Economic Escherism.

Gary Becker: Conservative Intellectual Of The Welfare State

By Lawrence Hunter

In a recent Wall Street Journal op-ed, Nobel laureate and Hoover Institution economics professor Gary Becker made a telling comment that revealed the intellectual poverty of Establishment Conservatism in America today:

It is a commentary on the extent of government failure that despite the improvements during the past few decades in the mental and physical health of older men and women, no political agreement seems possible on delaying access to Medicare beyond age 65. No means testing (as in Rep. Paul Ryan’s budget road map) will be introduced to determine eligibility for full Medicare benefits, and most Social Security benefits will continue to start for individuals at age 65 or younger.

Becker is an intellectual heavyweight whose views are enormously influential inside the Washington conservative establishment.  It is, therefore, distressing that rather than offering a post-welfare-state vision for America based on more freedom and less government, Becker offers Establishment politicians suggestions on how to preserve and protect the welfare state—suggestions that only would exacerbate the government failure he laments.

The government failure Becker observes is sown into the very fabric of the redistributionist, interventionist welfare state that created Social Security and Medicare as gigantic government Ponzi schemes.  The dire fiscal straits confronting Social Security and Medicare are merely the surface manifestations of the deeper, inherent contradictions of the majoritarian welfare state.  The welfare state undermines economic growth by perverting incentives to work, save, invest and produce, and replaces these virtues with incentives to take leisure, consume, borrow and parasitize on the rest of society.  Having encouraged man in the worst of his natural vices, the welfare then must try to control these vices with higher taxes and more onerous laws and regulations.

To avert constant fiscal crisis, welfare-state politicians raid the granaries to redistribute society’s seed corn as feed to the entitled masses.  The welfare state thus undermines future economic crops, which in turn leads to economic malnourishment and eventually economic starvation—that is if the welfare state is not first destroyed by its own enraged recipients whom the welfare state no longer can support in the style to which they have become accustomed.  As a preeminent scholar of public choice economics, Becker should understand these grim realities rather than urging politicians to seek some oxymoronic optimal redistribution through more government coercion.

Rather than going to the heart of the problem with the redistributive welfare-state — coercive government redistribution and all of its instrumentalities are morally wrong and economically self-destructive even for the supposed beneficiaries—Becker would lead us to believe a bit of tinkering and fiddling about the edges of a fatally flawed design can make the welfare state sustainable.  Becker-type “solutions” to fixing up the welfare state, which currently abound among establishment conservatives, are nothing more than disguised efforts to build an economic perpetual motion machine, to hang the superstructure of the welfare state from a sky hook, to thwart the Second Law of Thermodynamics by sneaking Maxwell’s Demon onto the congressional budget committee through the backdoor to sift and sort budget priorities. This isn’t sound economic design; it is Economic Escherism.

Stripped to its essence, Becker’s “solution” for Medicare and Social Security is just another scheme to save the welfare state by expanding the base of the Ponzi pyramid on which it rests—can you hear the words “tax reform” tinkling faintly in the background?

If Social Security and Medicare were structured as real, asset-based retirement-insurance plans in which benefits were an actuarially sound function of workers’ contributions to the plans throughout their working years, there would be no need (no right) for government to determine when workers retire nor would government have any legitimate interest in restricting workers’ payback from the plans on the basis of their means (wealth and income) at retirement.  In other words, Becker’s “solutions” reveal a fundamental commitment to coercive redistribution—the central organizing principle of the welfare state—and to the preeminence of the fiscal interest of the state over the financial interests of individuals—the central normative value of the welfare state.

Since George W. Bush poisoned the well on personal retirement accounts, the GOP has abandoned any effort to transform Social Security and Medicare into an asset-based retirement system based on workers’ real private investment in real assets they own. Paul Ryan made a gesture in that direction with his voucherized Medicare proposal, but he couldn’t see beyond his green eyeshade as Chairman of the House Budget Committee.  So he made the mistake of designing and justifying it as a budget-cutting exercise that actually expanded the reach of the welfare state and increased the government’s control over seniors’ health care choices.

Rather than transforming Medicare and Social Security into post-welfare-state retirement-insurance programs, Becker-style fixer-upper schemes serve only to expand and deepen dependency on government through tax hikes, price controls, rationing, means testing and benefit cuts, what I referred to in an earlier column as “perestroika reforms” to preserve the welfare state as we know it.  It is the GOP’s attempt to transform the New Deal into its own version of The Great Society with a stern Republican face, and it is destined to fail, politically as well as fiscally.

Politicians are addicted to spending and the power it brings them, which in turn has addicted the American people to government. Republican politicians think they can feed their own addiction to power by suddenly forcing dependent Americans, especially American seniors, to go through cold-turkey-austerity rehabilitation and then minding their P’s and Q’s on the dole. It won’t work. It will only cause social backlash.

When people perceive conservatives’ alternative to the welfare state to be a sort of Collectivism-Lite with an authoritarian twist, they will reject the conservative establishment’s thin gruel and demand the real deal from liberals whom they will vote into office by a landslide.

It is time conservatives woke up to the fact that average Americans are not interested in ravishing Social Security and Medicare, turning them into welfare programs, being forced to work into their seventies and receiving a lower rate of return for their efforts than they already are scheduled to receive.  If they don’t wake up, the political blowback will blow the conservative Grand Old Party away. The result will be an even more liberal Democratic Party unleashed to expand the welfare state, deepen dependency on government, launch Blitzkrieg class warfare and take America further down the path to ruination.

In short, intellectuals and politicians can’t save the welfare state by making it a worse deal for people; they will only make America a worse place to live if they try.

Germany is finished.

Götterdämmerung 

by DETLEV SCHLICHTER

What disturbing and nauseating image greeted us this morning from the covers of the morning papers: a smiling and moved Angela Merkel surrounded by a bunch of suited, self-satisfied, sycophantically grinning parliamentarians happily signing their country’s economic future away, burdening their fellow countrymen and women with financial obligations the grotesque size of which have long ago surpassed the average German’s grasp of large numbers – all in the name of Germany’s “responsibility for Europe”, and for personal political ambition, a commitment to party unity, the impulse to follow orders, that sort of thing.

 Glueckwunsch, gut gemacht.

The whole thing is surreal beyond belief.

What lie did I tell yesterday?

The “rule of law” is not an accurate translation for the German phrase “Rechtsstaat”. The difference is more than semantic and reveals very distinct legal traditions. In any case, it doesn’t matter anymore. Neither concept still applies to Germany. The political class is lying and breaking laws and contracts at will. Political expediency rules.

As the German professor Stefan Homburg pointed out in this interview with the German daily Sueddeutsche Zeitung, EVERY rule that was designed to guarantee the financial stability of the eurozone has now been broken: the Maastricht limits to public debt, the ban on government-funding via the ECB, the no-bail-out provision.

Frank Schaeffler, one of the few dissidents, reminded his fellow parliamentarians in his speech in the Bundestag yesterday, that Chancellor Merkel had told them as recently as October 27, 2010, that the bailout facility would definitely be terminated in 2013, and that this would be the end of it. That was obviously not true. And the statement yesterday that the German public will not be asked for more money was equally a blatant lie.

For just as Merkel’s spineless supporters smilingly threw another €250 billion ($330 billion) – or roughly 10 percent of Germany’s GDP – on the country’s ever-growing debt-pile, the international commentariat and the global bureaucratic elite had already moved on, openly suggesting and discussing their desire for a MUCH BIGGER bailout fund. The FT’s resident statist and inflationist Martin Wolf, who I quote here, is the perfect example. “Europe needs a much bigger bazooka.” Probably several trillion Euros.

Surreal. Surreal.

It is, of course, only a matter of time until Germany will lose its AAA-rating. Its obligations to the euro- project will undoubtedly finish it off fiscally. What’s the endgame?

Currency collapse, of course. Logically, in a system in which certain politically favoured entities are never supposed to default, the printing press is the last line of defence against the sustained onslaught of the laws of accounting and arithmetic. The pressure on the ECB – which has broken all of its own rules of good central banking already – will intensify. By leveraging the EFSF it will ultimately accommodate, via the printing press, the bailout of sovereign states – or, more precisely, the bailout of the careless lenders to states, the banks, which are the real beneficiaries of this bailout frenzy. This is Weimar Republic all over.

Professor Homburg is brutally honest. Government finances have never before been this bizarrely stretched at times of peace. So the best guide for what is in store for us is what happened at the height of war efforts. The state simply takes what it thinks it needs. We will see massive market intervention (several countries extended their bans on short-selling of certain stocks last week), capital controls (the financial transaction tax is a splendid starting point), aggressive taxation and outright confiscation.

In the final chapter of my book Paper Money Collapse – The Folly of Elastic Money and the Coming Monetary Breakdown I identify one of the final stages of a fiat money crisis as the nationalization of money and credit. We have entered that phase.

The short of the century?

Maybe there is a bit of (paper) money to be made from Germany’s demise by shorting German government bonds, Bunds, via the futures market, at least for as long as we are allowed to do so. I don’t have the trade on yet but I am getting closer. I think this will soon be the short of the century, combined with shorting U.S. Treasuries. Hedge funds and banks are getting sucked into extreme long positions right now via free money from the central banks and promises of zero rates forever, and the persistence of the cretinous notion that these government bond markets constitute safe havens. When the extent of Germany’s fiscal destruction is fully apparent, the market will turn.

At present prices, I consider gold to be ridiculously cheap.

And one final word to my English friends. No gloating please about the clever decision to stay out of the euro-mess. You have the same thing coning your way without the euro. The coalition’s consolidation course is apparently so ruthless that every month the state has to borrow MORE, not less. Even official inflation is already 5% but pressure is growing on the Bank of England to print more money. See the comical Vince Cable yesterday, or Martin Wolf, the man with the bazooka, in the FT today. Since 1971 the paper money system has been global. Its endgame will be global, too.

Back to Germany’s professor Homburg. Is there a way out for the common man?, the professor was asked by the interviewer. No, he said. Best to adopt a Buddhist attitude and learn how to be happy when poor.

On that note, have a great weekend!

A Quote for every day

"Do something" economists

The fallacy at the heart of this crisis is that every financial problem has a political solution.

             - Jeff Randall

A narrow path to nowhere

Subdividing America—to Win

By P. Buchanan

“Now even as we speak, there are those who are preparing to divide us, the spin masters and negative ad peddlers who embrace the politics of anything goes.

“Well, I say to them tonight, there’s not a liberal America and a conservative America; there’s the United States of America. There’s not a black America and white America and Latino America and Asian America; there’s the United States of America.”

That was state Sen. Barack Obama in his keynote address to the 2004 Democratic convention. His rejection of tribal politics, his stirring call to national unity, vaulted him into the Senate and was the first step on the path that took him to the White House.

Well, that was then, but now is now.

According to The Washington Post, Obama’s 2012 campaign is today busily subdividing the nation into racial, ethnic and religious enclaves for targeted appeals to find a “narrow path to victory.”

Setting one tribe against another, one faction against another, divide and conquer, is among the oldest tactics of politics and war.

The Obama campaign headquarters calls its divide-and-conquer strategy “Operation Vote.” Reporter Peter Wallsten describes it:

“Operation Vote will function as a large, centralized department in the Chicago campaign office for reaching ethnic, religious and other voter groups. It will coordinate recruitment of an ethnic volunteer base and push out targeted messages online and through the media to different groups, such as blacks, Hispanics, Jews, women, seniors, young people, gays and Asian Americans.

“Look for the race card to be played early and often.”

This is tribal politics, pure and simple. Hire blacks, Hispanics, Jews and gays to appeal to and advance the interests of blacks, Hispanics, Jews and gays. And what happens then to the national interest?

Conspicuously absent from this racial-ethnic-religious targeting is America’s majority, white Christians, who are still 60 percent of the nation. Why no outreach to them? Have they been written off?

Obama got 43 percent of the white vote in 2008, a higher share than either John Kerry or Al Gore. But his approval rating among whites has fallen to less than a third; even lower among working-class whites.

If these folks have come to believe Obama has relegated them to the back of the bus, does not Operation Vote confirm it?

And if targeted appeals to race, ethnicity, religion, gender and sexual orientation is the Obama strategy, 2012 will be among the most divisive elections in U.S. history.

Consider. The Jewish vote in 2008 went for Obama 78 to 21—a 57-point margin. But the Democrats’ recent defeat in the heavily Jewish congressional district of Queens, lately represented by Rep. Anthony Weiner, revealed a serious hemorrhaging of support for Obama and his party.

One reason: Ed Koch accused Obama of “throwing Israel under the bus.”

Obama’s full-throated tribute to Israel at the United Nations, which threw the cause of Palestinian statehood and 60 years of Palestinian suffering under the bus, appears a harbinger of what to expect.

With the Jewish vote, critical to victory in Florida, up for grabs, the Palestinians will have few friends in either party. And if they seek a nation-state by going to the U.N. General Assembly, can anyone blame them?

The black vote went 95 to 4 for Obama in 2008. McCain’s share was the same as former Klansman David Duke got running for governor of Louisiana in 1991.

Today, however, black disillusionment with Obama is broad and deep. Unemployment in that community is nearly 17 percent. The head of the Congressional Black Caucus, Rep. Emanuel Cleaver II of Missouri, said that if Bill Clinton were president, he and his colleagues would be marching on the White House.

What kind of “targeted messages” can Operation Vote make to fire up the African-American base against the GOP?

Look for the race card to be played early and often.

Already actor Morgan Freeman has slandered the Tea Party Republicans as representing a “dark underside of America” that is “going to do whatever (they) can to get this black man outta there.”

“It is a racist thing,” said Freeman.

Would this be the same Tea Party that helped elect two black Republicans to Congress from the Deep South in 2010?

At a Black Caucus event, Rep. Andre Carson of Indiana said that the Tea Party Republicans would “love to see you and me ... hanging on a tree.” California Rep. Maxine Waters said the Tea Party “can go straight to hell.”

If, 13 months from Election Day, the debate has deteriorated to this level of invective, 2012 should be quite a year.

What happened to the Obama who gave that moving address in Tucson on civility in politics after “Gabby” Giffords was shot?

Seven years ago, in his keynote cited above, Obama denounced “the spin masters and negative ad peddlers who embrace the politics of anything goes.”

Does not that sound like the evolving Obama campaign, as described in The Washington Post?

The Guardian Atlas

Time to put this morality tale on ice

Greens are using misinformation about melting Arctic ice caps to try to scare us into accepting their reactionary policies.

By Ben Pile 

‘Ice is the white flag being waved by our planet, under fire from the atmospheric attack being mounted by humanity. From the frosted plains of the Arctic ice pack to the cool blue caverns of the mountain glaciers, the dripping away of frozen water is the most crystal clear of all the Earth’s warning signals.’

It’s sheer poetry, from the silver-nibbed pen of the Guardian‘s head of environment, Damian Carrington, writing in the Observer last Sunday. It’s also sheer BS.

Carrington continues: ‘Last week saw the annual summer minimum of the Arctic ice cap, which has now shrunk to the lowest level satellites have ever recorded.’ Is this true? Anthony Watts, who runs the sceptical website Watts Up With That?, has a very useful page linking to sea-ice data. Carrington’s claim matches the record of ice extent produced by scientists at the University of Bremen. However, Watts also provides the equivalent data from five other institutions: the International Arctic Research Center/Japan Aerospace Exploration Agency (IARC-JAXA), the National Snow and Ice Data Centre in the US, the Danish Meteorological Institute, the Nansen Environmental and Remote Sensing Center and the US National Oceanic and Atmospheric Administration. None of these other groups find that 2011 has produced a new record low.

Carrington wanted to give significance to a new record being set. But it seems to have been set only according to one out of six measurements of sea-ice extent. But if he’d mentioned these other measurements, that might have deprived him of his muse. Carrington, the poet, wants to paint a picture of the world, in which its white parts drain away. He wants to convey a feeling, not unlike the disappointment children experience when they see crisp white snow turn into muddy slush. The real picture of the world’s ice, however, requires grown-up eyes.

There may well be a trend towards an ice-free world. But there is still a great deal of sea ice remaining. The 30-year record, which Carrington believes is waving at us, begging for a ceasefire, hardly depicts this drama.

But it gets worse. (It always does.) ‘The lower glaciers are doomed. Kilimanjaro may be bare within a decade, with the Pyrenees set to be ice-free by mid-century and three-quarters of the glaciers in the Alps gone by the same date. As you climb higher, and temperatures drop, global warming will take longer to erode the ice into extinction. But at the “third pole”, in the Himalayas, the ice is melting as evidenced by dozens of swelling milky blue lakes that threaten to burst down on to villages when their ice dams melt.’

As has been widely discussed in recent years, if the ice on the top of Kilimanjaro does disappear, it will not be the consequence of man-made global warming. The glaciers there have been in retreat for longer than can be accounted for by climate change, and the temperatures there are not sufficient to explain the recession as the consequence of melting. The changes in Kilimanjaro are due to changes in local conditions.

As for the Himalayas, Carrington continues: ‘The threat posed is far greater than even this terrifying prospect: a quarter of the world’s people rely on Himalayan meltwater, which helps feed the great rivers that plunge down into Asia. The Yellow, Yangtze, Mekong, Brahmaputra, Ganges and Indus nourish billions and will eventually lose their spring surges.’

Even if we take at face value the claim that a quarter of the world’s population rely on Himalayan meltwater — which doesn’t seem plausible — why should we imagine that they will always rely on the meltwater in the future, whatever the fate of those glaciers? Even if the glaciers melted — which we now know, as a result of ‘Glaciergate’, is a prospect that has been deferred by some three centuries — rain and snow would still fall on the mountains, and make their way to the sea. It should not be beyond the minds and means of a billion or more people in some of the world’s fastest developing countries to find ways of capturing that water and controlling its use.

So what is Carrington up to with all this revision of some of the most absurd global-warming alarmism that has materialised over the past few years? He writes: ‘Perhaps it is because ice is at the cold heart of all our deepest global-warming fears that climate-change sceptics wield their picks so heavily on it. The error by the publicists and cartographers of the Times Atlas, who stated that Greenland’s ice cover had shrunk by 15 per cent since 1999, prompted a renewed sounding of sirens by climate sceptics who saw another example of rampant alarmism by warming fanatics. In fact, it was climate scientists themselves who sounded the alarm, prompting the Atlas publishers to promise a new map would be inserted.’

Aha! Carrington senses that the ‘climate-change sceptics’ have stolen a march. And rather than letting them steal the show, Carrington rushes to make the claim that it was the scientists who saved the day, after all, spotting the error. But if it is important to state which side’s champions were instrumental in identifying the truth, it ought then to be important to state who precisely was responsible for propagating the misinformation in the first place.

As blogger Andrew Montford has pointed out, it was the Guardian’s environment editor, John Vidal, who wrote: ‘The world’s biggest physical changes in the past few years are mostly seen nearest the poles where climate change has been most extreme. Greenland appears considerably browner round the edges, having lost around 15 per cent, or 300,000 sq km, of its permanent ice cover. Antarctica is smaller following the break-up of the Larsen B and Wilkins ice shelves.’

This was ‘churnalism’. Vidal had merely copied the claim made by the press release announcing the Times Atlas publication.

Rather than quiet reflection on their own errors, Guardian environment staff make noisy statements, hoping to recover their credibility. This speaks loudly to the fact that these writers are engaged in a very political debate: they sense that the embarrassment caused by the Times Atlas affair undermines the wholly alarmist argument they have been advancing; they have lost ground to ‘the sceptics’, which must be recovered. Thus, Carrington waxes poetic on what the melting ice portends, before grasping for facts that will give this lyricism some substance. And he grasps for facts that do not bear the weight of the political argument. There doesn’t seem to have been any record set on the Arctic Sea this summer. There is still a great deal of ice left on the world. Kilimanjaro’s glaciers are not victims of climate change. People living beneath glaciers are not so dependent on them. Clinging on to these long-debunked claims is an attempt to keep up appearances: to sustain the view of the debate they have been maintaining for far too long.

It was scientists, not some imagined group of ‘sceptics’, who corrected the Times Atlas error. But in the same way, it isn’t ‘the sceptics’ who embarrassed the alarmist fools at the Times Atlas and at the Guardian; they embarrass themselves.

Chess or Russian roulette ?

Is Turkey Going Rogue?

 

Newly Islamist leadership threatens the entire Middle East.

By Daniel Pipes

In a Middle East wracked by coups d’état and civil insurrections, the Republic of Turkey credibly offers itself as a model, thanks to its impressive economic growth, democratic system, political control of the military, and secular order.

But, in reality, Turkey may be, along with Iran, the most dangerous state of the region. Count the reasons:

When four out of five of the Turkish chiefs of staff abruptly resigned on July 29, 2011, they signaled the effective end of the republic founded in 1923 by Kemal Atatürk. A second republic headed by Prime Minister Recep Tayyip Erdoğan and his Islamist colleagues of the AK Party (AKP) began that day. The military safely under their control, AKP ideologues now enjoy can pursue their ambitions to create an Islamic order.

Ironically, secular Turks tend to be more anti-Western than the AKP. The two other parties in parliament, the CHP and MHP, condemn the AKP’s more enlightened policies, such as its approach to Syria and its stationing a NATO radar system.

Turkey faces a credit crunch, one largely ignored in light of crises in Greece and elsewhere. As analyst David Goldman points out, Erdoğan and the AKP took the country on a financial binge: Bank credit ballooned while the current account deficit soared, reaching unsustainable levels. The party’s patronage machine borrowed massive amounts of short-term debt to finance a consumption bubble that effectively bought it the June 2011 elections. Goldman calls Erdoğan a “Third World  strongman” and compares Turkey today with Mexico in 1994 or Argentina in 2000, “where a brief boom financed by short-term foreign capital flows led to currency devaluation and a deep economic slump.”

Some 15–20 percent of Turkey’s citizens identify as Kurds, a distinct historical people; although many Kurds are integrated, a separatist revolt against Ankara that began in 1984 has recently reached a new crescendo with a more assertive political leadership and more aggressive guerrilla attacks.

In the tradition of Gamal Abdel Nasser and Saddam Hussein, the Turkish prime minister deploys anti-Zionist rhetoric to make himself an Arab political star. One shudders to think where, thrilled by this adulation, he may end up. After Ankara backed a protest ship to Gaza in May 2010, the Mavi Marmara, whose aggression led Israeli forces to kill eight Turkish citizens plus an ethnic Turk, it has relentlessly exploited this incident to stoke domestic fury against the Jewish state. Erdoğan has called the deaths a casus belli, speaks of a war with Israel “if necessary,” and plans to send another ship to Gaza, this time with a Turkish military escort.

Turkish hostility has renewed Israel’s historically warm relations with the Kurds and turned around its cool relations with Greece, Cyprus, and even Armenia. Beyond cooperation locally, this grouping will make life difficult for the Turks in Washington.

Companies operating out of Israel discovered potentially immense gas and oil reserves in the Leviathan field and other fields located between Israel, Lebanon, and Cyprus. When the government of Cyprus announced its plans to drill, Erdoğan responded with threats to send Turkish “frigates, gunboats and . . . air force.” This dispute, just in its infancy, contains the potential elements of a huge crisis. Already, Moscow has sent submarines in solidarity with Cyprus.

Ankara threatens to freeze relations with the European Union in July 2012, when Cyprus assumes the rotating presidency. Turkish forces have seized a Syrian arms freighter. Turkish threats to invade northern Iraq have worsened relations with Baghdad. Turkish and Iranian regimes may share an Islamist outlook and an anti-Kurd agenda, with prospering trade relations, but their historic rivalry, contrary governing styles, and competing ambitions have soured relations.

While Foreign Minister Ahmet Davutoğlu  crows  that Turkey is “right at the center of everything,” AKP bellicosity has soured his vaunted “zero-problems” with neighbors’ policy, turning this into wide-ranging hostility and even potential military confrontations (with Syria, Cyprus, and Israel). As economic troubles hit, a once-exemplary member of NATO may go further off track; watch for signs of Erdoğan emulating his Venezuelan friend, Hugo Chávez.

That’s why, along with Iranian nuclear weapons, I see a rogue Turkey as the region’s greatest threat.