheese. ¹⁹

Due to its virtual bankruptcy the state cannot afford to import enough food to feed all of the people at even a subsistence level.

Hundreds of Venezuelans lined up at a grocery store to see if food would be delivered. Photo: Meridith Kohut for The New York Times

BRIBING THE HUNGRY WITH FOOD: I GIVE AND YOU GIVE

According to a report in The New York Times just before the election scheduled for May 20, 2018, “A large majority of Venezuelans are dependent on the government for subsidized groceries distributed by local councils loyal to the president. Food has even entered the election, potentially controlling the way Venezuelans will vote.

“Many people receive their subsidies using a special identity card that is playing a big role in this election. For Sunday’s vote, Venezuelans have been told to present these cards at stations run by Mr. [Nicolas] Maduro’s governing party at polling places — so that party organizers can see who has voted and who has not.

“‘Everyone who has this card must vote,’ Mr. Maduro has said at his campaign rallies, directly linking government handouts to voting. ‘I give and you give.’” [Emphasis added] ²⁰

The hardship of waiting for a handout of food from the state is illustrated by the following quotation from a New York Times article published the day before the election of May 21, 2018:

“Álvaro Castillo showed up before dawn and waited 37 hours for subsidized food in Plaza Venezuela, a crime-ridden area of Caracas. He will not vote on Sunday. ‘If we go out to vote or not, Venezuela is already destroyed [he says].’  Thousands of people were waiting in line with Mr. Castillo. Most were exhausted. Many women carried infants. The elderly struggled to stand. More than a million Venezuelans have already left the country. If Maduro wins on Sunday, Mr. Castillo’s only option will be to follow them, he says. ‘It is better to leave the country than try to change it.’” ²¹

CRIME IN THE STREETS

Street crime has become rampant in Venezuela as the predicament of the people has become more and more desperate. Holding a mobile phone in public is an invitation for a thief to take it. Children roam the streets searching for food, often digging through garbage looking for unused scraps. Fights erupt in which children are stabbed by other children fighting over a bit of food.  Trucks carrying food are hijacked, and stores are looted of any food they may have. ²²

According to an Associated Press report, doctors in public hospitals “. . . work under constant death threats from relatives or friends of patients — some of them dangerous gang members — if the patients die. ‘Most of the time that’s the doctor’s worst fear, that the patient dies and the relatives take it out on him,’ said a physician . . . ‘The threat of harm if the patient dies is always there. We don’t have any kind of protection.’” ²³

VOTING WITH ONE’S FEET

After President Hugo Chávez vowed to break the country’s economic elite and redistribute wealth to the poor, the rich and middle class fled to more welcoming countries in droves, creating what demographers describe as Venezuela’s first diaspora. Since 2013 a second diaspora is underway — much less wealthy, more numerous, and not nearly as welcome by Venezuela’s neighbors.

A growing number of Venezuelans have fled the country, many to neighboring Colombia and Brazil, and some going by small boat some 70 miles or more to the island of Curaçao. Most Venezuelan migrants go with little more than the clothes they wear. They go to escape the hunger and hopelessness they see as their fate in Venezuela. Around one million Venezuelans have emigrated in recent years, with 5,000 per day leaving in the first part of 2018. ²⁴

Venezuelan migrants walking to Brazil — a long and arduous journey that takes several days on foot. Photo: Meridith Kohut for The New York Times

Venezuelan migrants boarding a smuggler’s boat that will take them to the island of Curaçao. Photo: Meridith Kohut for The New York Times

Soldiers have been deserting the Venezuelan army in growing numbers. According to an account in the Wall Street Journal, “impatient for change and increasingly desperate, some troops are simply going AWOL. One army veteran estimated that as many as 1,000 soldiers, including cadets and mid-ranking officers, have deserted in the past year and said that many more have requested formal discharges. The government has begun running ads in Caracas newspapers demanding missing troops return to their posts.” ²⁵

A NOT SO OBVIOUS SOLUTION TO THE PROBLEMS OF VENEZUELA

Venezuela is a nation with every possibility for progress and advancement in the absence of political and social turmoil. In addition to its world-leading petroleum reserves, it has universities, before Chavismo a developing industrial sector of the economy and a rich cultural life. For example, in 2007 Venezuela’s Gustavo  Dudamel,then age 26, was appointed music director and conductor of the world-class Los Angeles Philharmonic Orchestra. Many Venezuelans play in Major League baseball in the United States, including José Altuve, the Most Valuable Player in the American League in 2017.

Venezuela, as almost everywhere in the world, has ambitious people eager to make the most of their talents by providing service to others through entrepreneurial activity and otherwise.

What Venezuela needs most after Chavismo is relief from Chavismo. There is a possible peaceful solution to Venezuela’s current problems. Only the regime in power could choose the peaceful solution.

What is the solution? It would be to repeal every law and policy enacted, adopted, and enforced by the state since the accession to power of Hugo Chavez.

A costless first step would be to rescind the previous rejection of humanitarian aid from outside Venezuela. The aid would be forthcoming and prompt from private sector organizations in the United States and elsewhere, as it always has to alleviate suffering from natural disasters. Humanitarian aid would help feed the hungry and care for the sick while Venezuela’s producers and medical professionals began the task of restoring the supply of food and health care.

Abolishing Chavismo would require the state to end hyperinflation, eliminate price controls, return expropriated property to the former owners, remove political appointees and army generals from control of the national oil company, and re-install the professional managers that operated the company effectively before Chavez.

Because the national oil company has been wrecked, it would also be appropriate for the state to invite foreign oil companies and their experts in to resuscitate and rebuild the oil company. That would require credible guarantees that the state would honor all its promises and obligations to those who would repair the oil company.

There are real world models for such a solution. It is in effect what West Germany did beginning in 1948 under the leadership of Ludwig Erhard. Germany’s economy and population had been devastated by twelve years of Nazi rule and enormous war losses (1933-1945). Liberalizing the West German economy by freeing it from excessive state control starting in 1948 led to what has been called the Economic Miracle of post-war Germany.

A liberalized economy is the explanation for the difference not only between East and West Germany, but between North and South Korea, and between Hong Kong, Taiwan and mainland China before the death of Mao Zedong.

Abolition of Chavismo would draw back into the country many of those who fled the ruin and despair of Chavismo.

Best of all would be to abolish or at least curtail the laws of Venezuela that existed before Chavez that restricted economic activity. According to a long-time observer of Latin America, May Anastasia O’Grady, “By the time [Hugo] Chávez was elected [in 1998], Venezuela already had 40 years of socialism under its belt and precious little, if any, experience with free markets. ²⁶

There is a South American model for liberalizing a formerly restricted and stagnant economy. It is the path taken by Chile since the 1970s that has given Chile the fastest-growing economy in the region. In Chile poverty has fallen significantly and living standards have soared. What was good for Chile would be equally good for Venezuela.

The post The Agony of Venezuela–from democracy to tyranny, hunger, sickness, and ruin–and a way back from the catastrophe first appeared on Capitalism: The Liberal Revolution.

Mr. Trump says trade wars are easy to win.

Wrong.

Everybody loses in trade wars.

Mr. Trump’s trade war will have a bad effect on American trade and relations with important nations around the world, including Canada, Mexico, China and other Asian nations whose companies do business in the U.S., and European nations.

Prominent American companies whose business will be hurt by Trump’s trade war include Boeing and Union Pacific, to name only two.

Boeing currently sells nearly one-third of its airplanes to China. The Chinese earn U.S. dollars by exporting to the U.S. That is the source of the ability of Chinese airlines to buy Boeing aircraft.

Union Pacific is the largest U.S. railroad. It transports goods, both imported and of domestic origin through much of the U.S. The CEO of Union Pacific has warned that Trump’s trade war will hurt not only the business of the railroad, but many other businesses that transport goods via Union Pacific.

American companies hurt by Mr. Trump’s trade war will suffer shrinkage of their businesses and shrinkage in the number of people they employ.

The impact of a trade war started by the U.S. is likely to go far beyond a downturn in business for American companies.

Trade wars cause depression.

Trade wars cause shooting wars.

French economist Frédéric Bastiat (1801-1850) said that when goods do not cross frontiers, armies will. He was right.

Trade wars were a principal factor in causing the Great Depression of the 1930s and World War II.

In 1922 and again in 1930 the U.S. Congress enacted tariffs designed to protect American industries from foreign competition.

The 1922 tariff law caused a depression in American agriculture. At the time, farm products were the largest category of export goods produced in America. Tariffs on foreign goods resulted in a marked reduction of foreign purchases of American farm products. How so?

In this way. For people of another nation to purchase American products of any kind, they must earn U.S. dollars by selling their own goods to Americans. The 1922 tariff reduced the amount of U.S. dollars earned by people outside the U.S. Therefore, they had fewer dollars to spend. They cut back on buying farm products and other goods in the U.S.

Consequently, American farmers suffered a big reduction in export sales. They could not sell all their production domestically. So farmers cut back on their own spending. That hurt the rest of the U.S. economy because, in comparison to the present, in the 1920s and 1930s a much larger portion of Americans lived in rural communities.

In 1930 the Congress enacted a more far-reaching regime of high tariffs on foreign imports. At the time the world economy had started into depression. The tariffs made the depression far worse. Other countries that exported to the U.S. imposed retaliatory tariffs on U.S. goods. Many countries imposed heavy tariffs on all imports, whatever the source.

The tariffs and retaliatory tariffs were a trade war. The trade war exacerbated the global depression, which caused economies around the world to shrink, causing business failures and throwing people out of work.

By 1932 the entire world had been in a deepening depression for two years or more, with no sign of things getting better.

Germany was among the nations hardest hit by the tariffs, due to the burden of war reparations from World War I, and the nature of the highly industrialized German economy.

France, Britain and the U.S. were the natural market for Germany’s high quality industrial products, because absent the high tariffs on imports from Germany, those countries were wealthy enough to afford German machinery and other industrial products.

The 1930 U.S. tariff law had the effect of closing the U.S. market to Germany. Tariffs in France and Britain had a similar effect, closing those markets to imports from Germany.

By 1932 the depression had hurt the German people badly. The economic walls against Germany added to the woes that Germans had suffered due to an extreme hyper-inflation in the early 1920s that wiped out the savings of the middle class in Germany.

Germany’s economic catastrophe played into the hands of Adolf Hitler (1889-1945) and his National Socialist German Workers (Nazi) Party. From 1920 to early 1933 Germany was governed by political democracy. At first the Nazi party was only a marginal, fringe party, albeit a noisy and violent one.

The Nazi party garnered only a relatively small number of votes in every election until 1932. In that year, the Nazis received a plurality, but not a majority of votes. In January 1933 Hitler used that plurality to persuade Germany’s senile President, Paul von Hindenburg (1847-1934), to appoint him Chancellor. It took Hitler only two months thereafter to dissolve the German republic and become dictator and absolute master of Germany.

Hitler and his Nazi party turned Germany into a militaristic police state. Hitler was bent on conquest of France, in revenge for military defeats in WW I. He was also bent on conquest of the Slavic peoples east of Germany (Russia, Poland, and more), whom he intended to enslave and eliminate by starvation so that Germans could occupy the lands of the Slavs.

Invading German army tanks in World War II

Between 1938 and 1942 Nazi German armies invaded or took over without a fight most of the nations from France to Russia (then known as the Soviet Union). Hitler’s Nazi Germany was defeated only after a terrible war that caused the deaths of seven million Germans, over twenty million Slavs (mainly in the Soviet Union) and millions more in other European nations killed in war or by the Nazis’ deliberate extermination of civilian populations.

What can be done to avoid a trade war initiated by Mr. Trump?

It would take resolute action by the U.S. Congress.

Mr. Trump is imposing his trade war by means of Executive Order. This he is empowered to do by U.S. laws.

The Congress could repeal those laws and once those laws are repealed Congress could countermand Mr. Trump’s Executive Orders. However Mr. Trump has the veto power of the Presidency. It would take a two-thirds vote in each house of Congress to override a veto.

Where is the courage of anyone in Congress to oppose Trump’s trade war in ways that could put it to an end? No one in Congress is speaking up.

The failure of a democracy comes about in this way. A legislature enacts unwise laws. A President uses them to do bad things. And no one in politics has the will or courage to do anything about it.

The post Trade Wars Cause Depression and Shooting Wars first appeared on Capitalism: The Liberal Revolution.

The events described in this post are relevant to a central thesis of Capitalism: The Liberal Revolution, the book portion of the website of which a blog, and this Post, are a part. The thesis is that in pursuing political goals, politicians are capable of great evil. That was true of one of the justifiably most admired politicians of the 20^th century—Winston Churchill.

As First Lord of the Admiralty Churchill was the head of the British navy in 1915 when the famous British ocean liner RMS Lusitania was sunk by a German submarine as the ship was on approach to its home port on the last day of a voyage from New York City.

Winston Churchill, First Lord of the Admiralty (1915)

A thorough appraisal of evidence brought to light in a recent book ¹ indicates that Churchill was instrumental in causing the sinking of the Lusitania, a disaster that cost the lives not only of British subjects, but also of people from many nations. Churchill knew that if the Lusitania were sunk innocent lives would be lost. Yet it now appears incontestable that he endeavored to bring about the sinking.

This Post is not intended to detract from Churchill’s well-earned reputation, although the events recounted here show Churchill in a shameful role. Nevertheless, Winston Churchill is without a doubt one of the heroes of the decade leading up to World War II and of the war itself.

• Churchill recognized the threat from Adolf Hitler and Nazism as early as 1930 – three years before Hitler came to power.
• In a famous speech to Parliament in November 1934, Churchill described Germany as a powerful, resourceful, and productive country that had come under the rule of people whom Churchill described as a fearsome threat to the safety and liberty of Britain and peace loving peoples everywhere.
• The British Parliament and people disregarded Churchill’s warnings, due to reluctance to risk a repetition of the terrible military casualties Britain’s armed forces suffered in World War I.
• In May 1940, spurred by Nazi Germany’s rout of the French and British armies in France, the British called upon Churchill to head the government as Prime Minister.
• Throughout World War II, Churchill by words and actions encouraged the British people to continue resistance to Nazi German aggression.
• Churchill foresaw the Cold War that followed the triumph of Britain and its ally the United States in World War II. In 1946 Churchill warned the world of the tyranny that the erstwhile ally, communist Russia, was imposing on Eastern Europe.

In the decade before the outbreak of World War I in Europe in August 1914, the British steam ship RMS Lusitania was among the largest and fastest ships operating on the busy north Atlantic route between New York City and England. ²

RMS Lusitania

By early 1915 the submarine fleet of the German navy was active in trying to sink ships bringing vital necessities and war materials to Britain, a nation that imported much of what it needed for normal life, as well as for war.

On May 7, 1915, the Lusitania was sunk by a torpedo launched by a German submarine. The Lusitania carried 1, 962 people, including 1,266 passengers and a crew of 696. The passengers included 949 British citizens and 189 Americans. 1,198 people perished by drowning and other incidents of the sinking of the Lusitania. ³ Among the dead were 123 Americans.

At the time of the sinking Britain had been at war with Imperial Germany for eight months. The United States was neutral, in accordance with the desire of the American people to avoid entanglement in European wars and long standing policy of the United States to avoid participating in the wars that plagued Europe.

This account is based on the book Dead Wake: The Last Crossing of the Lusitania (2015) by Erik Larson. Dead Wake is a work of history. The author states that “. . . this is a work of nonfiction. Anything [in this book] between quotation marks comes from a memoir, letter, telegram, or other historical document.” ⁴

Despite the known danger of German submarine activity in the sea where the Lusitania was attacked by a German submarine, the British navy made no effort to protect the ship.

According to author Erik Larson,  “The absence of any protective measures may simply have been the result of a lapse of attention . . . It would take on a more sinister cast, however, in light of a letter that Churchill had sent earlier in the year to the head of England’s Board of Trade, Walter Runciman, in which Churchill wrote that it was ‘most important to attract neutral shipping to our shores, in the hopes especially of embroiling the United States with Germany.’

“After noting that Germany’s submarine campaign had sharply reduced traffic from America, Churchill told Runciman: ‘For our part, we want the traffic—the more the better; and if some of it gets into trouble, better still.” ⁵ [Emphasis added]

The sinking occurred off the south coast of Ireland, as the Lusitania sailed for its home port of Liverpool, England, on the seventh and last day of a voyage that began in New York City on May 1, 1915.

High officials of the British Admiralty knew that German submarines were active off the coast of southern Ireland, on the lookout to sink ships of all kinds bound to and from England. The Admiralty knew the identity and location of the submarine that sunk the Lusitania—Unterseeboot U-20—because the Admiralty had the capability of deciphering coded messages between German submarines and their home base in Germany.

German submarine World War I

The movements of U-20 were being closely tracked by the Admiralty for several days before U-20 sank the Lusitania.

The relevance of the sinking of the Lusitania to the book and website of which this blog post is a part is to serve as an example of deliberate misconduct by public officials that endangers the very people they are supposed to protect. Rather than being an isolated case, the betrayal of the Lusitania exemplifies the willingness of some in political and military power to sacrifice people in pursuit of a military or political goal, or to fail to take action to protect lives they could and should protect. Several prominent examples appear in the book of which this blog is a part in the chapter entitled “National Defense.” The most striking examples include the following.

• The twenty year course of conduct of the dictators of Russia from 1921 to 1941 that actually helped Adolf Hitler and Nazi Germany re-arm and rebuild its military in violation of the Treaty of Versailles, despite the fact that Russia had suffered two million military and civilian fatalities in its war with Germany during World War I, and despite the known and obvious risk that eventually Nazi Germany would again attack Russia.
• The failure of the French government and army to take action to protect the people of France in 1936 when appropriate action at the time, without the need to fire a single shot, would have prevented the later outbreak of WW II in Europe and the conquest of France by Germany. ⁶
• The deliberate acts of the President of the United States and his military chieftains in 1941 to sacrifice over 33,000 members of the United States military to death or capture and imprisonment by the armed forces of Imperial Japan, in order to overcome the reluctance of the American people to enter the war between England and Nazi Germany then raging Europe. For corroboration of this allegation, see chapter 25 of the book published in the website of which this blog is a part, text accompanying notes 60 to 88, at https://www.capitalismtheliberalrevolution.com/chapter/national-defense/

These are extremely serious and damning charges. They are incontestably true in the light of the facts corroborating these charges that appear in chapter 25 of the book of which this blog and website are a part. ⁷

The plot to bring the Lusitania into harm’s way was a dreadful political act—cold-blooded planning to sacrifice the lives of passengers and crew of the ship in order to achieve a political outcome—embroiling the United States in war. This tragic event has a place in CTLR as a means of fostering understanding that political states usually fail in, and sometimes violate, their primary responsibility—protecting the citizens of the nations they rule.

Captain Walther Schwieger

On a beautiful spring day, May 7, 1915, in the ocean off the south coast of Ireland, a German submarine lay in wait for ships to sink. The submarine was Unterseeboot-20 ⁸, or U-20. It was under the command of 32-year old Captain Walther Schwieger, who was notorious for the ruthless sinking of ships. The British navy knew the identity of U-20 and of its captain, due to ability to decode wireless messages to and from German submarines and thereby to keep track of their location. The German navy was unaware the British were able to do this.

The sinking of the Lusitania was entirely predictable. Germany had earlier announced that the state of war with Britain would justify the German navy in sinking any ships bound to or from England. Author Larson notes that “On the morning of the ship’s departure from New York, a notice had appeared on the shipping pages of New York’s newspapers. Placed by the German Embassy in Washington, it reminded readers of the existence of the war zone [in the seas around Britain] and it cautioned that ‘vessels flying the flag of Great Britain, or of any of her allies, are liable to destruction’ and that travelers sailing on such ships ‘do so at their own risk.’” ⁹

The sinking of the Lusitania was just one of many caused by submarine warfare of the German navy. However, the sinking of the Lusitania was unique. Out of the hundreds of ships sunk by German submarines during WW I, the Lusitania sinking was the only one that the British navy could have prevented and deliberately chose not to prevent.

The British navy had tracked the German submarine for the seven days preceding its attack on the Lusitania. The navy knew that U-20 was active off the south coast of Ireland; knew that it had sunk several ships in the region in the two days preceding the attack on the Lusitania and knew that the captain of U-20 would have no scruples about sinking a passenger ship.

The British navy could have prevented the sinking in two ways. First, it could have directed the Captain of the Lusitania to take a different route around Ireland to its destination, Liverpool, England—the northern route—where no German submarines had been operating. Second, the navy could have sent several readily available destroyers to escort the Lusitania safely to port. The presence of a destroyer escort probably would have scared off U-20, as destroyers were the greatest danger to a submarine.

The navy had protected ships near Britain in these ways earlier in 1915. On a prior voyage in March 1915 the Lusitania was given a destroyer escort by the British navy as the ship approached Liverpool.

Just a few days before the sinking of the Lusitania an escort by destroyers was provided to a British battleship. On the day of the sinking of the Lusitania those destroyers were returning to port near the region where U-20 was lying in wait for ships to sink.

The navy knew that U-20 was directly on the route Lusitania would take. The four destroyers were available to escort the Lusitania. They were not sent to do so.

Furthermore, the navy did not warn Captain Turner of the Lusitania that a German submarine was sinking ships off the south coast of Ireland. The navy easily could have warned the Captain of the imminent danger towards which he was sailing—and directed Captain Turner to change course in order to sail north along the west coast of Ireland and thence over the north of Ireland via the northern approach to Liverpool. The navy did none of those things.

Three days after the sinking, Winston Churchill was questioned in parliament about the failure of the navy to take steps to protect the Lusitania. Churchill replied, “Merchant traffic must look after itself.” ¹⁰

Simultaneously the Royal Navy launched an inquiry into the cause of the disaster. In this inquiry the navy sought to prove that the loss of the Lusitania was due to the negligence of the ship’s Captain. In an internal communication within the Admiralty Churchill wrote “we should pursue the Captain without check.” ¹¹

Submarine warfare was an important part of Germany’s military strategy in WW I. Britain was accustomed to importing about two-thirds of its people’s food supply, as well as many other necessities for industry and consumption. All imports came by sea as Britain is an island nation.

At the outset of the war the British government took control over all British ships plying the Atlantic Ocean. German officials suspected, rightly in the event that British merchant ships and ocean liners were carrying munitions and other war supplies from America to England. On its final voyage the Lusitania was carrying in its cargo a large amount of munitions bound for Britain. ¹²

Germany’s military strategists hoped to knock Britain out of the land war in France by depriving the British of the supplies they needed to import. If the submarine war could cripple Britain economically, Britain would be forced to withdraw its army from France and sue for peace.

Soon after the start of war in August 1914 German submarines began sinking freighters and other civilian ships in the waters around Britain.

The Admiralty had previously established a secret facility, known cryptically as “Room 40” to decipher intercepted German military wireless messages. The existence of Room 40 and the information it provided were known only to its staff and nine senior officials of the Admiralty, foremost of whom was Winston Churchill, First Lord of the Admiralty.

Churchill required all the intercepted and decoded messages to be delivered to him personally. He was keen about knowing what the intercepted messages revealed about the movement, tactics and strategy of the German navy.

Unaware that the British navy was listening to and deciphering their wireless communications despite their encryption in code, German submarine commanders communicated incessantly with their home base. These communications invariably gave the location of the submarine in latitude and longitude, for example 55.21 N and 3.15 E, meaning 55.21° North Latitude and 3.15° East Longitude.

Such precise locations were communicated every two hours throughout the voyage of U-20 that culminated with the sinking of the Lusitania on May 7, 1915. On that day, the Admiralty knew that U-20 was about twenty miles off the south coast of Ireland, near Queenstown in County Cork, precisely on the course that Lusitania was steaming towards on the last day of its approach to Liverpool.

From the intercepted messages the Admiralty knew the name of the captain of the U-20, Walther Schwieger. The Admiralty knew also that Schwieger had already sunk a British civilian ship on May 5 and two more on May 6, the two days preceding the sinking of the Lusitania.

Captain Schwieger’s log records his surprise at sighting the Lusitania at all, and sighting it sailing without protective escort. ¹³ In his ship’s Log Schwieger wrote that it was inexplicable that the ship was not sent through the North Channel.

The North Channel was the other route to Liverpool. It went to the west of Ireland, over its north end and then down to Liverpool. On this route there were no German submarines active because of a much higher risk of encountering British destroyers, which were a great danger to submarines.

After the torpedo struck the Lusitania, Schwieger watched through his periscope. He later wrote to a friend, “The ship was sinking with unbelievable rapidity. There was a terrific panic on her deck. Overcrowded lifeboats . . . dropped into the water. Desperate people ran helplessly up and down the decks. Men and women jumped into the water and tried to swim to empty, overturned lifeboats. It was the most terrible sight I have ever seen. It was impossible for me to give any help. I could have saved only a handful. And the cruiser that had passed was not very far away and must have picked up the distress signals. She would shortly appear. I thought. The scene was too horrible to watch, and I gave orders to dive to twenty meters, and away.” ¹⁴

Artist interpretation of the sinking of the Lusitania

Immediately after the sinking of the Lusitania the Admiralty made a formal request for an investigation by Britain’s Board of Trade, which appointed a Wreck Commission to inquire into the sinking of the Lusitania. The Wreck Commission proceedings were presided over by Lord Mersey, a judge experienced in the investigation of ship sinkings. ¹⁵

The Admiralty official who asked for the inquiry charged that Captain Turner “appears to have displayed an almost inconceivable negligence, and one is forced to conclude that he is either utterly incompetent, or that he has been gotten at by the Germans.” ¹⁶

Lord Mersey of the Lusitania Wreck Commission

After taking testimony from 36 witnesses, including surviving passengers and crew members, and experts, Lord Mersey laid the blame entirely on the German submarine and absolved Captain Turner. Soon afterward Lord Mersey resigned his post as Wreck Commissioner and called the Lusitania inquiry “a damned dirty business.” ¹⁷

Due to Britain’s Official Secrets Act, much of the evidence surrounding the sinking of the Lusitania was unavailable for a long time. That the British government applied the Official Secrets Act to the sinking of the Lusitania indicates that disclosure of all the facts would have revealed the responsibility of the navy for the sinking of the ship. However, by the 1970s a full record was available to investigators, analysts, and historians.

A prominent British naval historian and World War II officer in the Royal Navy’s Intelligence service, Patrick Beesly (1913-1986), published several books about Britain’s successful breaking of the German naval code during WW I. Author Erik Larson quotes Beesly’s writing on the Lusitania affair as follows.

“. . . [Beesly] addressed the controversy only obliquely, stating that if no deliberate plan existed to put the Lusitania in danger, ‘one is left only with an unforgivable cock-up as an explanation.’

“However, in a later interview, housed in the archives of the Imperial War Museum, London, Beesly was less judicious. ‘As an Englishman and a lover of the Royal Navy,’ he said, ‘I would prefer to attribute this failure to negligence, even gross negligence, rather [than] to a conspiracy deliberately to endanger the ship.’

“But, he said, ‘on the basis of the considerable volume of information which is now available, I am reluctantly compelled to state that on balance, the most likely explanation is that there was indeed a plot, however imperfect, to endanger the Lusitania in order to involve the United states in the war.’ So much was done [to protect other ships] . . . but nothing for the Lusitania. He struggled with this. No matter how he arranged the evidence, he came back to conspiracy. He said, ‘If that’s unacceptable will someone tell me another explanation to these very very curious circumstances?’” ¹⁸

Author Larson reports that “. . . James Bisset . . . [who] was captain of the HMS Caronia when it met the Lusitania off New York at the beginning of its final voyage, wrote in a memoir, ‘The neglect to provide naval escort for her in the narrow waters as she approached her destination was all the more remarkable as no less than twenty-three British merchant vessels had been torpedoed and sunk by German U-boats near the coasts of Britain and Ireland in the preceding seven days.’” ¹⁹

No doubt it may be observed that Winston Churchill believed that sacrificing the Lusitania, while regrettable, was a necessity to prevent even greater loss of life that would occur if the United States was not persuaded to enter the war on the side of Britain. It seems clear that at the time the Lusitania was allowed to sail into danger, it could be only speculation that its sinking would draw the United States into the war. In the event, the United States did not enter the war until nearly two years after the sinking of the Lusitania.

It may be easier to make a difficult decision to sacrifice the lives of other people you don’t know, compared to sacrificing the life of a loved one. Would Churchill have selected the Lusitania as bait for German U-boats if one of the passengers was Clementine Churchill, his beloved wife, confidante and adviser? ²⁰

The tragic story of the sinking of the Lusitania raises questions about the responsibility of persons other than Churchill, whose  whose actions or inaction contributed to the loss of the ship and nearly 1,200 lives.

What if Captain Turner had resigned his commission rather than sail the ship into harm’s way? What if no other sea Captain was willing to risk the lives of passengers by sailing into harm’s way? Turner’s immediate predecessor as Captain of Lusitania, Daniel Dow, resigned his commission, attributing his resignation to stress, after guiding Lusitania from New York to Liverpool in March 1915. ²¹

According to the account in Dead Wake, “On a March [1915] voyage to Liverpool, Dow had guided the Lusitania through waters in which two freighters had just been sunk. Afterward he told his superiors at Cunard that he could no longer accept the responsibility of commanding a passenger ship under such conditions, especially if the ship carried munitions intended for Britain’s military [which made a ship liable to attack without warning] ²² . . . What troubled [Dow] was not the danger to himself but rather having to worry about the lives of two thousand civilian passengers and crew.” ²³

Lusitania was owned by the Cunard Steamship Company. What if the company had cancelled trans-Atlantic sailings after the outbreak of submarine warfare in 1914 due to the risk of loss of life? Perhaps Cunard was not free to make such a decision, given the role of the British government in financing the construction of Lusitania and in controlling all British ships after the outbreak of war in 1914. When war was declared Lusitania was requisitioned by the British Admiralty as an armed merchant cruiser. ²⁴

In 2008, divers found a large amount of munitions in the hold of Lusitania. According to a report in the London  Daily Mail newspaper, “the diving team estimates that around four million rounds of U.S.-manufactured Remington .303 bullets lie in the Lusitania’s hold at a depth of 300 ft.” ²⁵

What if most of the people who booked passage on Lusitania cancelled their booking after learning of the German embassy warning about passenger ships being at risk of destruction on entering the war zone around Britain?

The German U-boat captain, Walther Schwieger was horrified by the plight of Lusitania’s passengers after his torpedo struck the ship. Suppose Captain Schwieger held reservations about sinking ocean liners, and acted upon those reservations by refraining from launching the fatal torpedo?

At the outbreak of WW I in 1914 Britain was under no threat of hostile military activity by Germany, although there was intense rivalry between the navies of the two countries. What if Britain had not gone to war against Germany in August 1914? Would the Germany navy have refrained from attacking British ships?

And, to the author of this blog, the biggest question of all: can human society evolve to a status where wars no longer occur? That is an ideal and one of the goals animating the writing of the book of which this blog Post is a part.

The post The Sacrifice of the Lusitania first appeared on Capitalism: The Liberal Revolution.

Contrary to the assertion that the science is settled on this issue, there are numerous scientists who differ with the proposition. See, for example, the publications of the Nongovernmental International Panel on Climate Change (NIPCC) listed at http://climatechangereconsidered.org/

The lead authors and editors of a recent publication of NIPCC include forty-seven climate scientists. In 2015 the NIPCC published a book entitled Why Scientists Disagree About Global Warming. The book explains why there is no merit to the claim of scientific consensus on the causes and consequences of climate change. The authors rebut the surveys and studies used to support claims of a consensus. They then summarize evidence showing disagreement, identify four reasons why scientists disagree about global warming, and then provide a detailed survey of the physical science of global warming based on the authors’ previous work.

A “Global Warming Petition to Congress” was signed by 31,487 scientists, including 9,029 with Ph.Ds. The Petition begins with the following statement:

“We urge the United States Government to reject the global warming agreement that was written in Kyoto, Japan in December 1997, and any other similar proposals. The proposed limits on greenhouse gases would harm the environment, hinder the advance of science and technology, and damage the health and welfare of mankind.

“There is no convincing scientific evidence that human release of carbon dioxide, methane, or other greenhouse gases is causing or will, in the foreseeable future, cause catastrophic heating of the Earth’s atmosphere and disruption of the earth’s climate. Moreover, there is substantial scientific evidence that increases in atmospheric carbon dioxide produce many beneficial effects upon the natural plant and animal environments of the earth.” See http://www.petitionproject.org/

How can one evaluate these conflicting assertions? Very few people are in a position to check personally on the accuracy of data advanced by scientists on any aspect of the debate. Almost no one can independently measure global temperature changes, sea level rise, melting of ice in glaciers or at the North Pole or in Antarctica, etc. Even if one could check on these things for oneself, given that there are so many conflicting explanations of the phenomena, how could one know what conclusions to draw?

A comment of famed and garrulous baseball manager Casey Stengel could be helpful in this regard. He was fond of saying “you could look it up” to back up his phenomenal memory. This brief essay posits that there are some important facts about climate that an individual could look up to shed some light on this contentious issue.

Just a little knowledge of the geological, biological and anthropological history of planet earth would lead one to wonder about the idea that earth and its inhabitants are in danger from global warming caused by human activities. For example, the following are facts anybody could look up and that nobody disputes. Discovery of these facts is due to the continual accretion of knowledge in the physical and biological sciences.

• Earth is 4.57 billion years old

• There have been three different climates over this 4.57 billion year period:

The earliest when the climate was extremely hot and the planet was molten and volcanic, without life of any kind

The second when the planet cooled, water collected in the oceans and on land, and bacteria and early life forms appeared

The third, starting about 540 million years ago when the current climate of the earth developed and life as we know it now emerged

• There have been four ice ages affecting earth in the past three billion years. Within ice ages, there have been periods of more severe glacial conditions and more temperate conditions, known as glacial periods and interglacial periods; in interglacial periods earth warms up but is still in an ice age.

• Currently, earth is in a period of interglacial warmth in the Pleistocene ice age, which is the most recent ice age. The current interglacial warming period started about 11,700 years ago. It is during this warming period that human civilization evolved to what we know today.

• During interglacial periods, glaciers retreat. That has been happening since the end of the last period of glaciation 11,700 years ago. The current geological warming epoch is called the Holocene Epoch. It continues up to the present.

• Since the beginning of the Holocene warming, about 11,700 years ago, the human population of the earth has grown from less than 15 million to around 7 billion.

• During the last 12,000 years there have been alternating periods of cooling and warming over periods ranging from thousands of years to decades.

• During a period known as the Holocene maximum, from about 9,000 years ago to about 5,000 years ago, temperatures on earth were warmer than at present. Another warming period known as the medieval warming occurred from about 1,000 C.E. to 1,400 C.E. During the medieval warming, temperatures were warmer than at present.

• The medieval warming was followed by a cooling period known as the Little Ice Age that lasted from approximately the 14th century to around 1850.

• Since 1880 the average global temperature has risen by around 0.8 degrees Celsius, or about 1.4 degrees Fahrenheit.

• Within this recent warming trend there was a period of cooling, from 1940 to 1976.

• Earth warmed again from 1976 to 1998. In 1998 there was an El Niño warming event. The term El Niño refers to periodic warming in the ocean in tropical latitudes of the central and eastern Pacific Ocean.

• Since 1998 average global temperatures have neither warmed nor cooled to any significant degree.

• Carbon dioxide is not a pollutant, and not a harmful substance; it is plant food. Like water, energy from the sun, and the atmosphere, carbon dioxide is essential to life on earth. Every living thing on earth contains carbon.

We could write much more about this but will conclude these remarks by considering one phenomenon that is supposed to be circumstantial evidence of the danger of global warming to human beings and animals. That is the polar bears. According to Al Gore’s film An Inconvenient Truth (2006), polar bears face extinction due to melting of ice in the arctic. However, the polar bear population has actually increased from 5,000 to 25,000 in recent decades. The biggest threat to polar bears is human hunting of the bears. This subject is examined in detail in the book Cool It: The Skeptical Environmentalist’s Guide to Global Warming (2007) by Bjorn Lomborg.

NOTE: In an Appendix to the Education chapter of the book portion of this website, under the title CRITICAL ANALYSIS AND THE SCIENTIFIC METHOD, there is a more detailed essay on the science involved in appraising the hypothesis that human activity is causing dangerous global warming. Find the text in the third paragraph of chapter 28 on Education following note 166 at this link

The post You Could Look It Up–A Few Observations on Climate Change first appeared on Capitalism: The Liberal Revolution.

Social Security and Medicare are essentially programs that benefit middle class people who have reached retirement age. Generally, they fail to provide a safety net for the  poorest of the poor, who are destitute or even homeless. There likely would be near universal agreement in America that

• Any overhaul of social welfare programs to make them sustainable over the long run should also include provisions to provide a real safety net for those who presently are left out of state organized welfare programs.
• Insofar as feasible, welfare programs for the poorest of the poor should be designed and administered to help people become independent, working, and productive individuals if they are capable of that.

In 2011, Congressman Paul Ryan persuaded Congressional Republicans to propose some modest steps to address the problem and mitigate it. His proposal was promptly characterized as ridiculous and heartless by a widely read economist and columnist, Paul Krugman. The editors of a leading newspaper, The New York Times, said that the proposal would do enormous damage to all Americans.

Economist Laurence Kotlikoff is an expert on this subject, with two books to his credit on the problem of unfunded liabilities of the United States for social welfare programs. Kotlikoff asserts about Medicare, Social Security and other welfare programs that $210 trillion is the true amount of the unfunded liabilities of the U.S., including social welfare program liabilities. What does that mean in terms of the ability of the American people to pay it? By calculating how much the $210 trillion comes to on a per household basis, for the 116 million households in the United States. It comes to $1.8 million per household. That is an overwhelming amount compared to the resources of the American people.

According to an article in a popular journal, U. S. News and World Report, “While the typical household headed by someone age 65 or older had a net worth of  $170,128 in 2010, most of that wealth is in the form of home equity . . . If home equity is excluded from the calculation, the median senior-citizen household had a net worth of just $28,518 in 2010.” That is doubly significant: first because senior citizen net worth is so small compared to the liabilities discussed herein and second because senior citizens on average have more assets than the average for all Americans.

According to the National Institute on Retirement Security, the typical working class household in America has just $2,500 saved for retirement. How are the American people  going to be able to save for retirement during their working careers if they have to pay for hundreds of trillions of dollars in social welfare benefits already promised by the United States Congress?

The fiscal gap of $210 trillion includes the much smaller amount known as the public debt of the United States, referred to generally as the national debt. As of 2016, the public debt consists of the bonded debt of the United States, amounting to some $13.9 trillion or about $114,000 per household.

Professor Kotlikoff says that to cover the fiscal gap would require an immediate, permanent 59 percent increase in federal tax revenue or an immediate, permanent 38 percent cut in federal spending; and that if Congress does nothing for twenty years, the requisite federal tax increase would be 70 percent or the requisite spending cut would be 43 percent.

Paul Ryan and Lawrence Kotlikoff are not alone in voicing concern about these unfunded liabilities. In 2004 the International Monetary Fund made similar assertions in a report entitled “U. S. Fiscal Policies and Priorities for Long-Run Sustainability.”

A debt that is impossible to be paid will not be paid. The history of recent world affairs shows that. Nazi Germany, Adolf Hitler, and World War II was the German answer to unacceptably heavy debts imposed on the German people by the combination of the Treaty of Versailles and protectionist policies of other countries that prevented Germans from earning money in foreign trade to service their Versailles Treaty debts. Argentina’s default in 2001 on sovereign debt was the outcome of decades of irresponsible spending by the Argentine state. Argentina’s government had accumulated debts it could not pay, so it repudiated them.

The debts accumulated by the United States are not unique to it. Debts so large that they cannot and will not be repaid are a problem of political states, businesses, and individuals around the world, according to a thoughtful analysis by economics columnist, Philip Coggan.

In the United States it is absolutely certain that politicians in or seeking high federal office know full well of the U.S. debt problem. They know that the United States has incurred long-term liabilities it cannot pay without unacceptable consequences. Where is the political leadership? Who in a responsible position politically will address this problem? What do Presidential candidates Hilary Clinton and Donald Trump propose to do about U.S. debt? Nothing. What do they say about it? Nothing. They are silent. They are supported in this disregard of distasteful facts by supposed authorities and experts such as Paul Krugman and the editors of The New York Times who denounce any remedial proposal as ridiculous, heartless, and enormously damaging to the American people.

That is the opposite of the truth. Doing nothing will be cruel and heartless to future generations, damaging to the American people and damaging to the political institutions by which the American people are ruled. ¹

The post The Absence of Political Leadership first appeared on Capitalism: The Liberal Revolution.

Piracy was a concern of Laura Dekker. She planned her route to avoid known pirate danger areas. The post was written at a time when the information about Laura was the motion picture Maidentrip released in 2013 and available in commercial video in mid-2014.

Laura kept a diary, in the form of a blog, as she sailed. She published her diary in Dutch in 2013 and in English in 2014, in paperback, under the title One Girl One Dream. At present the English language version of the book is available only in New Zealand and Australia. Late in 2014, after publication of the blog post about Laura Dekker on CTLR, The author of this post obtained an English language copy of One Girl One Dream from Abbey’s Bookshop in Sydney, Australia.

In the book Laura describes her plans to avoid pirates during circumnavigation of earth. One possible route was to return via the Red Sea and Suez Canal to her starting point at Gibraltar or further on to St. Martin in the Netherlands Antilles. For two reasons Laura did not take that route. First, she did not want to go back to the Netherlands. See below for explanation. Second, to sail the Red Sea/Suez route ran the risk of sailing through a pirate infested area off the horn of Africa.

Laura did not want to return to the Netherlands. She no longer considered it her home because of the way she was hounded by Dutch authorities who opposed her trip. She explained:

“In the Netherlands it is compulsory for children to attend school until they are 16. If kids want to take a day off, they have to ask permission weeks in advance and then it is usually turned down. If they take the day off anyway, their parents get a heavy fine and, if they refuse to pay, then one of them may face prosecution. As I was planning to stop going to school, we had to see an official from the Department of Education. She didn’t understand what we were talking about and had never heard of the Wereldsclhool.”

Note: The Wereldschool is a company providing teaching programs for Dutch-speaking children between 3 and 16 years old who are going abroad with their parents for an extended period of time. Pupils enroll in teaching programs specifically for their school level (primary school or three secondary school levels) or a specific course such as IB Dutch and language courses. Approximately 1,400 pupils per year enroll, spread over more than 128 countries.

The school provides full distance learning to children going/living abroad or coming back to the Netherlands and corresponds to the Dutch curriculum so that re-integration in Dutch schools after returning to the country is possible. ¹

Because while still only thirteen years of age Laura had announced her plan to sail solo around the world, this became a sensation in the Dutch media.

Laura continues in her book, “When Dutch Prime Minister Jan Peter Balkende announced publicly on TV that I couldn’t skip school to sail because it was compulsory for everyone in the Netherlands to attend school, Child Protection began to meddle in our affairs. Dad and I were called to appear in court, and we needed to engage a lawyer. . . The Child Protection official asked the judges to have me put into a closed institution immediately and to terminate my dad’s parental rights. Fortunately . . . in the end, the judges decided I was allowed to stay with Dad, but ordered me to remain under the supervision of the authorities.” One Girl One Dream, pages 16-17. Dutch authorities confiscated the boat she had purchased for her voyage.

Laura slipped away from observation, took a train to Paris, and from Paris flew to St. Martin. There she contacted a yacht broker to assist her in buying another suitable boat. Using an assumed name she presented herself as 17-year old Jessie Muller. Muller was her mother’s maiden name.

The yacht broker recognized her, and showed Laura the notice about her from Dutch authorities on his computer. He and his family took her to lunch, and then called the local police, because he believed he must. Two policemen came to pick her up. The next day she was put onto a flight to the Netherlands under police escort.

She had lost a whole year and had to plan to start her voyage in the summer of her 14th year, shortly before her 15th birthday on September 20, 2010. During the spring and summer of 2010 she and her father found and reconditioned another boat, the 38-foot ketch in which she made her eventual voyage.

Together they left the Netherlands on August 4, 2010, bound for Gibraltar. August 4, 2010 was 47 days before Laura’s 15th birthday. They sailed about 1,000 nautical miles from the Netherlands to Gibraltar in fifteen days. Laura’s father then returned to the Netherlands and Laura started her solo voyage from Gibraltar on August 21, 2010, thirty days before her 15th birthday. To avoid the hurricane season in the Atlantic, Laura sailed south along the coast of Africa, stopping at the Canary Islands and the Cape Verde Islands. On December 2, 2010 Laura sailed west toward the Caribbean, safely after the end of the Atlantic hurricane season.

She sailed solo across the Atlantic ocean 2223 nautical miles to Saint Martin. In her mind Saint Martin was the real starting point of her circumnavigation. She made a leisurely tour of the Caribbean, stopping for extended stays at several islands before entering the Panama Canal.

Her departure date from Saint Martin was December 20, 2010, exactly three months after her 15th birthday. She completed her circumnavigation at St. Martin on December 21, 2011, a year and a day after leaving St. Martin. Then she sailed west again, through the Panama Canal en route to her chosen new homeland, New Zealand.

In her voyage Laura sailed through both hemispheres and all three major oceans, the Atlantic, the Pacific, and the Indian.

At times in the absence of wind she used a small diesel-powered auxiliary motor, but most of the voyage was under wind power alone.

As for pirates, the only time she thinks she may have seen any were two separate instances of fishing boats traveling without lights and following her shortly after leaving the Straits of Torres, a passage between the north of Australia and New Guinea. The Straits of Torres is more dangerous for heavy cargo ship traffic, ocean and weather conditions than for pirates. Laura mentions that the Australian Coast Guard is quite thorough and vigorous in its patrolling of ocean approaches to Australia. She says the appearance of an Australian Coast Guard helicopter at one point resulted in a suspicious fishing boat turning tail and sailing away from Laura’s boat.

In both the motion picture and her book Laura mentions specifically that she is aware of areas where there is pirate activity and planned to sail far away from those areas, the only exception being her decision to go through the Straits of Torres rather than take a much longer route to Australia.

The decision to go as direct to Australia as possible was prompted by deterioration in her boat’s sails and various mechanical difficulties that needed attention as soon as practicable.

Much more than the motion picture the book provides a vivid description of some of the  dangers of the ocean during the voyage. At one point in the trip from Darwin, Northern Territories of Australia through the Indian Ocean to South Africa, Laura encountered such heavy swells that at the bottom of the trough of one swell her boat turned completely onto one side. It righted itself and sailed up a virtual wall of water to the top of the next swell.

Laura’s trip around the Cape of Good Hope from Durban, on the east side of South Africa, to Cape Town at the southern tip of the continent was through some of the stormiest weather experienced in those seas, according to accounts in Cape Town newspapers.

Throughout the book Laura expresses no fear of the ocean, only respect for its challenges. She had more fear of the Dutch authorities than of the ocean. She describes the Netherlands as a totalitarian state. Because she was born in New Zealand of a Dutch father and German mother, she is eligible for citizenship in all three countries. She chose New Zealand as her permanent home base. She calls the Netherlands a dark little country partly because of its gloomy winter weather and partly because of the way she was treated by the Dutch authorities.
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The post The Voyage of Laura Dekker–Part 2, her book One Girl One Dream first appeared on Capitalism: The Liberal Revolution.

In 1984 the U.S. congress enacted, and President Reagan signed, the Comprehensive Crime Control Act, ² which established a special fund that turned over proceeds from forfeitures to the law enforcement agencies responsible for them. Local police who provided federal assistance were rewarded with a large percentage of the proceeds, through a program called Equitable Sharing. ³ In consequence many states adopted or bolstered their own forfeiture laws, known as civil asset forfeiture laws.

The asset seizures described herein are a consequence of the “War on Drugs,” a policy of the United States to enforce prohibition of the sale and consumption of narcotic drugs. It is also a policy that illustrates the insight of the philosopher George Santayana who said that those who cannot remember the past are condemned to repeat it.

Prohibition of alcoholic beverages was the policy and the law of the U.S. from 1920 to 1933. Alcohol prohibition created a lucrative business for those willing to risk imprisonment for violation of prohibition. Because alcoholic beverages were contraband, their price increased significantly, an inevitable result of the economic law of supply of demand, in which a decrease in the supply of goods results in an increase in price if the demand for the goods continues relatively unabated.

The same thing has occurred with prohibition of narcotic drugs. The illicit drug trade has become highly profitable as a consequence of the limitation of suppliers to those willing to risk the drastic punishments imposed by law.

A direct consequence of alcohol prohibition was deadly fighting between rival criminal gangs for control of the illicit alcohol trade. Prohibition of narcotic drugs has had a similar consequence, but with a tragic difference. Unlike the time of alcohol prohibition where the deadly combat for control of the trade claimed as victims mainly those in the illicit alcohol trade, the combat between rival drug gangs has escalated to virtual warfare in which there are large numbers of innocent bystanders killed within the inner cities of the U.S. and also in countries of Latin America in which and through which narcotic drugs are produced and transported to the U.S.

The actions of law enforcement described herein to halt the drug trade have had the deplorable consequence of attacking and harming Americans who are innocent of any wrongdoing. The asset seizures from innocent persons have become ever greater in magnitude as law enforcement steps up the futile attempt to discourage the drug trade.

An asset seizure in Anaheim, California, illustrates how the “Equitable Sharing” program is used by federal and state law enforcement to divide the money taken from citizens innocent of any wrongdoing. According to a recent report by The Institute for Justice, a not-for-profit civil liberties law firm, “In August, 2012, the federal government and the City of Anaheim teamed up to take [Tony] Jalali’s building, representing his life savings, for renting space to two medical marijuana dispensaries that were entirely legal under California law. Jalali had no involvement in the operation of the dispensary or with the marijuana industry; he was just a landlord that rented an office to two lawful California medical marijuana businesses, as he had to the dental office and insurance company in the same building.

“Not only is medical marijuana legal in California, but state law prohibits the forfeiture of homes and buildings like Jalali’s unless the property owner is convicted of a felony crime. In other words, state and local officials could not forfeit Jalali’s building under state law since he was never even accused of a crime.  But the city of Anaheim teamed up with the federal government to do an end-run around California law, allowing the city to benefit from a forfeiture they could not achieve under state law.  Using a federal forfeiture program known as ‘equitable sharing,’ if the federal government was successful in taking the property it could have kept 20% of the proceeds of the building—worth about $1.5 million—while the remainder could have gone to Anaheim law enforcement officials.  The equitable sharing program is a powerful incentive used by the federal government to enlist local law enforcement officials to cooperate in federal forfeiture prosecutions.

“But, in October, 2013–after a year-long fight in federal court against the U.S. Department of Justice–Jalali prevailed.  The United States government dropped its civil forfeiture action, giving up its attempt to take his building. The government agreed to dismiss the case with prejudice, which means the government gave up any right to file the case again in the future and threaten the property.” ⁴

During 2014 the Washington Post published six articles on civil asset forfeiture, including “Stop and seize: Aggressive police take hundreds of millions of dollars from motorists not charged with crimes,” by Michael Sallah, Robert O’Harrow, Jr., and Steven Rich, Washington Post, September 6, 2014, http://www.washingtonpost.com/sf/investigative/2014/09/06/stop-and-seize/#

This article characterized what its reporters found as “. . . an aggressive brand of policing that has spurred the seizure of hundreds of millions of dollars in cash from motorists and others not charged with crimes . . . [The newspaper’s] investigation found [that] thousands of people have been forced to fight legal battles that can last more than a year to get their money back.”

Here are some examples from the Washington Post article. “A 55-year-old Chinese American restaurateur from Georgia was pulled over for minor speeding on Interstate 10 in Alabama and detained for nearly two hours. He was carrying $75,000 raised from relatives to buy a Chinese restaurant in Lake Charles, La. He got back his money 10 months later but only after spending thousands of dollars on a lawyer and losing out on the restaurant deal. . .

“A 40-year-old Hispanic carpenter from New Jersey was stopped on Interstate 95 in Virginia for having tinted windows. Police said he appeared nervous and consented to a search. They took $18,000 that he said was meant to buy a used car. He had to hire a lawyer to get back his money. . .

“Mandrel Stuart, a 35-year-old African American owner of a small barbecue restaurant in Staunton, Va., was stunned when police took $17,550 from him during a stop in 2012 for a minor traffic infraction on Interstate 66 in Fairfax. He rejected a settlement with the government for half of his money and demanded a jury trial. He eventually got his money back but lost his business because he didn’t have the cash to pay his overhead. ‘I paid taxes on that money. I worked for that money,’ Stuart said. ‘Why should I give them my money?’”

The newspaper’s review continued by summarizing its findings as follows and by providing several additional examples included below. “The Post’s review of 400 court cases, which encompassed seizures in 17 states, provided insights into stops and seizures.

“In case after case, highway interdictors appeared to follow a similar script. Police set up what amounted to rolling checkpoints on busy highways and pulled over motorists for minor violations, such as following too closely or improper signaling. They quickly issued warnings or tickets. They studied drivers for signs of nervousness, including pulsing carotid arteries, clenched jaws and perspiration. They also looked for supposed ‘indicators’ of criminal activity, which can include such things as trash on the floor of a vehicle, abundant energy drinks or air fresheners hanging from rearview mirrors.

“One recent stop shows how the process can work in the field. In December 2012 [David Frye] . . . was working in his capacity as a part-time deputy [sheriff] in Seward County, Neb. He pulled over John Anderson of San Clemente, Calif., who was driving a BMW on Interstate 80 near Lincoln. Frye issued a warning ticket within 13 minutes for failing to signal promptly when changing lanes.”

[Note: The Washington Post report of this incident was based upon a video recording made by a dashboard camera in the police car, which recorded the entire roadside encounter between the police officer and the citizen he stopped.] ⁵

The Washington Post article continues: “He [Frye] told Anderson he was finished with the stop. But Frye later noted in court papers that he found several indicators of possible suspicious activity: an air freshener, a radar detector and inconsistencies in the driver’s description of his travels.

“The officer then asked whether the driver had any cocaine, methamphetamine, heroin or large amounts of cash and sought permission to search the BMW, according to a video of the stop. Anderson denied having drugs or large amounts of cash in his car. He declined to give permission for a search. Frye then radioed for a drug-sniffing dog, and the driver had to wait another 36 minutes for the dog to arrive.

“‘I’m just going to, basically, have you wait here,’ Frye told Anderson.

“The dog arrived and the handler said it indicated the presence of drugs. But when they searched the car, none was found. They did find money: $25,180.

“Frye handcuffed Anderson and told him he was placing him under arrest.

“‘In Nebraska, drug currency is illegal,’ Frye said. ‘Let me tell you something, I’ve seized millions out here. When I say that, I mean millions. . . . This is what I do.’ [Emphasis supplied]

“Frye suggested to Anderson that he might not have been aware of the money in his vehicle and began pressing him to sign a waiver relinquishing the cash, mentioning it at least five times over the next hour, the video shows.

“‘You’re going to be given an opportunity to disclaim the currency,’ Frye told Anderson. ‘To sign a form that says, “That is not my money. I don’t know anything about it. I don’t want to know anything about it. I don’t want to come back to court.”

“Frye said that unless the driver agreed to give up the money, a prosecutor would ‘want to charge’ him with a crime, ‘so that means you’ll go to jail.’

“An hour and six minutes into the stop, Frye read Anderson his Miranda rights.

“Anderson, who told Frye he worked as a self-employed debt counselor, said the money was not illicit and he was carrying it to pay off a gambling debt. He would later say it was from investors and meant to buy silver bullion and coins. More than two hours after the stop had begun, he finally agreed to give up the cash and Frye let him go. Now Anderson has gone to court to get the money back, saying he signed the waiver and mentioned the gambling debt only because he felt intimidated by Frye.”

While these are anecdotal reports, the Washington Post offered them as typical examples of the practice that produced $2.5 billion of asset seizures since 2001.

The New Yorker magazine published a long article about civil asset seizures in 2013, entitled “Taken: Under civil forfeiture: Americans who haven’t been charged with wrongdoing can be stripped of their cash, cars, and even homes. Is that all we’re losing?” by Sarah Stillman, The New Yorker, August 12, 2013, http://www.newyorker.com/magazine/2013/08/12/taken  This article begins with the following case.

“On a bright Thursday afternoon in 2007, Jennifer Boatright, a waitress at a Houston bar-and-grill, drove with her two young sons and her boyfriend, Ron Henderson, on U.S. 59 toward Linden, Henderson’s home town, near the Texas-Louisiana border. They made the trip every April, at the first signs of spring, to walk the local wildflower trails and spend time with Henderson’s father. This year, they’d decided to buy a used car in Linden, which had plenty for sale, and so they bundled their cash savings in their car’s center console. Just after dusk, they passed a sign that read ‘Welcome to Tenaha: A little town with BIG Potential!’

“They pulled into a mini-mart for snacks. When they returned to the highway ten minutes later, Boatright . . . and Henderson . . . noticed something strange. The same police car that their eleven-year-old had admired in the mini-mart parking lot was trailing them. Near the city limits, a tall, bull-shouldered officer named Barry Washington pulled them over.

“He asked if Henderson knew that he’d been driving in the left lane for more than half a mile without passing.

“No, Henderson replied. He said he’d moved into the left lane so that the police car could make its way onto the highway.

“Were there any drugs in the car? When Henderson and Boatright said no, the officer asked if he and his partner could search the car.

“The officers found the couple’s cash and a marbled-glass pipe that Boatright said was a gift for her sister-in-law, and escorted them across town to the police station. In a corner there, two tables were heaped with jewelry, DVD players, cell phones, and the like. According to the police report, Boatright and Henderson fit the profile of drug couriers: they were driving from Houston, ‘a known point for distribution of illegal narcotics,’ to Linden, ‘a known place to receive illegal narcotics.’ The report describes their children as possible decoys, meant to distract police as the couple breezed down the road, smoking marijuana. (None was found in the car, although Washington claimed to have smelled it.)

“The county’s district attorney . . . Lynda K. Russell, arrived an hour later. Russell . . . told Henderson and Boatright that they had two options. They could face felony charges for ‘money laundering’ and ‘child endangerment,’ in which case they would go to jail and their children would be handed over to foster care. Or they could sign over their cash to the city of Tenaha, and get back on the road. ‘No criminal charges shall be filed,’ a waiver she drafted read, ‘and our children shall not be turned over to CPS,’ or Child Protective Services.

“‘Where are we?’ Boatright remembers thinking. ‘Is this some kind of foreign country, where they’re selling people’s kids off?’ Holding her sixteen-month-old on her hip, she broke down in tears.

“Later, she learned that cash-for-freedom deals had become a point of pride for Tenaha, and that versions of the tactic were used across the country. ‘Be safe and keep up the good work,’ the city marshal wrote to Washington, following a raft of complaints from out-of-town drivers who claimed that they had been stopped in Tenaha and stripped of cash, valuables, and, in at least one case, an infant child, without clear evidence of contraband.

“Outraged by their experience in Tenaha, Jennifer Boatright and Ron Henderson helped to launch a class-action lawsuit challenging the abuse of a legal doctrine known as civil-asset forfeiture.”

Influential media have been reporting on this widespread practice of seizing assets from citizens innocent of wrongdoing. See, e.g., “Police Use Department Wish List When Deciding Which Assets to Seize,” by Shaila Dewan, The New York Times, November 9, 2014 ⁶ and “Parents’ house seized after son’s drug bust,” by Pamela Brown, CNN, September 8, 2014. ⁷  and John Oliver, Last Week Tonight, HBO Cable TV, “Legalized robbery by law enforcement,” October 6, 2014, ⁸

In the New York Times article cited immediately, there are several examples, including a New Mexico case where local police lay in wait to seize an expensive automobile on the pretext the owner was about to get into it to drive while under the influence of alcohol.

In the house seizure case reported by CNN and cited above, the city seized the home of a man and his wife on the grounds their 22-year old son had sold $40 of heroin at the house.

The cases cited above are recent, but police abuse of civil asset forfeiture has been going on increasingly over the past thirty years. In the 1990s the Orlando Sentinel newspaper published several reports of police seizures of cash on Interstate highway 95 near Orlando, Florida, including “Tainted Cash Or Easy Money?” by Jeff Brazil and Steve Berry, Orlando Sentinel, June 14, 1992. Sub-title: “Volusia [County] Deputies Have Seized $8 Million From I-95 Motorists. The Trap Is For Drug Dealers, But Money Is The Object. Three Of Every Four Drivers Were Never Charged.” ⁹

The bright side of the picture concerning asset forfeitures is that there are organizations and lawyers working pro bono to protect the property and civil liberties of individuals from predatory asset seizures by law enforcement. The Institute for Justice is responsible for some of the publicity that led to reports in the New York Times, the Washington Post, the New Yorker, CNN, and the John Oliver TV program HBO Last Week Tonight, October 6, 2014, “Legalized robbery by law enforcement.” ¹⁰

The Institute of Justice, founded in 1991, is headed up by Scott Bullock, a vigorous, articulate, and relatively young civil liberties lawyer. Its mission statement says it is a national civil liberties law firm active in protecting private property, economic liberty, free speech and school choice.

Louis S. Rulli is a professor at the University of Pennsylvania Law School who heads up a clinical practice program in which law students help indigent homeowners challenge civil-forfeiture seizures of their home where the homeowners are innocent of any illegal activity but a family member has sold illegal drugs on the premises.

David Guillory is a Texas civil liberties lawyer who devoted considerable time and effort into investigating highway seizures by law enforcement in Shelby County Texas, the locus of the forfeiture case described above in the New Yorker magazine. Mr. Guillory brought a class action to obtain a court order that Shelby County, Texas sheriff’s deputies cease seizing motorists’ cash under the pretext that the cash was a product of illegal drug activity. The country settled the case rather than going to trial.

Journalists at the Washington Post, the New York Times, the New Yorker, and other influential media organizations invested considerable time and energy to produce reports of cases brought to light by the work of the Institute for Justice, Professor Rulli, attorney Guillory and other lawyers who have been working pro bono on such cases.

The post Legally sanctioned highway robbery and other thefts by law enforcement first appeared on Capitalism: The Liberal Revolution.

·         Few people are aware that it is illegal to make too many cash deposits under $10,000
·         The article does not mention any standards for what constitutes too many cash deposits
·         People innocent of any wrongdoing—except making too many cash deposits—are losing
their bank accounts, and probably will never get them back.
·         Banks are prohibited from warning customers about this IRS program.
·         The IRS calls a pattern of cash deposits below $10,000, “restructuring” and a “suspicious activity.”
·         Banks are required to file reports about such suspicious activity.
·         In 2013 banks in the U.S. filed more than 700,000 suspicious activity reports
·         The IRS made 639 such seizures in 2013
·         Only one in five was prosecuted as criminal restructuring.

The complete text of the New York Times report follows. Bold face emphasis has been added.

“Law Lets I.R.S. Seize Accounts on Suspicion, No Crime Required,” by Shaila Dewan, The New York Times, October 25, 2014. ¹

ARNOLDS PARK, Iowa — For almost 40 years, Carole Hinders has dished out Mexican specialties at her modest cash-only restaurant. For just as long, she deposited the earnings at a small bank branch a block away — until last year, when two tax agents knocked on her door and informed her that they had seized her checking account, almost $33,000.

The Internal Revenue Service agents did not accuse Ms. Hinders of money laundering or cheating on her taxes — in fact, she has not been charged with any crime. Instead, the money was seized solely because she had deposited less than $10,000 at a time, which they viewed as an attempt to avoid triggering a required government report.

“How can this happen?” Ms. Hinders said in a recent interview. “Who takes your money before they prove that you’ve done anything wrong with it?”

The federal government does.

Using a law designed to catch drug traffickers, racketeers and terrorists by tracking their cash, the government has gone after run-of-the-mill business owners and wage earners without so much as an allegation that they have committed serious crimes. The government can take the money without ever filing a criminal complaint and the owners are left to prove they are innocent. Many give up.

“They’re going after people who are really not criminals,” said David Smith, a former federal prosecutor who is now a forfeiture expert and lawyer in Virginia. “They’re middle-class citizens who have never had any trouble with the law.”

On Thursday, in response to questions from The New York Times, the I.R.S. announced that it would curtail the practice, focusing instead on cases where the money is believed to have been acquired illegally or seizure is deemed justified by “exceptional circumstances.”

[Note: This is a tacit admission that the IRS has been seizing bank accounts containing only money from sources and activities that are completely legal—that violate no law.]

Richard Weber, the chief of Criminal Investigation at the I.R.S., said in a written statement, “This policy update will ensure that C.I. continues to focus our limited investigative resources on identifying and investigating violations within our jurisdiction that closely align with C.I.’s mission and key priorities.” He added that making deposits under $10,000 to evade reporting requirements, called structuring, is still a crime whether the money is from legal or illegal sources. The new policy will not apply to past seizures.

The I.R.S. is one of several federal agencies that pursue such cases and then refer them to the Justice Department. The Justice Department does not track the total number of cases pursued, the amount of money seized or how many of the cases were related to other crimes, said Peter Carr, a spokesman.

But the Institute for Justice, a Washington-based public interest law firm that is seeking to reform civil forfeiture practices, analyzed structuring data from the I.R.S., which made 639 seizures in 2012, up from 114 in 2005. Only one in five was prosecuted as a criminal structuring case.

The practice has swept up dairy farmers in Maryland, an Army sergeant in Virginia saving for his children’s college education and Ms. Hinders, 67, who has borrowed money, strained her credit cards and taken out a second mortgage to keep her restaurant going.

Their money was seized under an increasingly controversial area of law known as civil asset forfeiture, which allows law enforcement agents to take property they suspect of being tied to crime even if no criminal charges are filed. Law enforcement agencies get to keep a share of whatever is forfeited.

Critics say this incentive has led to the creation of a law enforcement dragnet, with more than 100 multiagency task forces combing through bank reports, looking for accounts to seize. Under the Bank Secrecy Act, banks and other financial institutions must report cash deposits greater than $10,000. But since many criminals are aware of that requirement, banks also are supposed to report any suspicious transactions, including deposit patterns below $10,000. Last year, banks filed more than 700,000 suspicious activity reports. Owners who are caught up in structuring cases often cannot afford to fight. The median amount seized by the I.R.S. was $34,000, according to the Institute for Justice analysis, while legal costs can easily mount to $20,000 or more.

There is nothing illegal about depositing less than $10,000 cash unless it is done specifically to evade the reporting requirement. But often a mere bank statement is enough for investigators to obtain a seizure warrant. In one Long Island case, the police submitted almost a year’s worth of daily deposits by a business, ranging from $5,550 to $9,910. The officer wrote in his warrant affidavit that based on his training and experience, the pattern “is consistent with structuring.” The government seized $447,000 from the business, a cash-intensive candy and cigarette distributor that has been run by one family for 27 years.

There are often legitimate business reasons for keeping deposits below $10,000, said Larry Salzman, a lawyer with the Institute for Justice who is representing Ms. Hinders and the Long Island family pro bono. For example, he said, a grocery store owner in Fraser, Mich., had an insurance policy that covered only up to $10,000 cash. When he neared the limit, he would make a deposit.

Ms. Hinders said that she did not know about the reporting requirement and that for decades, she thought she had been doing everyone a favor. “My mom had told me if you keep your deposits under $10,000, the bank avoids paperwork,” she said. “I didn’t actually think it had anything to do with the I.R.S.”

In May 2012, the bank branch Ms. Hinders used was acquired by Northwest. [Note: This a reference to Northwest Bank, which has 21 branches in western Iowa, and two in eastern Nebraska] Northwest banker  JoLynn Van Steenwyk, the fraud and security manager for Northwest, said she could not discuss individual clients, but explained that the bank did not have access to past account histories after it acquired Ms. Hinders’ branch.

Banks are not permitted to advise customers that their deposit habits may be illegal or educate them about structuring unless they ask, in which case they are given a federal pamphlet, Ms. Van Steenwyk said. “We’re not allowed to tell them anything,” she said.
Still lawyers say it is not unusual for depositors to be advised by financial professionals, or even bank tellers, to keep their deposits below the reporting threshold.

In the Long Island case, the company, Bi-County Distributors, had three bank accounts closed because of the paperwork burden of its frequent cash deposits, said Jeff Hirsch, the eldest of three brothers who own the company. Their accountant then recommended staying below the limit, so for more than a decade the company had been using its excess cash to pay vendors.

More than two years ago, the government seized $447,000, and the brothers have been unable to retrieve it. Mr. Salzman, who has taken over legal representation of the brothers, has argued that prosecutors violated a strict timeline laid out in the Civil Asset Forfeiture Reform Act, passed in 2000 to curb abuses. The office of the federal attorney for the Eastern District of New York said the law’s timeline did not apply in this case. Still, prosecutors asked the Hirsches’ first lawyer, Joseph Potashnik, to waive the CARFA timeline. The waiver he signed expired almost two years ago.

The federal attorney’s office said that parties often voluntarily negotiated to avoid going to court, and that Mr. Potashnik had been engaged in talks until just a few months ago. But Mr. Potashnik said he had spent that time trying, to no avail, to show that the brothers were innocent. They even paid a forensic accounting firm $25,000 to check the books.

“I don’t think they’re really interested in anything,” Mr. Potashnik said of the prosecutors. “They just want the money.”

Bi-County has survived only because longtime vendors have extended credit — one is owed almost $300,000, Mr. Hirsch said. Twice, the government has made settlement offers that would require the brothers to give up an “excessive” portion of the money, according to a new court filing.

“We’re just hanging on as a family here,” Mr. Hirsch said. “We weren’t going to take a settlement, because I was not guilty.”

Army Sgt. Jeff Cortazzo of Arlington, Va., began saving for his daughters’ college costs during the financial crisis, when many banks were failing. He stored cash first in his basement and then in a safe-deposit box. All of the money came from paychecks, he said, but he worried that when he deposited it in a bank, he would be forced to pay taxes on the money again. So he asked the bank teller what to do. She said: “Oh, that’s easy. You just have to deposit less than $10,000.” The government seized $66,000; settling cost Sergeant Cortazzo $21,000. As a result, the eldest of his three daughters had to delay college by a year.

“Why didn’t the teller tell me that was illegal?” he said. “I would have just plopped the whole thing in the account and been done with it.”

The post Bank account seizures by the IRS first appeared on Capitalism: The Liberal Revolution.

Laura achieved her goal. Her accomplishment is documented in the film Maidentrip (2013), mostly filmed and narrated by Laura during her voyage.

Laura’s story has ideological significance in the human quest for freedom. It illustrates what can be achieved by a very young person who is born free and has lived free of repression by parental or state authority.

Laura’s father is Dutch and her mother is German. Laura was born on September 20, 1995 in the seaside town of Whangarei, New Zealand during a seven-year sailing voyage by her parents. Laura has Dutch, German, and New Zealand citizenship. Laura has a younger sister also born on that extended sailing trip.

Laura lived the first five years of her life at sea. Her parents returned to Holland after they finished their years of sailing. Laura was six and living in Holland when she acquired her first boat, a small sailing dinghy 7’ long intended for use by children. Laura learned to sail it by herself.

In 2002 when Laura was seven her parents divorced. After that she lived with her father and saw her mother occasionally. Laura’s sister went to live with their mother.

At age ten Laura acquired a 23’ long Hurley 700 sailboat. She named it Guppy (after the tiny tropical fish). She used this boat for solo sailing during her summer vacations from school; her trips included sailing the sea just off the coast of Holland, and the North Sea, between Holland and England.

In May 2009, at age 13, Laura made a solo crossing of the North Sea from the Netherlands to England, where local authorities requested that her father come to accompany her on her return voyage.

In August 2009, when she was not quite fourteen years old, Laura announced her plan for a two-year solo sailing voyage around the globe. By then Laura had acquired a seagoing 38 ft. ketch (two-masted sailboat) that she also named Guppy. It was badly in need of repairs and refurbishing which Laura and her father did.

The boat was equipped for long-distance sailing. The on-board equipment includes an Iridium tracking system. Iridium is an American company that operates a system of 66 active satellites used for worldwide voice and data communication from hand-held satellite phones and other transceiver units. The Iridium network is unique in that it covers the whole Earth, including poles, oceans and airways. From her boat Laura could communicate worldwide via Iridium by radio and mobile phone and a supporting team in Holland could monitor the course of Laura’s voyage.

Laura carried on her boat a sextant and charts of the oceans, tools for celestial navigation in the way that sailors did before the advent of satellites and GPS navigation. She learned to use sextant and charts because she wanted to be able to determine her location in case her computer crashed. Note: The United States Navy re-instituted instruction in celestial navigation with sextant and chart as a backup to GPS navigation in case of computer hacking by cyberattacks that disable GPS navigation. ¹

The local authorities at Laura’s place of residence in Holland intervened, opposing Laura’s planned trip on the grounds it was child endangerment, even though both parents supported Laura’s plans. Laura later commented about the Dutch authorities that “they thought it was dangerous. Well, everywhere is dangerous. They don’t sail and they don’t know what boats are, and they are scared of them.”

During the film Laura says she is glad she left Holland for the voyage, because in Holland people only want to make money, get married, buy a house, have kids, then die. She says that life would be too boring for her. Once the voyage is well under way Laura says, my life starts with this trip.

The case received widespread international attention concerning the degree that a government might intervene when a minor engages in risky behavior that is supported by the parents. After half a year of legal dispute with the authorities, a Dutch court decided that the decision should be left with Laura’s parents provided she was not permitted to depart until her 15^th birthday. A month before Laura’s 15th birthday she set sail from the Netherlands. The first leg of her trip was sailing 1,500 miles (2,400 km) to a stop at Gibraltar, then on 800 miles (1,300 km) to her next stop at the Canary Islands off the coast of northwest Africa. Next Laura sailed 2,000 miles (3,200 km) west across the Atlantic Ocean to St. Maarten, an island of the Netherlands Antilles in the northeastern Caribbean Sea.

Laura Dekker on board her boat Guppy

From St. Maarten Laura headed further west towards the Panama Canal. On approaching the Panama Canal Laura says this is where I can turn around and go back to Holland; if I continue on I will be committed to the whole trip around the world. She goes forward.

After her transit of the Panama Canal, Laura sailed through the equator south to the Galapagos Islands near the Equator, and from there west to Tahiti, and then to Darwin, the northernmost city in Australia. From Darwin, Australia Laura sailed 6,000 miles non-stop across the Indian Ocean to South Africa and around the Cape of Good Hope to Cape Town, South Africa. From Cape Town Laura sailed northwest through the South Atlantic Ocean, crossing the equator northbound to the Caribbean Sea where she completes her trip at St. Maarten.

Although Maidentrip is very professionally done, most of the film consists of motion picture footage taken by Laura of herself on the boat and of the seas through which she sailed, including some photos taken during stormy conditions as well as some scenes in her stops along the way. In Dutch and English (with subtitles in English for both spoken languages) Laura narrates her experiences shown in the film.

Laura explains that her goal was not just to achieve the youngest solo circumnavigation of the globe, but to enjoy some of the landfalls along the way. So she stopped and spent time on land at various ports of call. The film includes footage of Laura exploring in the Canary Islands, the Galapagos Islands, Tahiti, and other beautiful places on her trip.

In Tahiti, French Polynesia, French customs asked the day and hour of her departure. Laura replied to a skeptical customs official that she travels by sailboat and will depart when the wind is favorable.

The entire round trip from St. Maarten and return took 519 days. During that time Laura sailed 27,000 nautical miles (31,000 statute miles and 50,000 km) through both hemispheres and across the world’s three major oceans, the Atlantic, the Pacific, and the Indian oceans.

While visiting Darwin, Australia Laura is shown buying a New Zealand national flag to fly on her boat. She comments that she will make New Zealand her home and not return to live in Holland because, other than the Dutch language, she has nothing in common with the people of Holland.

Maidentrip is available from Netflix.  CTLR readers should consider this post an endorsement of the film as well worth seeing for both entertainment and inspiration. To view images of Laura Dekker, go to http://www.bing.com/images/search?q=laura+dekker+images&qpvt=laura+dekker+images+&FORM=IGRE

After completing her circumnavigation of the globe at St. Maarten, 519 days after she started, Laura continued on, this time with a friend named Bruno, to a second transit of the Panama Canal and from there another 8,000 miles to her chosen home in New Zealand.

Laura now lives on her boat in New Zealand. She is studying for a captain’s license. She has traveled to Europe where she has been interviewed on television. In 2014 flew from Tahiti to New York with a friend named Daniel, to take an automobile tour of America. [Note: Laura and Daniel married in May 2015, four months before Laura’s 20th birthday.  http://blog.jetsettingmagazine.com/news/laura-dekker-married ]

Laura has established an attractive blog where she reports on her travels in English and Dutch. The English language blog pages appear at http://www.lauradekker.nl/English/Home.html

The post The Voyage of Laura Dekker first appeared on Capitalism: The Liberal Revolution.

America has been enriched by immigrants who do everything from jobs most Americans spurn to achieving the highest levels of capability and productivity in the arts, sciences, and professions.

During a recent summer vacation automobile trip in California, this author met several bright and friendly young people who by their lives illustrate America’s continuing position as the land of opportunity.

In a small town on a highway between Los Angeles and Lake Tahoe, Susanna was working as a retail sales clerk in a drugstore. Susanna was born in Mexico, and brought by her parents to California at age twelve. Susanna was entering the local community college in the fall and planned to go on to work for a degree at a four year college.

In an isolated community of 800 people, one place of business was busy and operating 24 hours a day, seven days a week. It is a combination Mobil gasoline station and convenience store. The proprietors are from the Punjab in extreme northwest India. The family lives in a home on the same property as the business. A son and daughter work in the business during summer vacations from school. The son, Navjot, attends a well-respected liberal arts and engineering college in Connecticut; his sister, Malkeet, is studying at a large state university in California.

Immigrants from the Indian sub-continent operate small businesses throughout America, in major cities, small towns, and out of the way spots on highways. Thirty-five miles down the highway from the Mobil station and convenience store there is a Shell Oil gasoline station, convenience store and fast food restaurant operated by immigrants from India.

In a restaurant in a mid-size city in California’s central valley, the author was offered coffee and a welcoming smile by Kristine, a young African-American woman of college age. Kristine is enrolled in the local community college. When asked about her plans for the future she smiled and said “onward and upward.” Specifically, she plans to continue her college education at the local branch of the state university system.

Patrick Soon-Shiong was born in South Africa to Chinese immigrant parents who fled to South Africa from Guangdong, China during World War II. Patrick graduated from medical school in South Africa and did his internship there. Subsequently, he moved to Vancouver, Canada where he earned the Master of Science degree and several prestigious awards for academic and medical excellence. Patrick moved on to America, where he trained in surgery at UCLA School of Medicine in Los Angeles, and became board certified in surgery. Patrick was on the faculty of UCLA Medical School for a number of years when he was still in his 30s. He is a highly acclaimed innovator of pioneering medical technologies, including use of nanotechnology for treatment of cancer. He founded and sold two multi-billion dollar pharmaceutical companies and then returned to UCLA Medical School as a professor of microbiology, immunology, molecular genetics, and bioengineering. Patrick is also a philanthropist whose charitable giving includes $135 million to St. John’s Hospital in Santa Monica, California. America is lucky to have Patrick. He has done far more to benefit America and the whole world than is mentioned in this brief biographical sketch. ¹

In 1956, Andrew Grove escaped from Hungary at the age of 20, during the 1956 uprising against communist rule. He moved to America. Soon after arriving in America Grove met his future wife, who was a fellow refugee. They met while he held a job as a busboy and she was a waitress. Grove earned advanced degrees in science at American universities. He was a pioneer in the development of semiconductor and microcircuit technology that drove the enormous growth of the computer industry. At age 32 Grove joined the founders of Intel Corporation where at first he was director of engineering and eventually became president, CEO, and Chairman of the Board of Directors. Grove helped Intel become the world’s largest manufacturer of semiconductors. ²

Andrew J. Galambos, whose ideas inspire this website, was also an immigrant. His parents brought him to America from Budapest, Hungary, when Andrew was two years old. He earned undergraduate and graduate degrees in physics, taught physics and mathematics in several colleges, and in 1961, operating under the name “The Free Enterprise Institute,” established himself as a teacher of freedom and science. The market for Galambos’ lectures and ideas grew to 20,000 people due to their originality and illuminating content  and due also to the presentations of the lectures by Galambos’ able colleague, Jay Snelson. ³

The post America still the land of opportunity first appeared on Capitalism: The Liberal Revolution.

The bumper sticker is a sign of the times. The USPS is losing money, and lots of it, partly because of a decline in public use of first class mail, the most profitable service of the USPS. Post office management must think their bumper sticker exhortation will motivate public-spirited citizens to stop using electronic bill payment and switch back to buying first class stamps to use in paying their bills by mail. As the text message generation would say, “LOL.” ¹ It won’t happen, at least not to any significant degree. Electronic bill payment is so convenient. The time it saves must be worth more to everybody than the cost of a first class stamp.

The bankruptcy of the US Postal Service is looming: Will the public miss the USPS if it shuts down?

In Capitalism: The Liberal Revolution (CTLR) it is posited that private enterprise could perform every service offered by the United States of America and the individual states, excepting of course redistribution of income from the more affluent to the less affluent. CTLR posits that income redistribution is an imposition on the American people rather than a service. Furthermore, income redistribution activities are the primary cause of the financial woes of the U.S. and the individual states. All these political entities have promised more than they can deliver. These improvident promises are bankrupting the U.S., the individual states, and the American people.

The financial problems of the U.S. Postal Service illustrate what has gone wrong, financially, with the services provided by the U.S. and the individual states.  The USPS employed 584,000 workers as of the year 2010. ²

It was reported on May 9, 2014 that the U.S. Postal Service (USPS) has been losing money at a rate that foreshadows its total failure, absent further taxpayer subsidies. According to the New York Times, “The financially troubled Postal Service on Friday [May 9, 2014] posted a net loss of $1.9 billion in the second quarter, which ended March 31, the same amount the agency lost over the same period in 2013, postal officials said. . . The agency owes $99.8 billion in benefit payments to its current and retired workers, which includes $16.7 billion of congressionally mandated [current] payments into a future retiree health care fund. The Postal Service has defaulted on the health care payments over the last three years, and postal officials called on Congress to pass legislation to help the agency overhaul its business . . .” ³ [Emphasis added]

“The Postal Reorganization Act of 1970 abolished the then United States Post Office Department, which was a part of the cabinet, and created the United States Postal Service, a corporation-like independent agency with an official monopoly on the delivery of mail in the United States.” ⁴

If Congress were to impose similar requirements on itself for advance funding of federal social welfare obligations, ⁵ the U.S. would have to double its annual spending, and increase its annual deficit by at least 350% over the deficit reported for the fiscal year ended in 2012. ⁶

The USPS has the authority to permit mail delivery by private carriers, who must pay the USPS for the right to deliver mail. “In 1979 the Postal Service authorized [private delivery of letters that] “. . . must either cost at least the greater of $3 or twice what First Class (or Priority) mail service would cost . . .” ⁷

Since 1979 United Parcel Service (UPS) and Federal Express (FedEx) have been delivering mail, including packages and letters. The business of UPS and FedEx is thriving while the USPS is failing.

In 2006 Congress enacted the Postal Accountability and Enhancement Act, requiring the USPS to prefund retiree health benefits 75 years into the future and to pay all of that money in the next 10 years. In 2012, the USPS lost nearly $16 billion of which $11 billion was because of the Postal Accountability and Enhancement Act of 2006. ⁸

The USPS could be eliminated entirely, as UPS (founded in 1907) and FedEx (founded in 1971), and other privately owned companies could deliver all the mail the USPS now delivers.  The rationale given for the continued existence of the USPS has been that the post office does something no private company would be willing to do, that is deliver first class mail to every inhabited place in America, no matter how small. However, UPS and FedEx already do this.

For example, UPS delivers to Happy Camp, California, a small and remote town of 1,190 inhabitants ⁹ in northwest California. Happy Camp is 173 miles from the city of Redding, California which is 3 ½ hours away by automobile and 130 miles away from the city of Eureka, California, which is three hours distant by automobile. UPS delivers to Happy Camp from its base in Redding. There is a post office in Happy Camp, but mail is general delivery, while UPS delivers to the door.

UPS and FedEx probably would not deliver mail everywhere as cheaply as the USPS, which in the year 2014 charged 46 cents ($0.46) for a first-class letter weighing less than one-half ounce. But the USPS cannot do that either and stay in business.

The post Sign of the times—pay your bills by mail first appeared on Capitalism: The Liberal Revolution.

At the end of this Post we set forth our view of the reasons for the failure of government regulation to protect the public from medical errors.

The United States Centers for Medicare and Medicaid Services (CMS) espouse the idea that their mission includes achieving better health care by improving safety in patient care in accordance with safety principles of the Institute of Medicine. However, as David Goldhill reports in Time magazine, it appears that CMS is cooperating with attempts of the American Hospital Association to withhold or at least limit information about preventable hospital errors. See “The Most Shocking Mistakes Hospitals Don’t Want You to Know About,” by David Goldhill, Time.com, July 31, 2014. ¹

David Goldhill is vitally interested in preventing hospital medical errors, as the death of his father was caused by preventable hospital-borne infections. ² We quote as follows from Mr. Goldhill’s article in Time.com.

“. . . The American Hospital Association (AHA) [has persuaded] . . . [CMS] . . . to eliminate government disclosure of the worst medical mistakes committed by hospitals.  As of [July 2014] the Center for Medicare and Medicaid Services (CMS) has removed data on many ‘never events’ from its public website, Hospital Compare.

“‘Never events’ are just what they sound like: errors so egregious they should never happen. The term came into widespread use in 2006, when the National Quality Forum defined 28 serious healthcare errors. While CMS has never published data on all the never events, until recently it made public records of some of the worst and most preventable, such as foreign objects left in the body, air embolisms (a killer air bubble entirely preventable during surgery), giving the wrong blood type to a patient and bedsores allowed to develop into extremely painful and even deadly wounds . . .

“Never events . . . actually happen quite often. CMS’ Inspector General estimated 1 in 165 admissions of a Medicare patient involved a never event. It is estimated that foreign objects left in a patient’s body after surgery occurs once every 5,500 operations. That rate would translate into 9,345 objects left in patients in per year. . .

“[A]s the predominant funder of hospitals, CMS has always been an ambivalent regulator. And the AHA has a lot of friends in Congress, allowing them to find mouthpieces for their talking points . . .  According to Nancy Foster, the vice president for quality and patient safety policy at AHA, ‘the only thing we have insisted upon is that the measures be accurate and fair, that they represent a real picture of what’s going on in an individual hospital if you’re going to put it up on a public website.’

“The counter-example of airline regulation clearly demonstrates the self-serving nature of this line of reasoning. Can we imagine an airline executive or lobbyist arguing that the public had no right to know any piece of data about airline safety? But of course in aviation safety, we long accepted the primacy of consumer safety . . .

“In health care, [apparently the CMS and AHA] . . . believe that hospitals can kill patients as a result of errors and retain rights to confidentiality. That may help explain why the airline industry grows safer every year, and estimates of deaths from medical errors are now so high they would rank as the third-leading cause of death in America behind only cancer and heart disease.

“Let’s say we . . . published all never events data . . . [P]atients might avoid hospitals with a lot of never events. Patients who suffered a never event at a hospital might demand compensation upon discovering the particular error occurred frequently. Hospitals might be forced to respond to this patient misuse of data by improving efforts to decrease the incidence of never events.”

CMS and the Institute of Medicine hold up as a model for promoting patient safety the Seven Pillars Process adopted by the University of Illinois Hospital and Health Sciences System (UIHHSS). The following is quoted from the website of the Institute for Medicine.

“When the family of Michelle Malizzo Ballog found out that their daughter’s 2008 death had been caused by a preventable medical error, one question trumped all others: How could this have happened?

“To the family’s surprise and relief, officials at the University of Illinois Hospital and Health Sciences System (UIHHSS) in Chicago did not defer that question to their lawyers. Instead, they investigated their suspicion that a fatal error occurred during Ms. Ballog’s surgery, confirmed that information with the patient’s family once it was established, apologized, and provided a financial settlement for Ms. Ballog’s young children. Importantly, the hospital made changes in their anesthesia processes to ensure that the same error would not happen again.”

“[An] approach [to hospital safety], known as the ‘Seven Pillars,’ was adopted by UIHHSS in 2006. Seven Pillars focuses on transparency to eliminate patient harm and learn from patient safety events. It includes:

1. Patient safety incident reporting;
2. Investigation;
3. Communication and disclosure;
4. Apology and remediation, including waivers of hospital and professional fees;
5. System process and performance improvement;
6. Data tracking and performance evaluation; and
7. Education and training.” ³

On its website CMS states that its mission includes achieving better health care by improving safety in patient care in accordance with safety principles of the Institute of Medicine. ⁴ However, as we learn from Mr. Goldhill’s article CMS cooperates with the AHA to limit such reporting.

How can the public guardians of health safety be a party to limiting public access to knowledge of medical errors occurring in hospitals? The answer lies in the very nature of political government.

Political government is a monopoly. It allows no competitors. It insists upon immunity for its actions. For those who may doubt this, an internet search of the phrase sovereign immunity will be enlightening. ⁵

The United States of America has no accountability and no risk in its actions. Employees of the U.S. from the President on down to the lowest levels of bureaucracy are never held personally responsible for errors or actions which harm members of the public. Or if they are held accountable in political terms, through the voting process, the accountability never translates into compensation to members of the public harmed by government incompetence or wrongdoing.

If a private company ⁶ undertakes to provide any service or product to the public, it is held accountable to individuals harmed by its errors and omissions to carry out its responsibilities. Responsible managers and employees of a private company can lose their jobs for their failure to fulfill the responsibilities of the company.

Andrew Galambos in his lectures emphasized that proprietary interest in one’s services, products, and business reputation are safeguards for the public. He taught that those who serve others by providing goods and services should guarantee their product. Further on in CTLR we will discuss the practical limits to the extent of guarantees in situations where it is impossible to guarantee an outcome in human affairs, so that a service provider can only offer his or her best efforts.

No such limit exists in the case of the duty of a provider of information to disclose important information that is readily available. And as David Goldhill points out, in the case of medical errors in hospitals, the U.S. through its CMS agency is actively concealing important information about those errors of which the agency is aware.

The U.S. can be as remiss in responsibility to the public when it provides medical care itself, as it does in the Veterans Administration (VA) that provides medical care for more than eight million veterans. ⁷ As of the years 2013-2014 it became known to the public that some of the numerous hospitals in the VA medical system had been concealing delays in providing medical care. When reports of such delays became widespread an internal investigation was launched by the VA’s Inspector General. ⁸

According to the Los Angeles Times, “. . . investigators found long backlogs at VA hospitals across the country and several cases of veterans who died while waiting for appointments . . .” [Consequently, Congress enacted legislation] “. . . to solve the alarming backlog for care at VA facilities by allowing veterans to see private doctors at the government’s expense . . . if they face a wait of 30 days or more or live more than 40 miles from a VA facility. Creating that new benefit would allow many more veterans to get care, but would increase [federal] spending by $10 billion.” Congress made this option available on a temporary basis as a political compromise on how to finance the new benefit. ⁹

The post Government Regulation, Crony Capitalism, and Public Safety first appeared on Capitalism: The Liberal Revolution.

The Times article names the following organizations as militias that are involved or planning to become involved in border patrols: Oathkeepers, Three Percenter’s Club, Patriots and Minutemen.

The Times reports that “Militia members started arriving on the Texas border in recent weeks to assist as part of a deployment they called Operation Secure Our Border: Laredo Sector. The effort entails creating a training command near San Antonio and rotating groups south to patrol private ranch land on the border with the permission of ranch owners. . .

“Mike Morris, who works with the Three Percenter’s, told the Los Angeles Times that several militia groups were invited to South Texas by ranchers who face regular break-ins and ‘incursions’ by migrant groups. ‘It is a dangerous situation,’ he said. . .

“Morris said there were numerous militias operating without a central command, some armed. While some groups ‘observe and report,’ he said, others saw the need to be armed in remote areas because if a threat arises ‘the [U.S.] Border Patrol are stretched so thin—they may not respond. Some parts of the border these days, Border Patrol has pulled back and it’s not safe,’ Morris said.”

A wise man once said that security is the lowest form of happiness. That man was Andrew Galambos, whose work inspired the book and website of which this blog is a part. The author of this Post was a student of Galambos. From decades of pondering the thought and ideas of Andrew Galambos this author has come to the realization that politics is the cause of everything bizarre, seemingly inexplicable, pathological or cruel in human societies.  Politics in this sense of the word includes religion in that religious organizations become political in nature over time.

Security is the goal of many if not most of the people who are trying to cross the border from Mexico into the U.S. Such people seek security of two kinds: safety from the murderous drug wars which have killed over 100,000 people in Mexico alone in the early part of the 21^st century; and the opportunity to provide economic security for themselves in the form of gainful employment.

American property owners on the U.S. side of the border also seek security—in the form of protection from damage done to their property and possible criminal attacks by some border crossers. This is a case of private individuals seeking protection of their persons and property by other private individuals because the U.S. and the state of Texas have failed to protect them from a virtual invasion of immigrants.

Americans are also worried about members of criminal gangs crossing the border into the U.S. and committing violent crime here. That worry is justified. However, the predominant cause of criminals entering the U.S. from Mexico is the War on Drugs. Drug gangs are international operations carrying on a large and profitable enterprise founded mainly on the opportunity to earn enormous sums in U.S. dollars in the huge American market. That opportunity would not exist but for U.S. criminalization of drug use, the same problem the U.S. had with prohibition of alcohol. The Mexican and other Latin American drug gangs would go out of business very rapidly if the U.S. ended the criminalization of drug use.

Decriminalizing drug use would have enormous benefits to American taxpayers. It would eliminate the billions of dollars spent each year on enforcement of the War on Drugs as well as imprisonment of nearly 500,000 drug offenders at a cost of around $50,000 per year per prisoner, or about $25 billion for prison costs.

The critical situation on the U.S.—Mexico border is caused by laws of the United States of America, including prominently but not limited to

1. U.S. law that makes narcotic drugs illegal to sell or own without a physician’s prescription.
2. U.S. law that has created taxpayer-paid benefits, especially free public education and health care, that are an attraction to poor and ambitious people from foreign countries, even though by far the greatest attraction of America is that it remains the land of opportunity for immigrants willing to work hard.

According to one expert, Professor Jeffrey A. Miron of Harvard University, the “War on Drugs” claims thousands of lives every year in the U.S. in addition to the tens of thousands more each year in Mexico and points south. ² The War on Drugs is a crusade against private vice that is highly similar to the U.S. experience during the years of prohibition of sale of alcoholic beverages (1920-1933).

U.S. prohibition of alcohol created a highly profitable alcohol trade for criminal organizations such as the Mafia. According to Wikipedia, “Organized crime received a major boost from Prohibition. Mafia groups ³ limited their activities to prostitution, gambling, and theft until 1920, when organized bootlegging emerged in response to Prohibition. A profitable, often violent, black market for alcohol flourished. Powerful criminal organizations corrupted some law enforcement agencies, leading to racketeering. Prohibition provided a financial basis for organized crime to flourish. Rather than reducing crime, Prohibition transformed some cities into battlegrounds between opposing bootlegging gangs.” ⁴

Note that the term “racketeering” in the foregoing quotation refers to the crime of threatening business owners with violence unless they pay criminals for “protection.” We observe sadly that political states are in the protection business in much the same way as criminal gangs. That is one of the messages of CTLR, a message implicitly stated in the CTLR book chapter entitled “Kleptocracy.”

Lysander Spooner (1808-1887), a great American philosopher of liberty, wrote an essay entitled “Vices Are Not Crimes.” ⁵ Spooner begins his essay on Vices are Not Crimes as follows:

“Vices are those acts by which a man harms himself or his property. Crimes are those acts by which one man harms the person or property of another. Vices are simply the errors which a man makes in his search for happiness. Unlike crimes, they imply no malice toward others, and no interference with their persons or property. In vices, the very essence of crime—that is the design to injure the person or property of another—is wanting.

“It is a maxim of the law that there can be no crime without a criminal intent; that is without the intent to invade the person or property of another. But no one ever practices a vice with any such criminal intent. He practices his vice for his own happiness solely, and not from any malice toward others.

“Unless this clear distinction between vices and crimes be made and recognized by the laws, there can be on earth no such thing as individual right, liberty, or property; no such thing as the right of one man to the control of his own person and property, and the corresponding and coequal rights of another man to the control of his own person and property.

“For a government to declare a vice to be a crime, and to punish it as such, is an attempt to falsify the very nature of things. It is as absurd as it would be to declare truth falsehood, or falsehood truth.” ⁶

To similar effect see “An Economic and Moral Case for Legalizing Cocaine and Heroin,” by Jeffrey Miron, Time.com July 28, 2014 http://time.com/author/jeffrey-miron/

Returning to the illegal immigration problem of the U.S., it is remarkable how easy it is to disregard the fact that America is a nation of immigrants, including even the peoples now called Native Americans who immigrated some 15,000 or so years ago from northeast Asia to North America. They immigrated by walking over the Bering Land Bridge between Siberia and Alaska at a point now covered by the North Pacific Ocean to a depth of 200 feet. ⁷

European immigration to America dates back only four centuries. The United States welcomed millions of immigrants from the inception of the republic in 1781 until World War I.

The great prosperity of America is based in large part on the influx of people who were dissatisfied with their country of origin and were seeking freedom and opportunity in America. These immigrants included not only those who pursued employment in agriculture and industry, but also scientists, engineers, and people with great talent in the arts. Notable examples of immigrants celebrated for their achievements in science and the arts include Nikola Tesla, Andrew Grove, Albert Einstein, George Balanchine and Igor Stravinsky. ⁸

One of the things that worries many Americans about illegal immigration is the high cost of providing education and health care for illegal immigrants. We think that concern is entirely misplaced. The problem is not the immigrants but the American political system itself. Public education and health care are very costly in parts of the U.S. where there are relatively few illegal immigrants.

It is true that new immigrants generally earn low incomes and pay taxes at a lower rate than the average American. In this sense they are a burden on other American taxpayers. However, the cause of the burden is the U.S. system of taxing and spending, not immigrants. Even if there had been absolutely no illegal immigration to the U.S. since the 1960s the U.S. system of taxing and spending still would be producing a financial calamity for Americans, especially for future generations. In two chapters of our book ⁹ we explain how the entitlement benefits known as Medicare, Social Security, and Medicaid are already bankrupt and unless modified will by themselves cause the U.S. to experience the greatest sovereign default and bankruptcy in world history.

Furthermore, states and municipalities have been experiencing severe financial stress from the cost of financing public education and Medicaid. In the case of public education, the culprit is teachers’ retirement income and post-retirement health care, which are threatening to bankrupt state and local political entities. In California, for example, as of the year 2014 the state Teachers Retirement System had unfunded future liabilities of $71 billion, liabilities that are growing each year. Medicaid, a program of medical care for extremely low-income people, is funded jointly by the states and the U.S. The states are finding that their portion of Medicaid costs is among the most intractable problems of budgetary deficits. ¹⁰

The post Illegal Immigration and Private Security first appeared on Capitalism: The Liberal Revolution.

On July 29, 2014 we noticed a column in the Los Angeles Times directly relevant to part of the CTLR chapter on Credit and Reputation. The Los Angeles Times column is “In the front seat at the ride-sharing revolution,” by Sandy Banks, Los Angeles Times, July 29, 2014, http://www.latimes.com/local/la-me-0729-banks-uber-lyft-20140729-column.html

Sandy Banks has been a reporter and columnist with the Los Angeles Times for many years. We reproduce below, in full, her column regarding the sharing economy, marking certain passage with bold face for emphasis. Sandy Banks’ comments, and especially those emphasized below in bold face show how credit, reputation, and innovation that characterize what is presently called the sharing economy increase human choices and therefore enhance human freedom and the pursuit of happiness.

Sandy Banks writes, “I was introduced to the sharing economy a few years ago, when my youngest daughter was studying in Denmark and trying to travel Europe on the cheap. ‘Couch surfing’ she called her lodging technique. You book a spot online on the couch of a stranger in a foreign country; stay the night, then move on.

“I thought it was lunacy and dangerously naive. She thought it was a great way to meet people and learn about the world. She and her friends survived the year unscathed and with great stories. And I began to trust what’s being called the ‘peer-to-peer economy.’ That’s how I wound up in a stranger’s car at midnight in Palo Alto, trying to make it to the Caltrain station before the last train to San Francisco departed.

“I’d missed the Stanford jitney and couldn’t get a cab, so I downloaded the Uber app on my cellphone, loaded my credit card info and tapped in my destination. Seven minutes later, I was sitting next to Bereket, who’d been playing cards with friends in a campus dorm when his phone pinged with my request. The trip was a bit of an adventure. Bereket was from out of town and didn’t know his way around. GPS service was spotty, so we made a few wrong turns. But he was pleasant, his car was clean, and I got to the station on time — and for half of what it would have cost if I had taken a cab.

“Consider me a convert. I was once suspicious of riding with a stranger. Now, like tens of thousands of other people across the country, I use Lyft and Uber to fill gaps in public transit or to bail me out of jams.

“It’s a transportation revolution, and there are bound to be winners and losers.

“Taxi drivers are up in arms, their livelihoods at stake. I understand that; I felt the same way years ago when news apps began nudging newspapers toward obsolescence. We learned from the competition and adapted. Cab companies will too. It’s a fact of life. All around us, old business models are being replaced by technology-driven versions that better fit the realities of busy, fragmented lives. And the biggest threat to consumers in the car-sharing process is not some random psycho driver, but the muscle of the private cab companies that want them to disappear and the reflexive rush toward regulation by fear-mongering politicians.

“The ride-sharing trend began in the Bay Area a few years ago. Now Uber operates in every continent except Antarctica. Lyft is making it easier to get around in neighborhoods that cabs won’t go near, and Sidecar has figured out how to let riders know exactly how much the trip will cost before the ride begins. California created the nation’s first regulations for the upstart firms last fall. Drivers have to undergo background checks, and companies have to provide million of liability insurance. Debate is still underway in Sacramento about whether that’s enough. In Los Angeles, City Council members — some elected with the help of taxi industry contributions — are trying to saddle the ride-sharing firms with tighter rules and stifling insurance requirements. Mayor Eric Garcetti, to his credit, sees the risk in that. He considers ride-sharing companies a flexible, cost-effective alternative to taxis.

“Cab companies could learn from Uber and Lyft. Here’s what traditional taxi customers don’t like: long waits, cash only fares (your credit card reader just happens to be broken — again) and surly drivers who turn their noses up at short trips or rides through dicey areas. What we do like is the convenience and transparency of the ride-sharing process. I was hooked the night I bought too many groceries on a trip to the market in San Francisco. I’d walked to the store but couldn’t haul the heavy bags back to my daughter’s apartment. I ordered a Lyft from the app on my phone, received the driver’s photo, a description of his car and an estimate of when he would arrive. Twelve minutes later, for about the cost of a venti latte, Samuel was helping me unload my bags from his late-model Toyota.

[CTLR COMMENT: Taxi Magic is the brand name of a recent offering of taxi companies allowing customers to arrange and pay for taxi service in a manner very much like Uber and Lyft. See https://taximagic.com/en_US ] 

“There are bound to be a few rogue drivers that give the companies a bad name. An Uber driver in Washington, D.C., was charged last week with sexual assault for allegedly fondling a female passenger who had passed out in his car. But he was quickly tracked down and arrested because the Uber receipt includes the name of the driver and model of the car.

“The companies don’t need Big Brother. They understand the value of a good reputation and know how to quickly adapt. Lyft is toning down its touchy-feely vibe and downsizing its trademark pink mustache in some markets; they realize we don’t need a party, just an efficient ride. And Uber is reconsidering its “surge” pricing concept that pegged prices to demand.

“What used to be considered underground, rag-tag, even seedy is becoming mainstream. Young people are more trusting, less fear-driven than my generation tends to be. People who’ve grown accustomed to hordes of ersatz friends on Facebook and Instagram are more comfortable taking rides from strangers on Lyft, renting rooms from strangers on Airbnb, letting strangers rent their cars through FlightCar while they are out of town.

“You can grumble about the risks of the new sharing economy, but when American Express offers double rewards points for charging an Uber ride, how radical can it be?”

The post The Sharing Economy–Innovation, Technology and Freedom first appeared on Capitalism: The Liberal Revolution.

In this post, inspired by responses of readers of the prior post, we augment our comments about the Fed and the U.S. banking industry as follows.

One perceptive reader remarked that it is highly unlikely the Fed will be abolished before the currency has lost all value. He asked whether there is any historical precedent for those in control of state finances and banking taking action to prevent a permanent collapse of a fiat currency.

History seems to indicate that eventually all fiat currencies will lose all their value given enough time for the debasement process to continue. However, there are some instances of nations whose financial authorities stepped back from the abyss of total currency destruction, at least for a while. That is what the Fed under Paul Volcker did in 1979-81 when it appeared that the U.S. dollar might be headed towards a hyper-inflation.

In Germany after WW II, a hyper-inflation had destroyed the value of the German monetary unit for the second time in 25 years. The Nazi era Reichsmark had been losing value rapidly during the course of Nazi Germany’s destruction by its adversaries during WW II. Post-war conditions in Germany were miserable after the fall of the Nazi regime in 1945; there was hunger and extreme social and economic chaos. In 1948 West German Finance Minister Ludwig Erhard took decisive steps to clean the slate and start all over with a new fiat currency, the Deutsche Mark, which has been one of the most stable currencies in the world ever since, even though it is a fiat currency. ¹

Israel suffered from very high inflation that reached the annualized rate of 450% in 1984. The state of Israel stepped back from the brink and managed to reduce annual inflation to less than 20% within two years. ²

Another reader commented that abolishing the Fed would not be enough unless the legal tender laws were abolished too. He is right. The legal tender laws arrogate to the U.S. the sole right to issue money. The legal tender laws are epitomized by the statement on every Federal Reserve Note that the note is legal tender for all debts public and private. If there were no Fed it is a certainty that the U.S. Treasury would issue fiat money and assert and enforce a monopoly of money under the legal tender laws.

The first Post did not mention fractional reserve banking, the practice by which commercial banks make loans amounting to a large multiple of their cash reserves. Murray Rothbard posited that fractional reserve banking is a legally authorized fraud on depositors. Banks never have nearly enough good funds to honor all deposits. They rely on the probability that depositors will not all ask for their money bank at once.

During the financial crisis of 2008 a number of fairly sizable banks were in danger of being wiped out by depositors’ demands for cash in excess of the amount of deposits insured by the Federal Deposit Insurance Corporation (FDIC). That agency was itself made bankrupt by the crisis. The U.S. stepped in to bolster confidence and stop bank runs by raising the deposit insurance guaranty from $100,000 per account to $250,000 per account.

Some depositors actually lost some of their deposits when their bank failed before the U.S. raised the deposit insurance maximum to $250,000.

Although Rothbard published his book in 1994, the book that posits that all fractional reserve banks are insolvent, and that federal deposit insurance is a fraud, his analysis was borne out fully by the events of 2008.

The U.S. can and did bail out banks and depositors, but it did so by enormous increases in already high deficits. These bailouts of banks and depositors were another fraud on the public. Outrageous federal deficits, which understate the true amount of the insolvency of the U.S., are a Ponzi scheme device to push current liabilities out to the future where they must be paid by future generations that will be unable to pay them.

Proof of these assertions appears in chapters 11 and 18 of the book that is the main part of this website, Capitalism: The Liberal Revolution. Those chapters are entitled, respectively, Political Democracy in America and Kleptocracy.

One astute bank analyst concluded that twelve of the thirteen largest U.S. banks would have failed but for federal bailouts in 2008. ³

Thoughtful observers are commenting recently that another and perhaps even bigger round of federal bailouts of banks is appearing inevitable. A revealing anecdote and analysis appears in the latest issue of the investment newsletter Investment Values published by Southern California investment firm Cheviot Value Management (CVM). ⁴ CVM is a company co-founded in 1985 by the author of this Post.

We quote as follows from the CVM newsletter above referred to.

An intelligent investor that we have long known and admired likes to share worthwhile finance or investment-related stories at a blog he calls “Adventures in Capitalism.” In a note titled, “This is How the Banks Created the Last Crisis, Part II,” Harris Kupperman describes a recent encounter he had in his local bank (a branch of one of the country’s largest banks), whereby a “commission-hungry” teller aggressively thrusted a home equity line of credit (“HELOC”) offer at Kupperman, a loan he neither sought nor needed.

Kupperman writes as recently as last December that, due to his irregular income, he did not qualify for any type of standard mortgage loan product. However, merely six months later, “quantitative easing has even further deranged the lending landscape, [and he] now qualifies for a 130% loan-to-value HELOC.” Kupperman continues to explain that the terms of the loan were incredibly favorable, 10-years interest-only with the first five years fixed at 2.9% and the next five years at Prime + 1.0% (not to mention elimination of other bank fees).

No paperwork was required, the bank would conduct a “drive-by appraisal,” and the teller explained, “as your home appreciates, your HELOC limits increase as well.” As he left the bank, less than an hour later with a generous new credit line, Kupperman recognized that the same tinder that caused the housing meltdown of 2008 was kindling a new fire. He writes, “If I’m doing this, I guarantee you that all sorts of lower quality credit risks [i.e., individual borrowers] are doing the same thing.

There’s a reason that condo prices in [his hometown of] Miami are going parabolic. “The Federal Reserve has horribly distorted the entire risk-pricing mechanism, just like it did in 2007 when my illegal gardener bought the home I was renting. It has been five years since the great credit collapse, and no one has learned a thing. People are borrowing too much and banks are in a hurry to lend to anyone with a pulse. They practically mobbed me—I have assets and a pulse. I don’t want to name the bank involved… [but it] got the mother of all bank bailouts just five years ago. At some point in the next few years, they’ll get another bailout—it’s inevitable. These guys haven’t learned the right lessons from 2009.

Another perceptive observer, Nicole Gelinas, writes: “. . . [T]he real reason we have too-big-to-fail financial firms is because they provide Washington what it really wants: cheap debt for voters. As veteran financier Daniel Alpert notes in his book “The Age of Oversupply,” since the 1980s, “the bottom 60% or so of households” — that’s a lot of people — have seen their wages either “stagnate” or “sharply decline” after inflation. Working-class people took the biggest hits.

What did the government — from Ronald Reagan through George W. Bush — do to make up the difference? “The public was showered with easy credit that allowed them to make up for lost income and maintain living standards — at least for a while,” Alpert notes.

Indeed, between 1980 and 2008, mortgage debt alone quadrupled after inflation (the population rose only 31%). Other consumer debt, auto loans and credit-card borrowing and the like, nearly tripled.

Who gave Americans the cheap credit? The big banks.

They would not have done so if their investors thought they’d be out of luck when reality bit. And when reality did bite, Washington pushed it back. Federal Reserve intervention as well as President Obama’s decision to keep Fannie Mae and Freddie Mac have pushed mortgage rates down to record lows, buoying house prices. It’s not just mortgages. Since 2009, the going interest rate for a four-year car loan has fallen from 6.7% to 4.5%. The average credit-card rate has fallen from 13.4% to 11.8%.

People are tempted. After falling since 2008 — back to 2004 levels — total debt has started to creep back up over the last year and a half. And everyone thinks that’s a good thing, as auto and retail sales, too, are up. Quoted from “Too big to fail equals too eager to borrow,” by Nicole Gelinas, Op-Ed, Los Angeles Times, July 27, 2014. ⁵

We conclude this Post by remarking that the Fed, which was ostensibly created to stabilize the American financial and banking system has, by all accounts, destabilized the economy, caused successive booms and busts almost since the inception of its existence, was a major contributor to the financial crisis of 2008, and is a big part of various political actions that appear to be making it inevitable for there to be another and perhaps still larger financial crisis.

Given the comments of Harris Kupperman and Nicole Gelinas above we are not alone in this opinion.

It is a rare politician or federal official who wants to see action taken to make money and banking honest and stable. Any suggestion to that effect is rejected out of hand by the Fed and by elected officials and regulators from the President of the U.S. on down. This is so because the political elite wants to buy votes of the public through making it easy to borrow money.

The post Inflation, booms and busts, politics, and the Federal Reserve, part 2 first appeared on Capitalism: The Liberal Revolution.

Deficits of the United States of America amounted to $6.7 trillion from 2006 to 2013, increasing the U.S. Public Debt by that amount. The Federal Reserve financed almost $3 trillion of these deficits by purchasing Treasury bonds and notes, a highly inflationary practice known as “monetizing the debt.” The Fed has also purchased massive amounts of mortgage-backed securities.

While this Post describes a pathological condition of the U.S. economy, it must be said that there are practical solutions to the pathology, solutions to rid America once and for all of the pathology of endlessly growing government debts and repeated booms and busts. First, the economy must be cleansed and purged of all the mistakes that caused the most recent booms and busts of the years between 1998 and the present. Such cure can come only by allowing bad investments to be liquidated through bankruptcy, including bankruptcy and reorganization of banks that have been considered “too big to fail.” That would be a first and temporary step. To make the cure permanent would require abolition of the Federal Reserve System.

America would be better off without such a central bank, notwithstanding oceans of literature and political argument to the contrary. America had two national banks in the 19^th century. They were highly controversial and distrusted by Presidents Thomas Jefferson and Andrew Jackson. In 1836 President Jackson vetoed an extension of the 20-year charter granted to the second Bank of the United States in 1816. Without a national bank the American economy grew in an historically unprecedented way from 1836 right up to the creation of the Fed in 1913.

Since large-scale monetary inflation has already occurred and is ongoing, price inflation must follow as the day follows the night. ²

The historically sound protection of individuals from the ravages of high inflation has been holding assets that cannot be devalued by government debasement of money, including precious metals, equity securities of leading companies, and real estate, provided that none of these assets were purchased at inflated, bubble-level prices, and their purchase was not financed by loans that would not be affordable during economic recession.

The Federal Reserve System that the U.S. now has was created through the agitation, propaganda and lobbying of the large banks in New York City, who persuaded the country, including leaders of smaller banks, that a central bank like those of European countries was a necessity. Bankers wanted a central bank to aid and abet their use of fractional reserve banking to make more loans and more profits on the loans, and just as importantly to bail them out when improvident lending threatened the banks with failure.

It is the conventional wisdom of academics and politicians that America suffered booms and busts in the 19^th century because of the lack of a central bank. Murray Rothbard has exposed the fallacy of that argument in a book cited in the reference note at the end of this post. Rothbard argues persuasively that 19^th century booms and busts were caused in large part by misguided political actions that stimulated unwise borrowing and speculation, the same problem American now has with the Fed. However, the busts of the 19^th century were of far shorter duration and far less intensity than those that have incurred since the establishment of the Federal Reserve. And there was no inflation in 19^th century America except during time of war when the federal state financed its military actions by spending large sums of money created out of thin air, for the purpose of military spending. Since the establishment of the Fed, inflation goes on perennially, during peace and war.

Returning to the problem at present, the Fed seeks to stimulate the economy by purchasing Treasury securities and mortgage-backed securities. The Fed literally has no money to purchase Treasury securities or mortgage-backed securities, or anything else. Individuals and companies have to earn money by providing goods or services or both. But not the Fed. It provides no goods or services that people use or consume.

The Fed as the monopoly source of money in the United States operating as a central bank has assumed the power to write a check in any amount that it pleases on its own account and to use those newly created funds to buy anything it pleases. For a private citizen or a company to do the same would be both illegal and impossible. Individuals and companies can only issue checks that will be honored on bank accounts with the assets to cover those checks. Their checks will clear only if they have funds on deposit to back up the checks.

The Fed has no such inhibition. It can write checks on itself at will and in any amount at any time. That is the source of perennial inflation, perennial devaluation of all other money representing real assets owned by real people and companies.

The Fed is the only agency of the United States that has no budget and is not accountable to anyone, not the people, not the people’s representatives in Congress, and not the President of the United States. ³ Therefore, actions of the Fed cannot be stopped short of Congressional legislation that would amount to a virtual revolution in the laws that created the Fed and have empowered the Fed to act as the nation’s central bank and monopoly source of money.

Legislation has been introduced in Congress twice to provide for an audit of the Fed, first in 1993, and then in 2009. The 1993 legislation was opposed by President Clinton and by the Fed and never came to a vote. The 2009 legislation passed the House of Representatives overwhelmingly, but it did not pass the Senate, is opposed by the Fed, and all indications are that President Obama would oppose it. A very limited audit of the Fed authorized by Congress in 2009 revealed that between 2007 and 2010, during the financial crisis that started in 2007, the Federal Reserve loaned more than 16 trillion dollars, nearly interest free, to banks considered “too big to fail” and to foreign central banks. ⁴

Throughout its history the Fed has tried to stimulate economic activity by purchasing assets such as Treasury securities and mortgage-backed securities from commercial banks. This stimulation has caused repeated booms and busts in real estate and in the stock and bond markets. The latest boom and bust cycle occurred from 2004 through 2008. The boom caused the real estate bubble that started to deflate in 2007 and the stock market crash that began in 2007.

Since 2008 the Fed has been trying to stimulate the economy with still more monetary inflation. This has not worked to stimulate the economy. Economic activity remains sluggish as evidenced by persistent high employment and under-employment, a real estate market that remains depressed in most of the U.S. and stagnation in the level of real, inflation-adjusted income for most people.

Much of the money created by the Fed since 2007 remains on deposit with the Fed to the credit of accounts held by commercial banks. These deposit accounts with the Fed are the reserves banks maintain against withdrawal demands by their own depositors.

Currently the amount of these bank reserves exceeds by $2.5 trillion the amount legally required to be maintained by the banks to honor depositors’ requests for withdrawals. Were these bank reserves to be deployed in new bank lending it would be a shot in the arm for the American economy. However, banks are reluctant to lend because they are still recovering from losses sustained in the real estate bust, and credit-worthy borrowers are reluctant to do much borrowing due to a variety of factors that make entrepreneurs and business managers reluctant to take on new debt. To the contrary, the cash position of major U.S. corporations is at a very high level because of pessimism about the prospects for the economy.

One anomaly that epitomizes the current pathology in lending and borrowing is the way banks pay interest and the way they charge interest. Interest paid on deposits has been at a near zero interest rate since the beginning of 2009; but interest charged on credit card balances of individuals runs as high as 20% per annum or more, even for individuals with impeccable credit. That factor alone, the wide spread between interest on bank accounts and interest on credit card debt, explains in part the sluggishness of the American economy.

According to Professor Allan H. Meltzer, a man of widely recognized expertise in the operations of the Fed and commercial banks, idle bank reserves constitute an enormous stock of fuel for greater inflation once a significant increase occurs in lending and borrowing between banks and their customers. That is what occurred in the 1970s when Fed policy caused high price inflation culminating in double digit annual inflation rates in 1979-1980. Then in 1979-1981 Fed Chairman Volcker convinced the Fed’s Board of Governors to raise interest rates to very high levels in order to put a stop to the inflation that was threatening to escalate toward a feared hyper-inflation.

The actions of the Volcker Fed brought down price inflation but also caused a severe business recession and high unemployment in 1982-1983.

A similar course of events occurred in 1937-1938. At the time the Fed was concerned that borrowing and lending by individuals and businesses was getting out of control, so it doubled the reserves that banks were required to maintain with the Fed. That forceful Fed action pushed a still weak economy into renewed economic depression, one that has been called a depression within a depression, as it occurred in the seventh year of the Great Depression of the 1930s. In 1937-1938, the stock market fell nearly 50% after the Fed tried to reign in lending and borrowing. The Great Depression continued through 1940 until it was ended by massive federal spending and conscription to the military as the U.S. geared up for WW II.

The fact of the way the Great Depression ended can never be justified as a future means of bringing prosperity. Spending for WW II brought a false prosperity that required the nation to wage all-out war and suffer over 400,000 military fatalities. It is far better to avoid war and most wars of the U.S. were avoidable, and to avoid the misguided political and economic ideas that caused the Great Depression.

To avoid the kind of damaging inflation the U.S. experienced in the 1970s and early 1980s, the Fed could raise interest rates to induce banks not to lend out their reserves and to deter individual and commercial borrowing as the Paul Volcker Fed did from 1979 to 1981 when America was suffering from double-digit price inflation. However, interest rates high enough to discourage borrowing and lending would likely send the economy into another damaging recessionary tailspin, as occurred in 1982-1983.

The Fed’s unprecedented quantitative easing (i.e., money creation) since 2008 failed to lead to a robust recovery. The unemployment rate has gradually declined, but the main reason is that workers have withdrawn from the labor force. The stock market recovered from its crash of 2007-2009 but the rise in stock market price didn’t stimulate new investment in capital or new hiring.

It is remarkable how little attention has been paid to the pathological development in the level of interest rates on safe commitments to bank accounts and high-grade bonds. The near zero rate of interest on these investments is robbing and imperiling the least sophisticated people, by means of the negative rate of return on bank accounts and bonds (a return lower than the rate of price inflation), and also by inducing them to take much greater risk than the bank Certificates of Deposit that many of them relied on in the past. Risk taking of this kind usually ends in losses and disaster.

Americans now face, unwittingly for the most part, a terrible inflation in the future—inflation caused by the fatal conceit of the Governors of the Fed that they can manage the enormous American economy by manipulation of the money supply and interest rates. The economic depressions and the booms and busts of the past are evidence that the Fed cannot produce prosperity by creating money and credit out of thin air. To the contrary, it has produced only booms and busts.

Consider the proof of this in the record of the past 28 years, when the Governors of the Fed under the leadership first Alan Greenspan and then Ben Bernanke were a principal cause of the stock market boom, bubble and bust of 1988 to 1990, the stock market boom and bust of 1998-2002, and the real estate and stock market booms, bubbles and busts of 2004 to 2009.

Are not three cycles of boom and bust within twenty years all the proof necessary of the impotence, incompetence, and incapacity of the Fed to provide a beneficial and stabilizing effect on economic life?

The Fed knows only one policy to stimulate the economy, and that policy is perennial inflation, evidenced by not only repeated booms and busts starting with the 1920s—calamities the Fed was supposed to prevent—but also the 96% loss in purchasing power of the U.S. dollar since creation of the Federal Reserve System by Congress in 1913. ⁵

The post Inflation, booms and busts, their pathology and their cure first appeared on Capitalism: The Liberal Revolution.

The nation of Argentina has been bankrupt since shortly after inception of the rule of the Peronist political party, the Partido Justicialista ¹ in 1946. The desperate state of Argentine national finances has been evidenced by successive hyperinflations, repudiation of bonded indebtedness, and confiscation of the savings of its citizens. ²

All were caused by the same thing—the attempt to make good on political promises of benefits to be paid for by extracting property from producers to transfer to consumers. As Andrew Galambos  said, even a child knows that you cannot eat bread that has not been baked. ³ Argentina’s Peronist rulers have never understood that. Production must precede consumption. Without production there is nothing to consume. When a political state plunders producers to benefit consumers, production falls and along with it consumption also falls.

In Argentina, the state tried to tax producers more in order to pay for the benefits it was doling out to its beneficiaries. That didn’t work because production fell. Then the state pretended to make payment with an avalanche of money created by the printing press. This excessive money creation devalued previously issued money by causing inflation in producer and consumer prices to make up for the monetary inflation. Undeterred, the state created still more phony money, and this was the cause of the hyperinflations.

When taxes and inflation did not produce enough money to continue paying benefits the state borrowed by issuing bonds, and when even the borrowing failed to finance continued distribution of benefits in the form of money, the state confiscated the bank accounts and the retirement savings of those citizens who had been able to accumulate property in  bank accounts and retirement accounts. This is all recorded in detail by Chilean-born economist and historian Mauricio Rojas, in his book The Sorrows of Carmencita: Argentina’s Crisis in a Historical Perspective (2002). ⁴

The people of Argentina could enjoy a far higher standard of living but for its political rulers. The country has ample natural resources including petroleum and fertile agricultural lands. Now the Argentine state wants to accelerate its tax revenues by pushing farmers to sell valuable crops before the farmers want to sell. We quote hereafter, with occasional comment, from a recent article in The Wall Street Journal. ⁵

“Farmers across this country’s breadbasket have battled President Cristina Kirchner’s  populist government for years.

“Now their record-setting soy crop is helping to prop up their nemesis, by bringing in the international reserves vital to help her government avoid another currency crisis. On Wednesday, the Central Bank said the crop would help it to maintain its current $28 billion level of reserves by year’s end.

“The irony doesn’t escape the growers. ‘One out of every three trucks we load goes straight to the government,’ said Carlos Bunge, a farmer and descendant of the family that founded a major German-Argentine grain-trading company 130 years ago. ‘You feel like you’re feeding a monster.’

“With the harvest in full swing and continuing through July, soybean shipments have earned more than $8 billion and are expected to reach a record $29 billion, according to official data and analyst projections. The oilseed, Argentina’s most profitable grain, makes up about a third of the country’s exports by value.

“For Argentina, the money couldn’t come at a better time, as the country faces a slowing economy, the highest inflation rate in Latin America after Venezuela and an acute shortage of foreign reserves, with little access to international financial markets since its 2001 default [on Argentine government bonds, the largest default on sovereign debt in world history].

“Mrs. Kirchner’s government has been urging the farmers—against their will—to sell their beans more quickly to help Argentina avoid a repeat of January’s damaging run on currency. . . But the growers—who say they resent what they call excessive taxes and regulation—are resisting. Growers are selling part of their crop to pay bills after the Kirchner administration . . . ended government-subsidized loans to farmers . . . [T]he farmers want to retain the rest as long as they can to hedge against inflation and what they expect to be a weakening peso, as well as to reap higher postharvest prices.

“‘Grain is like cash under the mattress,’ said one farmer, Francisco Santillan, strolling across a patch of the 5,600 acres of farmland he manages outside Pergamino. ‘We don’t use banks. We use silos.’ . . . [Note: Argentines have experienced the state’s direct confiscation of bank accounts and indirect confiscation of money in banks due to high inflation.]

“In 2008, when Mrs. Kirchner’s late husband and predecessor Néstor Kirchner tried raising export taxes for soybeans from 35% to a floating rate reaching 50%, farmers in the Pampa revolted, shutting down the grain and beef trade and blocking highways. Argentina’s congress then voted down the tax plan.

“Kirchner administration officials continue to spar with the farmers, accusing them of being coup plotters and oligarchs. Mrs. Kirchner says the growers have been blessed with wealth and profits—an abundance that must be shared with Argentina’s poor. . . [Comment: The massive numbers of Argentines living below the state’s own official  poverty line are a direct result of the perpetual attacks on producers and production by the Argentine state, which seeks to avoid accountability by blaming poverty on greedy individuals, as indicated by the foregoing reference to farmers who are accused of being coup plotters and wealthy oligarchs.]

“The Kirchners periodically halted corn, wheat and beef exports to stem high prices for the local market. But they never restricted exports of soybeans—used mostly as animal feed but also for tofu, cooking oils and soy sauce and are rarely consumed by Argentines.

“That policy led many farmers here to shift exclusively to soybeans over the past decade, even though experienced farmers say a crop rotation is essential to keeping soils healthy. ‘You grow other crops to rotate and protect the soil,’ said Jorge Balsells, a farmer. ‘But it means you take a loss.’ Another grower, Nestor Marchessotti, said, ‘We’d starve to death, if it weren’t for soy.’ [Comment: They lose money on other crops due to state intervention, i.e., price controls on crops produced for the domestic market.]

“. . . Morgan Stanley said recently that Argentina’s reserves could fall to $22 billion by January—from nearly $53 billion in early 2011 . . . unless the government takes further measures to cut government budget deficits and lift interest rates.

“That is where the soybean harvest would help. Argentina’s grain exports, mainly soybeans, could result in $3 billion in added reserves in the second quarter, said Casey Reckman, a Credit Suisse analyst, in New York.

“As he maneuvered his four-wheel-drive vehicle on a dirt track running through his 130-acre farm recently, Mr. Bunge said he grudgingly planned to sell more of his crop now than he would like to due to a lack of credit to pay his bills. He said, ‘It’s very hard to think long term.'” [Comment: Coercion interferes with the ability of entrepreneurs to plan for the long term. It takes every bit of their entrepreneurial skill just to survive in the present under a coercive national socialist state.]

Summary of this news report:

• The Argentine state imposes a 35% export tax on soybeans.
• Argentine farmers have a bumper crop of soybeans.
• The state says sell it all now, we need the tax money now.
• The farmers say no, because you take one out of every three truckloads we send to market. We would rather not sell it all now, because it just accelerates tax on our valuable asset. We would rather store the product for future sale because it is far better than money in the bank which you can steal as you have before.

Argentina’s National Socialism

The name “Partido Justicialistia” epitomizes the policies of the Peronist party: to bring about supposed social justice by taking from more productive and affluent Argentines to transfer the property taken to the greater number of less productive and less affluent and, not incidentally, to perpetuate the party in power by winning the gratitude and votes of the recipients of this largesse.

The 35% export tax on soybeans illustrates operation of justicialismo: the state will not wait to tax the profits of exporters after those profits are earned in foreign trade. It taxes the exporters before they can even earn profits by export.

A tax on exports also amounts to a tax on imports. That is because to import from abroad Argentines must earn foreign money to buy foreign-produced goods. ⁶ The export tax confiscates money that could have been earned in foreign trade. This has the effect of making imports scarcer and thereby raising  their prices.

The tax-engendered rise in the price of imports means fewer imported goods can come into Argentina. Absent state coercion Argentines would have more foreign currency to pay for and import foreign-made goods. Access to some foreign-made goods is desirable in every country. The people of Argentina cannot produce everything they would like to acquire; no country can do that, not even the United States of America.

The multiplication of similar policies to a great number is the explanation for the poverty of Argentina.

The post Argentina’s political rulers learn nothing from past mistakes first appeared on Capitalism: The Liberal Revolution.

Following the financial crisis of 2008 Dr. Harvey presented a talk about “The Crises of Capitalism” from a Marxist perspective. A video of this talk is available on YouTube at http://www.thersa.org/events/video/archive/david-harvey-the-crises-of-capitalism

After viewing the video I sent the following communication to Dr. Harvey via email:

Dear Professor Harvey:

At the suggestion of an acquaintance I watched you speak in a video on YouTube, about “The Crises of Capitalism.”

This was my first ever hearing of a talk by a Marxist college professor. I was impressed, but not in the usual sense of the word.

I am about two years older than you. We have lived through the same era and we both know about life as it has been experienced by ordinary people in the collectivist dictatorships of the 20^th century.

I am interested in Marxism, not as an enthusiast, but rather as a pathologist would be interested in sickness and disease.

I was impressed by your ability to touch quickly and lightly on a number of subjects in a 24-minute address, all the while avoiding mention of the means of bringing about the ends you advocate: halting the accumulation of capital and seizing control of capital already accumulated, for the supposed benefit of the collective.

These ends could be achieved only by political means implemented in the way Mao Zedong put it so candidly in 1927: “political power grows out of the barrel of a gun.”

Have you not read The Black Book of Communism: Crimes, Terror, Repression (1999)? As you may know the book chronicles in detail the murder of 100 million people in the name of the ideology of communism. It is a cooperative work of several French writers, some of whom are fallen away Marxists. The authors say that communism in practice was a tragedy of planetary dimensions.

This book points out that one of the basic tenets of Marxism, the class struggle, led to class genocide, the mass murder of people considered class enemies. You know all this, don’t you?

The idea of what is called capitalism has a negative image in the minds of many people. However, what passes for capitalism today is badly flawed, not by the inherent characteristics of individual ownership of property and free enterprise, but rather by the crony capitalism of businesses that seek protection from competition and favors from the political state.

I have provided quite a different view of capitalism and socialism in chapter 16 of a book that I am publishing serially on the internet. The title of the chapter is “The Paradox of Capitalism and The Paradox of Socialism.” The link to this chapter is https://www.capitalismtheliberalrevolution.com/chapter/the-paradox-of-capitalism-and-the-paradox-of-socialism/

Sincerely,

Frederic G. Marks

The post Questions addressed to a Marxist college professor first appeared on Capitalism: The Liberal Revolution.

On May 23, 2014 six innocent young people lost their lives because of the failure of local police to protect the public from a known danger. The tragedy occurred in the town of Isla Vista, California. ³ The majority of the 23,000 residents are students at the nearby Santa Barbara campus of the University of California. All statements of fact in this post are taken from a news report of the event cited in the notes to this post.

This incident is significant to a main theme of Capitalism: The Liberal Revolution (CTLR)—that state police are incompetent to protect persons and property because they have no proprietary interest in protection and there are no consequences for losses due to their failure to protect. Incidents of this kind have been all too common in the United States in recent years, so this particular outrage in California has a significance and meaning of more than local import.

This Post is not intended to denigrate state police officers who by and large want to protect the people they are supposed to serve. The cause of their inability to protect people is the legal framework within which they work.

Local police officers for Isla Vista are provided by the Sheriff’s Department of Santa Barbara County, hereinafter referred to as the police.

According to news reports the police stated that the killings were premeditated mass murder by 22-year old Elliott Rodger. Police officers had encountered Rodger three times before his murderous rampage on May 23, 2014. One night in the summer of 2013, Rodger went to a party and tried to shove women off a ledge where they had been sitting. When several men intervened and pushed him off the ledge instead, Rodger suffered an injury to his ankle. While he was being treated at a clinic for his injury, police showed up to interview him. The police determined that Rodger had instigated the altercation, but did nothing further. ⁴

In 2014 Rodger accused a roommate of stealing three candles. One can surmise that more was involved than three candles. Rather, there was probably an altercation that prompted  a call to the police, who went to interview Rodger.

An attorney for the family of Rodger said that several weeks before the killings members of Rodger’s family became alarmed by YouTube videos of Rodger regarding suicide and the killing of people, so they called the Santa Barbara police. The police interviewed Rodger on April 30, 2014. The sheriff’s deputies who went to Rodger’s apartment to interview him knew of the videos he had posted on the internet. The deputies did not view the videos before going to see Rodger on April 30. After Rodger’s murderous rampage on May 23 the Sheriff’s office described the videos as “disturbing.” ⁵

After the interview of April 30 the police did nothing further despite the statements in Rodgers’  YouTube videos regarding suicide and killing people. After he had killed six people 23 days later police officers commented that when they interviewed Rodger he was polite and courteous.

On May 23, 2014 Rodger recorded a video of himself in his car and posted it on YouTube. In the video he said:

“For the last eight years of my life, since I hit puberty, I’ve been forced to endure an existence of loneliness, rejection and unfulfilled desires, all because girls have never been attracted to me.

“Girls gave their affection and sex and love to other men, never to me. I’m 22 years old and still a virgin, never even kissed a girl. And through college, 2½ years, more than that actually, I’m still a virgin. It has been very torturous.

“I will have my revenge against humanity. I will punish all of you for it. Yes . . .  After I have annihilated every single girl in the sorority house I will take to the streets of Isla Vista and slay every single person I see there. All those popular kids who live such lives of hedonistic pleasure.”

That same day Rodger stabbed to death three roommates at his apartment. After killing his roommates, Rodger went to a sorority house and knocked loudly on the door according to Santa Barbara County Sheriff Bill Brown. No one answered. He then shot three women outside the house, killing two and injuring the third.

Rodger then fired on people at multiple other locations nearby, fatally wounding a young man. Twice deputies engaged him in gunfire, the first time wounding him in the hip as he drove, said Sheriff Brown. The rampage ended after the young man exchanged fire with deputies and hit a bicyclist before crashing into parked cars. “It would appear he took his own life at this point,” Brown said.

Brown added that Rodger had three semi-automatic handguns as well as more than 400 rounds of ammunition when he died. Rodger purchased all his firearms legally. They were registered to him. ⁶

Usually police come to the scene of a crime in response to a report from private citizens. The only element of crime prevention afforded by the state’s police is the deterrence of crime by the possibility of a criminal being apprehended, prosecuted successfully and then incarcerated. That this is inadequate protection is evident from the prevalence of violent crimes where the perpetrator is never identified, or is identified only after committing a violent attack on others.

How could private security do any better than the police? They could do better by taking the initiative to act on information indicating that there is danger of violent crime from a known person.

• When Rodger’s family warned that he was publishing videos about suicide and the killing of people, private security [“Security” hereinafter] could have initiated a 24-hour surveillance of Rodger’s activities including watching for his publication of threats on the internet.
• Security would know Rodgers was in possession of three semi-automatic handguns because he had registered his purchase of the guns. ⁷
• The day Rodgers perpetrated the six murders he issued a video of himself threatening to annihilate every single girl in a sorority house and next to slay every single person he saw on the streets of Isla Vista. Because private security would be watching for videos published by Rodger they would see that video as soon as it went up on the internet.
• Security officers in surveillance of Rodger might have heard the cries of Rodger’s roommates when he stabbed them. They might even have heard something going on in the apartment that would cause them to intervene in time to save the lives of Rodger’s roommates.
• After witnessing the threatening video of May 23, Security would have sent  to Rodger’s residence a contingent of competently trained and experienced security officers to take preventive action. When Rodgers left his residence to enter his car, private security would be there in force, waiting for him. Rodger’s weapons might have been visible on his person as he walked out of the apartment to enter his car. Whether or not Rodger’s guns were visible, Security could have questioned Rodger about his weapons, and demanded that he relinquish them then and there. If he refused, the security officers could have taken appropriate action to disarm him, place him under arrest, take him into custody, and notify his family.

We anticipate three objections to this scenario: first, that it is illegal for private security to arrest an individual no matter how dangerous he is; second, that there is no apparent means for payment of such security services; and third is the issue of dealing with the permanent threat of a man like Rodger by isolating him from society.

As to illegality, under the existing laws of the political state private citizens can make an arrest to stop the commission of a crime. Furthermore, that objection assumes that the political state is still in operation and if so, that it would punish private security for doing what state police are supposed to do. It is the position of CTLR that the political state is bankrupt in all but name, and eventually will cease functioning so completely that even police and police departments will have gone out of existence.

Payment for such security services would be financed by insurance. Insurance companies already sell life insurance and medical expense insurance. It would be good business for such insurance companies to provide such security services. Insurance companies cannot know in advance whether someone they insure will be killed or injured by a wrongdoer.  Insurance companies could and would cooperate in a consortium to share the expense of maintaining permanent private security to protect against a variety of risks, including the risk of death or injury by malicious attack. In such cases insurance companies, in their own proprietary interest, would not wait to see if a person threatening murder or assault might attack someone they insured.

It is not enough to stop an intended murder by a man like Elliott Rodger. Once it is known that he is capable of murder and is motivated by deep-seated psychological disturbance, he must be isolated from society to protect others. Under existing state laws even if such a person has not yet attacked anyone, he could be held in custody indefinitely until it is determined he is no longer a danger to others. Therefore, it ought not to shock the conscience of even lovers of freedom that a dangerous person is placed into protective custody as long as need be.

In the forthcoming chapter on Justice there will be a discussion of remedies available to a person who claims he has been wrongfully taken into custody and kept there against his will. Suffice it to say for now that the concept of justice in CTLR must and will provide protection for individuals who believe they are wrongfully arrested and detained by private security. The justice mechanism would be buttressed by dispute resolution procedures and insurance that individuals could buy to finance their resistance to unjustified arrest and confinement.

The post To protect and serve–failings of state police first appeared on Capitalism: The Liberal Revolution.

International companies have already recognized bolivar-denominated losses of 80% due to the world’s highest inflation rate raging in Venezuela, a rate of inflation that may accelerate to hyperinflation. In 2013 the Venezuelan bolivar  lost over 90% of its value against the U.S. dollar.

Venezuelan President Nicolas Maduro said after his election in April 2013 that he would set legal limits on business profit margins in order to prohibit price inflation—an inflation caused by the state’s monetary inflation. Price controls on chicken, rice, cooking oil and other items have driven many food companies out of business. Consequently, the state now must import 70% of all basic foods.

Price controls, combined with the effect of government takeover of hundreds of companies, farms, and ranches, have made Venezuela’s economy among the least productive in the western hemisphere.

Since the advent to power of virtual dictator Hugo Chavez, in 1999, economic life in Venezuela has deteriorated badly. The state has had to borrow heavily abroad despite collecting $750 billion in oil revenues since 1999. The state is spending far more than it takes in from taxes, and doing so not only through borrowing but through issuing money at a rapid rate, money with nothing to back it up except the promises of an already discredited state.

The problems being experienced by the people of Venezuela always occur from political actions to eliminate the ability of people  to exchange goods and services freely, including state control of prices. Free market prices are a spontaneously developed and continually changing characteristic of exchange that maximize humanity’s ability to supply human needs  through voluntary cooperation.

Political dictators try to act as though prices can be dictated by central authority, in effect trying to forbid operation of the economic law of supply and demand. Andrew Galambos, whose work inspired the website of which this blog is a part, posited that the law of supply and demand was a law of nature.

Price controls are always counter-productive because they suppress the information that prices afford to producers and consumers in making choices in production and consumption. The term price controls is a misnomer; price controls are actually people controls. Price controls cause a lower standard of living and poverty, if long maintained.

Venezuela is a country that could be rich. It is one of the largest oil producers in the world, using an industry built up by foreign oil companies then confiscated by the Venezuelan state in 1976. About 20% of Venezuela’s oil exports are to America despite the outright hatred of the U.S. expressed by former Venezuelan political boss Hugo Chavez, who died in 2013. Chavez picked his successor, Nicolas Maduro, who has continued the policies of Chavez that have brought Venezuela to the brink of ruin.

Venezuela has good agricultural land comprising at least one-fourth of the nation’s area. Much of the farm land was for a long time controlled by a relatively few families, known as “latifundistas,” a word derived from ancient Latin and in current Latin American usage meaning owners of large, semi-feudal landed estates.

In Venezuela and throughout Latin America, according to Nobel-prize winning author Alberto Vargas Llosa “. . . latifundismo, a sort of land monopoly in the hands of the state-backed elite dating back many centuries, had been responsible for exploiting peasants . . .” through semi-feudal means. ¹  In the past the Venezuelan state has expropriated land of some of the latifundistas but replacing state bureaucracy for elite landowners only aggravated the problem of rural poverty.

In the past 100 years there has developed a new Latin American tradition, really based on the old one. That is,  demagogues get power through political elections by promising to confiscate large estates and divide the property among farmers who don’t own much land. Venezuela’s former dictator Hugo Chavez, who died in 2013, did this as part of his posing as benefactor to the poor, not only in respect to agricultural land redistribution but in many other ways which all amounted to the same thing: stealing wealth from foreign investors and domestic producers and transferring it to the much larger number of people who are poor.

This sort of thing does not create real and lasting prosperity. To create real and lasting prosperity requires recognizing property rights, protecting free enterprise, and minimizing state plunder. That is the message of the book Why Nations Fail: The Origins of Power, Prosperity and Poverty (2012) by Damon Acemoglu, professor of economics at the Massachusetts Institute of Technology and James A. Robinson, professor of political science and economics at Harvard University.

Political opponents and others criticized Chavez for concentrating power in the style of a classic Latin American caudillo, or military dictator. Although Chavez won every election he contested after coming into power in 1999, his victories were tainted by suppression of criticism in the media and from the political opposition and by election fraud. Chavez closed TV and radio stations critical of him, armed a civilian militia used to intimidate political opponents, and is suspected of fraud in the vote count.

It is not possible at present (in the year 2014) for the people of Venezuela to remove from power the political party of Hugo Chavez, the United Socialist Party of Venezuela, by means of a democratic election. Hugo Chavez would not permit that to happen. He was following the same plan as other dictators to self-select himself as president for life by using force, including imprisonment of opposition politicians, and control of the media of communication to prevent dissemination of criticism. His chosen successor Francisco Maduro has shown that he will use the same means to stay in power.

Via nationalization Chavez confiscated more than one million acres of farmland and scores of energy, banking and telecommunications companies. These seizures of productive property caused a steep decline in Venezuelan investment and productivity and made the nation ever more dependent on oil sales.

Despite the vast sums Venezuela collected over the last decade from its energy reserves, to finance the operation of the Venezuelan state Chavez was forced to borrow more than $38 billion from China. The loans are secured by future commitments to sell oil to China.

According to petroleum expert Ed Morse of Citigroup Global Markets, Venezuela’s wealth of oil reserves is irrelevant because the nationalized oil company has been unable to secure investment and technical expertise to manage and develop the reserves.

It’s no wonder that outside capital is now unavailable to Venezuela, given the nation’s long history of legalized theft of capital from foreign and domestic investors. Furthermore, the attacks on property within the country under Chavez and his successor have caused domestic owners of capital to move assets out of Venezuela whenever it is practicable for them to do so. ²

The post The decline and fall of political democracy and the rise of human misery in Venezuela first appeared on Capitalism: The Liberal Revolution.

The quotation from the great physicist Niels Bohr begins this post, as acknowledgment that the forward-looking statements below include both explicit and implicit predictions of rising inflation and a corresponding rise in the market value of assets that cannot be inflated in quantity by the actions of the state in debasing its monopoly supply of money. In the view of the author of this post the predictive problem is not whether, but when Americans will see large-scale price increases due to the federal state’s manipulation of its monopoly supply of money.

In two prior blog posts entitled Your Money and Your Life, posted March 22, 2013 and May 2, 2013, we examined the deliberate debasement of the U.S. dollar that has been going on since 1933, and which has intensified since the financial crisis of 2008.

In this third installment of comment on monetary debasement by the United States federal state, we bring to our readers some recent and illuminating observations of Darren C. Pollock and David A. Horvitz of Cheviot Value Management, LLC (Cheviot). That firm was co-founded in 1985 by Frederic G. Marks, author of the prior posts entitled “Your Money and Your Life,” and “Your Money and Your Life, Part 2.” Frederic G. Marks is the proprietor of the website of which this blog is a part. These comments are quoted from the most recent newsletter of Cheviot, which can be viewed at http://cheviotvalue.com/ and specifically at http://cheviotvalue.com/wordpress/wp-content/uploads/2010/10/Investment-Values_July-2013.pdf ¹

This blog post will be most informative to those who have read the two previous posts on Your Money and Your Life. [NOTE: Text in brackets signaled by the capitalized word NOTE is interpolation of the author of this blog.] 

Margin debt borrowed against investment accounts recently reached an all-time high. ² Previous records coincided with stock market peaks in early 2000 and summer 2007. And those peaks were followed by major declines. As a percentage of the overall economy, margin debt is now almost 170% greater than it was on the eve of the stock market crash in October 1987. One reason why high levels of margin debt make for a potentially dangerous environment is that the borrowed money which funded stock purchases will need to be repaid quickly should there be a significant decline in share prices. Selling stocks to meet margin requirements or pay back loans could easily compound the decline.

With U.S. property prices levitating in large part due to low interest rates and bank-suppressed inventory, investors are commonly turning to margin debt from their stock portfolios, not just to purchase more stocks but, to fund speculative purchases of real estate. This high-wire act should only be performed by the most sophisticated investors, those knowledgeable of the risks involved. Borrowing against one’s stocks to buy real estate shows, in this case, that history rhymes. For it was in the stock market mania of the late 1990s when individuals regularly turned to their home mortgage as a source of funds for buying into the most overpriced stock market ever. . .

Is the Fed trapped?

In response to the 2008 economic crisis, the Fed quickly lowered interest rates to zero and then stimulated further by purchasing (thus far) $2.5 trillion of available mortgage securities and U.S. debt (known as “quantitative easing” or “QE”). This rescue effort is aimed at keeping interest rates low and increasing the solvency of large banks. The scope of this stimulus is unprecedented in U.S. history.

While the Fed has not waivered from its zero interest rate policy since 2008, it has varied the pace of purchases under its QE programs, increasing stimulus, decreasing stimulus, stopping stimulus, and restarting it all over again. Each time there was a pause in Fed purchases, the stock market declined significantly, and before too long, the Fed resumed its stimulus, relieving the markets and sending them higher. By now, the Fed has made an addict out of the markets. Says monetary policy historian, James Grant: “You can’t just do a little QE. You are stuck, you must keep on doing it and doing it and doing it.”

Grant continues: “Which to me makes the selloff in gold that’s been relentless even more anomalous. The Fed is coming out and telling you that they are not going to do less of what they’re doing barring some sudden upsurge in activity which seems quite unlikely.”

By increasing stimulus when needed, the Fed has a history of being friendly toward the markets and banking industry. Recall the Y2K fears of banks ceasing to function properly in response to a software bug not recognizing the new year. To prevent feared financial fallout, the Fed provided roughly $35 billion of additional liquidity to banks in the final months of 1999. . .

The $35 billion that Alan Greenspan used to support the banks in 1999 helped push already inflated stock prices even higher. After Y2K arrived without the feared banking consequences, the Fed was free to withdraw this injection of liquidity. If stock prices were in a bubble, the withdrawal of liquidity may have been the pin. From the first quarter of 2000 through the end of 2002, the S&P 500 plummeted nearly 40%.

Since 2008, the Fed has stimulated by more than 70 times the amount of late 1999. It is now stimulating at the pace of a Y2K injection every 12 days. So dependent is the market on monetary stimulus that it declines every time the Fed does so little as talk about reducing the pace at which it adds stimulus, never mind suspending stimulus or withdrawing it altogether. Surely the Fed knows that weakness in the economy has prevented it from ceasing stimulus. It must at this time know that there is no way for it to actually withdraw the $2.5 trillion worth of injections without crashing the markets and economy. As a result, this money will remain available for banks to use when and as they see fit.

So far in 2013, the Fed has purchased a staggering amount, near 80%, of all bonds issued by the U.S. Government. [NOTE: That is literally one arm of the state creating money out of thin air for another arm of the state to spend. This is the epitome of inflation, in the money supply, which must eventually produce rapidly rising producer and consumer prices.]

This demand for bonds kept prices high and yields low, but recent talk of a reduced rate of Fed purchases crushed bond prices and sent interest rates soaring. 30-year fixed mortgage rates quickly climbed from 3.5% to more than 4.5%. This counteracts the Fed’s goal of increasing housing prices through low interest rates. Without a way to increase employment directly, the Fed has wished upon the “wealth effect” whereby it hopes that higher housing prices will make consumers feel wealthier, thus encouraging them to spend more. Rising rates may extinguish this hope. . . .

[NOTE:  From 1992 to 2006 interest rates on mortgages ranged from 5.5% to 9%; rates were never below 5.5%.] ³ If mortgage interest rates were to increase to 5.5% the monthly payment on a new mortgage would be 26% higher, and the market value of the home would fall 21%, subject to the universal qualifier in economics—all other things being equal. ⁴

With this in mind, we ask: How can the Fed possibly allow interest rates to increase? Or, said differently, we expect the Fed to do all within its power to suppress rising rates. Higher borrowing costs are already hampering the housing market. Housing and housing-related commerce is a major driver of economic activity. It comprised nearly 70% of the first quarter’s anemic GDP growth. A reduction in housing demand would most certainly restrain economic growth. Simply put, the Fed must fuel the housing market with low interest rates; otherwise, the U.S. economy will suffer.

Says interest rate expert and “bond king” Bill Gross: “We’re in a highly levered economy where households can’t afford to pay much more in interest expense. Monthly payments for a 30-year mortgage have jumped 20% to 25% since January. Mortgage originations have plummeted by 39% since early May. High levels of leverage, both here and abroad, have made the global economy far more sensitive to interest rates… If the Fed were to hike rates or taper [stimulus] suddenly, the economy couldn’t handle it. [Bernanke] badly wants to avoid the mistake of premature tightening [raising of interest rates], as occurred disastrously in the 1930s.”

Today, the market maintains faith in the Fed’s abilities to see and steer our economy. Yet this is the same Fed whose loose monetary policies caused the housing bubble and subsequent financial calamities. Moreover, for many years now the Fed has been optimistic but wrong about the economy. Recall just this smattering of absolutely egregious errors of wishful thinking:

• 2006: Home prices will keep rising;
• 2007: The subprime mortgage disaster will not spread nor harm the banks or economy;
• 2008: Fear not the financial footing of Fannie Mae and Freddie Mac;
• 2008: The economy is not headed toward recession;
• 2009: The Fed will not monetize U.S. debt [NOTE: QE is debt monetization!]

Following the greatest economic decline since the Great Depression – which the Fed did not see coming – the Fed has consistently been wrong about its ability to end or withdraw its stimulus program. It overreached on expectations for economic growth in 2010, 2011, 2012, and again so far this year. The Fed talked in late June about “tapering” its stimulus in part due to expected economic growth in the first quarter of this year. The Fed expected growth of 2.4%. Actual growth was revealed to be 1.8%, another huge Fed miscalculation. It is being “far too optimistic,” says Gross. He calls their expectations of 7% unemployment by the middle of 2014 “a long shot.”

Yet the market continues to believe that the Fed will, for the first time, actually end its monetary policy and – confounding as it may be – do so with neither negative nor unforeseen ramifications. The market today may be forgetting that the economy is reliant upon artificially low interest rates. Few market participants care to remember right now that the Fed quickly reverts to more stimulus whenever the markets or economy slump.

Bond investor Jeffrey Gundlach reminds the market: “If we slow down quantitative easing, don’t take it as a sign that it won’t come back again. If interest rates are going to rise, it means quantitative easing was a total failure. It means the budget deficit of the U.S. is going to explode into a massive crisis. It means housing is going to crash, because it is interest rate based.”

QE, he continues, “is not a solution. This is a temporary way of keeping things together, while somehow hoping that global growth appears, but that’s not going to happen. What you’ve got is this policy that’s very short-sighted and will have immense long-term consequences. It will spiral out of control.”

So the Fed is faced with a dilemma. It can end its stimulus programs which could easily cause a significant near-term economic crisis; or it can continue to monetize the majority of newly-issued U.S. debt, keep interest rates extremely low, and face longer-term inflationary problems. Our modern day Fed avoids short-term pain at all costs, suggesting to us that the Fed’s policy of QE will continue longer than the market currently expects. In our view, leaving a future mess for his successor will be the only “exit strategy” Chairman Ben Bernanke employs.

CERTAINLY NO TIN CAN

Historically the price of gold is more likely to rise when the market anticipates increased inflation and is more likely to decrease when the market expects deflation. Many attribute this year’s lower price for gold to selling caused by fears that the Fed will permanently end its stimulus thus risking deflation more than inflation. To us, it is unlikely that the Fed will end its easy money policy in the foreseeable future, especially given the shaky footing on which rest today’s elevated stock and housing markets. Upon the mere mention of a reduction in stimulus, financial markets fell and housing affordability dove in response to higher mortgage rates. Consider the apple cart upset.

This quarter’s gold price decline has been met with immense worldwide demand for the physical metal (contrasted with the “paper” version of gold being sold on exchanges), especially in Asia. (Such was also the case in 2008, when deflationary fears sent the gold price down by more than 30%, creating a wonderful buying opportunity). Worldwide demand reduced the supply of available bullion causing individuals to pay high premiums over the market quoted price. In our view, much of the record-setting quantities of recently acquired physical gold will likely not become available for sale again for quite some time. We view this as supply that may have been permanently taken away. This could be particularly true in China where gold stockpiles are growing as a way to diversify away from their holdings of U.S. Treasuries. . .

When an asset class declines in price, usually the loudest market response is the contingent which decries its value and forecasts a continued swoon. Gold, as an asset class, is obviously not immune to this call. Says The New York Times: “The most recent advisory from a leading Wall Street firm suggests that the price will continue to drift downward, and may ultimately settle 40% below current levels… The sharply reduced rates of inflation combined with resurgence of other, more economically productive investments, such as stocks, real estate, and bank savings have combined to eliminate gold’s allure.” The New York Times stated this on August 29, 1976. It had no way of knowing at the time that the bear market in the price of gold ended four days earlier. . .

A Time magazine issue dated August 2, 1976 ran a piece titled, “The Great Gold Bust.” This story referred to gold as having “as much luster as a rusty tin can” and stated, “The economic conditions that triggered the gold boom of 1973-1974 have largely disappeared.” Fed Chairman Arthur Burns was proclaimed a hero for orchestrating a comeback without the side effects of inflation. (This should remind you of the current opinion of the Fed.) Readers of Time could not have received worse advice. The price of gold reached its low within days of this widely read article. The gold price then marched higher by more than 700% over the ensuing four years. Gold mining stocks performed extraordinarily well.

Considering the changes in the market price of gold throughout the entire decade of the 1970s, the tortuous bear market of 1976, similar to that which we are experiencing today, appears as a mere pothole on the highway to dramatically higher prices. . .

Investors in 1976 and 2008 who were able to withstand the deluge of misinformation and hold on or buy more precious metals investments were eventually glad they did. These investors recognized then, like today, that monetary policy was a friend of the price of gold. Today the Fed can only talk about reducing the pace at which it continues to increase the monetary base. There is no discussion at all of reversing the monetary stimulus which has been put into the economy. This is where so many investors today get it wrong when they compare gold’s price now to the fallout from the high price for gold in 1980. Then, the Fed ⁵ was restricting the money supply and raising interest rates dramatically in an effort to thwart inflation. Today’s Fed is stimulating by tremendous sums, keeping interest rates at zero, with the goal of increasing the rate of inflation.

Bernanke is today considered to have orchestrated a maneuver whereby a great depression was averted, stock prices were returned to pre-crisis highs, real estate is levitating again, inflation is not to be feared, and the Fed can withdraw its unprecedented stimulus without sending the fragile economy into a tailspin. “Folks, if you believe this fairy tale,” says extraordinary investor Fred Hickey, “then you are not unlike the poor dupes who panicked and sold all their gold right at the bottom in the 1976 gold capitulation.” Hickey continues: “Here’s the difference between now and the 1970s: [Then Fed Chairman Arthur] Burns’ easy money policies were minor league stuff compared to what the Fed, Bank of Japan, Bank of England, Swiss National Bank, and others are doing today. The inflation risks today are orders of magnitude greater than in the 1970s, when there was no quantitative easing, no quadrupling of balance sheets, and no trillions of high-powered reserves printed out of thin air.”

Supply Shortages May Cause Higher Prices

While money can be printed, gold cannot. In response to fears that its gold might not be where it thinks it is – or in the quantity it expects – Germany earlier this year requested a withdrawal of some of its gold from various global storehouses. With more than 1,500 tons of gold held in a vault at the Federal Reserve branch in lower Manhattan, Germany’s request of 300 tons should have been granted easily. Not so. Germany will need to wait seven years before receiving all 300 tons that it requested. While the U.S. says it will eventually return the small portion of Germany’s gold that it demanded, the largest Dutch bank, ABN Amro, told its clients that all requests for their gold will instead be paid in cash. For years, people in the gold community have pondered whether there is as much gold available as statistics show or if there is an unknown shortage. The above examples are just two which lend credence to the latter.

The lower recent gold price will reduce global gold production as new projects and less economic ones are shuttered. Market perception regarding this potential reduction in supply may help support the price of gold. Moreover, the market’s recognition that there may be a major shortage of gold would likely cause a sea change in today’s dismal sentiment for gold.

Currently, nearly every index that measures investor attitudes toward gold is at an extreme if not all-time low. One measure indicates that bullishness is squarely at 0%. The gold market now represents fertile ground for the contrarian investor to cultivate.

Contrarian investors often focus on the errors in pricing that markets create when sentiment is carried too far. Currently, valuations for gold mining companies are at remarkably low levels. Based on price-to-cash flow, the shares of large gold mining companies have in previous years traded within a range of 6 to 26. Today’s level is 6. Similarly, price to book value (a measure of the market price against the net worth of a company) has ranged between 3.6 and its 2008 low of 1.0. Today’s level is 0.91, below that of the 2008 global selloff.

At today’s prices, an investor could buy all of the shares and debt of the largest gold mining companies, liquidate the businesses, and make a considerable return on their investment. Because of this more than theoretical option, levels such as these have often provided a floor under a bargain share price. Such valuations are rare and have historically attracted interest on the part of investors. In this way, low valuations can result in higher prices. When there is intrinsic underlying value, good things usually happen to cheap stocks.

Dividend yields for today’s large gold mining companies are substantial. Many mining companies offer income levels greater than those of long-term bonds. It is no wonder that gold company insiders are buying back shares. Says Ted Dixon, expert on insider transactions: “Such a high level of buying interest among officers and directors within their own businesses in the resource sector has correctly foreshadowed a recovery in share prices in the past.” The last time such a level of insider buying existed was during the opportunity-rich 2008 meltdown.

Valuations and insider behavior may speak volumes to us, but they are no match for human nature. This is because human emotions are usually in perpetual battle with investment prices. High prices make people feel good and trigger them to want to buy more. Low prices the opposite. While people flock to sales for discounted goods and services, they typically run from cheaper prices of investable assets. Just as lower prices darken sentiment, it is too often overlooked that lower prices also set the stage for positive future performance. Moreover, lower prices increase the chances that future returns will be greater than currently expected.

When any asset class falls out of favor on Wall Street, it usually becomes priced so low that it makes little sense to sell and much sense to hold (or buy more), awaiting the turn in sentiment. Keep that which is cheap. After a decline, studies show that industry groups tend to rise dramatically over the ensuing three years. Since the 1920s, a 60% decline in an industry has resulted in a rise of 71% within 36 months. Furthermore, any time the gold mining industry has performed as it has in the last 18 months, future returns are substantial.

There are six previous periods in which gold mining companies have similarly underperformed relative to the general stock market. The average return following such periods is a gain of 221% in little more than one and a half years.

This is because bear markets give rise to bull markets. The nature of the recent decline, coupled with what we see as fundamental support underlying the precious metals, causes us to believe that we could see explosive positive performance from our gold-related investments.

Contrarian and value investor Marc Faber agrees: “Gold shares are extremely depressed,” he said in June. “I think there is an opportunity for a relatively sharp rebound in gold shares.” Faber correctly analyzed and avoided bubbles during the last couple of decades by capitalizing on opportunities for safe investment in beaten down industries and markets. He is not alone among a small group of investors who safely navigated their way through major market surges and meltdowns of recent history. We closely study these investors whose wisdom rings far truer to us than the opinions of others who cannot boast similarly successful long term investment performance.

One such successful investor, Bill Fleckenstein, does not mince words: “The smart money is set up [invested] one way and the so-called dumb money is set up differently. The people that have been pretty good at understanding the difficult environment we’ve been in for the last 15 years all tend to be bullish on gold and the ones who never understood any of it all tend to be bearish. What do you want to do? It’s pretty simple as to what side you want to be on.”

The Fed today continues on a path that we recognized beginning in the late 1990s. We then saw an overpriced stock market that, when it eventually burst, would cause the Fed to over-stimulate. That overly aggressive response to deflation fears would spur a bubble elsewhere in the economy (housing) whose eventual demise would spur tremendous action on the part of not just the Fed but central banks throughout the world. The debts accumulated throughout this process would require many years of stimulus, including monetary expansion, which would eventually stoke fears of inflation. We believe that we remain headed down this path. Easily within the next couple of years we expect there to be a smarter and better time to sell precious metals holdings. By that we mean when prices are higher and when the market, abiding by its cyclical nature, favors gold-related holdings once more.

Jim Rogers, a member of the elite of “smart money” investors, says he’ll sell his precious metals “when there’s a bubble in gold.” Though he does not know when this will be – timing is unknowable in investing – he continues, “We haven’t seen a bubble yet.” While today many Americans are selling their gold, as evidenced by the number of dealers and stores buying from individuals, “Later, there will be signs that are saying, ‘We Sell Gold,’ and people will be lining up to buy it in big ways. That hasn’t happened yet.”
 

The post Your money and your life–Part 3 first appeared on Capitalism: The Liberal Revolution.

As soon as our friends arrived at their hotel in London, they asked for referral to a doctor. The hotel’s concierge referred them to a small medical group where they were able to get an immediate appointment. ¹ A lady doctor examined them both, said she was confident in a diagnosis of the then current flu, prescribed ampicillin ² and handed them the medicine in her office. Before leaving the medical offices they paid for the service, as the physician was in private practice and was not working in Britain’s National Health Service.

The husband of this couple said the experience reminded him of treatment by his family doctor as a child, when he came down with pneumonia. The family doctor, also a lady, came to his home, examined him and gave him penicillin, which she described as a new “wonder drug.” ³

This kind of prompt and effective medical service was once the norm, but has become unusual in early 21^st century America, where the medical profession has acquired the reputation of having the worst service of any industry or profession. In Britain’s National Health Service, one can get an immediate appointment in case of emergency, but the doctor is prohibited from discussing any other medical concerns; there is a one condition per appointment rule; if the patient is referred to a specialist there is usually a wait which may take months. ⁴

In America, since the 1950s remarkable deterioration in customer service in medicine has been accompanied by continual escalation of the costs of medical services. The two are related. The factors which have caused ever higher costs for health care have also caused ever deteriorating quality of customer service.

Andrew Galambos remarked frequently that a medical customer is called a “patient” for good reason: patience is required while waiting for medical service.

An extraordinary new book by David Goldhill shows the way to solving the problems of poor customer service and health care expenses that threaten to bankrupt the people of America and the federal and local states. The book is Catastrophic Care: How American Health Care Killed My Father—and How We Can Fix It (Alfred A. Knopf, 2013). David Goldhill is a business man, CEO of The Game Show Network, who earned degrees in history at Harvard (BA) and NYU (MA).

There is another fine book that came out just before Mr. Goldhill’s Catastrophic Care. It is Priceless: Curing the Health Care Crisis (2012) by John C. Goodman, Ph. D., who is highly qualified to analyze the financing and other problems of American Health Care. The basic premise of Dr. Goodman’s book is the same as Catastrophic Care, namely that false beliefs about health care have eliminated normal market forces from American health care, making it almost impossible to solve problems in health care the way they are solved in other markets.

David Goldhill’s book describes a solution for the health insurance mess America is in—with some 18% of America’s production and income ⁵ being consumed by health care expenses and with some people paying nearly half their income for health insurance and other medical costs. Mr. Goldhill’s solution is one that the people of America may well embrace after (1) they fully appreciate what a financially disastrous monster America has in health insurance, public and private, (2) that insurance can work only if it is designed to share the risk of catastrophic events that are unlikely to occur to many people in any one year, and (3) that insurance cannot work if it is used to process and pay claims for relatively routine expenses.

That Mr. Goldhill could devise a feasible solution to health care finance provides good cause for optimism that Americans can surmount the ideological differences that have made health care a contentious political issue. He says:

“I’m a Democrat and once held views about health common in my party. But the more I’ve looked at our system, the more I’ve come to believe that the obsessions of our political debate—universal access, health insurance regulation, cost control—are irrelevant to the real problems that have created our mess . . . [D]espite more than sixty years of government efforts—representing the work of both political parties—we are moving further and further away from what we want. Prices are higher, more people are excluded from needed care, more excess treatments are performed, and more people die from preventable [medical] errors.”

NOTE: Unless otherwise indicated, all quotations herein are from Mr. Goldhill’s book. Assertions of fact and opinion not delimited by  quotation marks are those of Mr. Goldhill, either nearly verbatim or paraphrased. 

Malcolm Gladwell, bestselling author and staff writer for The New Yorker since 1996, said ⁶ in a televised interview of Mr. Goldhill, “I think this book is really quite extraordinary. Since reading it I have not stopped thinking about it. It had the effect of turning my own ideas about health care completely on their head.

“I’m Canadian. I was a dyed-in-the-wool universal health care guy. And now I’m not any more. I don’t really know what I am. All I know is that something in this book has dramatically up ended my carefully received wisdom about health care. . .” ⁷

Mr. Gladwell wrote an endorsement for the book that says “David Goldhill has written a devastating and utterly original analysis of what has gone wrong with the American health care system. Read it, and take a deep breath. He will convince you that our ‘solutions’ are not solving our problems. They are making our problems worse.”

David Goldhill’s own ideas about health care changed after his father’s terminal illness. Goldhill’s father was 83 years old and still active in his profession of psychiatry in a suburb of New York City when he came down with a respiratory problem. Mr. Goldhill says of his father’s last illness that Dr. Goldhill “. . . died from a hospital-borne infection he acquired in the intensive care unit of a well-regarded New York hospital. Dad had just turned eighty-three and had a variety of the ailments common to men of his age. But he was still working the day he walked into the hospital with pneumonia. Within thirty-six hours, he had developed sepsis. ⁸

“Over the next five weeks in the ICU, ⁹ a wave of secondary infections, all contracted in the hospital, overwhelmed his defenses and caused him great suffering.

“Have you ever had a loved one stay in a hospital for an extended period? If so, were you shocked at how much time your family needed to be physically present to prevent mistakes—both big and little ones . . . My father was taken twice for medical procedures meant for other patients, suffered the same tests multiple times, missed doctor and nurse visits, received incorrectly filled prescriptions, and so on. I now know our experience was typical, not unusual. Even more shocking is how many physicians confirm the need for family members to be present as much as possible to prevent such errors.” ¹⁰

Near the end of Dr. Goldhill’s stay in the hospital when it was clear that his life could not be saved, his family made the heart-rending decision that he should be made as comfortable as possible, meaning that he should be allowed to die without further medical intervention. The night before his father died, his son David was at his bedside when a technician came to take a blood sample. Even after David told him the decision had been made to let Dr. Goldhill die the technician insisted on taking the blood sample because it was required by the rules of the hospital. David had to block him physically to prevent him from drawing blood from his dying father.

“Keeping Dad company in the hospital for five weeks was an eye-opening experience. While the facility’s diagnostic equipment was state of the art, the technology used to record that diagnostic information and track the patient was less sophisticated than the desktop computer at my local Jiffy Lube. . . The patient’s trash was picked up only once a day and often only after overflowing onto the floor. . . We saw little or no effort to make the hospital room cheerful or even moderately comfortable. ¹¹

“And whose needs are served by the bizarre and unpredictable scheduling of hospital shifts, assigning an endless string of new personnel to care for a patient?

“. . . [A]lthough his death was a deeply personal and unique tragedy for me and my family, dad was merely one of a hundred thousand Americans who died that year as a result of infections picked up in the hospital . . . The hundred thousand deaths from infections are compounded by a litany of routine mistakes that create preventable blood clots, drug dosage and prescription error, and any number of oversights. All this adds up to an estimated two hundred thousand Americans killed each year by medical mistakes.” ¹²

“A few weeks after my father’s death, The New Yorker ran an article by Atul Gawande ¹³ profiling the efforts of Dr. Peter Pronovost to reduce the incidence of fatal hospital-borne infections. ¹⁴ Pronovost’s solution? A simple checklist of ICU protocols for physicians and nurses governing hand washing and other basic sterilization procedures.

“Hospitals implementing Pronovost’s checklist achieved almost instantaneous success, reducing hospital infections by more than half. But many physicians rejected the checklist as an unnecessary and belittling intrusion, and many hospital administrators were reluctant to push this simple improvement on them.” ¹⁵

Mr. Goldhill’s mother received a statement from Medicare showing that the total hospital charges for her husband’s five-week stay in the hospital were roughly $670,000. In his interview with Malcolm Gladwell, David Goldhill commented that a charge of $670,000 for killing a man was the kind of thing that outside of the health care industry, one would expect only from the Mafia.

In the Malcolm Gladwell interview Goldhill compared the $670,000 Medicare statement of charges for his father’s hospitalization to a hypothetical alternative. In this alternative

• Mr. Goldhill would take his father not to a hospital, but rather would install him in a large room at the Four Seasons Hotel in New York, a luxury hotel, where the daily room charge is around $1,000 a day, about the same as the daily charge for a private room at the hospital where his father died.
• He would arrange for two hours a day of medical supervision, in the hotel room, by qualified doctors.
• He would arrange for round the clock nursing care.
• He would fill the room with a million and a half dollars’ worth of hospital equipment which he would rent.
• His father’s food would be provided by hotel room service.

The total cost of this hypothetical alternative: $160,000, or less than one-fourth of the hospital charges reported by Medicare.

Goldhill says that nobody pays such outrageous hospital charges. Medicare does not. Insurance companies do not. But if someone without insurance has such a charge from a hospital, the hospital will hound them relentlessly, sometimes even to the point of bankruptcy. Note: According to a physician who works in administration of a large hospital in Southern California, some hospitals may agree to settle for the patient paying what Medicare would pay for the same hospitalization.

Goldhill believes that the only purpose of the statement from Medicare was to show his father’s family how lucky they were to have Medicare take care of his father’s expenses.

Nevertheless, despite the catalog of horrors described above, in looking for an explanation for his father’s death, Goldhill does not blame the physicians, who he says were “smart, thoughtful, and hardworking,” nor the nursing staff who were “without exception . . .dedicated and compassionate.” ¹⁶

The September 2009 issue of The Atlantic published as its cover story an 11,000 word article by David Goldhill entitled “How American Health Care Killed My Father.” ¹⁷ It was an extraordinary and implicit tribute to the passion and quality of the article for a journal as prestigious and sophisticated as The Atlantic to publish with such prominence the work of a man whose writing had never been published elsewhere and who lacked academic accreditation in the field about which he wrote.

Explaining how the article came to be published, Mr. Goldhill states: “I had the opportunity to write this book [Catastrophic Care] only because my favorite magazine, The Atlantic, made the courageous (or reckless, depending on your point of view) decision to give an unknown, nonexpert writer  the cover for an unorthodox take on the day’s most contentious policy issue.” ¹⁸

The Dean of the Medical Faculty at Harvard University, Jeffrey Flier, was so impressed and energized by Mr. Goldhill’s article in The Atlantic that he invited Goldhill to speak at a symposium on Health Care Reform at Harvard in January 2010.

Flier wrote an endorsement of Goldhill’s book, which appears on the back of the dust jacket. It says, among other things: “David Goldhill offers a brilliant and much needed antidote [to the failures of the health care system] . . . by calling out with remarkable clarity the numerous, but now almost invisible incentives and regulations that drive the dysfunction of our current system. [The book] provides an illuminating framework for understanding the crisis, and then a path to the kinds of reforms that will surely be necessary.”

Because of his article in The Atlantic Mr. Goldhill soon became a much sought after speaker and participant in meetings of experts on health care policy. Eventually he had to engage the services of a booking agency to manage a plethora of speaking and appearance requests. ¹⁹

One such recent appearance was a colloquy with Dr. Ashish Jha at Harvard Medical School in which Mr. Goldhill gave a good account of his position. ²⁰ Introducing the two speakers, Dean Flier said of Catastrophic Care: “It is my view that he [Mr. Goldhill] is taking a perspective on health care that is likely to be informative to those who bother to read it and listen to his discussion.”

David Goldhill’s ideas have won the respect of some influential people. He was recently named a Director of The Institute of Medicine of the National Academies. ²¹

Nevertheless, as soon as Catastrophic Care appeared in January 2013, it was met by a salvo of criticisms that seem, at least in some cases, to originate in political ideology—particularly the belief that it is corporate greed that is the root cause of health care problems in America. However, some of the critics have their own horror stories of medical malfeasance that reinforce Goldhill’s concerns. For example, the following appeared in a generally unfavorable review of Critical Care in the San Francisco Chronicle. 

“Four years ago, my 69-year-old mother was admitted to a hospital through the emergency room. The plan was for her to start receiving blood-thinning medications to prevent a blood clot that might cause a stroke, and to undergo procedures the next day (a Friday), to correct her abnormal heart rhythm. A hospital bed was unavailable, so she was ‘boarded’ and spent the entire night sleeping on a gurney in the emergency room.

“Only when other patients had been discharged from the hospital on Friday was my mother admitted to a regular hospital bed. Because of the delay, her planned procedures were postponed until Monday. On Saturday, she suffered a severe stroke that would claim her life. She had not received the blood thinners as planned while she spent the night in the emergency room. Key treatments are often missed while patients are boarded this way.” ²²

This tragedy illustrates and reinforces David Goldhill’s assertion that patients’ family members are needed in hospitals to prevent errors and omissions by medical professionals. The man who wrote the foregoing description of the circumstances that seem to have caused his mother’s probably needless death was himself a physician. One can only speculate that either he was not present when his mother was being neglected or that he was present and unable to get the hospital staff and his mother’s physicians to take immediate charge of what was clearly a medical crisis.

It is difficult, if not impossible, to do justice, in a brief review, to so original and analytical book as David Goldhill’s Catastrophic Care. However, the following is an attempt to provide a summary that evokes the ideas and qualities of the book, in large part by direct quotations from the text. This summary is based also on remarks of Mr. Goldhill in the above-cited video of his interview with Malcolm Gladwell.

The health care “island”

“Our health care system isn’t an example of ‘socialism’ or ‘profit-driven medicine.’ In fact, it is such a strange beast [for which] . . . the best analogy might be the Galápagos Islands, set so far offshore from the mainland of industrial evolution and economic laws that it has produced odd, anomalous creatures of policy and regulation. Though these products of convoluted laws and rules manage to thrive on the Island of Health Care, they would not survive on the Mainland, where all other industries are forced to compete for their customers.”

On the Mainland high prices, poor quality, and miserable service cause lost customers, lost revenue and lost profits. On the health care island “. . . bad behavior doesn’t produce these bad results; bad behavior is often rewarded with additional revenues, and efficiency is penalized with less.”

Insurance and the Surrogates

“At the heart of [the] perverse incentives [in health care] is insurance. Unlike with anything else in the economy, we rely on insurance as the sole means for paying for everything in health care—from the most routine to the most urgent. Even our government health programs take the form of insurance.”

“. . . [N]ot only is insurance the costliest way of financing our spending, it is the most distortive . . . [it] requires that we turn over our role as consumers to what I call the Surrogates: private insurers, Medicare, and Medicaid. . . Their actions—and our own absence as a disciplinary force in the health care marketplace—create many of the incentives for bad behavior.”

Goldhill observes, for example, that:

1. Private insurers have no incentive to reduce health care spending. The more that is spent the higher their revenues and profits. Private insurers have an inherent conflict of interest in that they want as much business as they can get, but they also have an incentive to deny claims in order to protect their profits.
2. Medicare and Medicaid have no incentive to reduce health care spending because they are “entitlements.” Medicare and Medicaid must pay for whatever services the participants choose to partake of, at little or no cost to themselves.
3. For every two physicians in America there is one person working in the health care insurance industry, public and private, a bizarre phenomenon caused by having routine medical expenses processed through the insurance mechanism rather than being paid for directly by consumers. This alone adds a great deal of cost to the expenses the public must pay.
4. When individuals pay for health care out of their own pockets, they are far more discerning and prudent in the expenses they incur.
5. Medicare and Medicaid operate like a giant “all you can eat restaurant,” where the more customers consume the more the state pays, so that the more the customers consume the greater is the revenue to the proprietor. ²³
   

True insurance is generally unavailable for medical expenses

The true function of insurance is to share the risks of events that are unlikely to happen to most people in any one year, but would be catastrophic to those who do suffer such an event. A true concept of insurance operates in homeowners’ insurance, auto insurance, and life insurance.

For example, damage to a house from fire, flood or other events can cause unacceptable loss. Insurance against such risks is relatively inexpensive, so people would be imprudent not to buy such insurance. However, it would be extremely expensive and foolish to buy insurance for the costs of routine maintenance of a house, such as plumbing repairs, painting the exterior, or replacing a roof. All such things can be paid for out of income and savings without undue financial detriment.

On the health care island, insurance pays for routine maintenance. Many people expect their medical insurance to cover visits to the doctor for a bad cold, acquisition of prescription eyeglasses and the cost of prescription drugs. In large part that is what drives up health care costs, by making everyone pay for others. That deludes people into thinking they are getting medical treatment at low cost, or even without cost. This misuse of insurance for payment of most medical expenses encourages profligacy and discourages frugality.

The worst customer service in the world

Goldhill points out that in health care we all put up with terrible service that we would not tolerate in any other activity. His father’s time in the hospital was an example. He provides others. Waiting time in a doctor’s office is generally far longer than in a dentist’s office. Why? Because most dental service is on a cash basis. Dentists are in competition with each other for business. Doctors on the other hand are getting paid by the surrogates, so they are relatively unconcerned about patients being dissatisfied with waiting.

If someone is planning elective surgery in a hospital it would be desirable to shop on the basis of price and quality. But hospitals do not quote prices to prospective patients. If you go to the hospital you find out the charges after you leave the hospital, and then there is nothing one can do about it but pay what is asked. Hospitals can get away with such conduct only because they are on the “island.”

Insurance companies have terrible customer service. They want the business, but all too often look for ways not to pay off. Of course, they pay in the overwhelming number of claims, but they may give the customer a hard time.

Goldhill describes his pre-adolescent son’s appendicitis as an example of terrible service from both the hospital and the insurance company. When he took his son to the hospital emergency department with the painful symptoms of appendicitis, the father had to fill out similar if not identical forms several times before his son could receive treatment. When he submitted the claim to his insurance company, at first they denied it on grounds there was no showing the appendix surgery was “medically necessary.” This was patently absurd. Eventually the insurance company paid, but not until Goldhill had to argue with them. And he was the CEO of the company that maintained the insurance contract with the insurer.

Prices and the law of supply and demand

On the health care island there are no prices to inform consumers of the real costs of what they consume. This does not happen on the health care island because everyone is operating under the delusion that somebody else is paying for what a consumer consumes.

Goldhill gives as an example the price for an MRI, the acronym for magnetic resonance imaging. Goldhill’s sister-in-law was visiting from her home abroad. As a foreigner she had no medical insurance, but she needed an MRI to determine the nature of an injury to her knee. Her sister, Mrs. Goldhill, called a radiologist to whom she was referred by the Goldhill’s family doctor. She asked the radiologist’s office staff for the price and was quoted $1,200. Mrs. Goldhill made a number of calls to find a lower price for what is, after all, now a routine procedure. After quite a few calls she found a radiologist who said $300, payable in cash, be here tomorrow at 4:00 p.m.

Behind this story is the fact that all radiologists could charge far less than $1,200 for an MRI, but they can get away with charging $1,200 because of insurance. The insurer may pay less than $1,200 but will surely pay a lot more than $300, so the radiologists prefer not to bargain with a medical customer, even one who will pay cash at the time services are rendered.

Off the island, on the mainland, such a thing would never happen. Radiologists would be advertising for customers on the basis of price as well as the quality of their interpretation of the MRI.

Goldhill compares it to the costs of any other service involving already paid capital costs for equipment, such as airline seats. In the market for airline seats individuals can search the internet for the lowest price, and there will be a price that is lower than others if not the lowest. That is because airline customers are paying out of their own pockets. They don’t send their insurance company a claim for reimbursement for air travel.

In the mainland economy prices work hand in hand with the economic law of supply and demand. An increase in the demand for goods or services causes an increase in their prices. Consequently consumers reduce their spending on pricey goods and services and direct their spending elsewhere. This has the beneficial effect of putting a non-coercive, automatically operating ceiling on the price of scarce goods and services; and the further benefit of creating a demand for goods and services that are relatively low in price.

NOTE: Andrew Galambos commented that the law of supply and demand was a law of nature, in that it is natural to humans to operate in the way described by the law of supply and demand.

Costs

While public “. . . debate has focused on the vulnerability of the uninsured and the uncovered . . . our current health care system is also a disaster for the insured,” according to David Goldhill. He gives an example of a real employee in his company, called Becky in the book, not her real name. She was hired at age 23 for a beginning salary of $35,000, plus health care insurance. The employer, Game Show Network (GSN) pays $6,000 a year for the insurance and Becky pays $2,000.

From the standpoint of GSN, the company provides health insurance because employees want it. They want it because there is an important tax benefit that came into the tax laws beginning in World War II: employer-paid medical insurance is treated as compensation expense to the employer, and is therefore a deduction from the employer’s taxable income, while the employee receives this benefit tax free. ²⁴ Goldhill calls this a “mistake” in the tax law that has had the perverse consequence of contributing to a real, inflation-adjusted, tripling of health care spending as a percentage of national income, as represented by Gross Domestic Product. ²⁵

Becky, the employee referred to above, was worth $41,000 a year to GSN as entry level compensation, namely her salary of $35,000 and $6,000 of the $8,000 of health insurance. Becky also pays other taxes, including almost 3% of pay for Medicare Part A (hospitalization). 20% of her income taxes actually go to other federal programs of health care.  Mr. Goldhill points out that the federal state spends $400 billion a year, nearly 20% of all its tax revenues, on programs other than Medicare and Medicaid. ²⁶

Local states, such as California and New York spend about 10% of their tax collections on health care. The net effect of all this is that Becky, whose salary is $35,000, but whose real salary is $41,000 from the perspective of GSN, is paying $10,050 into the health care system, almost 25% of her true gross income.

If Becky works 30 years and costs don’t go up she will pay $300,000 into the health care system and then she will pay Medicare premiums taken out of her Social Security starting at age 65. But of course things will change. If she gets married and her income grows as would be expected she will pay more into the system. If she works to age 65 and stays in reasonably good health she will earn $3.85 million over her career and pay $1.9 million into the health care system (half her earnings).

That is right.  It is not a misprint. Half of her income will go for health care costs. If today’s youth continues to have the benefit of employer-paid insurance (which is dubious as discussed below), over their working careers half of their compensation will be in the form of health care costs.

The Beast

Everybody ends up paying for the actual costs of health care, one way or another. A principal form of “payment” is the relentless escalation of costs to society as a whole. Insured individuals and their employers see it in higher insurance premiums.

Medicare beneficiaries do not see the cost escalation because it is obscured from them by federal accounting for Medicare which, in effect, treats unfunded future liabilities as though they never have to be paid for. That is, people who are paying taxes into Medicare, and beneficiaries who are taking out health care benefits do not realize that Medicare is actually the world’s largest Ponzi scheme.

That is incendiary language, calling Medicare a Ponzi scheme. Medicare is widely considered the most popular thing the federal state does. Goldhill says, in effect, if the shoe fits, wear it. The characteristic of a Ponzi scheme is payment of supposed investment returns from new money coming in from other people. That is exactly what Ponzi operator Bernard Madoff did for thirty years or more. ²⁷ The Madoff Ponzi scheme ended, as they all do, when the supply of money coming in from new people was not enough to pay prior participants the supposed “interest” on their committed capital, or even to return the capital.

The federal state has been advised by many credible sources, from the International Monetary Fund to academics, and staff of federal agencies such as the Office of the Comptroller and the Congressional Budget Office, that Medicare and also Social Security are, in effect, Ponzi schemes that must be reformed to avoid a disaster for the state and the beneficiaries of these programs. ²⁸

The author calls health care “the Beast” because its insatiable appetite is consuming more and more national wealth, for example:

1. Health care spending as a percentage of Gross Domestic Product (GDP) has gone from 6% of GDP to 18% of GDP since the enactment of Medicare and Medicaid in 1965.
2. Since 1965, at the time of enactment of Medicare and Medicaid, Americans have grown healthier in many ways. Their work is generally less physically demanding and they retire earlier on average, they smoke less, they drink less alcohol, and eat in a healthier way. Therefore, it is paradoxical for health care costs to have escalated so much while the population was becoming healthier because of factors other than health care.
3. Projections of federal agencies such as the Congressional Budget Office indicate that health care spending will continue to increase, taking more and more of the people’s incomes.
4. As of 2012 the current administration (the executive branch headed up by the President of the United States) projects that over the thirty years starting with 2012 total compensation for work will increase at a moderate rate, but spendable (and taxable) income of Americans will decrease. How can total pay increase while spendable income decreases? Because more and more of individuals’ incomes will be taxed to feed the Beast of health care.

The growth of chronic conditions

The Beast is continually looking for ways to increase the amount of national wealth it consumes. One way is in the increase in chronic conditions classified as a threat to health, even though they may be asymptomatic and a natural consequence of aging. For example, hypertension, commonly called “high blood pressure,” tends to increase among individuals as they grow older. Although it has been called a “silent killer” because it may indicate a higher risk of having a stroke or heart attack, with most people hypertension can be controlled by inexpensive medication. There are also lifestyle factors that can help people minimize hypertension, a subject with an extensive literature beyond the scope of this essay.

Recently there has been talk in the health care industry of a condition called “prehypertension.” That means factors that can be identified by testing that may predispose a person to develop hypertension at a later time. The Beast is pushing to have prehypertension classified as a chronic condition so that its treatment may be paid for by insurance.

Medicalizing lifestyle choices

Another way for the Beast to increase its taking from society is in “medicalizing” what are really lifestyle issues, problems that may impact health negatively but are best handled by lifestyle changes rather than medical intervention.

Goldhill points out that the insurance industry (private and public) is complicit in this process, as perverse economic incentives motivate insurers, private and governmental, to push costs ever higher. With medicalization of phenomena that are really lifestyle issues not medical issues, people are encouraged to expect insurance to pay for fixing ill health caused by lifestyle choices.

On June 18, 2013, the American Medical Association (AMA) declared obesity a disease, defining 78 million obese American adults and 12 million children as having a chronic medical condition requiring treatment.

This action “. . . is certain to step up pressure on health insurance companies to reimburse physicians for . . . discussing obesity’s health risks with patients . . . It should also encourage doctors to direct these patients to weight-loss programs and to monitor their often-fitful progress.

“The federally funded Medicare program, which insures an estimated 13 million obese Americans who are over 65 or disabled, already covers the costs of ‘intensive behavioral therapy’ for obese patients, as well as bariatric surgery for those with additional health conditions. But coverage for such obesity treatments has been uneven among private insurers. . .

“‘As things stand now, primary care physicians tend to look at obesity as a behavior problem,’ said Dr. Rexford Ahima of University of Pennsylvania’s Institute for Diabetes, Obesity and Metabolism. ‘This will force primary care physicians to address it, even if we don’t have a cure for it.’ . . . [Emphasis added]

“The Food and Drug Administration, which has approved just two new prescription weight-loss medications since 1999, would probably face increased pressure to approve new obesity drugs, spurring new drug development and more widespread prescribing by physicians . . .

The AMA’s Council on Science and Public Health speculated that “employers may be required to cover obesity treatments for their employees . . . It might also shift the nation’s focus too much toward expensive drug and surgical treatments and away from measures to encourage healthy diets and regular exercise, the council wrote in a background memo for AMA members.” ²⁹

The next day brought news that popular entertainer Christina Aguilera had lost 20 pounds by reducing her caloric intake to 1600 calories a day and increasing her exercise program.

The Mayo Clinic says: “You can usually lose weight through dietary changes, increased physical activity and behavior changes.” ³⁰

According to the Dietary Guidelines for Americans 2010 Executive Summary, those who achieve and manage a healthy weight do so most successfully by being careful to consume just enough calories to meet their needs, and being physically active. ³¹

Health care is not health

Mr. Goldhill makes an assertion that will be a surprise to many, namely that there is no direct relationship, in any country, between life expectancy and the amount of nationwide spending on health care. Other factors are far more influential on life expectancy and health during one’s lifetime. These include wealth; leisure time; the relative physical effort required for work, e.g., the work of a coal miner compared to that of a teacher; cleanliness of the environment in terms of air quality and water quality.

The more that the people of a society spend on health care the less there is available to increase wealth, leisure time, advances in technology to reduce the strain of physical labor, etc. Thus, in a real way, excessive spending on health care decreases health and life expectancy.

The Fatal Conceit

David Goldhill does not use the term “the fatal conceit” in his book. That term was coined by famed economist F. A. Hayek (1899-1992). ³² However, the tenor of Goldhill’s argument is imbued with Hayek’s concept of the fatal conceit.

Hayek posited that the “fatal conceit” was the idea that top-down economic planning by the state was far more efficient, and led to better outcomes for society, than leaving choices to individuals. Throughout Catastrophic Care Goldhill makes the case that leaving health care decisions to individuals, with the advice of their physicians, of course, would be far less costly and would lead to far better outcomes than the centrally decided and directed administration of health care that has developed in America, specifically through having surrogates replace the individual as the payer for health care services.

As the payer of health care services, the surrogates are making choices for individuals that are inimical to the best interests of individuals, the medical profession as a whole, and society as a whole. Goldhill gives as an example the effect of the fatal conceit on that vital physician, the primary care doctor, also known as an internal medicine doctor or a family practitioner.

Some thirty years ago Medicare promulgated rules for hospitals known as “Diagnostically Related Groups” or “DRGs” as they have come to be known. There was a list of some 467 conditions that hospitals could bill to Medicare. Medicare instituted a fixed payment schedule for the DRGs. This was an attempt to control the escalation of hospital costs of Medicare patients.

The private insurance industry, and Medicare itself, began to apply a similar concept to physicians’ services. That is, all physician services were categorized in terms of the procedure involved in providing the service. Physicians were paid for doing specific procedures. In the case of a good internist or family practitioner, much of the benefit from their skill comes not from doing procedures, but from talking with patients to understand what is going on medically and otherwise in their lives–e.g., is the patient experiencing emotional distress–and then to counsel the patient or refer the patient to a specialist, as appropriate.

Insurers and Medicare do not pay much, if anything for such medical counseling by internists and family practitioners. This has had the following adverse consequences to the internists and to patients.

1. Internists and family practitioners work as many hours, on average, as do specialists but earn half as much as the average for specialists because specialists get paid per procedure and the most important services of an internist or family practitioner do not qualify as a procedure.
2. Medical students understand how this works. Fewer and fewer medical students are choosing to go into internal medicine or family practice. They can earn far more with no more effort in a specialty that has lots of procedures.
3. The internist or family practitioner has several important roles in medical care. Often, acting as primary caregiver or first responder, he or she can do everything necessary to alleviate a patient’s symptoms and suffering. Specialists are not equipped to see the whole person and to deal with many patient issues in the way that internists and family practitioners do. For example, suppose one comes down with a severe respiratory infection, such as the flu or bronchitis. The internist can diagnosis the problem, advise the patient, and where necessary prescribe medication such as an antibiotic, or suggest an over-the-counter medicine that will alleviate symptoms.
4. The primary care physician should also be the one to coordinate the activities of specialists if two or more are needed for a particular patient. The internist or family practitioner is the best qualified for this role.

The top-down specification of what will be paid for and price fixing by surrogates is driving a growing scarcity of the all-important internal medicine doctors and family practitioners.

In any other industry or profession, practitioners could decide for themselves what to charge and their clients or customers could decide what they were willing to pay. This is how everything works off the health care island. If health care were returned to the mainland the supply of internal medicine doctors and family practitioners would adjust to the requirements of patients as evidenced by their willingness to patronize the doctor.

A century before F. A. Hayek, famed French thinker, classical liberal theorist,  and political economist Frédéric Bastiat (1801-1850) anticipated Hayek’s idea of the fatal conceit in this way. He described the French socialist intellectuals of his day as people who considered themselves an elite class who knew better than the general population what was in their best interest. This political elite considered the rest of humanity to be like a malleable lump of clay that the elite could mold into whatever shape they thought best. ³³

It seems self-evident that both Bastiat and Hayek would find much to like in David Goldhill’s argument that in health care individuals, not their surrogates, should be the ones to make the choices for their own health care.

There are several common arguments in the political discourse of our time as to why health care is so different that individuals are incapable of making the right choices for themselves. Goldhill points out that the surrogates, who are supposed to know better than individuals have done a miserable job of allocating resources. That is why health care  costs are have gone up so much and are likely to go up further.

The Affordable Care Act of 2010

Mr. Goldhill argues that we should not expect any relief in the escalation of health care costs from the Affordable Care Act of 2010, known by the acronym ACA and also as “Obamacare.” Rather, we should expect ACA to worsen the crisis in health care finance. How so? Because ACA itself is built on the idea that there is not enough insurance and there should be more of it for more people.

The insurance model has been instrumental in creating the health care island, where the economic law of supply and demand has virtually been abolished. David Goldhill remarked in his interview with Malcolm Gladwell that “once we have decided to move health care to this island and pretend that there are not prices, just costs, you’ve given up the whole purpose of prices, we have given up their whole use; they are the circulatory system of our economy and we have eliminated them from the biggest industry in our economy.” [Emphasis added] ³⁴ In Mr. Goldhill’s view the ACA further weakens the already enfeebled law of supply and demand in health care.

ACA also further limits freedom of choice, which is a prominent defect in American health care. And ACA will probably have the effect of providing incentives to employers to stop providing health care insurance for employees. That, together with the provisions of ACA requiring the uninsured to buy insurance without providing a means for this to occur consistent with the law of supply and demand, means that ACA will exacerbate the problems he describes in the rest of his book.

America is on the verge of big changes in health care finance

Mr. Goldhill believes many employers will drop health insurance coverage for employees once Obamacare goes into full effect; and that many of those employees will choose to pay the tax (or fine) for not buying health insurance. That will be cheaper than buying the insurance through the mechanism provided in ACA. Such people will then become the payers of all their own health care. Mr. Goldhill expects them to act like they do in buying anything else. They will be price conscious and price sensitive and will not put up with bad service. That would be a huge change in American health care.

Furthermore, under the ACA an uninsured person can wait to buy insurance until he gets very sick. Insurance companies are barred from refusing to insure such people. Imagine such a provision in the law that affected homeowners’ insurance similarly. One could wait until one’s house was badly damaged, for example by storms, other natural conditions or normal deterioration with passage of time, before taking out insurance, and the insurance company would have to issue the insurance, at rates not taking into account the impending large loss to the already damaged home.

Solutions

Mr. Goldhill does not conclude that America needs socialized medicine like Canada or England.  In an interview televised after publication of Catastrophic Care, Mr. Goldhill took note of a widely read article by Stephen Brill in Time magazine, in which Mr. Brill argues that to get control of health care costs Medicare ought to be empowered to set prices for all medical services and products. ³⁵ Mr. Goldhill observes that Medicare has been setting prices for medical services and products since the early 1980s, yet Medicare’s costs have escalated far more rapidly over that time than the overall increase in the Consumer Price Index.

Further, Mr. Goldhill argues that insurance, including Medicare, is driving an explosion in costs and in inappropriate or improper health care; that there is so much money available for health care, and that individuals pay directly out of pocket such a small amount of their medical expenses that the system has been cut off from the discipline provided almost everywhere else in the economy by prices and the law of supply and demand.

Considering the single-payer systems of Canada and Britain, Mr. Goldhill observes that the single-payer mode of state-provided medical insurance will be undergoing severe cost pressures due to advances in what medical science can accomplish. When state-run medical insurance was originated in Imperial Germany under Otto von Bismarck in the late 19^th century, the idea was that a worker could suffer a disabling injury or illness that would prevent him from working to take care of himself and his family. Therefore, the original German insurance plan was to get the worker repaired physically or cured of illness and back to work so he could support himself and his family.

With the passage of more than 100 years, the focus on health care has changed from repairing a catastrophic injury or curing a catastrophic illness to providing all manner of services and products in response to the demands of people for medical care. That is to say, the public’s demand for medical services has increased more or less in tandem with  the increase in the capabilities of medical science and technology. Because of this development, the state-run insurance programs around the world are coming under severe cost pressures that they can contain only by rationing health care, by making people wait or by denying treatment altogether, especially for the elderly.

That was clearly and nicely illustrated in the British motion picture The Best Exotic Marigold Hotel (2012). In an opening scene an elderly woman is lying on a gurney in a hospital corridor. She calls for a nurse, and tells her she has been lying there for hours without attention and wants to see a doctor. The nurse says the doctor has seen you, and points out a very dark-skinned man in a suit looking at papers down the hall. The patient says pointedly, “I mean an English doctor.” The nurse replies that she will send one right over.

In short order a handsome man, obviously East Indian, comes to the lady and addresses the patient in impeccable English, saying he has looked at her chart and she needs a hip replacement. I know that says the lady, when can I have it done? I am in terrible pain. The physician says there will be a six month wait, but there is a way to speed things up. The lady says how? In the next scene she is getting on an airline flight to India, where in fact she has the hip replacement almost immediately.

David Goldhill proposes several solutions to the health care crisis, including the following.

1. First and foremost, getting health care off its island and eliminating the role of the surrogates by turning over to individuals the function of paying consumer that operates off the island.
2. Making available true insurance, that is insurance for medical catastrophes, not routine care. At the time of writing his book, Goldhill said, correctly, that true catastrophic insurance was not available in most states. The anticipated cost of true catastrophic insurance (he calls it Tru-Cat) would be a small fraction of the cost of most medical insurance that Americans have.
3. Change the tax laws so that individuals who do not have employer-provided insurance are not disadvantaged vis-à-vis persons who get insurance through employment.
4. If a tax benefit for medical costs is deemed part of our social order, then Health Savings Accounts (HSAs) should be increased in scope. They exist already but their scope is quite limited. Individuals would have a tax deduction for funding their HSAs, and could take the money out tax free to pay medical expenses.
5. Goldhill suggests that payments into HSAs be compulsory, whether it is an employer or an employee who funds the HSAs.
6. In a most original and creative solution to another problem, Goldhill considers the situation of a person whose routine medical expenses exceed both his HSA account balance and his other liquid assets. He suggests that such people could find commercial loans given against the security of the mandatory future contributions to an HSA. While this could become feasible it would take some working out. But working out seemingly unusual arrangements is the strong point of a free market, so there is reason to take this idea seriously.
7. For those economically disadvantaged people who cannot afford even cheap Tru-Cat insurance and cannot afford to fund HSAs Goldhill believes that the federal state ought to pay for such insurance and fund their HSAs. The expense of doing so appears likely to be far, far less than the amount currently spent on the Medicaid program for low income people.

The post America’s health care catastrophe first appeared on Capitalism: The Liberal Revolution.

According to the U.S. Consumer Price Index the purchasing power of a dollar in 2013 is the same as six cents ($0.06) in 1933. ¹ Over that 80-year period beginning in 1933 deliberate dollar debasement has raised the price of real assets in dollar terms. For example, our prior blog post said that the price of gold is up from an ounce to ,600 an ounce (as of late March 2013) ²  and the price per barrel of crude oil is up from $1 to $93. Gold is no scarcer in 2013 than in 1933.

Between August 2001 and August 2011 the price of gold in U.S. dollars rose 633%, from $256 an ounce to $1,876 an ounce. That sensational increase in market price started relatively gradually, with a 75% rise from August 2001 to August 2005. Entrepreneurs in the financial service industries sought to take advantage of the heightened interest in precious metals by creating new financial “products” to sell to the public, such as the ETFs (exchange traded funds) for gold and silver started respectively in 2004 and 2006.

Since August of 2011 the U.S. dollar price of gold is down about 25% with about two-fifths (40%) of the 25% decline occurring in the five weeks beginning March 22, 2013. Rises and falls of such magnitude are part and parcel of the stock market, but Americans had not experienced in recent years such downside volatility in the market for precious metals.

Contemporaneously the stock market is rising—doubling off its lows reached at the nadir of the stock market crash of 2008-2009, a crash that was part of the financial crisis that erupted in 2007-2008. The recent decline in the price of precious metals is a shock to those Americans who only recently began to consider precious metals as an alternative to fiat money dollars and debt securities denominated in dollars, especially since the stock market has been rising while precious metals prices have been falling.

Accordingly, we reproduce here some words of wisdom on this subject—gold price downside volatility—from Darren Pollock and David Horvitz of Cheviot Value Management, LLC (Cheviot). That firm was co-founded in 1985 by Frederic G. Marks, author of the prior post entitled “Your Money and Your Life,” and proprietor of the website of which it is a part. These comments are quoted from communications by Darren and David to Cheviot clients including the firm’s most recent newsletter, which can be viewed at http://cheviotvalue.com/ ³

Since 2007 the number of Americans unemployed is higher by 97% at 13.2 million, the prior twelve months’ Federal deficit of $975 billion is up tenfold compared with the 2007 figure, total U.S. debt outstanding climbed by 82% to $16.4 trillion, and, sadly, the number of impoverished Americans is 33% higher than six years ago. The labor participation rate (the percentage of those working out of those who would like to work) is at a 34-year low. This rate is far more accurate in portraying the health of the employment market because, unlike the unemployment rate, it does not ignore the millions of Americans who have ceased to look for work.

In its latest 10-year projection, the Congressional Budget Office (“CBO”) predicts for the next few years a rather optimistic scenario of strong economic growth, plus low rates of interest and inflation to lessen—yet still not eliminate—the annual U.S. deficit. Interestingly, the CBO’s ten-year projection a decade ago, in 2003, was for a cumulative surplus of $2.3 trillion. What the U.S. experienced instead was a cumulative deficit of $7.1 trillion.

How can anyone realistically expect the U.S. to grow its way out of debt, given that during its heyday of economic expansion, the U.S. debt nearly tripled from 1991 to 2007 and today’s debt is far larger at $16.8 trillion? Even the CBO, whose prior predictions were far too optimistic, expects the debt level to climb above $26 trillion by 2023.

Throughout economic history, countries in this predicament have had a few choices.

1. Attempt to grow out of the debt.

2. Employ austerity measures to eliminate deficits.

3. Default on the debt by overtly paying creditors back less than face value on their debt, a policy that is akin to an economic act of war that would crush the value of the U.S. dollar

4. Dramatically increase inflation to lessen the burden of existing debt outstanding. Eureka! This cheapening of fiat money, such as the U.S. dollar, and increase in inflation is gradual and hard to see. Compared to the currency devaluations which occur regularly in other countries, the covert path of inflation is the financial equivalent of carbon monoxide. It is silent, colorless, and odorless.

With the Fed suppressing interest rates and monetizing billions of dollars’ worth of U.S. Treasury debt every day, stocks have levitated. “It is very artificial. If you give me a trillion dollars, I’ll show you a good time too and a lot of people are having a good time,” stated expert investor Jim Rogers in a March 28^th CNBC interview. “I’m somewhat skeptical because I know it’s going to end badly.” After prices have risen, the average stock investor wants to get in. Not Rogers: “There are better places to invest than [where prices are reaching] an all-time high.”

Boston-based research firm, Dalbar, Inc. studies the behavior of owners of mutual fund shares and analyzes the discrepancy between the  returns earned by individual shareholders compared to those of the underlying mutual funds to which the individuals commit their funds. Dalbar found that aggregate returns for the shareholders of mutual funds lagged far behind the performance of the mutual funds themselves. Dalbar proved unequivocally that when viewed collectively, individuals—lay and professional alike—buy high and sell low.

The Dalbar study showed that market participants’ behavior revealed regular patterns. Periods of high returns caused increased buying, whereas relative or absolute poor recent performance spurred selling. Whether they know it or not, fear and greed guide the decisions of many market participants, including professional money managers. This lures them into committing their funds to the market more heavily near market tops and withdrawing near bottoms.

Naturally, this emotionally driven activity is one of many sure ways to poor results. The inclination to think of what has happened instead of what might or will happen is a natural human tendency. And these are actions repeated in every market cycle, of every decade, throughout market history. Countless market participants fell prey to what we named “the Dalbar effect” in the years just before the 2000 market crash and again before the 2008 implosion. While market participants clamored for all things tech, telecom, and dot-com ahead of the 2000 wreck, so too were professional and lay persons attracted to anything related to housing stocks and emerging markets (among others) in advance of the 2007-2009 market crash, the greatest crash since the early 1930s. Indeed, greed can dull one’s desire to heed the lessons of financial market history.

Conversely, fear often prevents market participants from holding on through turbulent periods.

Today’s market is the antithesis of what occurred at the depths of the 2008-2009 bear market. Few people wanted to buy then; nearly everyone wants to buy now. The stock market is there to provide us with the opportunity to buy or sell. It is not there to direct us by its often wild behavior. As Warren Buffett wrote in 1988, “Our marketable equities tell us by their operating results—not by their daily, or even yearly, [stock market] price quotations—whether our investments are successful. The market may ignore business success for a while, but eventually will confirm it.”

Even though gold has outperformed most other asset categories during the past decade (notwithstanding its recent price decline), it remains an unloved asset. It has performed well because gold gains relative value when the quantity of money is increased at a rate faster than that of the underlying economic growth. At such times, the U.S. dollar—given that it has not been backed by any quantity of precious metal since 1971—is debased. This eventually fosters price inflation throughout society. While some prices in the economy are already rising (land and property prices are levitating in large part as a function of cheap borrowing costs and the threat of future inflation), many daily prices of goods are not dramatically higher. This is because consumer and producer price inflation follows currency debasement with a lag.

The meager austerity measures in expenditures of the U.S. are doing little to reduce the federal deficit or U.S. debt levels. But they are causing the economy to slow materially. This should lead to continued monetary creation (i.e., debt monetization and currency debasement) by the U.S. Federal Reserve, like other major central banks globally. Japan, all of Europe, the U.K., etc. all face similar problems.

Market historian and investor Jim Grant shared this insight recently: “There’s a distinction to be drawn between a panic when the cause is really the structure of the marketplace and a crash in which the collapsing asset class portends something about the future . . . It seems to me what is intact at this time is the determination of central banks to print their way out of trouble which is terrifically bullish for gold in the long term. So I remain bullish [on gold], though chagrined.” ⁴

There have been major market events throughout history that told us only something about market behavior itself—and nothing about the future. Think of the October 1987 crash in stocks. Market prices fell precipitously in one day but the underlying economy was no different. For those with fortitude, it was a buying opportunity. At the time legendary value investor John M. Templeton stated that the underlying economy was no different, that the companies he owned were little changed, and that he was setting out to make consistent purchases of the very securities that had lost nearly one quarter of their market value that week. A maxim of John M. Templeton is that “The time of maximum pessimism is the best time to buy.”

Those with a sense of history may see much now that is reminiscent of the 1970s, when despite ongoing monetary debasement the price of gold experienced bouts of selling. The Federal Reserve was employing aggressive monetary policies in the wake of the 1973-1974 bear market for stocks. This helped propel stocks higher and, by 1976, market participants were too positive on the economy to find any value in gold. Gold declined dramatically, reaching a bottom on August 25, 1976. However, less than a year later it had nearly doubled and over the ensuing four years, it climbed by more than 700%.

And it should be noted that the monetary policies of the Federal Reserve in the 1970s were quite restrained in comparison with those of the Fed today, and the amount of monetary debasement then was miniscule compared to what the Fed is doing at present.

The post Your Money and Your Life–Part 2 first appeared on Capitalism: The Liberal Revolution.

Introductory comment: Barbara Demick has been doing highly perceptive reporting for The Los Angeles Times from Asia since 2001. She is presently (in 2013) Bureau Chief for the Los Angeles Times in Beijing. Ms. Demick is the author of a book on North Korea, Nothing to Envy: Ordinary Lives in North Korea (2009). In this book and in articles in the Los Angeles Times Ms. Demick reports that nearly 10% of North Koreans died of starvation in the mid-1990s and that hunger still stalks North Korea nearly 20 years later. Due to malnutrition the average height of 18-year old males in North Korea is five inches less than 18-year-old males in South Korea. Study of a variety of reports on North Korea indicates that chronic and perennial food shortages are due to the regime’s rigid enforcement of communist ideology that outlaws entrepreneurial activity in agriculture or any other entrepreneurial activity and punishes such activities by imprisonment and death. National Geographic, in a motion picture documentary entitled “Inside North Korea ” (2009), provides graphic evidence and commentary consistent with Barbara Demick’s reports. ¹ The quotations from the article below are offered to illustrate a theme in the lectures of Andrew J. Galambos, whose work is the basis of the website of which this blog is a part—that tyrants seek to justify their continued rule by actions coupled with propaganda to persuade those being ruled that they need the tyrant for protection from external and internal threats.

In political democracies, too, a principal ideological justification for the existence of what is loosely called “government,” but is called “the state” in CTLR, is the need for central authority to provide national defense. Yet political democracies are notoriously inept at protecting their citizens from external aggression, as evidenced by the collapse of French military resistance under the onslaught of the army of Nazi Germany in 1940 and the initial military successes of the Empire of Japan in its attacks on the United States in the World War II. [What follows is quoted from the above-mentioned article in The Los Angeles Times]

SEOUL–When North Korea last weekend declared it was in a state of war, threatening to use nuclear weapons against South Korea, reduce its presidential palace to ashes and mercilessly sweep away the warmongers, residents of Seoul reacted much as they always do.

They yawned.

Decades of living in the shadow of an erratic, menacing neighbor have made South Koreans almost deaf to the rhetoric from the North. . . “There have been so many threats over a period of time, now I feel indifferent to it all,” said 65-year-old Choi Chang-ho. “I am bored with them. . .”

Over the years, North Korea’s propagandists have lambasted South Koreans as “puppet warmongers,” and with numbing frequency threatened to turn their country into a “sea of fire.” The actual attacks in recent years have been limited but nonetheless deadly. In 2010, North Korea shelled a military base on nearby Yeonpyeong island, killing four South Koreans, and are believed to be responsible for the sinking of a South Korean naval corvette that killed 46. The North Korean regime has prosecuted a continual undeclared war of terrorism against South Korea. ²

The chance of a war with its heavily armed communist neighbor seems too far-fetched for people in Seoul, a modern city of more than 10 million, to affect their busy lives.

“The North Koreans are not living in this world by themselves,” shrugged Kim Soon-ja, 61, at Seoul’s busy main train station this week. “A war won’t erupt that easily . . .”

Hee-yun, a 23-year-old history student in Seoul who asked that his family name not be used, said he felt more angry then anxious about the North Korean regime.

“The North [Koreans] know they don’t have a chance at winning, but still they carry on with their provocations to heighten the diplomatic conflict to turn their internal conflicts to the outside,” he said. “Thus they are trying to strengthen the domestic unity, to continue on with their rule.” [Emphasis added]

The North Korean state, like all tyrannies, claims that the people it rules need the state for protection. However, the North Korean state treats its subjects far worse than the Japanese did in the 35 years (1910-1945) that the Empire of Japan ruled Korea, and Japanese conduct in Korea was at times atrocious.

Comment on the foregoing Barbara Demick article

By causing continual conflict with South Korea and the U.S. the North Korean regime propagandizes its enslaved “citizens” that they need the state to protect them from outsiders who mean to do harm to North Korea.

That is exactly what the Communist Party of the Soviet Union said to citizens of the Soviet Union—outsiders want to conquer and enslave us. Therefore, you need a strong state to protect you.

“Regime” is the correct name for the North Korean state. It is more than just the man at the top who rules in North Korea, although the man at the top is presently the third generation of his family to be the head of the regime. North Korea is ruled by the communist party, its police and its military while the North Korean people live a life of misery.

No one man—not an Adolf Hitler, Joseph Stalin or a Mao Tse-tung—can rule a whole country without the help of confederates who get special privileges in return for their support and their loyalty in carrying out orders from those higher up in the ruling regime. Subordinates in such a regime are kept in constant fear of vicious punishment if they do not display constant and complete loyalty in carrying out the dictates from the top. A particularly hideous example occurred in the “Great Terror” of the Soviet Union of the 1930s when Stalin organized a “purge” of allegedly disloyal and treasonous people within the communist party, the army and throughout society. Millions of people were killed including many of the highest ranking army officers.

Adolf Hitler and Joseph Stalin were unusual among tyrants in that they seemed to be making all the decisions of the regime of which they were the head. In this regard they  wielded power more like European absolute monarchs such as Louis XIV of France (1638-1715) who said, and meant, “l’état, c’est moi”—literally “I am the state.”

Tyrannies since Nazi Germany under Hitler and Russia (the Soviet Union) under Stalin have operated as oligarchies with one man representing the power of the oligarchy, but subject to removal by the rest of the oligarchy.

In summary the North Korean state is like the Mafia, only worse. It runs a “protection racket.” It tells its citizens they need the state to protect them from domestic crime and foreign invasion, when the state itself is the biggest threat to its own citizens.

The North Korean oligarchy continually threatens South Korea and the U.S. to keep relations with these countries strained; the regime then cites the strained external relations as one of the reasons to continue its tight control of North Korean people, a control which is even more strict and merciless than the control of the Communist Party of the Soviet Union was over the Russian people and other ethnic groups under control of the Soviet regime.

The post Techniques of Tyranny—Persuade people they need the tyrant for defense first appeared on Capitalism: The Liberal Revolution.