minority opinion

A War Between Two Worlds

2015-02-01T03:53:00.000+02:00

No easy way out

By George Friedman

The murders of cartoonists who made fun of Islam and of Jews shopping for their Sabbath meals by Islamists in Paris last week have galvanized the world. A galvanized world is always dangerous. Galvanized people can do careless things. It is in the extreme and emotion-laden moments that distance and coolness are most required. I am tempted to howl in rage. It is not my place to do so. My job is to try to dissect the event, place it in context and try to understand what has happened and why. From that, after the rage cools, plans for action can be made. Rage has its place, but actions must be taken with discipline and thought.

I have found that in thinking about things geopolitically, I can cool my own rage and find, if not meaning, at least explanation for events such as these. As it happens, my new book will be published on Jan. 27. Titled Flashpoints: The Emerging Crisis in Europe, it is about the unfolding failure of the great European experiment, the European Union, and the resurgence of European nationalism. It discusses the re-emerging borderlands and flashpoints of Europe and raises the possibility that Europe's attempt to abolish conflict will fail. I mention this book because one chapter is on the Mediterranean borderland and the very old conflict between Islam and Christianity. Obviously this is a matter I have given some thought to, and I will draw on Flashpoints to begin making sense of the murderers and murdered, when I think of things in this way.

Let me begin by quoting from that chapter:

We've spoken of borderlands, and how they are both linked and divided. Here is a border sea, differing in many ways but sharing the basic characteristic of the borderland. Proximity separates as much as it divides. It facilitates trade, but also war. For Europe this is another frontier both familiar and profoundly alien.

Islam invaded Europe twice from the Mediterranean — first in Iberia, the second time in southeastern Europe, as well as nibbling at Sicily and elsewhere. Christianity invaded Islam multiple times, the first time in the Crusades and in the battle to expel the Muslims from Iberia. Then it forced the Turks back from central Europe. The Christians finally crossed the Mediterranean in the 19th century, taking control of large parts of North Africa. Each of these two religions wanted to dominate the other. Each seemed close to its goal. Neither was successful. What remains true is that Islam and Christianity were obsessed with each other from the first encounter. Like Rome and Egypt they traded with each other and made war on each other.

Christians and Muslims have been bitter enemies, battling for control of Iberia. Yet, lest we forget, they also have been allies: In the 16th century, Ottoman Turkey and Venice allied to control the Mediterranean. No single phrase can summarize the relationship between the two save perhaps this: It is rare that two religions might be so obsessed with each other and at the same time so ambivalent. This is an explosive mixture.

Migration, Multiculturalism and Ghettoization

The current crisis has its origins in the collapse of European hegemony over North Africa after World War II and the Europeans' need for cheap labor. As a result of the way in which they ended their imperial relations, they were bound to allow the migration of Muslims into Europe, and the permeable borders of the European Union enabled them to settle where they chose. The Muslims, for their part, did not come to join in a cultural transformation. They came for work, and money, and for the simplest reasons. The Europeans' appetite for cheap labor and the Muslims' appetite for work combined to generate a massive movement of populations.

The matter was complicated by the fact that Europe was no longer simply Christian. Christianity had lost its hegemonic control over European culture over the previous centuries and had been joined, if not replaced, by a new doctrine of secularism. Secularism drew a radical distinction between public and private life, in which religion, in any traditional sense, was relegated to the private sphere with no hold over public life. There are many charms in secularism, in particular the freedom to believe what you will in private. But secularism also poses a public problem. There are those whose beliefs are so different from others' beliefs that finding common ground in the public space is impossible. And then there are those for whom the very distinction between private and public is either meaningless or unacceptable. The complex contrivances of secularism have their charm, but not everyone is charmed.

Europe solved the problem with the weakening of Christianity that made the ancient battles between Christian factions meaningless. But they had invited in people who not only did not share the core doctrines of secularism, they rejected them. What Christianity had come to see as progress away from sectarian conflict, Muslims (and some Christians) may see as simply decadence, a weakening of faith and the loss of conviction.

There is here a question of what we mean when we speak of things like Christianity, Islam and secularism. There are more than a billion Christians and more than a billion Muslims and uncountable secularists who mix all things. It is difficult to decide what you mean when you say any of these words and easy to claim that anyone else's meaning is (or is not) the right one. There is a built-in indeterminacy in our use of language that allows us to shift responsibility for actions in Paris away from a religion to a minor strand in a religion, or to the actions of only those who pulled the trigger. This is the universal problem of secularism, which eschews stereotyping. It leaves unclear who is to be held responsible for what. By devolving all responsibility on the individual, secularism tends to absolve nations and religions from responsibility.

This is not necessarily wrong, but it creates a tremendous practical problem. If no one but the gunmen and their immediate supporters are responsible for the action, and all others who share their faith are guiltless, you have made a defensible moral judgment. But as a practical matter, you have paralyzed your ability to defend yourselves. It is impossible to defend against random violence and impermissible to impose collective responsibility. As Europe has been for so long, its moral complexity has posed for it a problem it cannot easily solve. Not all Muslims — not even most Muslims — are responsible for this. But all who committed these acts were Muslims claiming to speak for Muslims. One might say this is a Muslim problem and then hold the Muslims responsible for solving it. But what happens if they don't? And so the moral debate spins endlessly.

This dilemma is compounded by Europe's hidden secret: The Europeans do not see Muslims from North Africa or Turkey as Europeans, nor do they intend to allow them to be Europeans. The European solution to their isolation is the concept of multiculturalism — on the surface a most liberal notion, and in practice, a movement for both cultural fragmentation and ghettoization. But behind this there is another problem, and it is also geopolitical. I say in Flashpoints that:

Multiculturalism and the entire immigrant enterprise faced another challenge. Europe was crowded. Unlike the United States, it didn't have the room to incorporate millions of immigrants — certainly not on a permanent basis. Even with population numbers slowly declining, the increase in population, particularly in the more populous countries, was difficult to manage. The doctrine of multiculturalism naturally encouraged a degree of separatism. Culture implies a desire to live with your own people. Given the economic status of immigrants the world over, the inevitable exclusion that is perhaps unintentionally incorporated in multiculturalism and the desire of like to live with like, the Muslims found themselves living in extraordinarily crowded and squalid conditions. All around Paris there are high-rise apartment buildings housing and separating Muslims from the French, who live elsewhere.

These killings have nothing to do with poverty, of course. Newly arrived immigrants are always poor. That's why they immigrate. And until they learn the language and customs of their new homes, they are always ghettoized and alien. It is the next generation that flows into the dominant culture. But the dirty secret of multiculturalism was that its consequence was to perpetuate Muslim isolation. And it was not the intention of Muslims to become Europeans, even if they could. They came to make money, not become French. The shallowness of the European postwar values system thereby becomes the horror show that occurred in Paris last week.

The Role of Ideology

But while the Europeans have particular issues with Islam, and have had them for more than 1,000 years, there is a more generalizable problem. Christianity has been sapped of its evangelical zeal and no longer uses the sword to kill and convert its enemies. At least parts of Islam retain that zeal. And saying that not all Muslims share this vision does not solve the problem. Enough Muslims share that fervency to endanger the lives of those they despise, and this tendency toward violence cannot be tolerated by either their Western targets or by Muslims who refuse to subscribe to a jihadist ideology. And there is no way to distinguish those who might kill from those who won't. The Muslim community might be able to make this distinction, but a 25-year-old European or American policeman cannot. And the Muslims either can't or won't police themselves. Therefore, we are left in a state of war. French Prime Minister Manuel Valls has called this a war on radical Islam. If only they wore uniforms or bore distinctive birthmarks, then fighting only the radical Islamists would not be a problem. But Valls' distinctions notwithstanding, the world can either accept periodic attacks, or see the entire Muslim community as a potential threat until proven otherwise. These are terrible choices, but history is filled with them. Calling for a war on radical Islamists is like calling for war on the followers of Jean-Paul Sartre. Exactly what do they look like?

The European inability to come to terms with the reality it has created for itself in this and other matters does not preclude the realization that wars involving troops are occurring in many Muslim countries. The situation is complex, and morality is merely another weapon for proving the other guilty and oneself guiltless. The geopolitical dimensions of Islam's relationship with Europe, or India, or Thailand, or the United States, do not yield to moralizing.

Something must be done. I don't know what needs to be done, but I suspect I know what is coming. First, if it is true that Islam is merely responding to crimes against it, those crimes are not new and certainly didn't originate in the creation of Israel, the invasion of Iraq or recent events. This has been going on far longer than that. For instance, the Assassins were a secret Islamic order to make war on individuals they saw as Muslim heretics. There is nothing new in what is going on, and it will not end if peace comes to Iraq, Muslims occupy Kashmir or Israel is destroyed. Nor is secularism about to sweep the Islamic world. The Arab Spring was a Western fantasy that the collapse of communism in 1989 was repeating itself in the Islamic world with the same results. There are certainly Muslim liberals and secularists. However, they do not control events — no single group does — and it is the events, not the theory, that shape our lives.

Europe's sense of nation is rooted in shared history, language, ethnicity and yes, in Christianity or its heir, secularism. Europe has no concept of the nation except for these things, and Muslims share in none of them. It is difficult to imagine another outcome save for another round of ghettoization and deportation. This is repulsive to the European sensibility now, but certainly not alien to European history. Unable to distinguish radical Muslims from other Muslims, Europe will increasingly and unintentionally move in this direction.

Paradoxically, this will be exactly what the radical Muslims want because it will strengthen their position in the Islamic world in general, and North Africa and Turkey in particular. But the alternative to not strengthening the radical Islamists is living with the threat of death if they are offended. And that is not going to be endured in Europe.

Perhaps a magic device will be found that will enable us to read the minds of people to determine what their ideology actually is. But given the offense many in the West have taken to governments reading emails, I doubt that they would allow this, particularly a few months from now when the murders and murderers are forgotten, and Europeans will convince themselves that the security apparatus is simply trying to oppress everyone. And of course, never minimize the oppressive potential of security forces.

The United States is different in this sense. It is an artificial regime, not a natural one. It was invented by our founders on certain principles and is open to anyone who embraces those principles. Europe's nationalism is romantic, naturalistic. It depends on bonds that stretch back through time and cannot be easily broken. But the idea of shared principles other than their own is offensive to the religious everywhere, and at this moment in history, this aversion is most commonly present among Muslims. This is a truth that must be faced.

The Mediterranean borderland was a place of conflict well before Christianity and Islam existed. It will remain a place of conflict even if both lose their vigorous love of their own beliefs. It is an illusion to believe that conflicts rooted in geography can be abolished. It is also a mistake to be so philosophical as to disengage from the human fear of being killed at your desk for your ideas. We are entering a place that has no solutions. Such a place does have decisions, and all of the choices will be bad. What has to be done will be done, and those who refused to make choices will see themselves as more moral than those who did. There is a war, and like all wars, this one is very different from the last in the way it is prosecuted. But it is war nonetheless, and denying that is denying the obvious.

Forward into the past

2015-01-26T17:11:00.003+02:00

Meanwhile at a small Balkan country

This time is different

2015-01-24T14:30:00.000+02:00

A short comment on Greek elections

The Lunatics Are Running the Asylum

2015-01-23T23:18:00.001+02:00

Draghi’s Money Printing Bazooka

by Author Pater Tenebrarum

The Utterly Absurd Becomes the “New Normal”

“Bankers at the World Economic Forum in Davos are applauding the European Central Bank’s announcement of quantitative easing. Some said they were pleased the ECB’s plan, to buy about €60 billion a month in government bonds, is larger than expected. “It was positive and it was needed,” said Francisco Gonzalez, chairman of Spain’s BBVA. “Having said that, governments have to keep with reforms for the plan to meet its purpose,” he added.”

The ECB surprised markets today by unveiling a slightly larger than expected “QE” program. Yesterday’s leak of the decision referred to money printing to the tune of €50 billion per month, so the actual announcement of a €60 billion per month program was seen as a “positive surprise”. Just think about this for a moment. The charlatans running the central bank announce that they will make a grandiose effort to debase their confetti currency even further by printing a huge amount of additional money every month, and this is greeted as a “positive surprise” and is “applauded by bankers”. It should be glaringly obvious by now that the lunatics are running the asylum.

The Charlatans of Inflationism

We know of a number of people who will be pleased (and will probably begin to cry for even more money printing shortly) – among them is Martin Wolf at the Financial Times. This breeding ground of hoary inflationism has been regaling its readers with long discredited (but quite popular) economic balderdash for several years already. Just prior to the ECB announcement, Mr. Wolf wrote the umpteenth editorial exhorting central bankers to print as much money as possible. In his opening salvo, he commented on the SNB’s wise, if belated, decision to finally stop printing unlimited amounts of Swiss francs to shore up the failing euro. Needless to say, this decision did not please Mr. Wolf.

“These are exciting times in European central banking. Last Thursday the Swiss National Bank suddenly terminated its successful peg to the euro. This week the European Central Bank is expected to announce its program of quantitative easing. The SNB has embraced the risk of deflation from which the ECB wishes to escape.

[…]

Why end a policy that had delivered such enviable stability? The obvious answer is that the SNB feared huge inflation if it remained pegged to the euro, particularly after QE began — and bigger losses on foreign currency assets the later the peg was dropped. Neither fear is compelling, as Willem Buiter, Citigroup chief economist, argues. It is possible to hold down the value of a currency one creates oneself forever. It is true that the SNB’s balance sheet is already large, at about 85 per cent of gross domestic product. But it had stabilised, and as Mr Buiter notes: “There is no technical limit on the size of the central bank’s balance sheet, in absolute terms or relative to GDP.”

This is a case of one charlatan quoting another to buttress his case. Mr. Buiter, it may be remembered, is the man who went as far as invoking the ideas of utter monetary cranks like Silvio Gesell as possible “solutions” to the crisis of 2008 ff., thereby outing himself as a monetary crank as well. This cannot be put in a more polite manner.

Wolf then launches into a presentation of his “better ideas” – quite typical for armchair central planners who feel the constant urge to dispense advice to monetary bureaucrats. In order to avert all the negative consequences of its interventionism, Wolf believes the SNB should not have stopped intervening, but should instead have adopted a long list of additional interventionist measures, so as to “fix” the “unintended consequences” of the initial intervention. Here is one of them that strikes us as especially despicable and typical of the thinking of the statist mountebanks infesting the mainstream financial press nowadays:

“More interesting would have been a decision to go further in the direction of negative interest rates than the minus 0.75 per cent now imposed.

To make such a move stick, the authorities would have had to place limits on withdrawals from bank accounts or move entirely to electronic money, to prevent people from protecting their purchasing power by moving into cash. Needless to say, such radical ideas would horrify the prudent burghers of Switzerland.”

This idea should “horrify prudent burghers” everywhere, not just in Switzerland and Germany. We have seen the idea of banning cash currency mentioned quite frequently in recent years, and we have little doubt that it is a long term goal of the ruling elite. It would be one of the most tyrannical measures of recent memory. A country implementing such a policy could no longer be called “free” by any stretch of the imagination. Wolf wants cash to be banned so as to make it absolutely impossible for people to protect the purchasing power of their savings, while forcing them to keep their money with fractionally reserved banks (i.e., inherently insolvent institutions), whether they want to or not. What a swell guy.

Regarding the ECB and its then still upcoming QE decision, Wolf explains the alleged necessity of the coming money printing orgy as follows:

“QE is going to horrify the burghers of Germany, too. But it must now happen since it is the only way still available for the ECB to meet its definition of price stability. Its credibility is at stake. So, too, is the eurozone’s economy. Everything is fine in Germany. But Germany is not the eurozone. Everything is less fine elsewhere.

The eurozone is in a slump, afflicted by the “chronic demand deficiency syndrome” that is the world economy’s biggest current weakness. Core inflation is 0.7 per cent, far below the ECB target of “below but close to” to 2 per cent. Five-year inflation expectations have fallen to 1.6 per cent.

(emphasis added)

We have no idea why “core inflation” of 0.7 percent or 5 year inflation expectations are supposed to be “too low”. In fact, we believe it is still too high. In a progressing economy, prices should be falling and the real value of incomes should be rising. It is not clear to us why making people poorer by X% every year is supposed to be a boon (more on this further below).

In any case, money supply growth in the euro area was booming already before the QE announcement, so there certainly is plenty of monetary inflation. As can be seen below, the year-on-year growth rate of the euro area’s true money supply has recently accelerated to almost 7.5%. This is a lot less than the double-digit growth rates that accompanied the dangerous boom that blew up so spectacularly in 2008, but it is more than enough to distort prices across the economy and once again lead to malinvestment on a grand scale. This situation is now set to become even worse.

Euro area true money supply (red line), plus year-on-year rate of change (blue line)

The so-called “chronic demand deficiency syndrome” is a figment of Mr. Wolf’s overactive imagination. Consumers have nigh endless demand for all sorts of things. There can never be a problem with demand as long as there are still unsatisfied human wants. The members of the elite who are meeting in Davos this week to discuss such pressing non-issues as “global warming”, have reportedly sashayed there on at least 200 privately owned jets. We are willing to wager that many consumers harbor a demand for a privately owned jet. Their problem is not that their demand is somehow “deficient”. Their problem is that they cannot pay for it.

The policy advocated by Wolf – money printing – can not create a single iota of real wealth. It can only bring about an illusory prosperity by inciting more asset bubbles and even more misallocation of scarce capital. In short, it will destroy wealth rather than creating it. Contrary to what Wolf and others of his ilk seem to believe, wealth is not growing through consumption, but production. Consumption is the goal of production, but it cannot possibly precede it. Keynesians like Wolf are constantly putting the cart before the horse.

Good Keynesian that he is, Wolf doesn’t forget to remind us that not only is more money printing required, but also more deficit spending. Never mind that the euro area faced a near terminal crisis a mere three years ago due to its burgeoning government debt! He does however mention what strikes us as an interesting idea in his final sentence:

Similarly, the resolute opposition of the German establishment to fiscal deficits even when the yield on its own 30-year bonds is 1.1 per cent — virtually free money — hampers the use of fiscal policy throughout the eurozone. The emphasis on the wickedness of debt, regardless of what it costs, is pathological. No other adjective will do.

It is all up to the ECB. It may well fail, not because it is too independent but because it is not independent enough. Similarly, the euro zone may fail, not because of irresponsible profligacy but rather because of pathological frugality. In the end, the ECB must try to do its job. If Germany cannot stand that, it may need to consider its own Swiss exit.

(emphasis added)

So let us get this straight: the euro zone almost blew up in an intractable systemic crisis because market participants realized that there exists no honest way of repaying the public debt that has been amassed. Only by printing money can “confidence” in the ability to support this debt be maintained, i.e., by erecting a Potemkin village of paper claims that is bound to eventually being blown away by a strong gust of wind from the continuum commonly referred to as “reality”.

Germany’s insistence to bring this debt under control is somehow “pathological”? Does Wolf really believe that actors in the economy can be conned with monetary parlor tricks forever and ever? Besides, what evidence is there for “frugality” in euro-land? Euro zone public debt has continued to hit new record highs every year and the debts and deficits of the great majority of member countries are light years from the limits theoretically imposed by the Maastricht treaty.

Lastly, Germany should indeed ponder an exit from the euro area. It does get an export subsidy out of the euro, but frankly, it doesn’t need one. People all over the world would no doubt continue to buy German goods without it. We bet they are not sufficiently “demand deficient” just yet to abandon their desire for the products of German engineering. However, if Germany were to exit the euro zone, who would bail out all the deadbeats? Santa Claus?

We’d actually love to see how a euro-zone without Germany would “work”. Keep in mind that if Germany were to exit, it would be followed within a few days or weeks by several others, such as e.g. Finland and the Netherlands, who don’t wish to be hyper-inflated to the Wolfian version of prosperity.

The Dragon Speaks

Just prior to the QE announcement, Mario Draghi was interviewed by German newspaper “Die Zeit”. This interview was quite interesting and revealing. We learn for instance that Draghi’s inheritance was inflated into nothingness by Italy’s government in the 1970s, because a court instructed the guardian of his siblings to invest the money in “risk free” treasury bills – a fine example of expropriation by financial repression, i.e., precisely the policy Draghi himself now pursues:

Die Zeit: “Didn’t that inflation erode what your father left as inheritance?”

Mario Draghi: “What we inherited was not very large, but enough for his three children to study.The first time I returned to Italy in 1976 I found that the equivalent of a few hundred euros was all that remained of our inheritance. This was because the family court judge had instructed the guardian of my two younger siblings to invest the money in fixed-interest Treasury bills. And that made all the money disappear into thin air.”

Die Zeit: “So you should actually understand why people in Germany are so afraid of inflation.”

Draghi: “That is precisely the point: in Germany, some people say of me – ah, that Italian, he is sure to fuel inflation in the German economy! And I explain to them that their experience of inflation dates back to the 1920s, while mine is far more recent. Those were difficult years.”

What Draghi seemingly doesn’t realize is that inflation of the money supply can act on consumer prices with a very significant lag. It is true that consumer price inflation seems a very distant threat right now, but the more production is undermined by credit bubbles and the bigger the pile of money sitting in accounts becomes, the more likely it becomes that a tipping point will be reached and confidence in the currency evaporates. Then it will however be too late to do anything about it.

Draghi then insists that he is not engaged in financial repression. His policies sure are robbing savers, but that is supposedly “not the intention”:

Draghi: “Let me be clear: central bank policy is not about punishing German savers, and it is not about rewarding weak countries. The European Central Bank’s mandate is to achieve an inflation rate of just below 2% for the euro area as a whole. To fulfill that at this time, it must keep interest rates low and must work towards an expansionary monetary policy which accompanies growth. That’s the point, not punishment or rewards. But sometimes it is hard to explain this to everyone in Germany, including in discussions with some politicians…”

Die Zeit: “What are they saying to you?”

Draghi: “They say: in that way you are removing their incentive to push through reforms.”

Die Zeit: “And isn’t that true? Italy and France are two examples.”

Draghi: “Our job is not and cannot consist of taking on the reform tasks of individual governments – not least since we lack the democratic mandate to do so. Do you believe then that it would be better for German savers if we tried to raise interest rates?”

(emphasis added)

There can be no question that savers are in fact “punished” by these policies and incidentally, their declining incomes actually exert a negative influence on their demand, the very thing Draghi purportedly seeks to revive. As to the fact that loose monetary policy by the ECB removes the incentive for countries like France and Italy to pursue reform, who can doubt it? This is most definitely the case and it will make the next crisis situation all the worse.

Draghi then discusses the “deflation bogey” – never mind that there actually is no deflation in the euro area anyway. In a handful of countries, consumer prices as measured by their governments are declining ever so slightly, but compared to the devaluation of money that preceded this mild decline in prices, it is certainly nothing even worth mentioning.

The “terrible deflation danger” in the euro area as per the harmonized consumer price index.

Draghi not surprisingly employs the same argumets that we keep hearing everywhere else, theories for which no proof exists, but which we are supposed to accept as inviolable and self-evident truths. In reality they are simply long refuted shibboleths of the Keynesian Cult with no visible connection to the real world.

Die Zeit: “Why do we need inflation anyway, even if it is very low?”

Draghi: “Yes, why? We’ve learnt this lesson from Japan. In Japan there wasn’t this 2% objective, and in the 1990s prices began to fall. The problem was not that prices were falling, but that people thought that they would never rise again, they would keep falling further and further. So they stopped buying things, because they thought they could get them even more cheaply at a later date. Production fell, so prices fell even further, and so the economy became slower and slower. We are not in that situation, yet.”

Die Zeit: “That’s what we call deflation.”

Draghi: “Yes, what I described is a negative deflationary spiral. The only thing that counters this is the credibility of our inflation objective — the attainment of which requires the continuation of our expansionary monetary policy.”

Die Zeit: “But you have already given us this expansionary monetary policy!”

Draghi: “Our expansionary monetary policy has already contributed to a turnaround in the growth of loans to firms. But that is not enough. […]”

(emphasis added)

The parallels to Japan worth mentioning are the following: first of all, just like Japan, we have experienced a deeply damaging credit bubble and asset price boom due to previous “expansionary monetary policy”. In other words, Draghi proposes to “fix” the problem by committing the same error again, only on a far grander scale. The other parallel are demographic trends, the graying of society. It should be obvious that for an aging society inflation is especially damaging, as retirees have to live on fixed incomes.

Draghi’s interpretation of what occurred in Japan is encapsulated in these sentences: “So they stopped buying things, because they thought they could get them even more cheaply at a later date. Production fell, so prices fell even further, and so the economy became slower and slower.”

People manifestly do not “stop buying things because prices are falling”. This is an utterly absurd contention. Have falling prices for computers and smart phones kept anyone from buying these items? How is it possible that these are booming growth industries, when the prices of their products are continually declining? Unless Draghi and others making such assertions don’t explain convincingly why this seemingly magical exception to their theory exists, they have no leg to stand on.

Will people stop eating when the price of food is expected to fall? Will they postpone life saving operations because they might cost less next year? Again, the idea that people will stop consuming if consumer prices trend down is neither theoretically nor empirically provable. In fact, it is complete hokum. That overall consumption in Japan has been declining may well have something to do with its demographic situation, but it certainly has nothing to do with the microscopic declines in prices that have occasionally occurred in some years (currently prices are rising at nearly 3% year-on-year in Japan, and consumption has nosedived at the same time – fancy that!).

The idea that prices will then fall even further because “production is declining” makes even less sense. Prices are falling when fewer goods are produced? On which planet? Not on this one, at least not ceteris paribus. If the supply of an item declines while the demand for it remains unchanged, its price will rise, not fall. It is almost as if Draghi has forgotten even the most simple economic concepts. Besides, what does Japan have to show for implementing QE several times, and its government spending money with both hands? Only one thing as far as we are concerned: the fundamental building blocks of a crisis so profound it could eventually take down the entire global economy.

Has Japan become poorer because its currency was strong and prices didn’t rise much? Of course not. What has made the Japanese relatively worse off compared to what could have been are precisely the policies advocated by people like Wolf and Draghi. To be fair, Draghi is not blind to the fact that major economic reform is required, but we will leave you with one more comment he made in the interview that is an even bigger head-scratcher than what has come before:

Die Zeit: So we now have credit with an interest rate close to zero. In addition to that, we now have the unbelievable blessing of falling oil prices that many countries are enjoying, which is not down to you though. Despite all this, the crisis countries are only making slow progress, if at all. Do you not sometimes have your own doubts as to whether your measures are truly working?

Draghi: You see, the falling oil prices are a good thing but to the extent that they have a negative impact on people’s inflation expectations not a good thing at all. The danger is that people may start believing that we will not go back to an inflation rate of 2% very soon, not even in five years and this by itself would have a recessionary effect. Shall I show you what the expectations’ curve for the inflation rate looks like? It is actually astonishing.

(emphasis added)

This is truly the pièce de résistance. Falling oil prices are of course an unalloyed blessing for the euro area, no ifs and buts about it. The euro area imports practically all its oil – i.e., it is purely on the consumption side of the oil trade. Contrary to the US, there is no shale oil industry that will see its junk debt go into default. For every consumer and producer in Europe, major cost savings on a largely non-discretionary expense have just been attained. This will lead to more spending on discretionary items, higher savings rates, bigger profit margins, and so forth.

How on earth can one even think this is bad? How can it possibly have a “recessionary effect”? Who cares about the nonsensical and completely arbitrary 2% inflation target? What’s so great about debasing money’s purchasing power at this rate anyway?

These may seem like rhetorical questions, but we can answer at least one of them: while there is nothing in economic theory that can possibly justify debasing money at an arbitrary percentage every year, such debasement is greatly favoring the current establishment, above all over-indebted governments. Their aim is to confiscate a part of their citizens’ savings through the back door via the “inflation tax” and inflate away the real value of their debt. This is designed to enable them to continue spending and growing the leviathan State. That is really all there is to it.

Incidentally, inflationary policy also redistributes wealth in such a way that the rich become richer and the poor become poorer (it should be obvious that the poorest strata of the population are suffering the most from the devaluation of money), a topic we have discussed extensively before and will no doubt have occasion to revisit again.

Conclusion:

Given that already surging money supply growth rates in the euro area are now bound to increase at an even stronger rate, economic activity as measured by aggregate statistics is bound to pick up eventually. It is always important to keep in mind though that quantitatively measurable “activity” as such is not telling us anything about its quality. The boom prior to the 2008 crisis was also characterized by a measurable increase in “activity”, but as it turned out, most of it was merely a complete waste of scarce capital.

There is no reason to assume that this time will be different. These boom-bust sequences will continue until the economy is structurally undermined to such an extent that monetary intervention cannot even create the illusory prosperity of a capital-consuming boom anymore.

The bankers applauding Draghi’s actions today will come to rue them tomorrow.

Charts by: ECB

Who Killed the Enlightenment?

2015-01-23T04:12:00.000+02:00

The Untold Story

by Brendan O'Neill

There were three terrible things about 9/11.

The first was the apocalyptic barbarism, the destruction of 3,000 innocent lives. The second was the pummeling of the New York City skyline, the greatest thing yet conceived by human minds and constructed by human hands, as outrageous as if a few thousand years ago someone had blown up the pyramids.

And the third was the way this atrocity allowed Western progressives to externalize the threat to our values. To treat the withering of the Western Enlightenment as something brought about by bearded foreigners who seem to have been time-warped from the 7th century.

That third terrible thing about that terrible day might prove to be 9/11’s most toxic legacy. For not only did those plane-weaponizing madmen end lives and take down metal, glass, and concrete structures—they also helped to warp politics itself, inciting onetime critical thinkers to ditch the thought in favor of simplistically reciting that they, like an exotic virus, are destroying our values.

With 9/11, Westerners of a liberal, democratic bent seemed finally to find an answer to that most troubling question: “Who killed the Enlightenment?”

It was Islamists. Outsiders. Extremists under the spell of faraway death cults. If we in the actual West bear any bit of responsibility, apparently it’s only insofar as we have “appeased Islamism”—that is, facilitated them, the destroyers of liberal values. Sadly—tragically—this is the wrong answer to the question of who killed the Enlightenment, and we’ll pay a high price for answering incorrectly.

In many ways, 9/11 was a good thing for the beleaguered liberals of the West, for it meant they could finally put a name and face to what had until then been an amorphous, elusive phenomenon: the slow-motion, Ballardian death of Western reason.

There suddenly appeared to be some agency behind the walloping of the modern ideals of tolerance, liberty, and democracy, and it was a brilliantly ugly agency, all long beards and wagging fingers. The reason so many Western liberals describe 9/11 as a turning point, a personal wake-up call, is because it’s the moment their niggling concerns about the undermining of Enlightenment values were finally given some clarity—a narrative, even. And the fact that the narrative is wrong? Don’t mention that.

The post-9/11 urge to externalize the threat has been much in evidence since the Charlie Hebdo massacre. Everywhere one turns, there are concerned Westerners, of both the right-wing and left-wing varieties, projecting the collapse of their value system onto three psychos with guns. We have not been “robustly confronting the cancer in our midst,” says British columnist Richard Littlejohn in the Daily Mail. This is what must be done to destroy the foreign body attacking the liberal Western nervous system: “[C]lose down Islamist websites … shut down mosques and religious schools which foment terrorism; prosecute and deport foreign hate preachers.” This, apparently, will resuscitate our flagging liberalism.

In the Daily Telegraph, Allison Pearson bemoans Muslim communities’ “grievance narrative” (as though Muslims were the only adherents of the culture of complaint and self-esteem-stroking censorship), and says this narrative is damaging “European nations which afford [us] remarkable freedoms and benefits.” She slams the non-Westerners who demand “ever more shrilly that we bow to [their] worldview.” So they are forcing us to bend our once-enlightened knee at the altar of intolerance and backwardness.

Another angry observer, Ian O’Doherty, said after Charlie Hebdo that “those who don’t like freedoms can return to the repressive countries they love so much.” Too many of us are bowing at the “altar of appeasement.” It’s time we “took our heads out of the sand” and told the extremists to “f*** off.” This, apparently, will allow us to get our values and liberties back into rude health.

The outsourcing of the West’s crisis of meaning can be seen in the way our leaders respond to Islamist outrages. In France and Britain, the Charlie Hebdo massacre has been swiftly followed by campaigns to cure or expunge the foreign bodies allegedly eating our Enlightenment. French leaders accuse Islamists of undermining the Republic and everything it stands for. The British PM, David Cameron, gave the nod to the writing of a letter to Islamic leaders across the UK, calling on them to encourage their followers to embrace British values. Pretty much every brow-furrowed liberal says the same thing: Islam needs to have an Enlightenment, and quick.

Does it? Maybe. Who knows? But one thing I do know is that all this talk of Islam’s need to get enlightened is a displacement activity of gobsmacking proportions. It masks as a clash of civilizations what is in truth a clash—or rather a corrosion—within one civilization: the Western one, the once enlightened one, the one that lost its way and its values and its liberal, democratic soul when those Charlie Hebdo killers were still in nappies.

To hold Islamism, and the Western fools who apologize for it, responsible for the moral and spiritual disarray of the West is to ignore the funk our societies had sunk into long before 9/11. In fact, it gets things the wrong way round. The medieval death-wishers with planes and bombs are not the authors of the Enlightenment’s demise—they are the beneficiaries of it, coming after it, and from it.

Who killed the Enlightenment? We did. Universities did. Relativists did. Multiculturalists did. Environmentalists did. Schools did. Politicians did. No external cancer was needed to pollute the Western body; it was already sick.

For years before 9/11, the Western academy—once charged with upholding the best of human knowledge—had been promoting the noxious notion that the Enlightenment was a con, a bizarre and human-centric elevation of reason over emotion, of knowing stuff over being an ignorant asshole, which is apparently as admirable a way to life your life as being a professor of Goethe.

For years, the environmentalist strain in the West had been redefining mankind as a toxin, a pollutant, an arrogant son of a bitch who believes he has the right to “extract nature’s secrets” (Francis Bacon).

For years, illiberal liberals in the West—leftists, feminists, students, politicians—had been chipping away at tolerance and freedom of speech, passing vast swathes of hate-speech legislation, which in Europe has been used to criminalize preachers who don’t love homosexuality, actresses who aren’t huge fans of Islam, and Tweeters who badmouth footballers.

For years, the multiculturalism industry in the West promoted the idea that no culture is superior to any other and thus all must be celebrated and none ridiculed.

Thus were the Enlightenment values of knowledge, reason, liberty, and universalism pounded and weakened, not by weird men in robes but by well-educated Westerners in chinos and maxi dresses.

And it is out of this mush made by us that al-Qaeda emerges. Or at least, it’s this mush that al-Qaeda exploits, to great effect. Just read these people’s statements. Osama bin Laden slammed the West for “destroy[ing] nature with your industrial waste and gasses,” sounding like an especially angry Greenpeace person. He railed against the “greed and avarice of … major corporations.” He said the West must institute a “check on the freedom of your words,” echoing every “no-platforming” student and word-policing feminist of the Western world.

Or listen to some of the youths who’ve run off to join the Islamic State. They holler about the stuff-ism of Western consumer society, asking: “Are you willing to sacrifice the fat job you’ve got, the big car you’ve got?”

Al-Qaeda, IS, or whatever this strain of weirdly modern antimodernism is calling itself these days, is the residue of the Enlightenment’s death, not the cause of it. The embodiment of the West’s destruction of its own values is turning our own relativism, our non-judgmentalism, our illiberalism, and our fear of modernity against us, with violence this time. It’s Occupy with guns, environmentalism with bombs, multiculturalism with murderous intent.

The Charlie Hebdo massacre summed this up amazingly. What was the true sentiment behind this massacre of cartoonists? That no one has the right to judge other cultures and everyone must check “the freedom of his words.”

If that sounds familiar, it’s because it has been the organizing principle of the post-Enlightenment West for decades, a central plank of the relativistic cult of multiculturalism and the speech-policing scourge of political correctness. Those killers did not poison the modern West; they made real, in flesh and blood—so much blood—the modern West’s own warped and illiberal outlook.

This is why so many Western liberals desperately cling to the narrative of a new world war being launched by Islamists against our liberal universe; why they become so animated by talk of Islamist plots; why they devote so much energy to talking about a cancer from afar that has infected the West. Because it’s easier by far to fantasize that foreign bodies destroyed the Enlightenment than to face up to the terrifying, unpalatable reality: that the Enlightenment was in fact done in by your colleagues, your associates, your friends, you.

CENSORSHIP IS BEING OUTSOURCED TO THE MOB

2014-07-07T04:42:00.000+03:00

Two recent cases Down Under show how dangerous Twittermobs can be.

By BRENDAN O’NEILL

One of the curious things about the twenty-first-century West is that it feels deeply censorious even though, historically speaking, there isn’t a huge amount of state censorship. Yes, many Western societies have anti-‘hate speech’ laws, debate-choking defamation statutes, and a host of methods for regulating the raucous press, all of which limit how daring or just downright offensive we can be. But we don’t exactly live under nightmarish Orwellian regimes that pass laws explicitly designed to silence political opinions, or to punish anti-Christ iconoclasm, or to criminalise people found in possession of indecent novels or art. How do we explain the existence of an almost unprecedented culture of censoriousness in the absence of too much old-style state censorship?

It’s because censorship has been outsourced to the mob. Censorship is alive and well; it’s just that today it is enforced, not so much by brute law and the copper’s boot, but by mobs of self-styled guardians of acceptable thought.

The illiberal job that was once done by the state and its offshoots - the policing of thought and the punishment of outré speech - is now increasingly done by informal intolerant networks. Outsourcing has been all the rage among Western states in recent years. They’ve outsourced responsibility for aspects of policing, for the guarding of prisoners, even for the fighting of wars, as we saw with the use of mercenary outfits in the West’s conquering of Iraq. Now, the moral authority to decree what can and can’t be uttered in the public sphere has been outsourced, too, passed from the government to moral lynch mobs, noisy cliques of non-state censors. The relatively small amount of explicit state censorship today shouldn’t be taken as a sign that we live in a more free society, but rather speaks to something quite terrifying - that the state doesn’t really need to enact laws that police our words at a time when there are so many mobs willing to do that dirty work on its behalf.

In Australia over the past week, there have been two striking examples of outsourced censoriousness, which reveal how this new phenomenon works and how damaging it can be.

In the first case, a Georgian opera singer, Tamar Iveri, was hounded out of Opera Australia (OA) after it was revealed she once made homophobic comments on her Facebook page. Ms Iveri had been due to perform in OA’s production of Otello, which opens in Sydney next month. But then someone exposed that, a year ago, she had said on FB that she was glad Georgian protesters had spat on Gay Pride marchers in Tbilisi, and had asked the Georgian president not to let into Georgia what she called the ‘West’s faecal masses’ - that is, homosexuals. Oz’s left-leaners, small-L liberals and artsworld inhabitants decided that such a person was not fit to perform in Australia, and so they used their considerable influence - their newspaper columns, their social-networking pages, the financial leverage of their patronage of the arts, which they made clear could be withdrawn - to put pressure on OA to drop Ms Iveri. They won. Ms Iveri was cast out, dumped by OA on the basis that her views were ‘unconscionable’. And thus was Australian opera made morally pure once more.

Read more : http://www.spiked-online.com/freespeechnow/fsn_article/censorship-is-being-outsourced-to-the-mob#.U7ima9fg_h4

Incredible confusions, Part 2

2014-07-06T04:40:00.001+03:00

Of interest and the dangerous habit of suppressing it

By Detlev Schlichter

The idea that the charging of interest is unethical and should be banned has a long tradition in the history of human civilisation. It seems to have played a role at some point in all the major religions, certainly in Christianity, Judaism and Islam, and it is today promoted most strongly by advocates of Islamic banking.

As an economist I cannot (and should not) comment on matters of religion. Religion and economics deal with completely different aspects of human existence. Religion is about ‘ultimate ends’ and ‘personal values’. Economics does not deal with ends but with means. Economics does not tell anybody what his or her values should be. Contrary to what is frequently claimed – usually by those who do not understand economics – economics does not tell you that you should strive for more material goods and more services at your disposal.

But it so happens that we live in a world in which most people have personal aims or goals that involve having at least a certain material wealth, and in which most people prefer the possession of more material goods to less material goods; and the science of economics – for economics is a science, and in fact an objective, wertfreie (value-free) science – can then explain why people have a better chance of achieving these (material) aims if they use such social institutions as the division of labor, private property, trade, money, and many others. Additionally, the science of economics can show how these social institutions work, demonstrate the laws and regularities inherent in them, and can develop rules for their most appropriate use. Economics is purely about the means of social cooperation for the attainment of material goals. It never concerns itself with ultimate ends.

If most of the population became Buddhist monks tomorrow and would lose any interest in accumulating material wealth, would happily withdraw into monasteries and dedicate themselves to meditation, none of the principles and laws of economics would have suddenly become less true or invalid. The law of comparative advantage as articulated by David Ricardo would be as true on that day as on any other. The laws of economics would still apply just as the laws of gravity would. Of course, the interest in economic studies would probably diminish rapidly but that is all. Or, not quite all: Society would also be rapidly impoverished in material terms – even to the point of mass starvation –, and this the economist can ascertain with certainty, although nothing can be said about any compensating gains in spiritual wealth, of course.

If you believe that your God demands that if you lend money you should not charge interest, than there is nothing that I, as an economist, can say to you – other than, maybe, give me a call whenever you have some extra cash. The point at which I can – and should – comment is when you were to claim in addition that the observance of this rule would lead to a more stable and better functioning economy, that the non-charging of interest would not diminish society’s wealth but even increase it, or that the resulting economic structure would at least conform better to some generally accepted notion of fairness. Here we have reached a point where debate has become possible, not because I, as an economist, have intruded onto the religious ground of values and ultimate ends but because the advocate of religion has intruded onto the economists’ ground of the study of the laws for wealth creation.

Incredible confusions Part 1

2014-07-03T03:48:00.000+03:00

‘Positive Money’ and the fallacy of the need for a state money producer

By Detlev Schlichter

I am usually inclined to encourage the inquiry of the fundamental aspects of money and banking. This is because I tend to believe that only by going back to first principles is it possible to cut through the thicket of widely accepted but deeply flawed theories that dominate the current debate in mainstream media, politics and the financial industry. From my own experience in financial markets I can appreciate how convenient and tempting it is in a business context, where quick and easy communication is of the essence, to adopt a certain, widely shared set of paradigms, regardless of how flimsy their theoretical foundations. Fund managers, traders and financial journalists live in the immediate present, preoccupied as they are with what makes headlines today, and they work in intensely collaborative enterprises. They have neither the time nor inclination to question the body of theories – often no longer even perceived as ‘theories’ but considered accepted common wisdom – that shapes the way they view and talk about the outside world. Thus, erroneous concepts and even outright fallacies often remain unquestioned and, by virtue of constant repetition, live comfortably in the bloodstream of policy debates, economic analysis, and financial market reportage.

This goes a long way in explaining the undeserved survival of a number of persistent modern myths: deflation is the gravest economic danger we face; Japan has been crippled by deflation for years and would grow again if it only managed to create some inflation; lack of ‘aggregate demand’ explains recessions and must be countered with easy monetary policy; and money-printing, as long as it does not lead to higher inflation, is a free lunch, i.e. we can only expect good from it. None of these statements stand up to scrutiny. In fact, they are all utterly absurd. Yet, we can barely open a newspaper and not have this nonsense stare us in the face, if not quite as bluntly as stated above, than at least as the intellectual soil from which the analysis or commentary presented has sprung. Deep-rooted misconceptions can only be dismantled through dissection of their building blocs and a discussion of basic concepts.

The dangers of going back to basics

However, going back to basics and to first principles, analyzing critically the fundamental aspects of our financial system, is not free of danger. Here, too, lies a minefield of potentially grave intellectual error, and when things go wrong here, at the basic level, the results and policy recommendations derived from such analysis are bound to be nonsensical too, if not even more nonsensical than what the mainstream believes. In this and the following essays I am going to address some of the erroneous notions at the fundamental level of money and banking that seem to have gained currency in the public debate of late.

I get periodically confronted with these confusions through readers’ comments on my website. Some of the questions and suggestions expressed there reveal the same, or very similar, errors and misunderstandings, and these often seem to have their origin in other publications circulating elsewhere on the web. Among them are the following fallacies, in no particular order:

§ The idea that the charging of interest, or in particular the charging of interest on money, is a fundamental problem in our financial system.

§ The notion that there must be a systematic shortage of money in the economy because banks, through fractional-reserve banking, bring into circulation only amounts of money equivalent to the principal of the loans they create but not the necessary amount to pay the interest on these loans.

§ The notion that it is a problem that money-creation is tied to debt-creation (again, as a consequence of fractional-reserve banking) and that it would be possible and advantageous to have the state issue money directly (debt-free) rather than have the banks do it.

§ The idea that schemes are feasible that allow the painless shrinkage or even disappearance of the national debt.

All these ideas are nonsensical, based on bad economics and fundamental logical flaws, and to the extent that they entail policy proposals, these policies, if enacted, would not only not give us a stable and more prosperous economy but would surely lead to new instabilities or even outright chaos.

None of these misconceptions originate, or even resonate, as far as I can tell, with the ‘mainstream’. The mainstream– the financial market professionals, the central bankers, financial regulators, and the media – remain resolutely uninterested in dealing with fundamental questions of money and banking for the reasons given above. Here, the discussion continues to centre on how the economy can be ‘stimulated’ more, what ‘unconventional’ policies the central banks may still have up their sleeves, and if the central banks need new targets or better central bankers. Icebergs or no icebergs, these deckchairs need re-arranging.

The Great War And Its Terrible Aftermath

2014-06-30T03:47:00.000+03:00

Sarajevo Is The Fulcrum Of Modern History

By David Stockman

One hundred years ago today the world was shook loose of its moorings. Every school boy knows that the assassination of the archduke of Austria at Sarajevo was the trigger that incited the bloody, destructive conflagration of the world’s nations known as the Great War. But this senseless eruption of unprecedented industrial state violence did not end with the armistice four years later.

In fact, 1914 is the fulcrum of modern history. It is the year the Fed opened-up for business just as the carnage in northern France closed-down the prior magnificent half-century era of liberal internationalism and honest gold-backed money. So it was the Great War’s terrible aftermath—–a century of drift toward statism, militarism and fiat money—-that was actually triggered by the events at Sarajevo.

Unfortunately, modern historiography wants to keep the Great War sequestered in a four-year span of archival curiosities about battles, mustard gas and monuments to the fallen. But the opposite historiography is more nearly the truth. The assassins at Sarajevo triggered the very warp and woof of the hundred years which followed.

The Great War was self-evidently an epochal calamity, especially for the 20 million combatants and civilians who perished for no reason that is discernible in any fair reading of history, or even unfair one. Yet the far greater calamity is that Europe’s senseless fratricide of 1914-1918 gave birth to all the great evils of the 20^th century— the Great Depression, totalitarian genocides, Keynesian economics, permanent warfare states, rampaging central banks and the exceptionalist-rooted follies of America’s global imperialism.

Indeed, in Old Testament fashion, one begat the next and the next and still the next. This chain of calamity originated in the Great War’s destruction of sound money, that is, in the post-war demise of the pound sterling which previously had not experienced a peacetime change in its gold content for nearly two hundred years.

Not unreasonably, the world’s financial system had become anchored on the London money markets where the other currencies traded at fixed exchange rates to the rock steady pound sterling—which, in turn, meant that prices and wages throughout Europe were expressed in common money and tended toward transparency and equilibrium.

This liberal international economic order—that is, honest money, relatively free trade, rising international capital flows and rapidly growing global economic integration—-resulted in a 40-year span between 1870 and 1914 of rising living standards, stable prices, massive capital investment and prolific technological progress that was never equaled—either before or since.

During intervals of war, of course, 19^th century governments had usually suspended gold convertibility and open trade in the heat of combat. But when the cannons fell silent, they had also endured the trauma of post-war depression until wartime debts had been liquidated and inflationary currency expedients had been wrung out of the circulation. This was called “resumption” and restoring convertibility at the peacetime parities was the great challenge of post-war normalizations.

The Great War, however, involved a scale of total industrial mobilization and financial mayhem that was unlike any that had gone before. In the case of Great Britain, for example, its national debt increased 14-fold, its price level doubled, its capital stock was depleted, most off-shore investments were liquidated and universal wartime conscription left it with a massive overhang of human and financial liabilities.

Yet England was the least devastated. In France, the price level inflated by 300 percent, its extensive Russian investments were confiscated by the Bolsheviks and its debts in New York and London catapulted to more than 100 percent of GDP.

Among the defeated powers, currencies emerged nearly worthless with the German mark at five cents on the pre-war dollar, while wartime debts—especially after the Carthaginian peace of Versailles—–soared to crushing, unrepayable heights.

In short, the bow-wave of debt, currency inflation and financial disorder from the Great War was so immense and unprecedented that the classical project of post-war liquidation and “resumption” of convertibility was destined to fail. In fact, the 1920s were a grinding, sometimes inspired but eventually failed struggle to resume the international gold standard, fixed parities, open world trade and unrestricted international capital flows.

Only in the final demise of these efforts after 1929 did the Great Depression, which had been lurking all along in the post-war shadows, come bounding onto the stage of history.

Read more at : http://davidstockmanscontracorner.com/sarajevo-is-the-fulcrum-of-modern-history-the-great-war-and-its-terrible-aftermath/

This time is really, but really, different

2014-06-25T06:00:00.000+03:00

These Fake Rallies Will End in Tears

By Detlev S Schlichter

Investors and speculators face some profound challenges today: How to deal with politicized markets, continuously “guided” by central bankers and regulators? To what extent do prices reflect support from policy, in particular super-easy monetary policy, and to what extent other, ‘fundamental’ factors? And how is all this market manipulation going to play out in the long run?

It is obvious that most markets would not be trading where they are trading today were it not for the longstanding combination of ultra-low policy rates and various programs of ‘quantitative easing’ around the world, some presently diminishing (US), others potentially increasing (Japan, eurozone). As major U.S. equity indices closed last week at another record high and overall market volatility remains low, some observers may say that the central banks have won. Their interventions have now established a nirvana in which asset markets seem to rise almost continuously but calmly, with carefully contained volatility and with their downside apparently fully insured by central bankers who are ready to ease again at any moment. Those who believe in Schumpeter’s model of “bureaucratic socialism”, a system that he expected ultimately to replace capitalism altogether, may rejoice: Increasingly the capitalist “jungle” gets replaced with a well-ordered, centrally managed system guided by the enlightened bureaucracy. Reading the minds of Yellen, Kuroda, Draghi and Carney is now the number one game in town. Investors, traders and economists seem to care about little else.

“The problem is that we’re not there [in a low volatility environment] because markets have decided this, but because central banks have told us…” Sir Michael Hintze, founder of hedge fund CQS, observed in conversation with the Financial Times (FT, June 14/15 2014) [1]. “The beauty of capital markets is that they are voting systems, people vote every day with their wallets. Now voting is finished. We’re being told what to do by central bankers – and you lose money if you don’t follow their lead.”

That has certainly been the winning strategy in recent years. Just go with whatever the manipulators ordain and enjoy rising asset values and growing investment profits. Draghi wants lower yields on Spanish and Italian bonds? — He surely gets them. The U.S. Fed wants higher equity prices and lower yields on corporate debt? — Just a moment, ladies and gentlemen, if you say so, I am sure we can arrange it. Who would ever dare to bet against the folks who are entrusted with the legal monopoly of unlimited money creation? “Never fight the Fed” has, of course, been an old adage in the investment community. But it gets a whole new meaning when central banks busy themselves with managing all sorts of financial variables directly, from the shape of the yield curve, the spreads on mortgages, to the proceedings in the reverse repo market.

Is this the “new normal”/”new neutral”? The End of History and the arrival of the Last Man, all over again?

The same FT article quoted Salman Ahmed, global bond strategist at Lombard Odier Investment Managers as follows: “Low volatility is the most important topic in markets right now. On the one side you have those who think this is the ‘new normal’, on the other are people like me who think it cannot last. This is a very divisive subject.”

PIMCO’s Bill Gross seems to be in the “new normal” camp. At the Barron’s mid-year roundtable 2014 (Barron’s, June 16, 2014) he said: “We don’t expect the party to end with a bang — the popping of a bubble. […] We have been talking about what we call the New Neutral — sluggish but stable global growth and continued low rates.”

In this debate I come down on the side of Mr. Ahmed (and I assume Sir Michael). This cannot last, in my view. It will end and end badly. Policy has greatly distorted markets, and financial risk seems to be mis-priced in many places. Market interventions by central banks, governments and various regulators will not lead to a stable economy but to renewed crises. Prepare for volatility!

Bill Gross’ expectation of a new neutral seems to be partly based on the notion that persistently high indebtedness contains both growth and inflation and makes a return to historic levels of policy rates near impossible. Gross: “…a highly levered economy can’t withstand historic rates of interest. […] We see rates rising to 2% in 2017, but the market expects 3% or 4%. […] If it is close to 2%, the markets will be supported, which means today’s prices and price/earnings are OK.”

Of course I can see the logic in this argument but I also believe that high debt levels and slow growth are tantamount to high degrees of risk and should be accompanied with considerable risk premiums. Additionally, slow growth and substantial leverage mean political pressure for ongoing central bank activism. This is incompatible with low volatility and tight risk premiums. Accidents are not only bound to happen, they are inevitable in a system of monetary central planning and artificial asset pricing.

Low inflation, low rates, and contained market volatility are what we should expect in a system of hard and apolitical money, such as a gold standard. But they are not to be expected – at least not systematically and consistently but only intermittently – in elastic money systems. I explain this in detail in my book Paper Money Collapse – The Folly of Elastic Money [3]. Elastic money systems like our present global fiat money system with central banks that strive for constant (if purportedly moderate) inflation must lead to persistent distortions in market prices (in particular interest rates) and therefore capital misallocations. This leads to chronic instability and recurring crises. The notion that we might now have backed into a gold-standard-like system of monetary tranquility by chance and without really trying seems unrealistic to me, and the idea is even more of a stretch for the assumption that it should be excessive debt – one of elastic money’s most damaging consequences – that could, inadvertently and perversely, help ensure such stability. I suspect that this view is laden with wishful thinking. In the same Barron’s interview, Mr. Gross makes the statement that “stocks and bonds are artificially priced,” (of course they are, hardly anyone could deny it) but also that “today’s prices and price/earnings are OK.” This seems a contradiction to me. Here is why I believe the expectation of the new neutral is probably wrong, and why so many “mainstream” observers still sympathize with it.

1. Imbalances have accumulated over time. Not all were eradicated in the recent crisis. We are not starting from a clean base. Central banks are now all powerful and their massive interventions are tolerated and even welcome by many because they get “credited” with having averted an even worse crisis. But to the extent that that this is indeed the case and that their rate cuts, liquidity injections and ‘quantitative easing’ did indeed come just in time to arrest the market’s liquidation process, chances are these interventions have sustained many imbalances that should also have been unwound. These imbalances are probably as unsustainable in the long run as the ones that did get unwound, and even those were often unwound only partially. We simply do not know what these dislocations are or how big they might be. However, I suspect that a dangerous pattern has been established: Since the 1980s, money and credit expansion have mainly fed asset rallies, and central banks have increasingly adopted the role of an essential backstop for financial markets. Recently observers have called this phenomenon cynically the “Greenspan put” or the “Bernanke put” after whoever happens to lead the U.S. central bank at the time but the pattern has a long tradition by now: the 1987 stock market crash, the 1994 peso crisis, the 1998 LTCM-crisis, the 2002 Worldcom and Enron crisis, and the 2007/2008 subprime and subsequent banking crisis. I think it is not unfair to suggest that almost each of these crises was bigger and seemed more dangerous than the preceding one, and each required more forceful and extended policy intervention. One of the reasons for this is that while some dislocations get liquidated in each crisis (otherwise we would not speak of a crisis), policy interventions – not least those of the monetary kind – always saved some of the then accumulated imbalances from a similar fate. Thus, imbalances accumulate over time, the system gets more leveraged, more debt is accumulated, and bad habits are being further entrenched. I have no reason to believe that this has changed after 2008.

2. Six years of super-low rates and ‘quantitative easing’ have planted new imbalances and the seeds of another crisis. Where are these imbalances? How big are they? – I don’t know. But I do know one thing: You do not manipulate capital markets for years on end with impunity. It is simply a fact that capital allocation has been distorted for political reasons for years. Many assets look mispriced to me, from European peripheral bond markets to U.S. corporate and “high yield” debt, to many stocks. There is tremendous scope for a painful shake-out, and my prime candidate would again be credit markets, although it may still be too early.

3. “Macro-prudential” policies create an illusion of safety but will destabilize the system further. – Macro-prudential policies are the new craze, and the fact that nobody laughs out loud at the suggestion of such nonsense is a further indication of the rise in statist convictions. These policies are meant to work like this: One arm of the state (the central bank) pumps lots of new money into the system to “stimulate” the economy, and another arm of the state (although often the same arm, namely the central bank in its role as regulator and overseer) makes sure that the public does not do anything stupid with it. The money will thus be “directed” to where it can do no harm. Simple. Example: The Swiss National Bank floods the market with money but stops the banks from giving too many mortgage loans, and this avoids a real estate bubble. “Macro-prudential” is of course a euphemism for state-controlled capital markets, and you have to be a thorough statist with an iron belief in central planning and the boundless wisdom of officers of the state to think that this will make for a safer economy. (But then again, a general belief in all-round state-planning is certainly on the rise.) The whole concept is, of course, quite ridiculous. We just had a crisis courtesy of state-directed capital flows. For decades almost every arm of the U.S. state was involved in directing capital into the U.S. housing market, whether via preferential tax treatment, government-sponsored mortgage insurers, or endless easy money from the Fed. We know how that turned out. And now we are to believe that the state will direct capital more sensibly? — New macro-“prudential” policies will not mean the end of bubbles but only different bubbles. For example, eurozone banks shy away from giving loans to businesses, partly because those are costly under new bank capital requirements. But under those same regulations sovereign bonds are deemed risk-free and thus impose no cost on capital. Zero-cost liquidity from the ECB and Draghi’s promise to “do whatever it takes” to keep the eurozone together, do the rest. The resulting rally in Spanish and Italian bonds to new record low yields may be seen by some as an indication of a healing Europe and a decline in systemic risk but it may equally be another bubble, another policy-induced distortion and another ticking time bomb on the balance sheets of Europe’s banks.

Read more at : http://www.financialsense.com/print/contributors/detlev-schlichter/these-fake-rallies-will-end-in-tears

Liberty or Equality?

2014-06-24T04:53:00.002+03:00

The Founding Fathers knew that you can’t have both

by Myron Magnet

With the fulminating on the left about inequality—“Fighting inequality is the mission of our times,” as New York’s new mayor, Bill de Blasio, summed up the theme of his postelection powwow with President Barack Obama—it’s worth pausing to admire anew the very different, and very realistic, modesty underlying Thomas Jefferson’s deathless declaration that all men are created equal. We are equal, he went on to explain, in having the same God-given rights that no one can legitimately take away from us. But Jefferson well knew that one of those rights—to pursue our own happiness in our own way—would yield wildly different outcomes for individuals. Even this most radical of the Founding Fathers knew that the equality of rights on which American independence rests would necessarily lead to inequality of condition. Indeed, he believed that something like an aristocracy would arise—springing from talent and virtue, he ardently hoped, not from inherited wealth or status.

In the greatest of the Federalist Papers, Number 10, James Madison explicitly pointed out the connection between liberty and inequality, and he explained why you can’t have the first without the second. Men formed governments, Madison believed (as did all the Founding Fathers), to safeguard rights that come from nature, not from government—rights to life, to liberty, and to the acquisition and ownership of property. Before we joined forces in society and chose an official cloaked with the authority to wield our collective power to restrain or punish violators of our natural rights, those rights were at constant risk of being trampled by someone stronger than we. Over time, though, those officials’ successors grew autocratic, and their governments overturned the very rights they were supposed to protect, creating a world as arbitrary as the inequality of the state of nature, in which the strongest took whatever he wanted, until someone still stronger came along.

In response, Americans—understanding that “kings are the servants, not the proprietors of the people,” as Jefferson snarled—fired their king and created a democratic republic. Under its safeguard of our equal right to liberty, each of us, Madison saw, will employ his different talents, drive, and energy, to follow his own individual dream of happiness, with a wide variety of successes and failures. Most notably, Federalist 10 pointed out, “From the protection of different and unequal faculties of acquiring property, the possession of different degrees and kinds of property immediately results.” That inequality would be a sign of the new nation’s success, not failure. It would mean that people were really free.

The democratic republic that the American Revolution brought into being, however, contained the seeds of a new threat to natural rights, Madison fretted. Yes, the new nation will operate by majority rule, but even democratic majorities can’t legitimately overturn the fundamental rights that it is government’s purpose to safeguard, no matter how overwhelming the vote. To do so would be just as grievous a tyranny as the despotism of any sultan in his divan. It would be, in Madison’s famous phrase, a “tyranny of the majority.” As Continental Congressman Richard Henry Lee put it, an “elective despotism” is no less a despotism, for all its democratic trappings.

How would such a tyranny occur? Almost certainly, Madison thought, it would center on “the apportionment of taxes.” Levying taxes “is an act which seems to require the most exact impartiality, yet there is perhaps no legislative act in which greater opportunity and temptation are given to a predominant party, to trample on the rules of justice. Every shilling with which they overburden the inferior number is a shilling saved to their own pockets.” How easy for the unpropertied many to expropriate the wealth of the propertied few by slow erosion, decreeing that they should pay more than a proportionate share of the public expenses. How seductive for the multitudinous farmers to levy taxes on the much smaller number of merchants or bankers or manufacturers, while exempting themselves. How tempting for the majority who have debts to transfer money secretly and silently away from the minority who are their creditors by debasing the currency, so that the real value of what they owe steadily shrinks, as Madison well remembered from the ruinous inflation of the Revolutionary War years. And a year before the Constitutional Convention, Madison recalled, the debt-swamped farmers of western Massachusetts had cooked up, in Shays’s Rebellion, still more “wicked and improper” schemes for expropriating the property of others: trying to close the courts at gunpoint to prevent foreclosures on their defaulted mortgages and even demanding the equal division of property.

So as chief architect of the Constitution, designed to give the federal government sufficient power to protect citizens’ basic rights—above all, the power to tax, whose lack under the Articles of Confederation had made the Revolutionary War longer and grimmer than it would have been if Congress had had sufficient means to buy arms and pay soldiers—Madison proceeded with his heart in his mouth, fearful that such augmented power made a tyranny of the majority all the more possible. His main challenge at the Convention, as he saw it, was to guard against precisely that outcome. So while four of the 18 specific powers that Article I, Section 8 of the Constitution gives Congress concern the levying of taxes and the borrowing and coining of money to “provide for the common Defence and general Welfare of the United States”—taxes that “shall be uniform throughout the United States”—eight of the rest deal with spending only for military and naval purposes, while the “general welfare” powers extend only to building post offices and post roads; establishing federal courts; protecting intellectual property by copyrights and patents; and regulating bankruptcies, naturalization, and interstate and foreign commerce. Not content merely to limit and define explicitly the federal government’s power, Madison made sure that the Constitution divided it up among several branches, limiting the power that any single individual or official body could wield and putting each jealously on guard against any other’s attempt to seize a disproportionate share. Moreover, all these officials (except the judges) were elected representatives of the people: they were the agents through whom Americans, who had no rulers, governed themselves.

But why was the liberty that Madison so mightily struggled to protect so precious? Americans knew how grievous its opposite was, both from the enslaved blacks they saw all around them as well as from their knowledge that their own forebears had fled British persecution of non-Anglican Protestants or European persecution of all Protestants, denied even freedom to express their own beliefs. They knew what man could inflict on man. But of all the Founders, Treasury secretary Alexander Hamilton gave the most positive, eloquent, and inspiring answer to that question—though, in fact, he thought that he was answering a question about economics. Illegitimate, orphaned, and poor, Hamilton dreamed big dreams as a teenage clerk, sitting on his countinghouse stool on a small West Indian island whose only business was sugar and slaves. Ambition burned within him, along with a keen but unformed sense of his own talent. He knew he could be something other than he was. But what or how, he didn’t foresee. Maybe a war would come, he daydreamed, and give him his chance.

Read more at : http://www.city-journal.org/2014/24_2_liberty-or-equality.html

Brave New World, Plato’s Republic, and Our Scientific Regime

2014-01-29T00:24:00.001+02:00

The Promise of Progress

By Matthew J. Franck

For much of the Cold War, George Orwell’s novel 1984 eclipsed Aldous Huxley’s earlier work Brave New World. Orwell’s book, published in 1949, seemed to many readers the more apt dystopia for understanding the challenge of totalitarianism, since it could be said to capture the essential character of the regimes on the other side of the Iron Curtain. With the Cold War now long over, and with that era’s public preoccupation with space, military technology, and the physical sciences redirected toward the biological and behavioral sciences and their potential to reshape human beings and society, Huxley’s dark tale has seemed “relevant” again. This is a judgment that would not have surprised its author. Huxley’s latest biographer, Nicholas Murray, explains that when Orwell sent Huxley an early copy of 1984, Huxley wrote back to say “that he had enjoyed it but believed his book [Brave New World] was better prophecy,” with its portrait of a gentler but more effective totalitarianism than Orwell’s “boot smashing down on the face.”

Though Huxley clearly intended his 1932 book as a dystopia, Murray reports that the novel was “popular with American college students in the 1950s” for its portents of sexual liberation, and that the contemporary French novelist Michel Houellebecq, in the words of one of his characters, treats Brave New World as “exactly the sort of world we’re trying to create, the world we want to live in.” Murray himself, whose strong suit is Huxley’s personal life rather than his literary production, plays up the respects in which the novel is a “critique of modern consumerism.” To be sure, there are the planned obsolescence of consumer goods, the conditioned desire for empty recreations, and the replacement of God with the shade of Henry Ford. But this is superficial. A more penetrating view was taken by Rebecca West, who in a 1932 review of the book in the Daily Telegraph called it “the most serious religious work written for some years,” and remarked that in one pivotal scene Huxley had “rewritten in terms of our age the chapter called ‘The Grand Inquisitor’ in The Brothers Karamazov.” (West’s comparison was discussed at length in these pages in Caitrin Nicol’s essay “Brave New World at 75,” Spring 2007.)

But an even more telling comparison can be made — that Brave New World is a modern counterpart to the “city in speech” built by Socrates and his young interlocutors in Plato’s Republic. Whether Huxley saw the similarities himself is far from clear. In neither the “Foreword” added to the 1946 edition nor his lengthy 1958 essay Brave New World Revisited, which is published together with the novel in some editions, does he indicate any consciousness of a parallel. Nor do his Complete Essays (published 2000 – 2002) shed light on this. His biographer Murray mentions no such connection in Huxley’s mind either; nor does his earlier biographer Sybille Bedford. Yet it may not be necessary to confirm any precise authorial intention on Huxley’s part to imitate Plato. Whereas Huxley’s other novels are largely forgotten today by the general public, and his later visits to the themes of Brave New World are those of a crank whose imaginative gifts have deserted him, in writing his greatest work he seems to have been in the grip of an idea larger than himself. Plato’s Socrates tells us in the Apology that when he “went to the poets” to “ask them thoroughly what they meant” in their greatest poems, he found to his surprise that “almost everyone present, so to speak, would have spoken better than the poets did about the poetry that they themselves had made.” For as Socrates said (not without some biting irony) in Plato’s Ion, “all the good epic poets speak all their fine poems not from art but by being inspired and possessed, and it is the same for the good lyric poets.” Perhaps during the mere four months it took Huxley to write Brave New World, he was “possessed” in this way and remained forever unconscious of his debt to Plato.

The Structure of Huxley’s World State

From the first paragraph of the novel, we learn the motto of the World State of Huxley’s imagination: “Community, Identity, Stability.” This brings to mind Socrates’ question to Glaucon in The Republic: “Have we any greater evil for a city than what splits it and makes it many instead of one? Or a greater good than what binds it together and makes it one?” Socrates and Glaucon agree that “that city [is] best governed which is most like a single human being.” In the same vein, the individual in the World State is “just a cell in the social body.” As for stability, described by one of Huxley’s chief characters as “the primal and the ultimate need,” this is something Socrates cannot guarantee regarding his city in speech: he tells his young friends that their city is “so composed” as to be “hard to be moved,” but that “since for everything that has come into being there is decay,” even it will not “remain for all time.” At the end of Brave New World, we have no reason to believe that Huxley’s World Controllers have not conquered the problem of decay. They appear to have achieved a perfectly static perfect justice. But then, unlike the rulers in Socrates’ city — unlike Socrates himself — they have wholly mastered a science that is (in Socrates’ words) “sovereign of better and worse begettings.” For the need to conquer human nature by eugenics is only the most obvious matter where Plato and Huxley meet on common ground. (All quotations from the Republic in this essay are drawn from Allan Bloom’s translation.)

The necessity of eugenics is driven by another principle the two polities have in common: “one man, one art.” Each cell in the social body has its peculiar work to do. As Plato’s Socrates divides his city into three classes — the golden guardians, the silver auxiliaries, and the iron or bronze farmers and artisans — Huxley’s World State has the five classes of Alpha, Beta, Gamma, Delta, and Epsilon. Socrates recognizes that he cannot keep his classes differentiated — hence he cannot keep the city stable — without keeping a “careful ... watch” over the children born to the parents in each class, transferring up and down the social scale those children who are better fitted to be reared in another class than the one into which they were born. Ultimately, with respect to the gold class, Socrates opts for a concerted eugenics program that involves the destruction of marriage and the family and the concealment of every child’s peculiar parentage, with childrearing handed over to a common nursery.

But Huxley does Socrates one better. The World State has completely severed sexual intercourse from procreation. No more viviparous reproduction; instead, the Hatchery and Conditioning Centre has taken over the whole work of producing each generation of citizens. Babies are made there on the assembly line by strictly selected in vitro fertilization and gestation, and their conditioning for their role in life begun even before they are “decanted.” Special lines of “plus” and “minus” models of each class are manufactured, from “Alpha-Plus” to “Epsilon-Minus Semi-Moron.” Descending to even more particularity, they are prepared for their precise adult jobs by doses of chemicals, exposure to heat and cold and other stimuli, and — after decanting — by early-childhood conditioning to like or dislike objects like books and flowers or experiences like darkness or sunshine. But will not the State need many workers identically made to do certain low-class jobs requiring mass manpower? That is solved in part by Bokanovsky’s Process, a method akin to in vitro cloning that can produce as many as ninety-six copies of a single embryo.

In Plato’s city, the sexes are generally equal in their participation in public life and work — but not quite. As Glaucon says to Socrates, they will assign “everything in common” to both sexes, “except that we use the females as weaker and the males as stronger.” Soon thereafter they agree that while there is no art “practiced by human beings in which the class of men doesn’t excel that of women,” yet because there is “no practice relevant to the government of a city that is peculiar to woman,” and “the natures are scattered alike among both” sexes, the women must be educated as the men are and assigned the same duties. Socrates blithely leads Glaucon to neglect even the possibility that there is an art of mothering, and to agree to the joint exercise of the sexes, naked, in their gymnastic training. Conditioning over time, they say, will accustom the male and female guardians to this immodesty. Somehow love of the city will be all they think of when they see what would normally be other objects of their affection.

So also in Huxley’s book, the sexes are in almost entire equality with one another. If with the banishment of viviparous reproduction the word “mother” is now an obscenity, why not? And yet, the equality is not quite complete — we never hear of a female World Controller or other high official. But the bad joke of Socrates’ naked unisex gymnastics is retold in Huxley’s early conditioning of both sexes to treat intercourse as play. Children at the Conditioning Centre, “naked in the warm June sunshine,” engage in “ordinary erotic play.” No need to restrain the natural sexual urges and channel them for eugenic purposes, as Socrates had to do. With reproduction cordoned off from sex — with every woman who is not hormonally engineered to be a sterile “freemartin” always going about equipped with her “Malthusian belt” of contraceptives, and strategically located Abortion Centres ready in case of accident — a wholly indiscriminate recreational sexuality can be unleashed, indeed encouraged, in both sexes.

Paramount for maintaining the basic structure of both Huxley’s World State and Plato’s city are their educational regimes. Socrates has his “noble lie” — a false tale about the creation of the city and its people that, if believed to be true, would guarantee citizens’ loyalty to the city and at the same time contentedness about their fixed place in it — all shored up by a strict censorship of poetry to inculcate the most politically unifying opinions. Similarly, the World State has its regime of “hypnopædia” (sleep teaching), in which nocturnal repetitions of moral maxims drone into the ears of the children until their conditioned responses to virtually every social situation are automatic. Like Socrates’ citizens who are schooled that they are “brothers and born of the earth” but fashioned by “the god” with the different metals in their natures, Huxley’s are taught over and over that “every one belongs to every one else,” that “all men are physico-chemically equal,” yet steadily conditioned to be unthinkingly content with their own station in life: “I’m really awfully glad I’m a Beta.... Oh no, I don’t want to play with Delta children.”

As they grow up, the children of the World State “learn to take dying as a matter of course,” undergoing “death conditioning” from an early age on field trips to the Hospital for the Dying, where men and women of sixty go to end lives that have been productive and pleasurable to the very end — sixty apparently being the upper limit at which all the powers of work and play can go on undimmed. Socrates too insists that his city’s young charges must “be told things that will make them fear death least,” so that “a decent man” will believe that for his fallen comrade “being dead is not a terrible thing.” But Socrates’ aim is to inculcate courage among warriors, a virtue of which there is no need in the World State, the scene of universal peace. Where there are no enemies, there is no need of soldiers, hence no need of physical courage in the face of violent death. Death comes peacefully, by prearrangement at a fixed age, in the World State. But the mystery of death is still frightening in itself, and so a kind of moral courage is still required, in the form (as Socrates puts it) of an “opinion produced by law through education about what — and what sort of thing — is terrible.”

The Mastery of Eros

The ideal society needs more than political organization and proper education toward love of the state; it also requires that citizens’ private pleasures be rightly directed. Socrates defines moderation as “a certain kind of order and mastery of certain kinds of pleasures and desires.” Later in the Republic, he argues that there are three kinds of pleasures, corresponding to “three primary classes of human beings ...: wisdom-loving, victory-loving, gain-loving.” This describes a clear hierarchy of pleasures and of people. In Brave New World, this hierarchy is flattened (with the possible exception of the World Controllers, about whom more anon). All the World State’s citizens appear to be gain-loving, seekers of the lowest pleasures. They play Obstacle Golf (their sports are as close as they come to being victory-loving); they go to full-sensory movie theaters, the “feelies” (in Huxley’s day the “talkies” were still new); they flit about in their helicopters from one empty entertainment to another. In the case of Alphas, for whom this endless round of pleasures might begin to pall, it is especially important that they conform to “their duty to be infantile, even against their inclination,” that they be adults at work and children at play. Perverse though it may be, this too is a certain kind of mastery of desire.

The Global Warming Check Is in the Mail

2014-01-23T12:54:00.002+02:00

Of Papers and Meetings …

by Pater Tenebrarum

"In climate research and modeling, we should recognize that we are dealing with a coupled non-linear chaotic system, and therefore that long- term prediction of future climate states is not possible"
The Inter-governmental Panel on Climate Change (IPCC), Third Assessment Report (2001), section 14.2.2.2, p. 774

(emphasis added)

The above sentence went missing from subsequent IPCC reports. Apparently it was once part of the 'consensus' though. Even though it has disappeared, it nevertheless inadvertently blurted out the truth. A famous 'Climate-gate' e-mail dialog follows below:

Dr. Phil Jones – CRU emails – 5th July, 2005:
“The scientific community would come down on me in no uncertain terms if I said the world had cooled from 1998. OK it has, but it is only 7 years of data and it isn’t statistically significant….”
Dr. Phil Jones – CRU emails – 7th May, 2009:
“Bottom line: the ‘no upward trend’ has to continue for a total of 15 years before we get worried.”
Dr Kevin Trenberth – CRU emails – 2009:
“The fact is we can’t account for the lack of global warming at the moment and it is a travesty we can’t.”

Well, it has been more than 15 years of 'no warming' now. Time to get worried? You betcha. A new paper by the above mentioned Dr. Trenberth acknowledges the importance of the so-called Pacific Decadal Oscillation in determining relatively short term warming and cooling cycles ('short term' meaning decades in this case). But the so-called 'skeptics' have pointed to this for a very long time. More about the paper can be found here.

The Pacific Decadal Oscillation. Keep in mind that in the mid 1970s, the 'scientific consensus' was worried about global cooling and an imminent new ice age – click to enlarge.

A recent article in 'Nature' discusses the 'case of the missing heat' and what progress is being made in explaining away the fact that none of the models predicting global warming by CO2 forcing can account for the observed reality. As a reminder, here is the difference between the model predictions and what has actually happened:

The predictions of Hansen's climate model presented to the US Congress in 1988, versus the reality (source: climatesense-norpag) – click to enlarge.

However, instead of simply admitting that the models may be wrong, the heat is held to be 'hiding out' in the oceans. It is apparently widely hoped that it will return in time to save careers and grants. From Nature:

“Now, as the global-warming hiatus enters its sixteenth year, scientists are at last making headway in the case of the missing heat. Some have pointed to the Sun, volcanoes and even pollution from China as potential culprits, but recent studies suggest that the oceans are key to explaining the anomaly. The latest suspect is the El Niño of 1997–98, which pumped prodigious quantities of heat out of the oceans and into the atmosphere — perhaps enough to tip the equatorial Pacific into a prolonged cold state that has suppressed global temperatures ever since.
“The 1997 to ’98 El Niño event was a trigger for the changes in the Pacific, and I think that’s very probably the beginning of the hiatus,” says Kevin Trenberth, a climate scientist at the National Center for Atmospheric Research (NCAR) in Boulder, Colorado. According to this theory, the tropical Pacific should snap out of its prolonged cold spell in the coming years.“Eventually,” Trenberth says, “it will switch back in the other direction.”

Translation: 'please dear Lord, let it switch back as soon as possible' or: the warming check is in the mail. That is however perhaps less likely than thought (see further below why). If one looks at the chart of the PDO above, a common sense question immediately springs to mind: why was the warming trend prior to 1940 almost identical to that between 1976 and 1998, when obviously, CO2 emissions at the time cannot have been a major factor? This is not explained anywhere. Could it be that natural climate variability is actually the major factor in driving both warming and cooling phases and that CO2 emissions by humans are in fact a negligible input?

Interesting is also the following comment by another climate researcher cited in the Nature article:

…none of the climate simulations carried out for the IPCC produced this particular hiatus at this particular time. That has led sceptics — and some scientists — to the controversial conclusion that the models might be overestimating the effect of greenhouse gases, and that future warming might not be as strong as is feared. Others say that this conclusion goes against the long-term temperature trends, as well as palaeoclimate data that are used to extend the temperature record far into the past. And many researchers caution against evaluating models on the basis of a relatively short-term blip in the climate. “If you are interested in global climate change, your main focus ought to be on timescales of 50 to 100 years,” says Susan Solomon, a climate scientist at the Massachusetts Institute of Technology in Cambridge.”

(emphasis added)

Does that mean that if there is no warming for another century, their vaunted 'models' will still not be proved wrong? If that is so, then the science is guaranteed to only 'advance one funeral at a time' as the saying goes. By the way, the differentiation between 'skeptics' and 'scientists' is an insult to the many skeptics who are in fact scientists (and whose ranks are set to swell in our opinion).

Regarding the long term paleo-climate record, here is an instructive chart putting the 'catastrophic' global warming of the 20^th century into proper perspective (source of the chart is this extremely interesting article on the chance that warming will actually turn into cooling).

Temperature anomaly vs. atmospheric CO2 over the past 11,000 years (data gathered by examination of ice cores)- click to enlarge.

Several 'skeptics' are naturally pointing out that their work is suddenly 'integrated' into the 'consensus' with not a word being mentioned of the ridicule and opposition they had to endure for so long. For instance, here are Dr. Sebastian Lüning and Prof. Fritz Vahrenholt:

“It took a while, but ocean cycles have finally been adopted by the IPCC as an important climate factor. With John Fasullo, Kevin Trenberth has written in a new paper appearing in the journal Earth’s Future that the warming pause taking place since 1998 indeed may have something to do with the Pacific Decadal Oscillation (PDO). Also even Trenberth’s pal Stefan Rahmstorf suddenly thinks it’s a good possibility [...]
-
In 2012 when we brought up the PDO as one of the triggers for the 1976-1998 warming in our “Die kalte Sonne” book and proposed ocean cycles as a sort of pulse generator for temperature cycles on a decadal scale, we were met with fierce resistance from the German climate science establishment. Now less than 2 years later, “Die kalte Sonne” finds itself as mainstream science.”

They also mention an interesting comment made by Julia Slingo of the Met Office at a Royal Society meeting last year. She was playing 'devil's advocate' (the 'devil' being all those who say the climate models are crap, i.e., the 'deniers') and asked a well known alarmist a question he ultimately couldn't answer:

“At a Royal Society meeting in 2013, Julia Slingo of the Met office played devil’s advocate and posed the following question to Prof. Jochen Marotzke of the German Max Planck Institute of Meteorology, see the 42:46 markroyalsociety.org/marotzke.mp3:
“…it’s a great presentation about 15 years being irrelevant, but I think, some of us might say if you look at the Pacific Decadal Oscillation and it’s timescale that it appears to work, it could be 30 years, and therefore I think, you know, we are still not out of the woods yet on this one. … If you do think it’s internal variability, and you say we do think the Pacific Decadal Oscillation is a key component of this, and it’s now in it’s particular phase, but was previously in the opposite phase, could you not therefore explain the accelerated warming of the 80s and 90s as being driven by the other phase of natural variability?”
Simplifying Slingo’s incoherence: “If the current cooling is due to the negative PDO phase, then wouldn’t the warming of the 80s and 90s be a result of the positive PDO phase back then?”
Marotzke answers after much incoherence of his own:
“Um…I guess I’m not sure.”
These people make no sense at all. They are sure it’s the oceans’ cold phase gobbling up heat when temperatures fail to rise. But when temperatures increase, they just can’t be sure that the oceans are involved at all, and insist they would not bet much money on it. Of course it just can’t work only one way. Marotzke is delivering only what would call unadulterated absurd science.”

(emphasis added to Ms. Slingo's query)

What does 'we're not out of the woods' really mean? That they are scared they have exaggerated and are, as one commentator at Anthony Watts' site remarked 'in need of an exit strategy'?

The Problem of Modeling the Future of a Complex System

The big problem is that the climate models that are at the root of the 'catastrophic anthropogenic global warming' forecasts are trying to do something that is literally impossible. Below is a video of a presentation by Christopher Essex, Professor and Associate Chair in the Department of Applied Mathematics at the University of Western Ontario and former director of its Theoretical Physics program. Now, one thing we can expect Professor Essex to know a thing or two about are the mathematics behind the modeling, and this is what the presentation focuses on. It is done in a way that makes it possible even for a layperson to easily discern what the problems of these models are, and that in fact, these problems are insurmountable, at least at present.

As an aside, Professor Essex is of course both a 'skeptic' and a scientist, and he is far from alone. For instance, we would like to point readers to a 2009 paper he co-authored with eight other scholars (and which has been reviewed by 50 others) entitled 'Critical Topics in Global Warming'. The introduction tells us a little bit about the so-called 'consensus':

“The issue of global warming is the subject of two parallel debates: one scientific, focused on the analyses of complex and conflicting data; the other political, addressing what is the proper response of government to a hypothetical risk. Proponents of an immediate and sweeping regulatory response insist that the scientific debate has long been settled. But a fair reading of the science, as presented in the Fraser Institute's Independent Summary for Policymakers (ISPM), proves otherwise. The supplements to that report go deeper into some of the key topics and provide even more evidence that popularized notions about the causes and consequences of global warming are more fiction than fact.”

When looking at the presentation below, it becomes crystal clear why the science, especially with regard to climate models, simply cannot be regarded as 'settled':

“Believing 6 Impossible Things Before Breakfast and Climate Modeling”, by Christopher Essex

The 'Quiet Sun'

Now a few remarks on why the 'missing heat' may well go on missing for a good while yet. Below is an excerpt from arecent article published by the BCC regarding the activity of the sun, which has declined to its lowest in at least a century. Scientists are baffled by this behavior – something highly unusual is evidently happening:

“I've been a solar physicist for 30 years, and I've never seen anything quite like this," says Richard Harrison, head of space physics at the Rutherford Appleton Laboratory in Oxfordshire. He shows me recent footage captured by spacecraft that have their sights trained on our star. The Sun is revealed in exquisite detail, but its face is strangely featureless. "If you want to go back to see when the Sun was this inactive… you've got to go back about 100 years," he says.
This solar lull is baffling scientists, because right now the Sun should be awash with activity. It has reached its solar maximum, the point in its 11-year cycle where activity is at a peak. This giant ball of plasma should be peppered with sunspots, exploding with flares and spewing out huge clouds of charged particles into space in the form of coronal mass ejections.
But apart from the odd event, like some recent solar flares, it has been very quiet. And this damp squib of a maximum follows a solar minimum – the period when the Sun's activity troughs – that was longer and lower than scientists expected.
"It's completely taken me and many other solar scientists by surprise," says Dr Lucie Green, from University College London's Mullard Space Science Laboratory. The drop off in activity is happening surprisingly quickly, and scientists are now watching closely to see if it will continue to plummet.
"It could mean a very, very inactive star, it would feel like the Sun is asleep… a very dormant ball of gas at the centre of our Solar System," explains Dr Green.
This, though, would certainly not be the first time this has happened. During the latter half of the 17th Century, the Sun went through an extremely quiet phase – a period called the Maunder Minimum. Historical records reveal that sunspots virtually disappeared during this time.
Dr Green says: "There is a very strong hint that the Sun is acting in the same way now as it did in the run-up to the Maunder Minimum." Mike Lockwood, professor of space environment physics, from the University of Reading, thinks there is a significant chance that the Sun could become increasingly quiet.
An analysis of ice-cores, which hold a long-term record of solar activity, suggests the decline in activity is the fastest that has been seen in 10,000 years. "It's an unusually rapid decline," explains Prof Lockwood. "We estimate that within about 40 years or so there is a 10% to 20% – nearer 20% – probability that we'll be back in Maunder Minimum conditions."
The era of solar inactivity in the 17th Century coincided with a period of bitterly cold winters in Europe. Londoners enjoyed frost fairs on the Thames after it froze over, snow cover across the continent increased, the Baltic Sea iced over – the conditions were so harsh, some describe it as a mini-Ice Age.

(emphasis added)

The article naturally goes on to point out that according to the IPCC, the effect of CO2 emissions tops every other influence on the climate (no wonder, as CO2 emissions can be taxed. Try taxing the sun!), although the odd men out who think the sun is far more important are mentioned in passing. But not to worry! At worst we will miss the 'polar lights' henceforth. Somehow this doesn't feel very reassuring – after all, if the Maunder minimum was irrelevant to the climate, then why was there a 'little ice age'?

Admittedly, it remains an open question how important the sun's activity is to the climate – after all, if a complex system like the earth's climate cannot be successfully modeled, this holds for the past as well as for the future. It is not possible to state apodictically that the Maunder minimum 'produced' the little ice age. Intuitively though, we tend to think that the sun is indeed an important factor. On a geological time scale, the last major ice age happened only a very short time ago, and we know that there have been vast variations in average temperatures over large time scales. In fact, it is only because we live in a warming cycle on these large time scales (an 'inter-glacial period') that human civilization as we know it exists at all. Try to imagine feeding more than 7 billion people with the planet a full 8 to 10 degrees Celsius colder and with a large part of its landmass covered in ice.

Of course that is certainly not an imminent problem, but looking at the regularity with which glacial and inter-glacial periods occur, it seems obvious that it will become a problem one day. We happen to think that even a 'mini ice age' could be quite a nuisance. It would definitely make life a lot more uncomfortable in the Northern hemisphere. Currently there is no certainty what precisely the main cause of ice ages is, but cycles related to the sun (specifically the Milankovitch cycles, which describe changes in earth's orbit around the sun) are undoubtedly playing a role.

Temperatures plus CO2 and dust concentration in the atmosphere over the past 400,000 odd years via the Vostok ice core data (and yes, CO2 tends to follow temperature, it doesn't lead; presumably there are feedback loops at work though, with higher CO2 concentration and temperature reinforcing each other during the up and downswings)- click to enlarge.

What is slightly worrisome about the above chart is that the very cold periods tend to have a much longer duration than the warm periods, which seem to have a tendency to produce short-lived spike highs. In fact, the behavior of the long term temperature chart looks very similar to the price charts of a number of commodities.

Conclusion:

The backtracking has begun – as a first step, 'climate skeptics' see their work suddenly integrated into the mainstream. However, we are not yet at the point where the models are rejected or the greenhouse gas-centric AGW theory is truly abandoned. Instead we're now in the 'how can we keep saying we are right while we're obviously wrong' phase. A lot is at stake after all: scientific reputations, but most importantly, a lot of money.

Policymakers don't want to hear that there is no problem, because that would close off a major source of tax revenues as well as what is currently a major avenue for crony capitalism and pork barrel spending through the subsidization of uneconomic 'green energy' schemes. Entire vast bureaucracies depend on AGW as well, and there is no alternative promotion in sight yet that could replace this sheer inexhaustible and vast fount of tax payer funded non-activity. So now the hope is that the heat is 'hiding out' deep in the oceans and ready to return at the drop of a hat (or rather, a turn of the trade winds). That may however not happen. What then?

Argentine Drug Dealing: A Local Tour Of Hustlers, Cops And Politicians

2014-01-17T20:06:00.000+02:00

Putting the 'organized' in organized crime, necessary for Argentina's efficient distribution of illegal drugs

By Jorge Ossona

In Argentina's big cities, drug-dealing operates in complex equivalents of distribution 'chains.' And yet as unstable and chaotic a world as it is, the illicit sale of narcotics may be ordered along two or three basic principles.

Cocaine trafficking constitutes the crux of activities that flow through an established hierarchy, from the top supplier to local-level "tips" (punteros) — your neighborhood dealer. These should not be confused with the classic political "dealer," drug dealers being in a different category even if both types recognize and interact with each other.

The dealer must inevitably have detailed information about everything happening in his or her territory, in order to formulate the widest range of solutions. Politicians usually tolerate local dealers — the "tips" — because they know they are running franchise operations conceded by the police and sections of the communal power structure. At the same time, members of their families or local supporters — indeed themselves — might very well be consumers, which is reason enough for interactive circuits to emerge between these two references of local life.

People merely perceive them differently in the neighborhood. Regardless of his or her style, the politician is considered a positive and universal mediator in the face of individual and collective emergencies, while the drug dealer is both feared and despised, being judged a "merchant of death."

Cracks and soldiers

In all neighborhoods there is a varying number of youth gangs including boys and girls who work and study, and "lazy" types — the familiarly termed "ni-nis" neither working nor studying — always party to a range of offenses. They consume considerable amounts of beer and wine at street parties, or other alcoholic beverages "blended" variously with mind-altering substances that circulate in a little-studied market.

The most compulsive of these, the "cracks" (fisura), are also small-time dealers.

Some of these can become "tips" or neighborhood dealers, for which they will need arms and vehicles — mainly motorbikes — and backers or garantors higher up in the drug hierarchy.

They must also have a parental structure that will give them the rationale they lack, through division of labor and a fixed domicile guarded by "soldiers." These youngsters' temerity is fed by showing off their cars, motorbikes, expensive phones and sophisticated weapons. Their group would eventually need an emblematic name that somehow expresses its "ethics" and the "destiny" it must live out without hypocrisy.

Above neighborhood gangs are the "wholesalers," a more silent level of suppliers who managed at some point to move up the difficult cursus honorum of drug dealing. Personal references are more important at this level than your family or group. The quantities sold here are greater than those of the neighborhood, so the only people arriving at the wholesaler's home are envoys of neighborhood dealers who are customers.

Cocaine is at the heart of the chain, but a dealer at this level can also sell marijuana independently, usually provided by Paraguayan dealers. Wholesalers have a defined jurisdiction and specific subordinates, with exclusive relationships that cannot be bypassed without breaking the professinoal "code."

Drugs and politics

Then there is the large-scale distributor, who confers the "seal" or label to the entire chain, and imposes minimum standards of quality on what neighborhood dealers sell in his or her name. The third-level trafficker's reputation and competitiveness are at stake in the neighborhood. Every week the entire chain pays those monies agreed on, with which they will pay their next-level Peruvian, Bolivian or Colombian suppliers living in luxury districts, but also "taxes" owed to the State in the zone where their franchise operates.

Situated in a comfortable position between the second and third levels is a middleman or "reference" (referente), a strategic figure ensuring that the entire chain functions. The "reference" handles total, gross quantities coming in from the third-level distributor and monies paid in by neighborhood "wholesalers." The middle man is the one who pays off the corrupt police "street chief" with what is referred to as the "toll charge."

This is taken to the commissioner who sends a portion of the booty onto a "communal godfather" who may be at the summit of the political pyramid. This last circuit almost always involves a territory's secretive political "dealers," who also negotiate with police the protection to be given for other crimes committed in their zone of influence.

The West's Catastrophic Defeat in the Middle East

2014-01-17T20:01:00.001+02:00

The West's double failure, incapable of building a common strategy, is a sign of a now 'post-American' region.

By Dominique Moisi

Bashar al-Assad is still in power in Damascus and al-Qaeda's black flag was recently waving above Fallujah and Ramadi in Iraq. Not only has the process of fragmentation in Syria now spilled over to Iraq, but these two realities also share a common cause that could be summarized into a simple phrase: the failure of the West.

The capture, even though temporary, of the cities of Fallujah and Ramadi by Sunni militias claiming links to al-Qaeda, is a strong and even humiliating symbol of the failure of the policies the United States carried out in Iraq. A little more than a decade after the overthrow of Saddam Hussein's regime - and after hundreds of thousands of deaths on the Iraqi side and more than 5,000 on the American side - we can only lament a sad conclusion: All that for this!

In Syria, the same admission of failure is emerging. Assad and his loyal allies - Russia and Iran - have actually emerged stronger from their confrontation with the West. Civilian massacres, including with chemical weapons, did not change anything. The regime is holding tight, despite losing control of important parts of its territory, thanks to its allies' support and, most importantly, the weakness of its opponents and those who support them.

In reality, from the Middle East to Africa, the entire idea of outside intervention is being challenged in a widely post-American region. How and when can one intervene appropriately? At which point does not intervening become, to quote the French diplomat Talleyrand following the assassination of the Duke of Enghien in 1804, "worse than a crime, a mistake?"

When is intervention necessary? "Humanitarian emergency" is a very elastic concept. Is the fate of Syrian civilians less tragic than that of Libyans? Why intervene in Somalia in 1992 and not inSudan? The decision to intervene reveals, in part, selective emotions that can also correspond to certain sensitivities or, in a more mundane way, to certain best interests of the moment.

Intervention becomes more probable when it follows the success of some other action; or, on the contrary, a decision to abstain that led to massacre and remorse. The tragedy of the African Great Lakes in 1994 - not to mention the Srebrenica massacre in Bosnia in 1995 - certainly contributed to the West's decision to intervene in Kosovo in 1999. In reality, the intervention of a given country at a given time is typically driven by multiple factors: the existence of an interventionist culture, a sense of urgency, a minimum of empathy towards the country or the cause justifying the intervention, and, of course, the existence of resources that are considered, rightly or wrongly, sufficient and well-adapted.

A French example

But more than "when," it is a question of "how" - the two being often inextricably linked. Intervening alone can have many benefits, including the rapidity of execution, which often leads to efficient operations. The French army was not unhappy to end up alone in Mali. On the other hand, although it can slow down the operations schedule, forming a coalition gives the intervention more legitimacy, and helps share the costs and risks between the various operators.

It is likely that France, which after the Mali operation has engaged in the Central African Republic in a much more uncertain conflict, would now prefer having some support - for reasons related to costs and resources as well as geopolitics. No one wants to share success, but no one wants to end up alone in a potential deadlock either.

America's failure - in Iraq and in Syria - should be considered the West's failure as a whole, even though Washington's share of responsibility is unquestionably the largest.

Failure is generally the result of the interaction between three main factors that are almost always the same: arrogance, ignorance and indifference. Arrogance leads to overestimating one's capacities and to underestimating the enemy's capacity for resistance. It is all too easy to win the war but lose the peace.

"Democracy in Baghdad will lead to peace in Jerusalem," a slogan of the American neo-conservatives, took a disastrous turn in Iraq.

Arrogance is almost always the result of ignorance. What do we know about the cultures and histories of the populations we want to save from chaos and dictators? Yesterday's colonial officers, who drew lines in the sand to create the borders of the new empires and states, turned their nose up at the local religious and tribal complexities. Today, the situation may be worse still. Sheer ignorance prevails.

Finally, there is the sin of indifference. Of course, the ISIL (Islamic State in Iraq and the Levant) is worrying Washington, thus leading to closer ties between the U.S. and Iran regarding Iraq. But the starting point was, in Syria, the U.S.'s refusal to take its responsibilities.

The result is clear: a double defeat, strategic and ethical, for the West. Washington has brought a resounding diplomatic victory to Moscow and has allowed Bashar al-Assad to stay in power.

Ariel Sharon and the death of the Israeli Dream

2014-01-17T19:55:00.001+02:00

Sharon's shift from ‘hawk’ to negotiator told a bigger story about Israel

By DANIEL BEN-AMI

Despite the bitter differences between the admirers and critics of Ariel Sharon, the former Israeli prime minister who died on Saturday, most share one outlook in common. They claim to have divined a continuity in his career despite his apparent shift from ultra-nationalist hawk to architect of Israel’s unilateral disengagement from Gaza.

It is understandable that both sides should fall for this temptation, since it provides the easiest way to make sense of Sharon’s contradictions. Either he was a pragmatic Zionist who would do whatever was necessary to protect the embattled Jewish state. Or alternatively he was a ruthless butcher of the Palestinians whose latter-day talk of peace was merely a cynical cover for greater repression.

Both sides fail to grasp the fundamental shift that has taken place in Israeli society since the 1970s. Until that decade, the vast majority of Israelis were united behind the project of building a Jewish state within Eretz Yisrael (the historic Land of Israel that includes the present-day West Bank). This goal was generally seen as a necessary response to the scourge of anti-Semitism rather than being viewed as a religious mission. Indeed, most of the original founders of Israel considered themselves socialists. The earlier settlements, including those in the West Bank and Gaza, were founded under the auspices of early leftist Israeli governments.

Since the 1970s, however, support for this classical conception of Zionism has steadily eroded. Many Israelis have become unsure about what their country stands for. The pioneering ardour has gone, and controlling land occupied by large numbers of Palestinians is seen as problematic at least. The one important exception to this disaffection is the mainstream religious community, the backbone of the settler movement, which retains its own particular conception of Zionism.

Sharon in many ways personified the shifts within Israel itself. Indeed, in some respects he was behind the times since he was an ardent supporter of settlement for longer than many in the Israeli elite. He only retreated from the goal of settlement expansion in his final years in office.

Global warming's glorious ship of fools

2014-01-17T19:51:00.000+02:00

Has there ever been a better story? It's like a version of Titanic where first class cheers for the iceberg

By Mark Steyn

Yes, yes, just to get the obligatory ‘of courses’ out of the way up front: of course ‘weather’ is not the same as ‘climate’; and of course the thickest iciest ice on record could well be evidence of ‘global warming’, just as 40-and-sunny and a 35-below blizzard and 12 degrees and partly cloudy with occasional showers are all apparently manifestations of ‘climate change’; and of course the global warm-mongers are entirely sincere in their belief that the massive carbon footprint of their rescue operation can be offset by the planting of wall-to-wall trees the length and breadth of Australia, Britain, America and continental Europe.

But still: you’d have to have a heart as cold and unmovable as Commonwealth Bay ice not to be howling with laughter at the exquisite symbolic perfection of the Australasian Antarctic Expedition ‘stuck in our own experiment’, as they put it. I confess I was hoping it might all drag on a bit longer and the cultists of the ecopalypse would find themselves drawing straws as to which of their number would be first on the roasting spit. On Douglas Mawson’s original voyage, he and his surviving comrade wound up having to eat their dogs. I’m not sure there were any on this expedition, so they’d probably have to make do with the Guardian reporters. Forced to wait a year to be rescued, Sir Douglas later recalled, ‘Several of my toes commenced to blacken and fester near the tips.’ Now there’s a man who’s serious about reducing his footprint.

But alas, eating one’s shipmates and watching one’s extremities drop off one by one is not a part of today’s high-end eco-doom tourism. Instead, the ice-locked warmists uploaded chipper selfies to YouTube, as well as a self-composed New Year singalong of such hearty un-self-awareness that it enraged even such party-line climate alarmists as Andrew Revkin, the plonkingly earnest enviro-blogger of the New York Times. A mere six weeks ago, pumping out the usual boosterism, the Australian Broadcasting Corporation reported that, had Captain Scott picked his team as carefully as Professor Chris Turney, he would have survived. Sadly, we’ll never know — although I’ll bet Captain Oates would have been doing his ‘I am going out. I may be some time’ line about eight bars into that New Year number.

Unlike Scott, Amundsen and Mawson, Professor Turney took his wife and kids along for the ride. And his scientists were outnumbered by wealthy tourists paying top dollar for the privilege of cruising the end of the world. In today’s niche-market travel industry, the Antarctic is a veritable Club Dread for upscale ecopalyptics: think globally, cruise icily. The year before theAkademik Shokalskiy set sail, as part of Al Gore’s ‘Living On Thin Ice’ campaign (please, no tittering; it’s so puerile; every professor of climatology knows that the thickest ice ever is a clear sign of thin ice, because as the oceans warm, glaciers break off the Himalayas and are carried by El Ninja down the Gore Stream past the Cape of Good Horn where they merge into the melting ice sheet, named after the awareness-raising rapper Ice Sheet…

Where was I? Oh, yeah. Anyway, as part of his ‘Living On Thin Ice’ campaign, Al Gore’s own luxury Antarctic vessel boasted a line-up of celebrity cruisers unseen since the 1979 season finale of The Love Boat — among them the actor Tommy Lee Jones, the pop star Jason Mraz, the airline entrepreneur Sir Richard Branson, the director of Titanic James Cameron, and the Bangladeshi minister of forests Somebody Wossname. If Voyage of the Gored had been a conventional disaster movie like The Poseidon Adventure, the Bangladeshi guy would have been the first to drown, leaving only the Nobel-winning climatologist (Miley Cyrus) and the maverick tree-ring researcher (Ben Affleck) to twerk their way through the ice to safety. Instead, and very regrettably, the SS Gore made it safely home, and it fell to Professor Turney’s ship to play the role of our generation’s Titanic. Unlike the original, this time round the chaps in the first-class staterooms were rooting for the iceberg: as the expedition’s marine ecologist Tracy Rogers told the BBC, ‘I love it when the ice wins and we don’t.’ Up to a point. Like James Cameron’s Titanic toffs, the warm-mongers stampeded for the first fossil-fuelled choppers off the ice, while the Russian crew were left to go down with the ship, or at any rate sit around playing cards in the hold for another month or two.

But unlike you flying off to visit your Auntie Mabel for a week, it’s all absolutely vital and necessary. In the interests of saving the planet, IPCC honcho Rajendra Pachauri demands the introduction of punitive aviation taxes and hotel electricity allowances to deter the masses from travelling, while he flies 300,000 miles a year on official ‘business’ and research for his recent warmographic novel in which a climate activist travels the world bedding big-breasted women who are amazed by his sustainable growth. (Seriously: ‘He removed his clothes and began to feel Sajni’s body, caressing her voluptuous breasts.’ But don’t worry; every sex scene is peer-reviewed.) No doubt his next one will boast an Antarctic scene: Is that an ice core in your pocket or are you just pleased to see me?

The AAE is right: the warm-mongers are indeed ‘stuck in our own experiment’. Frozen to their doomsday narrative like Jeff Daniels with his tongue stuck to the ski lift in Dumb and Dumber, the Big Climate enforcers will still not brook anyone rocking their boat. In December 2008 Al Gore predicted the ‘entire North Polar ice cap will be gone in five years’. That would be December last year. Oh, sure, it’s still here, but he got the general trend-line correct, didn’t he? Arctic sea ice, December 2008: 12.5 million square kilometres; Arctic sea ice, December 2013: 12.5 million square kilometres.

Read more at:

http://www.spectator.co.uk/features/9112201/ship-of-fools-2/

France Praying for Miraculous Metamorphosis

2014-01-17T19:48:00.001+02:00

Nothing Left to Lose?

by Pater Tenebrarum

In a recent article at Reuters, the hope was expressed that the approval rating of France's president Francois Hollande (lately renamed 'LOL-lande' in the French press and 'Niemandshand' in the Dutch press for reasons explained further below) has by now finally fallen to such an extremely low level, that he has nothing to lose anymore by engaging in meaningful reform. Since he cannot sink any lower, he can only win, or so the reasoning goes. What has inspired this epiphany is the recent revelation by a French tabloid newspaper that the president is involved in a secret nocturnal affair, sneaking out under the cover of darkness to presumably offer the services of his conjugal dipstick to an unknown female.

It was noticed that the allegation has failed to move the needle on his approval-meter further into the red. 80% of the population thought Hollande was a failure prior to the tryst coming to light, and 80% are still thinking so. Apparently things are as bad as they are going to get. Hence it is reckoned that he might be due for a metamorphosis, turning into a 'French Blair' or a version of Gerhard Schroeder (can you imagine a mixture of Blair and Hollande? One could probably quite easily make a successful horror movie starring that creature).

“Yet with polls showing most French are blase about his private life, the real question is whether he will use the media event to show he is ready to tackle the double burden on the French economy: rising taxes and public spending.

"As is often the case, there are good intentions. But we will judge the deeds," said analyst Bruno Cavalier at Paris-based Oddo Securities.

The Socialist Hollande, who in his 2012 election campaign labeled the world of finance his enemy, ignited speculation of a U-turn with a New Year's address to the nation offering business leaders a "responsibility pact" trading lower taxes and less red tape for company commitments to hire more staff. Striking a new tone which has already raised hackles with unions, he also declared it was time to stamp out abuses of France's generous welfare state, and cut public spending so as to create room for tax reductions after a series of rises. Some see echoes of the about-turn made 30 years ago by Hollande's mentor Francois Mitterrand, who in 1983 halted a policy of nationalization and expansion of worker benefits just two years into his mandate as public finances crumbled.

About time too, say those who argue that public spending at around 57 percent of national output – some 12 points more than Germany's – is a burden the economy cannot afford. French debt at 93.4 percent of GDP and rising is now "in the danger zone", the national audit office warned last week.

The prospect of a policy shift has been applauded by France's main employers federation Medef, due to start talks in coming week with Hollande's government on tax cuts it hopes will restore corporate margins among the weakest in Europe. Left-wing newspaper L'Humanite dubbed him "Francois Blair" after the centrist British prime minister who dreamed up "New Labour" pragmatism, while others asked whether Hollande would follow the reforms implemented in Germany in the last decade.

"What indeed if, after 18 months of empty words and drift, Francois Hollande became the French Gerhard Schroeder?" Marc Touati of the ACDEFI economic consultancy asked, referring to the former Social Democrat chancellor who implemented painful labour market reform in the 2000s.

But he predicted: "This is a sort of bluffing tactic intended to gain time, soften up ratings agencies and investors but which will not result in hard measures." Pension and labour reforms implemented last year, while significant first steps, have hardly broken the mould. Projected 2014 French growth of just one percent will struggle to create private sector jobs.

So far, this year's budget foresees public spending cuts of 15 billion euros or some 0.7 percent of GDP. Yet the government still has to explain how the bulk of these will be achieved before it goes on to examine further possible cuts. Moreover the rapprochement with business risks alienating the moderate CFDT trade union which has so far been a vital ally to Hollande, backing pension and other reforms despite resistance from other, more hardline, labour organizations.

"I am issuing a warning: the trade unions have got to be players in all this," CFDT Secretary-General Laurent Berger said last week, insisting there could be no "blank cheque" for companies without benefits to labor as well.

[…]

Hollande may conclude he has nothing to lose now from taking a few risks. A survey by pollster Ifop released in the Journal du Dimanche newspaper this weekend showed little impact on his poll ratings from the allegations of a secret affair.

With Hollande currently enjoying little more than 20 percent of support, Ifop deputy chief Frederic Dabi noted: "He is already so unpopular that it hasn't changed anything."

(emphasis added)

Admittedly, such metamorphoses do sometimes happen. A wily politician may well come to the conclusion that he has nothing to lose by changing course. And it is possible that Hollande will indeed decide to follow in Mitterand's footsteps and nix the socialist program in favor of a more pragmatic approach to economic policy. The reality is though that little is known about his views. We don't even know whether he truly understands the economic problems faced by France and why what he has hitherto done has made them worse. After all, he is a lifelong bureaucrat/politician and his actions to date indicate that he believes that governments are not subject to economic laws and that he 'can order nature around' as Fred Sheehan once put it.

We also cannot really tell how much of an ideologue he is. In any event, we do know that he occasionally casts a wary eye in the direction of those who try to overtake him from the left of the political spectrum and has done his best to preempt them and remain in the good graces of typical socialist client organizations such as the unions. Note the remark by union leader Laurent Berger above: "I am issuing a warning: the trade unions have got to be players in all this." Will Hollande risk a confrontation with the unions? We kind of doubt it actually.

Read more at:

http://www.acting-man.com/?p=27949

A Tyrant’s Best Friend

2014-01-16T15:22:00.000+02:00

Architect of Destruction

Oscar Niemeyer’s architectural vision needed the support of authoritarian governments.

By DEMÉTRIO MAGNOLI

This past Sunday’s New York Times Magazine published a photo essay, accompanied by a single paragraph of prose by Julie Bosman, as a hagiographic memento for the late Brazilian architect Oscar Niemeyer. The photos were all of Niemeyer’s work in Algeria: four buildings built out of 12 designs approved. Bosman’s paragraph says that Niemeyer was “a Communist who fled to France following the military takeover of Brazil in 1964.” The passing mention of Niemeyer’s communism seems somehow to suggest that this was a badge of honor, albeit one that has nothing to do with his architectural style. This couldn’t be further from the truth.

In a 1920 documentary one can see Le Corbusier rubbing a thick black pencil over a wide area of the map of central Paris “with the enthusiasm of Bomber Harris planning the annihilation of a German city in World War II”, wrote Theodore Dalrymple in a tasty article for City Journal. The celebrated architect, founder of the Congrès International d’Architecture Moderne (CIAM), was busy designing a delusional, totalitarian fantasy: the Plan Voisin, a geometric collection of 18 cruciform towers of offices sixty-stories high supplemented by series of residential buildings outlining superblocks. That’s Niemeyer’s achitectural template. His communism was most certainly not incidental to his style.

The Cathedral of Brasilia, as seen from inside.

Taste is just taste, of course. You might like the Capanema Palace in Rio de Janeiro, a 1936 Niemeyer design based on a sketch by Le Corbusier (I do like it, in fact). You might like the Cathedral of Brasilia (I love it), built in 1958, or the Itamaraty Palace (it’s gorgeous), the headquarters of the Foreign Ministry erected in Brasilia in 1960. You might even like the sumptuous headquarters of the French Communist Party in Paris (I do not), or the hideous Latin America Memorial in São Paulo, or the ridiculous Contemporary Arts Museum in Niteroi. But like or dislike, love or hate, there is no intellectual justification for separating the oeuvre of Oscar Niemeyer from its doctrinal roots. Niemeyer is an heir of the Le Corbusier matrix, the founding father of an architecture of destruction wholly devoted to the aesthetic of power and to hatred for history, living public spaces and, above all, common people.

Niemeyer was certainly no naive epigone of Le Corbusier, with “big boxes on sticks” (Frank Lloyd Wright), that were “a common hallmark of the modern form” (Lewis Mumford). This Brazilian was an inventor: His contours sinuously curved the masses of concrete, giving a tropical identity to modern architecture. But look again to the photos reproduced in The NYT Magazine: Niemeyer’s compositional strategies and his narrow repertoire of forms are not derived from purported renaissance or baroque inspirations, but from the neoclassical principles which are those of Le Corbusier.

Main façade of the Itamaraty Palace and its reflecting pool.

Furthermore, Niemeyer shared with his master the fundamental belief in the “civilizing mission” of the state—namely, the state privilege of hoarding unlimited acres of urban land to carve the city (and society) according to the ideals of the ruling elite. The two architects, Le Corbusier and Niemeyer, demand the patronage of tyrants – or, rather, tyrants with a Vision. The New York Times Magazine does not tell its readers that Niemeyer’s Algerian projects overlap with the most authoritarian stage of the Boumediene dictatorship, between 1971 and 1975.

In the Brazilian press, Niemeyer’s death in 2012 (at the age of 104), was accompanied predominantly by two types of reviews. One kind stated that his work was genius because it reflected the “humanist thought” of the unrepentant Stalinist architect. This is an abominable opinion, but a coherent one. The other kind stated that his incredible body of work should be separated from his deplorable political beliefs. This is flimsy and inconsistent criticism. The architecture of Niemeyer, as of Le Corbusier’s, is not only a derivation of his ideological leanings but also a platform for his desired alliance between the architects and the tyrants. Le Corbusier served both Stalin and the collaborationist Vichy regime. “France needs a father”, pleaded the architect shortly before the publication of The Radiant City, whose title page says: “This book is dedicated to the Authority.” Here is the key to deciphering his work, and Niemeyer’s.

The Piazza della Signoria, which has no trees, is a wonder of the dessicated human spirit. You don’t need to be a romantic, nor do you need to shed any tears for the “green”, to be repulsed by the brutality of Niemeyer’s modernism. One doesn’t need to subscribe to the whole set of principles of organic architecture to repudiate the ignominious monumentalism of the Modern Temple. “The plan shall govern. The street must disappear”, wrote Le Corbusier in 1924, pointing to the direction adopted by Niemeyer. The destructive impulse is contained in each of the architectural interventions of both designers, whether the result happens to be beautiful or, more often, not.

Niemeyer’s buildings never establish meaningful or functional relationships with the surrounding structures, which he despises because they didn’t originate from his pencil. The residual spaces between volumes never acquire identity, functioning only as belvederes for contemplating his monuments to Authority. The larger the scale of the project, the more evident his “anachronistic modernity.” “The guiding role of open spaces, with its streets, squares, meeting places and markets” is diluted in Brasilia, “in a space without limits or other function than to frame isolated and sculptural buildings.” (J. C. Durand & E. Salvatori).

Niemeyer’s aesthetics make a political statement. In Brasilia, as James Holston has emphasized, the typological contrast between public buildings (“exceptional, figural objects of monumental nature”) and residential buildings (“repeated, serial objects of trivial nature”) epitomize the regressive utopia desired by the architect. A letter by Alberto Moravia to an Italian newspaper at the time of Brasilia’s inauguration as the capital noted that the city made people feel “like the tiny inhabitants of Lilliput” seeking, “in the empty sky, the threatening form of a new Gulliver.”

Time for a Cease-Fire In the War on Poverty

2014-01-16T02:28:00.000+02:00

The poor would be better off without it

The typical fate of a big government program: it produced the exact opposite effect of what was officially 'intended'

By Bill Boner

The unemployment numbers came out on Friday. They were worse than expected. Only 74,000 jobs added – about one-third of the consensus estimate. Meanwhile, the labor force participation rate – the amount of people either employed or actively seeking work – went from 66% to 62%. That's a loss of about 5 million from the available workforce … or about 100,000 a month.

In December, more people left the job market than entered it. So, the official "unemployment" rate went down. The bad news had little effect on stocks.

Investors thought it was good news, but they weren't quite sure. On the one hand, it seemed to point toward more EZ money from the Fed. On the other, even taking the effects of bad weather into account, it looks as though the economy could be weaker than commonly thought.

The 'War' Goes On

Meanwhile, the 50^th anniversary of the feds' "War on Poverty" came and went last week, without much notice. No flags flying. No speeches. Veterans on both sides took their money and kept quiet. But that didn't stop hands from wringing, hearts from bleeding and bellies from aching.

So, the "war" goes on.

But as in many other of the feds' wars, we don't know which side we should be on. We've got nothing against poverty. Then, again, we've got nothing against wealth either. People should be able to decide for themselves what they want out of life. But during the Johnson administration the rich got the idea that they should exterminate poverty … or at least gain a political advantage by appearing to try to do so.

So it was that on January 8, 1964, LBJ declared war:

“This administration today, here and now, declares unconditional war on poverty in America.”

That was 50 years and $20 trillion ago.

Jesus Christ warned us that eradicating poverty wouldn't be easy. "The poor will always be with you," he said. So far, it looks like he was right.

About 15% of Americans still live in poverty – roughly the same percentage as in the mid-1960s. And that's despite the government spending about $1 trillion a year on eradicating poverty!

A New Kind of 'Poor'

But wait. It depends on how you define "poor." What we take from the recent article in the Wall Street Journal by senior research fellow at the Heritage Foundation Robert Rector, titled "How the War on Poverty Was Lost," is that the "poor" are too rich for their own good.

The feds spend $9,000 a year on each of the roughly 100 million recipients of their various means-tested welfare programs. That, and other sources of revenue, give the typical poor person a rather rich life. According to Rector, the typical American living below the poverty level:

“… lives in a house or apartment that is in good repair, equipped with air-conditioning and cable TV. His home is larger than the home of the average non-poor French, German or English man. He has a car, multiple color TVs and a DVD player. More than half the poor have computers and a third have wide, flat-screen TVs. The overwhelming majority of poor Americans are not undernourished and did not suffer from hunger for even one day of the previous year.”

Sound pretty good? Yes, but there's more to life than creature comforts. And by attempting to exterminate material poverty, the feds created a new kind of poverty that is far worse.

We have some experience of it: In the 1980s and 1990s we lived in a war zone – a "ghetto" in northwest Baltimore. There, too, there was plenty of money – at least, there was enough to buy gadgets and drugs. Everybody had a TV. And everybody had alcohol and drugs. There was a whooping party whenever the welfare checks arrived. But it was not a very nice place to live.

When you pay people not to do much, that is what they do. And then, after doing so little for so long, they can do nothing else.

Tales from Druid Hill

The Druid Hill area of Baltimore, where we lived for about 10 years, was the front line in the War on Poverty. Few people had jobs. Instead, they hung around. Idleness begat disorder. And trouble. In personal lives, family lives and the life of the community. People slept at all hours … and stayed up late at night partying. Children were poorly tended – often out on the street in the middle of the night. The sidewalks were trashy and dangerous. Gunshots were frequent. Violent deaths were not uncommon. The red and blue lights of the gendarmes were never far away.

It had its charms. One of our neighbors had murdered another man in a drug dispute. He seemed like a nice fellow – at least as long as you didn't get him too mad. He and a few others formed a kind of glee club … singing Motown hits until they passed out drunk.

They could get drunk every night because they didn't have to get up to go to work in the morning. The work world imposes order. You have to get up in the morning. You have to get along with your coworkers. And you have to get the job done. Mother Necessity is a powerfully civilizing force. Take her out of a community, and the place goes to hell.

Marriage, too, comes with civilizing requirements. You have to get along with your spouse. You have to learn to live together. You have to take responsibility for other people … and cooperate to get the job done. But there were almost no marriages and no jobs in Druid Hill. Why?

The War on Poverty made them unnecessary. You didn't need to have a job to support yourself. And you didn't need to get married to support your children either. The feds would do it for you. Rector totes up the consequences:

“In 1963, 6% of American children were born out of wedlock. Today the number stands at 41%. As benefits swelled, welfare increasingly served as a substitute for a bread-winning husband in the home. [...] Children raised by a single parent are three times as likely to end up in jail and 50% more likely to be poor as adults.”

The War on Poverty? The poor would be better off without it.

And as this chart shows, it didn't come cheap.

Read more at:

http://www.acting-man.com/?p=27971

The tide is rising for America’s libertarians

2014-01-16T00:58:00.002+02:00

The new spirit in a rising climate of anti-politics has become an attitude, rather than a movement

By Edward Luce

Robert Nozick, the late US libertarian, smoked pot while he was writing Anarchy, State and Utopia. He would applaud the growth of libertarianism among today’s young Americans. Whether it is their enthusiasm for legalised marijuana and gay marriage – both spreading across the US at remarkable speed – or their scepticism of government, US millennials no longer follow President Barack Obama’s cue. Most of America’s youth revile the Tea Party, particularly its south-dominated nativist core. But they are not big-government activists either. If there is a new spirit in America’s rising climate of anti-politics, it is libertarian.

On the face of it this ought to pose a bigger challenge to the Republican party – at least for its social conservative wing. Mr Obama may have disappointed America’s young, particularly the millions of graduates who have failed to find good jobs during his presidency. But he is no dinosaur. In contrast, Republicans such as Rick Santorum, the former presidential hopeful, who once likened gay sex to “man on dog”, elicit pure derision. Even moderate Republicans, such as Chris Christie, who until last week was the early frontrunner for the party’s 2016 nomination, are considered irrelevant. Whether Mr Christie was telling the truth last week, when he denied knowledge of his staff’s role in orchestrating a punitive local traffic jam, is beside the point. Mr Christie’s Sopranos brand of New Jersey politics is not tailored to the Apple generation.

The opposite is true of Rand Paul, the Kentucky senator, whose chances of taking the 2016 prize rose with Mr Christie’s dented fortunes last week. Unlike Ron Paul, the senator’s father, who still managed to garner a large slice of the youth vote in 2008, Rand Paul eschews the more outlandish fringes of libertarian thought. Rather than promising an isolationist US withdrawal from the world, he touts a more moderate “non-interventionism”. Instead of pledging to end fiat money, he promises to audit the US Federal Reserve – “mend the Fed”, rather than “end the Fed”. Both find echo among the Y generation. So too does his alarmism about the US national debt. Far from being big spenders, millennials are more concerned about US debt than other generations, according to polls. They are also strongly in favour of free trade. More than a third of the Republican party now identifies as libertarian, according to the Cato Institute. Just under a quarter of Americans do so too, says Gallup.

All of which looks ominous for Ted Cruz, the Texan Republican whose lengthy filibuster against Obamacare last year lit the fuse for the US government shutdown. Mr Cruz, also a 2016 aspirant, leads the pugilistic wing of the Republican party that is prepared to burn the house down in order to save the ranch. Although also a Tea Partier, Mr Paul is cultivating a sunnier Reaganesque optimism that draws on the deep roots of US libertarianism. His brand of politics also strikes a chord with those who fear the growth of the US surveillance state – the types who view Edward Snowden (another millennial) as a hero rather than a traitor. Last year the US House of Representatives came within 12 votes of passing a bill to defund the National Security Agency. Mr Paul led the bill in the Senate. Next time they could succeed.

Europe’s Future: Inflation And Wealth Taxes

2014-01-16T00:33:00.001+02:00

This time is no different than other cases of highly indebted countries in Europe’s history – just look to the post-War examples as similar cases in point

by David Howden

Tax burdens are so high that it might not be possible to pay off the high levels of indebtedness in most of the Western world. At least, that is the conclusion of a new IMF paper from Carmen Reinhart and Kenneth Rogoff.

Reinhart and Rogoff gained recent fame for their book “This Time It’s Different”, in which they argued that high levels of public debt have historically been associated with reduced growth opportunities.

As they now note, “The size of the problem suggests that restructurings will be needed, for example, in the periphery of Europe, far beyond anything discussed in public to this point.”Up to this point in the Eurocrisis the primary tools used to rescue profligate countries have included increased taxes, EU and IMF bailouts, and haircuts on government debt.

These bailouts have largely exacerbated the debt problems that existed five short years ago. Indeed, as Reinhart and Rogoff well note, the once fiscally sound North of Europe is now increasingly unable to continue shouldering the debts of its Southern neighbours.

General government debt (% GDP)

Source: Eurostat (2012)

Six European countries currently have a government debt to GDP ratio – a metric popularlised by Reinhart and Rogoff to signal reduced growth prospects – of over 90%. Countries that were relatively debt-free just five short years ago are now encumbered by the debt repayments necessitated by bailouts. Ireland is a case in point – as recently as 2007 its government debt to GDP ratio was below 25%. Six years later that figure stands north of 120%! “Fiscally secure” Scandinavia should keep in mind that fortunes can change quickly, as happened to the luck of the Irish.

The debt crisis to date has been mitigated in large part by tax increases and transfers from the wealthy “core” of Europe to the periphery. The problem with tax increases is that they cannot continue unabated.

Total government tax revenue (% GDP)

Source: Eurostat (2012)

Already in Europe there are seven countries where tax revenues are greater than 48% of GDP. There once was a time when only Scandinavia was chided for its high tax regimes and large public sectors. Today both Austria and France have more than half of their economies involved in the public sector and financed through taxes. (Note also that as they both run government budget deficits the actual size of their governments is greater yet.)

Read more at:

http://mises.ca/posts/blog/europes-future-inflation-and-wealth-taxes/

We Will Be Told Hyperinflation Is Necessary, Proper, Patriotic, And Ethical

2014-01-16T00:18:00.000+02:00

Each round of money printing eventually feeds back into the price system, creating demand for another round of money printing ... and another ... and another

by Patrick Barron

Hyperinflation leads to the complete breakdown in the demand for a currency, which means simply that no one wishes to hold it. Everyone wants to get rid of that kind of money as fast as possible. Prices, denominated in the hyper-inflated currency, suddenly and dramatically go through the roof. The most famous examples, although there are many others, are Germany in the early 1920s and Zimbabwe just a few years ago. German Reichsmarks and Zim dollars were printed in million and even trillion unit denominations.

We may scoff at such insanity and assume that America could never suffer from such an event. We are modern. We know too much. Our monetary leaders are wise and have unprecedented power to prevent such an awful outcome.

Think again.

Our monetary leaders do not understand the true nature of money and banking; thus, theyadvocate monetary expansion as the cure for every economic ill. The multiple quantitative easing programs perfectly illustrate this mindset. Furthermore, our monetary leaders actually advocate a steady increase in the price level, what is popularly known as inflation. Any perceived reduction in the inflation rate is seen as a potentially dangerous deflationary trend, which must be countered by an increase in the money supply, a reduction in interest rates, and/or quantitative easing. So an increase in inflation will be viewed as success, which must be built upon to ensure that it continues. This mindset will prevail even when inflation runs at extremely high rates.

Like previous hyperinflations throughout time, the actions that produce an American hyperinflation will be seen as necessary, proper, patriotic, and ethical; just as they were seen by the monetary authorities in Weimar Germany and modern Zimbabwe. Neither the German nor the Zimbabwean monetary authorities were willing to admit that there was any alternative to their inflationist policies. The same will happen in America.

The most likely trigger to hyperinflation is an increase in prices following a loss of confidence in the dollar overseas and its repatriation to our shores. Committed to a low interest rate policy, our monetary authorities will dismiss the only legitimate option to printing more money — allowing interest rates to rise. Only the noninflationary investment by the public in government bonds would prevent a rise in the price level, but such an action would trigger a recession. This necessary and inevitable event will be vehemently opposed by our government, just as it has been for several years to this date.

Instead, the government will demand and the Fed will acquiesce in even further expansions to the money supply via direct purchases of these government bonds, formerly held by our overseas trading partners. This will produce even higher levels of inflation, of course. Then, in order to prevent the loss of purchasing power by politically connected groups, the government will print even more money to fund special payouts to these groups. For example, government will demand that Social Security beneficiaries get their automatic increases; likewise for the quarter of the population getting disability benefits. Military and government employee pay will be increased. Funding for government cost-plus contracts will ratchet up. As the dollar drops in value overseas, local purchases by our overextended military will cost more in dollar terms (as the dollar buys fewer units of the local currencies), necessitating an emergency increase in funding. Of course, such action is necessary, proper, patriotic, and ethical.

Other federal employee sectors like air traffic controllers and the TSA workers will likely threaten to go on strike and block access to air terminal gates unless they get a pay increase to restore the purchasing power of their now meager salaries.

State and local governments will also be under stress to increase the pay of their public safety workers or suffer strikes which would threaten social chaos. Not having the ability to increase taxes or print their own money, the federal government will be asked to step in and print more money to placate the police and firemen. Doing so will be seen as necessary, proper, patriotic, and ethical.

Each round of money printing eventually feeds back into the price system, creating demand for another round of money printing ... and another ... and another, with each successive increase larger than the previous one, as is the nature of foolishly trying to restore money’s purchasing power with even more money. The law of diminishing marginal utility applies to money as it does to all goods and services. The political and social pressure to print more money to prevent a loss of purchasing power by the politically connected and government workers will be seen as absolutely necessary, proper, patriotic, and ethical.

Many will not survive. Just as in Weimar Germany, the elderly who are retired on the fruits of a lifetime of savings will find themselves impoverished to the point of despair. Suicides among the elderly will be common. Prostitution will increase, as one’s body becomes the only saleable resource for many. Guns will disappear from gun shops, if not through panic buying then by outright theft by armed gangs, many of whom may be your previously law-abiding neighbors.

Businesses will be vilified for raising prices. Goods will disappear from the market as producer revenue lags behind the increase in the cost of replacement resources. Government’s knee-jerk solution is to impose wage and price controls, which simply drive the remaining goods and services from the white market to the gangster-controlled black market. Some will sit out the insanity. Better to build inventory than sell it at a loss. Better still to close up shop and wait out the insanity. So government does the necessary, proper, patriotic, and ethical thing: it prints even more money and prices increase still more.

The money you have become accustomed to using and saving eventually becomes worthless; it no longer serves as a medium of exchange. No one will accept it. Yet the government continues to print it in ever greater quantities and attempts to force the citizens to accept it. Our military forces overseas cannot purchase food or electrical power with their now worthless dollars. They become a real danger to the local inhabitants, most of whom are unarmed. The US takes emergency steps to evacuate dependents back to the States. It even considers abandoning our bases and equipment and evacuating our uniformed troops when previously friendly allies turn hostile.

Leading from Behind

2014-01-10T16:22:00.001+02:00

Third Time a Charm?

In his reluctance to brandish America’s world leadership credentials at every turn, President Obama is tapping into an interesting if frustrating strain of American history—and it just might help America learn the wisdom of great power prudence and humility.

By OWEN HARRIES, TOM SWITZER

A Washington adage holds that someone commits a “gaffe” when he inadvertently tells the truth. This seemed to be what a U.S. policymaker did two decades ago when he mused about the limits to U.S. power in the post-Cold War era. On May 25, 1993, just four months into the Clinton Administration, a certain senior government official—the new Undersecretary of State for Political Affairs and a former president of the Council on Foreign Relations—spoke freely to about fifty journalists on condition that they refer to him only as a “senior State Department official.” Gaffe or no gaffe, Peter Tarnoff’s frank remarks at the Overseas Writers Club luncheon set off serious political turbulence in the foreign policy establishment.

Tarnoff’s message was that, with the Cold War over, America should no longer be counted on to take the lead in regional disputes unless a direct threat to its national interest inhered in the circumstances. To avoid over-reaching, he warned, U.S. policymakers should define the country’s interests with clarity and without a residue of excessive sentiment, concentrating its resources on matters vital to its own well-being. That meant Washington would “define the extent of its commitment and make a commitment commensurate with those realities. This may on occasion fall short of what some Americans would like and others would hope for”, he recognized. The U.S. government would, if necessary, act unilaterally where its own strategic and economic interests were directly threatened, but it would otherwise pursue a foreign policy at the same time less interventionist and more multilateral.

President Clinton’s deferral to European demands on the Bosnian crisis, Tarnoff added, marked a new era in which Washington would not automatically lead in international crises. “We simply don’t have the leverage, we don’t have the influence, we don’t have the inclination to use military force, and we certainly don’t have the money to bring to bear the kind of pressure that will produce positive results anytime soon.”

At first glance, there was nothing new here. As far back as the Nixon Doctrine, U.S. officials had spoken of more voluble burden-sharing, of asking allies to do more on their own behalf, and of a variable-speed American foreign policy activism that could be fine-tuned to circumstances. And then, within a year of the Soviet Union’s collapse, Bill Clinton won a presidential election in part because he promised to “focus like a laser” on domestic issues. Neither during Nixon’s tenure nor in 1993 did anyone use the phrase “to lead from behind”, but this new locution is consonant with the basic thinking of those earlier formulations. In some ways, “leading from behind” is the third coming of a seasoned and generally sensible idea.In some ways, “leading from behind” is the third coming of a seasoned and generally sensible idea.

Nor was Tarnoff saying anything outside the implicit consensus of presumed foreign policy “wise men” at the time. Many dedicated Cold Warriors and leading foreign affairs experts, Republicans and Democrats alike, had been arguing for the previous three years that, having just won a great victory, it was time for America to embrace a more restricted view of the nation’s interests and commitments. “With a return to ‘normal’ times”, Jeane Kirkpatrick argued in The National Interest in 1990, “we can again become a normal nation—and take care of pressing problems of education, family, industry and technology. . . . It is time to give up the dubious benefits of superpower status and become again an . . . open American republic.”Nathan Glazer proposed that it was “time to withdraw to something closer to the modest role that the Founding Fathers intended.” William Hyland, editor of Foreign Affairs at the time, wrote, “What is definitely required is a psychological turn inwards.” And according even to Henry Kissinger, the definition of the U.S. national interest in the emerging era of multipolarity would be different from the two-power world of the Cold War—“more discriminating in its purpose, less cataclysmic in its strategy and, above all, more regional in its design.”

Notwithstanding all this, and no doubt to his own surprise and chagrin, Tarnoff’s remarks started a firestorm of fear and indignation almost the moment reports of his background briefing hit the press. As one Australian newspaper correspondent observed at the time, “the reaction to his words could scarcely have been more dramatic if he had stripped naked and break-danced around the room.”¹

Talking heads denounced not just Tarnoff but the new President for whom he spoke as “isolationist” and “declinist”; some beheld a “creeping Jimmy Carterism” with an Arkansas accent. Foreign embassies went into overdrive as diplomats relayed the news back home. The White House quickly attempted to distance itself from what its press secretary dismissed as “Brand X.” The Secretary of State, Warren Christopher, stayed up all night making personal phone calls to journalists and appearing on late-night television to reassure the world that America’s global leadership role was undiminished. In a hastily rewritten speech, Christopher pointedly used some variant of the word “lead” 23 times. Meanwhile, rumors swirled that the official (only later identified as Tarnoff) was about to lose his job. Yet for all his allegedly neo-isolationist sins, the hapless official remained employed. No apology or explanation was forthcoming.

How Can I Possibly Be Free?

2014-01-10T15:51:00.001+02:00

Without baggage, there would be no content

By Raymond Tallis

This essay is an attempt to persuade you of something that in practice you cannot really doubt: your belief that you have free will. It will try to reassure you that it is not naïve to feel that you are responsible, and indeed morally responsible, for your actions. And it will provide you with arguments that will help you answer those increasing numbers of people who say that our free will is an illusion, or that belief in it is an adaptive delusion implanted by evolution.

The case presented will not be a knock-down proof — indeed, it outlines an understanding of free will that is rather elusive. It is of course much easier to construct simple theoretical proofs purporting to show that we are not free than it is to see how, in practice, we really are. For this reason, the argument here will take you on something of a journey.

That journey will provide reasons for resisting the claim that a deterministic view of the material universe is incompatible with free will. Much of the apparent power of deterministic arguments comes from their focusing on isolated actions, or even components of actions, that have been excised from their context in the world of the self, so that they are more easily caught in the net of material causation.

There is another challenge arising from a deeper argument, which seems to hold even if the universe is not deterministic — namely, that unless we are self-caused, we cannot be held responsible for what we do. To answer this challenge, we must find the key to freedom in first-person being — in the very “I” for whom freedom is an issue, the “I” who is capable of orchestrating the sophisticated intentions, choices, and actions required to, for instance, publish an essay denying its own freedom. The demand for complete self-causation places impossible requirements upon someone before he can count as free — requirements, what is more, that would actually empty freedom of its content and hence of any meaning.

Central to the defense of freedom against the challenges of determinism and the requirement for total self-determination will be to see how it is that we are, rather, self-developing — as when we consciously train the mechanisms of our own bodies to carry out our wishes even without conscious thought — so that we are able to make natural events pushed by natural causes the result of human actions led by human reasons.

We must start by characterizing the freedom that we are concerned with. First, if I am truly free, I am the origin of those events I deem to be my actions. Consequently, I am accountable for them: I have ownership of them; I own up to them. Second, they are expressive of me, in the sense that they cannot be separated from that which I feel myself to be. In this regard, they are connected with my motives, feelings, and expressed aims. My actions can be made sense of biographically.

But it is not enough that my actions originate with, and are expressive of, me. I would not be free if all my willing just brought about what was already inevitable. A truly free act is also one that deflects the course of events. So I am free if, as a result of many actions that are themselves free to deflect the course of events, and of which I am the origin, I have an important hand in shaping my life. This is what is meant by “being free.”

Freedom, Determinism, and Moral Responsibility

There are many versions of the deterministic argument against free will, but the most straightforward one is as follows. Since every event has a cause, actions, which are simply a subcategory of events, also have causes. Furthermore, the causal ancestry of actions is not confined to what we would regard as ourselves, because we ourselves are the products of causes that are in turn the products of other causes ad infinitum. The passage from cause to effect is determined by unalterable laws of nature. For a determinist, even intentions are simply another means by which the laws of nature operate through us. In short, we are not the origins of our actions and we do not deflect the course of events, but are merely conduits through which the processes of nature operate, little parishes of a boundless causal web arising from the Big Bang and perhaps terminating in the Big Crunch.

Most philosophers, then, think that physical determinism is incompatible with free will. The incompatibilists fall into two camps: the libertarians who save freedom by denying determinism, and the skeptics who affirm determinism and so deny freedom. As we will see, however, there is reason to believe that determinism and free will are compatible, since determinism applies only to the material world understood in material terms.

The traditional deterministic arguments against free will have recently been dressed up in some very fancy clothes. Evolutionary theory, genetics, and neuroscience have been invoked in combination to create what we might dub “biodeterminism.” According to biodeterministic thinking, our behavior originates in the evolutionary imperative of survival: it is the unchosen result of the fact that we, and in particular our brains, are so designed as to maximize the chances of replicating our genome. Primarily through their phenotypical expression in our brains, it is our genes, not we, that call the shots.

The attacks on free will that arise from neuroscience go beyond evolutionary psychology, and any adequate account of them would require far more than the space of this essay. But there is one particular set of observations that has captured the deterministic imagination and deserves special scrutiny: those made by the late University of California, San Francisco neurophysiologist Benjamin Libet on the relationship between intention and action. For a long time, it has been known that the mental preparation to act is correlated with a particular brain wave — the so-called “readiness potential.” In Libet’s experiment, the action studied was very simple. Subjects were asked to flex their wrists when they felt inclined to do so. They were asked also to note the time on a clock when they experienced the conscious intention to flex their wrists. Libet found that the readiness potential, as timed by the neurophysiologist, actually occurred before the conscious decision, as timed by the subject. There was a consistent difference of over a third of a second.

The interpretation of these findings has been a matter of intense controversy, much of it over the methodology. Some have argued that, since the brain activity associated with certain voluntary actionsprecedes the conscious intention to perform the actions, we therefore do not truly initiate them. At best, we can only inhibit ongoing activity: we have “free won’t” rather than “free will.” But many others have denied even this margin of negative freedom and have seen Libet’s experiments as confirming what we feared: that our brains are calling the shots. We are merely the site of those events we call “actions.”

Another attack on the notion of free will, from Galen Strawson, a professor of philosophy at the University of Reading, goes beyond the arguments from determinism and purports to prove the inherent impossibility of freedom and moral responsibility so long as we are not self-caused. Strawson’s basic argument, articulated in numerous articles and books, can be understood as a syllogism: First, in order to be truly morally responsible for one’s actions, one would have to be causa sui, the cause of oneself. Second, nothing can be causa sui, the cause of itself. Therefore no one can be truly morally responsible. Performing acts for which one is morally responsible requires, Strawson argues, that we should be self-determining — but this is impossible because the notion of true self-determination runs into an infinite regress.

Strawson’s argument is flawed, as we shall see, because its premises are flawed. But it is nevertheless useful because it clarifies the underlying force of deterministic arguments: that whatever I am has been caused by events, processes, and laws that I am not — and that in order to be free, I have to escape having been caused. Strawson’s argument is the reduction to absurdity of deterministic assumptions, for in the end such arguments require that in order to be free, I have to escape being determined, and in order to escape being determined, I have to have brought myself into being — but in order to have brought myself into being, of course, I have to be God. If I am to be responsible for anything that I do, I have to be responsible for everything that I am, including my very existence. Since I cannot pre-exist my own existence so as to bring my existence about, this is a requirement that cannot be met.

This argument from self-determination will be dealt with by looking a little harder at the question of whether or not a self is causa sui, and, closely related, at whether a self’s actions can be seen as expressing itself. A self is certainly not the cause of itself overall and ultimately — but it is the cause of itself in a way that is sufficient to underpin free will.

The Origins of Actions in the Contents of Consciousness

The case for determinism will prevail over the case for freedom so long as we look for freedom in a world devoid of the first-person understanding — and so we will have to reacquaint ourselves with the perspective that comes most naturally to us. Recall that, if we are to be correct in our intuition that we are free, the issue of whether or not we are the origin of our actions is central. Seen as pieces of the material world, we appear to be stitched into a boundless causal net extending from the beginning of time through eternity. How on earth can we then be points of origin? We seem to be a sensory input linked to motor output, with nothing much different in between. So how on earth can the actor truly initiate anything? How can he say that the act in a very important sense begins with him, that he owns it and is accountable for it — that “The buck starts here”?

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http://www.thenewatlantis.com/publications/how-can-i-possibly-be-free