Monthly Archives: March 2015

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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