Blood on his Hands

KrugmanLast week, there was a violent protest at ECB headquarters in Frankfurt. Since the Greek debt crisis, we have seen simmering violence all over Europe. These young people have a right to be angry. Their prospects have indeed been wrecked by failed fiscal policies. Unfortunately, they are protesting in the wrong city. They should be in Rome and Athens, demanding the return of capitalism.

The kids think they are protesting against “austerity,” which simply means that the government is no longer able to support them. They also can’t get jobs, because socialism has destroyed their economy. Their governments – Portugal, Italy, Greece and Spain – are bankrupt. Historically, when your government runs out of money, the social transfers have to stop.

That’s what happened in every other sovereign debt crisis. We had the Asian debt crisis, the Mexican crisis, and sundry other peso crises. In each case, the IMF lent a little money, and then demanded they get their accounts in order. They didn’t call it austerity. The natives called it “imperialism,” but – they needed the money. An IMF loan with strings attached is still better than being flat broke.

Emerging market policymakers were faced with economic advice that suggested many years of austerity and unemployment … [but] when the crisis hit at home, Western economists were much less willing to accept the pain – Rajan

Now, however, there is a new narrative. Other countries are lending to the PIGS, and the ECB is creating fresh money. Thus, Europe’s young people have been told, there is no need for austerity. If the EU and the IMF (and the hated Germans) insist upon getting paid back, and the ECB fails to print enough Euros, then they are the villains – not the corrupt politicians back home.

The kids are protesting against “austerity,” as if there is an alternative. In the real world, there is no alternative. When you’re broke, you’re broke.

The euro area is not a political union of the sort where some countries permanently pay for others – Draghi

So, who told them that austerity was a punishment imposed by the troika? Who gave them the intellectual support for throwing acid on the police? Paul Krugman. Because of Krugman’s dogmatic and increasingly unhinged musings, real people got hurt. The blood is on his hands.

Krugman is still calling for free money, while respectable economists have moved on. Even Christine Lagarde, in her latest address, said the time had come for structural reform. The national bank of Sweden has told Krugman to mind his own business. Ironically, this is the same outfit that awarded him the Nobel Prize in 2008.

You would wish when [Krugman] says this – that Sweden looks like Japan – that he write fewer articles and have more of a look at the data … it doesn’t make him come across as a guy who is very well informed – Jansson

This is the problem with being a pundit. Sometimes you’re too busy writing polemics to mind the actual data. Just last month, we caught the professor in a freshman blunder over chart scaling.

Keynesians like to think they’re “evidence based,” but the evidence is that six years of accommodation have harmed savers, enriched the banks, distorted price discovery, and not solved the Euro crisis. Structural reform would have meant a short, sharp recession, followed by a strong recovery. We can’t prove the counterfactual, but we can state the current situation with certainty.

More than six years after the start of the Great Recession … unemployment remains high and inequality has increased. This is why we need a decisive push for structural reforms – Lagarde

We are now six years into a weak recovery (in America) and a triple dip recession in Europe. The central bankers have no dry powder for the next downturn, interest rates have gone negative, and – did we mention the violence? The only Keynesian prediction coming true right now is the one about easy money and the end of capitalism.

Professor Krugman accused the Riksbank of “sadomonetarism.” He has coined “austerian” as a play on the Austrian school of economics – which school, by the way, is what separates the prosperous North of Europe from the bankrupt South. It must be fun to sit in an ivory tower and make jokes, while his followers throw petrol bombs in Europe.

See also: You Say You Want a Revolution

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Toward Better Democracy

The Greek people voted, fair and square, to receive more bailout money from Germany. If Chancellor Merkel does not accede, that means she lacks respect for “democratic values.” Obviously, the Germans don’t see it that way.

Buttonwood wrote a nice article on the limitations of democracy. You cannot vote to have manna fall from the sky (or Germany). Many economic factors lie outside a nation’s control. The best we can do is elect leaders who are competent to play the hand we are dealt, and honest enough to tell us where we stand (see President Superhero).

Jeremiah happened to be passing through Hong Kong at the time of the protests, and heard many cynical things said about democracy. One that stands out is the idea that people would begin voting for government handouts, and mighty Hong Kong would become a welfare state. No kidding – it was exactly like the famous (and apocryphal) quote from Professor Tytler.

The majority always votes for the candidates promising the most benefits from the public treasury, with the result that democracy always collapses over loose fiscal policy.

Additional cynicism about democracy can be found in the Chinese press, or Chinese comments on Western news sites. We found this gem, below, among the comments on FT. Danny Quah quips that not all American elections are swayed by money – only 94% are.

Democracy is about giving the dictatorship mandate to the winner of a money backed popularity contest.

Those of us who would defend democracy, and especially those who would advocate democracy in other countries, need to be a little more discriminating in our arguments. We are used to thinking of democracy, freedom, and prosperity as a package deal. Jeremiah believes that there is synergy among the three, but the causal relationships are not clear cut.

Policy

Plenty of people would be willing to accept a dictatorship, as long as it delivered consistent improvements in their quality of life. This is basically the deal the Chinese Communist Party has. Many Americans are oblivious to the problems in our republic, for the same reason. They will sit up and take notice only as each one, individually, starts to feel the pinch.

The fatal problem with democracy is the fiscal one – people voting themselves largesse from the public purse – but we may dispossess our fellows in other ways, too. The majority may vote to rob from “the rich,” and rob from future generations. We may also vote to abridge the civil rights of any group that is a minority, from gays to atheists. This makes democracy the tyranny of the majority.

Democracy is also open to tampering. There is the obvious influence of money, and the fiendishly clever marketing it can buy. Domestic money is bad enough, plus we have illicit foreign money. We have incumbency bias, and gerrymandering. We have voter fraud. The mere ceremony of voting does not even deserve to be called “democracy,” witness the sham elections held by dictators around the world.

Accountability is all we ask of political leadership. Everything else is just narrative.

What we really want is freedom, and the rule of law. We accept democracy as a reasonably effective way to change leadership without the trouble of a revolution, which is what Danny Quah means when he says that “every government, every ruler, must be daily insecure.” He makes an intriguing argument that Western democracies are less accountable than the CCP.

So, in the spirit of removing the mote from our own eye, here are some ideas to make democracy safe for the world:

  • Representative democracy – As everyone knows, direct democracy is unworkable. That’s why we vote to elect legislators, who in turn vote to make laws.
  • Picked candidates – Hong Kong will have free elections, among four or five candidates picked by the CCP. Of course, no one elected the CCP. On the other hand, come 2016, we will have only two choices for president, and – who picked them?
  • Weaker executive – We should not be electing a dictator. America has only two parties because of the Manichean struggle to control the White House. Our executive branch has far more power than befits a “democracy.”
  • Restrict voting on fiscal matters – This would address the Tytler problem directly, and you can read it implicitly in Art. I, Sec. 2 of our Constitution. States that pay less tax, have fewer votes. For individuals, this could mean that if you are not paying taxes, you don’t get to vote on how taxes are spent.
  • Restrict advertising – Jeremiah would like to see political advertising banned from television. That would eliminate a big cost factor behind money politics. Even if people see the same stuff on YouTube, they would at least be more actively engaged.
  • Smaller scales – Chinese democrats, take note. Democracy doesn’t scale! People seem to have forgotten this since 1787. Nothing in our Constitution contemplates a national government. The States were intended to be sovereign. Most of our fiscal (and social) problems come from federal overreach.
  • Fewer elections – Limiting elected officials to a single term in office would prevent them trying to make a career of it, and avoid having to raise funds for reelection. Congressional terms might need to be increased, say, to six years.

The charm of democracy is the idea that each individual, making his mark in the voting booth, has some say in how we are governed. Rather than cling to the trappings and the rhetoric, we should start working on the reality.

See also: The People’s Ice Cream

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There Ought To Be a Law

Have you ever seen a motorcyclist riding without a helmet, and thought to yourself, “that dumb bastard – that ought to be illegal?” If so, you might be a statist. Statism is a policy preference for controlling people’s behavior by law. Liberalism, in the classic definition, is the idea that people should be free to do as they please, unless their actions impinge on others.

20150210_statismThe motorcyclist is a policy grey area. If he doesn’t have medical insurance, then his carelessness could become a cost to society. The way to fix that is not to require a helmet, but to require insurance. Seat belt laws are similar, and gave us one of the all-time great statist slogans, “it’s not just a good idea – it’s the law!”

Your family and friends may grieve if you crash through the windshield, but – is that the government’s business? What about side impacts and immersions, where the seatbelt becomes a hazard? Is the government responsible if a regulation causes your death? Jeremiah knows someone personally whose life was saved by not wearing a seat belt.

These are trivial examples, but you can see the progression. What about a woman’s right to an abortion? What about cancer patients who wish to try unorthodox treatments? What about keeping your kids out of public school? Smoking pot? Drinking raw milk?

Statism is, at best, a form of policy laziness. Every problem can be solved simply by more mandates and more limitations on personal freedom. Let’s take vaccination as an example, because it actually does present a case for state intervention.

If you omit to vaccinate your kids, they will likely be protected as long as everyone else vaccinates theirs. Other families incur whatever costs and risks are involved, and you ride free. This is what economists call a “commons” problem. A commons problem cannot be solved by free exchange and rational self-interest. Some kind of mandate is needed.

There is a broad and complex spectrum of parents who are vaccine-hesitant or vaccine-uncertain. The common thread among all parents is that they’re trying to do what they feel is best for their children.

So, why do people resist? They deny the science and resist the mandate because they distrust the federal government. The federal level is simply too high, and a federal mandate too broad, to persuade parents that their health concerns have had a fair hearing. A vaccination mandate at the state level would have more credibility. This might be less effective but, as long as each state had some kind of standard, it would be adequate.

The logical unit of legislation for this issue is maybe the school district, or even the individual school. Here, we run into the related problem of federal intervention in local education policy. Imagine, though, that there is a free market for primary education (it’s easy if you try). In this system, parents would choose where to send their kids – according to a variety of factors, including health standards.

If one school is lax on vaccinations, parents won’t want their kids going there. They’ll demand to know that all the kids have had their shots. If the Christian Science school eschews vaccinations entirely, parents will note the occasional outbreak – and draw their own conclusions. At the other extreme, schools that go overboard may encounter some of the side effects feared by the anti-vaxxers.

Remember that this is not an all or nothing decision.  There are several different vaccines that can be organized into a variety of schedules. Over time, schools and parents would discover which schedule provides the best mix of costs and benefits.

This is an organic, grass roots, style of decision making. It assumes that people are capable of taking responsibility and making their own decisions. It contrasts with the top down, “command and control,” approach favored by the statists.

The vaccination example shows two principles of the liberal approach, 1) delegate the decision to the lowest possible administrative level, which might be the individual, and 2) match the costs to the actual outcome. The first principle should be pretty clear, and it is referenced in the Tenth Amendment.

The second principle says that the people who use a bridge, pay for the bridge. The toll should exactly support the bridge’s operation and maintenance. If you want to ride without a helmet, you should pay the actuarial cost of a typical head trauma. If you do or do not want to vaccinate your kids, the result should be confined to your group of likeminded families.

Statism starts with banning sugary drinks (for your own good) and then we start down a slope that includes telling the neighbors how to raise their kids – and going to the police if they disagree. Censorship and surveillance are part of the program. Statists believe that they know what’s best for you, and the police should enforce it.

State control of personal decisions flows together with state control of commerce. Together, they form a powerful central bureaucracy, rich with opportunities for cronyism and corruption. Most statists are simply busybodies who enjoy telling others what to do. The leaders, though, are in it for money and power.

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Conspiracy Duckspeak

We were struck by this headline, Conspiracy Theories Abound in Nemtsov Murder. Jeremiah is intrigued by the increasing use of “conspiracy theory” to designate views outside the accepted mainstream. He has debunked a few, as here, and supported others.

The mainstream view is that the Putin regime was behind the murder. The conspiracy view is that some group of agitators, like the Ukrainian resistance or Russian nationalists, killed Mr. Nemtsov as a provocation. There are plenty of motives to embarrass Putin and goad Russia into some course of action or another. As for means and opportunity, President Putin is much more likely to arrest his enemies than to have them shot dead on a high street in Moscow.

This is not to play armchair detective. On the contrary – at this early stage of the investigation, no one should rush to judgment, and no theory should be dismissed out of hand. What we would like to see, as a gesture of good faith, is an invitation for German experts to participate in the investigation.

A right-wing media star drops dead… a coroner’s technician dies weeks later… right-wing blogs erupt! Seven months later, we know the technician died from arsenic poisoning.

Here in America, if an outspoken opposition leader dies under suspicious circumstances, the conspiracy theorists are those who suspect the government. Yes, we mean Andrew Breitbart, a strong young man who dropped dead from a “massive” heart attack while walking his dog – hours after making himself inconvenient for the Obama administration.

We might also include reporter Michael Hastings, whose Mercedes exploded after striking a palm tree in Hollywood. Of course, American spooks have the good taste to make it look like an accident – not like that maniac, Vladimir Putin. If you look into any of these stories, including the poisoned L.A. technician, you will read “conspiracy theory” prominently in every one.

Note the symmetry here. Of suspicious deaths in America, the crazies are those who suggest the government might be involved. Of suspicious deaths in Russia, the crazies are those who suggest the government might not be involved. That’s because political assassinations don’t happen in America. Right?

All of this just goes to show that you must make up your own mind. Some theories are indeed crazy, but when the press tells you a theory is crazy – that just shows whose pocket they’re in. Globalism, for instance, is a strong movement with institutional support and outspoken advocates – yet, for some reason, people outside the movement cannot talk about it without sounding crazy.

In the end we shall make thoughtcrime literally impossible, because there will be no words in which to express it.

This is a lot like the way the government controlled speech in Orwell’s 1984. Their language was designed so that it was grammatically impossible to express dissent. Anyone who tried, would sound like an idiot. They called it duckspeak. We call it conspiracy theory.

See also: Written by the Victors

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Take the Red Pill

MorpheusMany people still get their news from television, at home and in public spaces like bars and airports. While CNN is not the most watched news here in America, it is regarded as the American news station of record overseas. What they know about us in Europe, for example, they know from CNN. Not the facts, mind you, but the spin. International viewers know that our news reporting is strongly influenced by government PR efforts, and so they watch to learn what those are.

Amber Lyon, a correspondent at the network, claimed in 2011 that she had been instructed by CNN to ensure her reports helped sway US opinion towards supporting an attack on Syria, and even Iran.

Imagine two traveling businessmen watching CNN in the airport lounge. One is an American, the other from Central Europe. While Jeremiah is blithely watching the news and checking his email, Ivan sees American propaganda. Anita Dunn boasted of having total control over the news media and, of course, retired White House spokesmen invariably end up working for CNN. Russians used to call it the Clinton News Network.

Cynicism about the news media increases as you travel eastward across the continent, maybe due to Eastern Europe’s experience with Soviet propaganda – or maybe due to less material wealth. As long as there is a chicken in every pot, people are willing to believe the party line. This “prosperity theory” of propaganda may explain why modern Russians are losing their edge, and why Americans are so completely obtuse.

Jeremiah regularly coaches you to seek out new sources of opinion, like the blog links at right. If you must watch TV news, here are some suggestions:

  • Al-JazeeraAl Jazeera brings you much broader coverage of the world, and much more intelligent coverage of the Middle East. They have a certain “perspective,” of course, which you must take into account – but so does any other news station. In fact, we found a surprising level of objectivity here, on the Gaza conflict.
  • Russia Times – “RT” keeps trying to brand itself as something other than Russia Times. They have a strong anti-American bias, and you will see direct rebuttals of our foreign policy pronouncements – Sergey Lavrov calling John Kerry a liar, for example. We like it for coverage of police and surveillance abuses which, obviously, are hushed up here at home.
  • Fox News – We started taking Fox seriously when the administration started bitching about it. This is the voice of the opposition, and the only place on TV where you can hear that. The mainstream has also, foolishly, allowed Fox to acquire a monopoly on libertarians. The schedule is here. We recommend Special Report, which is a traditional news hour format.

As patriotic Americans, we believe in our country. We also want to believe in our government, and hope that its policies are right. Blind faith, however, does not serve our cause. It is our job, as voters and activists, to critique the policies and correct the politicians. We can’t do that job if we allow ourselves to be fed a steady diet of bullshit on the television.

See also: U.S. ranks 46th in press freedom

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American Gulag

There is some scary stuff going on with law enforcement in America. Last week, we reported on civil asset forfeiture, and now the leading practitioner of this nefarious program has been nominated for Attorney General. We have been following the trend of police militarization and, today, we bring dispatches from America’s carceral state. Meanwhile, habeas corpus looks like it’s gone forever.

Now, in our outsourced, corporate gulag, you can be locked up and never see your family again – at least not live. The new thing is prison visits on low-def video, for which your loved ones will pay a premium. That means more revenue and lower costs for the prison industrial complex. If you have ever had the experience of a prison telephone visit, you know what a cruel scam it is. Video calls will certainly be worse and, no – they are not allowed to visit in person.

America has about 5% of the world’s population but almost 25% of its prisoners, with the world’s largest number of inmates and highest per capita rate of incarceration

Law and order types say that prison is intended to be punishment. We refer them to the Constitution’s prohibition of “cruel and unusual” punishment, and the Supreme Court’s ruling against California. Ironically, while California is generally a liberal state, it is also broke. The Supreme Court found that extreme overcrowding in Californian prisons amounted to something like torture. Prisoners are left to die from agonizing diseases. If you’re one of these law and order types, go ahead and read the judgment.

The answer to overcrowding is not simply to build more prisons. We incarcerate more people, per capita, than any other civilized country – by a wide margin. See chart below, and this wonderful infographic from Pew. There are 2.5 million Americans behind bars. If the “carceral state” were actually a state, it would be our 36th largest, just behind Nevada. In his book, Jonathon Simon makes the case that mass incarceration is fundamentally at odds with the Eighth Amendment.

Prison Chart

The answer, in terms of policy choices, is blindingly obvious. As judge Morris Hoffman writes, “there is a large body of criminological research that shows that just a handful of criminal law doctrines — including three-strikes laws and mandatory minima for simple drug possession — drive sentences substantially higher than the average citizen believes is just.” The ACLU should be campaigning hard against these doctrines.

Just a handful of criminal law doctrines — including three-strikes laws and mandatory minimums for simple drug possession — drive sentences substantially higher than the average citizen believes is just.

Behind the doctrines is a sinister convergence of interests between “law and order” politicians and commercial interests. Politicians can reduce crime by budgeting more money for law enforcement or, more cheaply, by passing tough sentencing laws. Like pension commitments, these laws create unfunded liabilities that come due after the politician is gone and the prisons are full. Yes, in America people really do serve life in prison for marijuana.

[Supreme Court Justice] Kennedy… called it “sick” that the state’s prison-guards union had sponsored a notorious ballot measure that … now keeps far too many Californians locked up.

The commercial interests include private prison operators, subcontractors, and – for public prisons – the prison guards’ union. These are groups who profit from a large prison population. They lobby very effectively for long sentences, and against rehabilitation. Corrections Corp. has annual revenue of $1.6 billion, and is currently rated a strong buy. See stock chart, below.

CXW Chart

This is not to say that private prisons are bad, operationally, but it does mean that we have a system of perverse incentives. Instead of rehabilitating people, we have incentives to warehouse them cheaply for as long as possible. As with much else in government, this boils down to cost accounting. We do not hold our leaders to account for the economic and social costs of their decisions.

It was nice to see the Supreme Court rule on this, but it took an extreme case. We, the voters, should be taking action. Otherwise, we can add the Eighth Amendment to the growing list of “rights we used to have.”

See also: End Mass Incarceration Now

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Greek Debt Dilemma

We heard that Greece’s new finance minister, Yanis Varoufakis, is an expert on game theory, and we thought it would be fun to analyze the Greek debt crisis from that perspective. Patrick Young says the EU is in a lose-lose predicament, and that certainly sounds like applied game theory.

On one horn of the dilemma (a Greek invention) the EU may accede to Varoufakis’ demands for restructuring. Some of these demands are quite extreme, like growth linked bonds, perpetuities, a bridge loan, and more haircuts. If the EU blinks or, more accurately, if the troika blinks – then the other bailout countries will want the same concessions. Also, as Patrick Young says, it would be unfair to countries like Ireland, which took the medicine.

Germans at all walks of life are sick and tired of seeing their own municipal facilities closed down … bailing out the Greek economy to the tune of €700 per family. That’s a transfer payment the Germans didn’t sign up for.

Morally, this is where Jeremiah stands. Estonia lived through an internal devaluation and emerged stronger for it. Someday, some Greek government will have to make reforms – to cronyism, tax evasion, and unsustainable social spending. Germany seems to be the only fiscally responsible country over there – and they’re pilloried for it. Jeremiah’s moralizing is not the topic, however. We’re talking about game theory.

On the other horn, if the troika plays hardball – halting the ECB collateral waiver, suspending the next tranche of bailout cash – then Greece will be “forced” to exit the Eurozone, and maybe the Union. We put “forced” in quotes because, at this move in the game, Varoufakis would not accept the troika’s terms. Greece would exit, and play the victim. Of course, as Thomas Schelling will tell you, the key is to make sure the troika knows you’re not bluffing.

This is where the IMF comes in. Exiting the euro has always been the right answer for Greece (see this comparison with Argentina). They’re in primary balance, and they could easily implement the three D’s – drachma, default, and devaluation. There would be some pain, but Greece has already endured some seven years of pain. If they had exited right away, they’d be back in the bond market by now. However, like Argentina, they would need help from that lender of last resort, the IMF.

The government quickly collapsed and was replaced by one that devalued the currency and defaulted on the country’s debts … growth resumed a few months later

The IMF is blocking the exit, by cooperating with the EU and ECB. This is because a successful exit, like a successful renegotiation, would also set an undesirable precedent. Spain would be next, the Eurozone would dissolve, and the IMF would have to fund more emergencies than it can handle. It would be the capital equivalent of a refugee crisis. If Greece were to exit, the troika would prefer them to crash and burn, pour encourager les autres.

So, when Varoufakis threatens to borrow from China or Russia, this is not as petulant as it sounds. Whether a practical matter or a bluff, he needs a source of funding other than the IMF – and the IMF has done a lousy job of including emerging economies. Small wonder that China is willing to lend contrary to Western preferences. We wonder, by the way, if the IMF will be so hardnosed when the time comes for France.

So, while there is no guessing how Chancellor Merkel will play the troika’s hand, the likeliest outcome seems to be a continuing fudge while the EU grinds steadily toward mutualization.  They should arrive at that goal just in time for the whole Union to go bankrupt together. Pyrrhus, another Greek.

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