The Arab Winter

For Young Women, a Horrifying Consequence of Mubarak’s Overthrow

By Betwa Sharma

Ali, a 34-year-old Cairo businessman who asked that his real name not be used, is weighing whether or not to circumcise his 12-year-old daughter. Female circumcision, or female genital mutilation (FGM), as it is also known, involves removing part or the entire clitoris. In more severe forms of the procedure, the labia minora is removed and the vaginal opening is stitched up. Ali’s wife has told him about her own experience; describing her story to me, he said, “It is her most terrible memory.” He has heard discussions on television of potential harm the procedure can cause, but he feels a responsibility to protect the chastity of his daughter until she is married. Three thousand years of tradition instruct him that circumcision is the best means to this end. And, in the post-Mubarak Egypt, there are fewer and fewer voices offering an alternative view. The decades-long movement to stop FGM has become a casualty of the power struggle in Egypt.

The campaign to end FGM in Egypt was fighting an uphill battle before the revolution. Although FGM was outlawed in 2007 after a 12-year-old girl died from the procedure, the practice is still widespread. Despite efforts to reduce it, the number of girls aged 15 to 17 who underwent FGM only dropped from 77 percent in 2005 to 74 percent in 2008, according to the 2008 Egypt Demographic and Health Survey (EDHS). EDHS also showed that 91 percent of all women in Egypt between the ages of 15 and 49 have undergone FGM. The practice is common not only among Muslims, but also in the Christian community, which constitutes 10 percent of the Egyptian population. A sanitized version of FGM has gained increased prevalence in recent years, presenting additional challenges. In 1995, only 45 percent of all FGM operations were conducted by doctors; by 2008, the percentage had risen to 72 percent. A young woman working as a maid and living in Cairo, who asked to be referred to only as Ayesha, did not even know that FGM is illegal. Her mother had put her through the procedure, and she told me that she would do the same. (Experts have found that the practice is mostly perpetuated by mothers making decisions for their daughters.) “Unless someone can show me what is wrong with it I don’t think there is any reason to change,” she said.

Since the revolution, international support for this fight has significantly waned. Political instability has led to a 75 percent cut in Egypt’s FGM-related donor funds to the United Nations since January, according to Marta Agosti, the head of the anti-FGM program for the U.N.Changeover among government ministers has also slowed official work. The National Council for Childhood and Motherhood, the government body charged with addressing the problem, was shuttered after the revolution, and there is concern among activists that the capacity of the Council will shrink in its new home under the Ministry of Health. Instability and a lack of funds have curtailed the day-to-day work of NGOs; less field work and fewer workshops are taking place, according to Agosti.

In addition to the general shrinking of U.N. and NGO funds and efforts, the rise of the Muslim Brotherhood as one of the strongest political forces attempting to fill the void left by Mubarak’s departure presents potential obstacles to the campaign to end FGM. While the Muslim Brotherhood does not have an official position on FGM, the group has, in the past, opposed a complete ban on the practice. “Nothing in Islam forbids circumcision,” said Saad El Katani, the leader of the Brotherhood in parliament in 2008. Some members of the Brotherhood have argued that opposition to a complete ban does not indicate support of the practice, but they generally don’t speak out against it.

For instance, Manal Abul-Hassan, a female leader of the Muslim Brotherhood who plans to run for parliamentary elections in November, told me that FGMis “not halal (permissible) and it’s not haram (forbidden).” She does not favor its complete ban and disagrees with the U.N. characterization of FGM as a human rights violation. (Many parents share Hassan’s view and reject the word “mutilation”—especially for procedures like removing the excess skin around the clitoris. Young women argue that certain kinds of circumcisions are no different from plastic surgery in the West.) Like others in the Muslim Brotherhood, Hassan sees the campaign against FGM as stealth promotion by NGOs of a Western agenda. Activists fear that the more traditionalist elements in the group pose a threat to their work—that attitudes like the one expressed by Hassan might harden to condone the procedure.

In addition, activists are also fighting the shadow of Suzanne Mubarak, who, for all her husband’s transgressions, was a force behind the campaign to end FGM. As the former dictator’s wife,Mubarak gave speeches and organized conferences opposing the practice, making her one of the most recognizable faces in the international fight against FGM. She played a key role in getting Christian and Muslim religious leaders to forbid the procedure, which had a far greater impact than the legal ban. After declaring their position, the fatwa office in Cairo—the office of the Grand Mufti of Egypt—set up a hotline; several anecdotes emerged about women changing their decision to go ahead with the practice based on advice they received from this hotline. Activists assert that their efforts to eliminate FGM were well underway before Suzanne Mubarak demonstrated interest in the issue. “We didn’t wait for Madame Mubarak to talk about FGM,” Sidhom Magdi, head of the Egyptian Association for Comprehensive Development, told me. But they do not deny that her involvement gave the movement political momentum that it had previously lacked.

Now, however, anything attached to the Mubaraks’ legacy is, if not explicitly tainted, an easy target. Civil society groups characterize Mubarak’s efforts as self-promoting. “She was devoid of a feminist vision or a socialist vision,” said Nihad Abu Kumsan, a lawyer and head of the Egyptian Centre for Women’s Rights. Hassan insists that FGM-related figures were exaggerated by the Egyptian government so that the former first lady could pocket international funds. “Suzanne Mubarak used these numbers to make money and steal money,” she told me. While most activists were not Mubarak supporters, the backlash troubles them. Agosti worries that Suzanne Mubarak’s previous involvement will “become an excuse to undo all the past work.”

For years, activists combating FGM in Egypt have described their fight as “painfully slow.” In the post-revolution Egypt, the process has become glacial. “We have no leader and we have no strategy,” said Kumsan. The U.N., aware of that the issue is a minefield, is also keeping a low profile for the time being. “We have to be very careful right now as we don’t want the issue to be captured by the ultra-orthodox,” said Agosti, expressing a fear that the U.N. will be characterized as an agency promoting the Western agenda or worse, Mubarak’s legacy.

Ali, the Cairo businessman, and his wife ultimately decided against FGM for their daughter. “We don’t want to change what God has created,” he told me. In making this decision, Ali is already among the minority of parents who reject FGM. This minority is in danger of shrinking further in the new Egypt.

Death Wish

How Germany Phased Out Nuclear Power, Only to Get Mugged by Reality

By Aaron Wiener

For years, environmentalists in America have looked longingly to Germany. There, across the Atlantic, lay a small, cold, gray country whose solar energy production dwarfed big, sunny America’s, a nation that last year pledged to get 80 percent of its electricity from renewable sources by mid-century while Americans proved unable to agree on energy legislation even a fraction as ambitious. Yet in bowing to the country’s strong anti-nuclear movement, Germany appears to have suddenly gone off track: Within the last year the country has gone from a net exporter of energy to a net importer, and the carbon intensity of the energy it purchases has risen as well. Now, with its energy politics in turmoil, Germany is serving as a very different sort of model for environmentalists: how not to go green.

At the root of Germany’s current energy struggle is its nuclear power politics. Reports tend to cite Japan’s Fukushima disaster as the starting point of the country’s nuclear turmoil, but really the story begins a lot earlier, in Chernobyl, Ukraine. The Chernobyl plant’s 1986 nuclear meltdown in Germany’s backyard galvanized the anti-nuclear movement and led the country’s center-left parties to commit to phasing out nuclear power—a pledge they fulfilled when the Nuclear Exit Law went into effect in 2002 and mandated the end of nuclear power in Germany within 20 years.

When Angela Merkel’s administration changed course last year and moved to extend the operating life of the country’s nuclear plants, tens of thousands of environmental advocates flocked to Berlin from all over the country (and even from abroad) to protest the reversal. With opinion polls showing that Germans opposed the nuclear extension by nearly a two-to-one margin and Merkel’s political rivals promising to overturn her new policy, the German nuclear industry seemed to be hanging on by a thread.

Then came Fukushima. The German government really only needed the slightest excuse to nix its plans for a nuclear future; instead, it was given a tsunami. Four days after the earthquake struck Japan, and before the implications of the Fukushima Daiichi nuclear meltdown were fully understood, the government shut down eight of the country’s 17 nuclear reactors. Two weeks later, the Merkel administration announced that the remainder of Germany’s nuclear power would be phased out by 2022.

Environmentalists suddenly had a much more resounding victory over nuclear power than they’d thought possible a month earlier. They cheered the news—for a time, at least. But over the next six months, it became increasingly clear that the fidgety administration, worried by declining poll numbers, had failed to think through the consequences of its abrupt U-turn. Last year, Germany was a net exporter of electricity, drawing from a diverse range of energy sources led by coal, but with substantial contributions from low-emissions nuclear (23 percent of the total mix) and renewable energy sources (17 percent). With half of the country’s nuclear plants suddenly yanked from the grid in March, however, Germany became a net importer of electricity almost overnight.

The Iron Law of Government Intervention

The 1967 Detroit Riot

By David R. Henderson

The more I have studied government policy over the last 40 or so years, the more strongly I have come to believe that whatever problem you name, some government intervention—a tax, a subsidy, a spending program, or a government regulation—was an important cause or, at a minimum, made the problem worse. The evidence for this view is so strong that I think it merits being called Henderson’s Iron Law of Government Intervention.

One instance of this law is the famous, or infamous, Detroit riot of 1967. After the riot various pundits “informed” the public that it had happened because so many of Detroit’s black inner-city residents were poor and hopeless. That became the accepted explanation and, to the extent that anyone remembers it, probably still is. But a close look at the record reveals a much more interesting story—of a government’s police force oppressing people who simply wanted to live their lives peacefully. This is not to say that the people who rioted bore no responsibility—everyone is responsible for his own actions. However, without the police force’s intrusion and without a previous federal program that had destroyed a community, the riot probably would not have occurred. And the evidence for this is hidden in plain sight.

During a five-day period in July 1967, 43 people were killed during the riot in Detroit’s inner city. Shortly after that, President Lyndon B. Johnson created the National Advisory Commission on Civil Disorders—the so-called Kerner Commission, named after its head, then-governor of Illinois Otto Kerner. (Kerner was later convicted of having taken a bribe while governor and served time in prison.) The Commission was tasked with determining the causes of that and other riots during the summer of 1967 and with making recommendations to prevent such riots in the future.

Its 1968 Report of the National Advisory Commission on Civil Disorders made a big splash, selling about two million copies. The report stated that black poverty was a big cause of the Detroit riots, and its recommendations for more government jobs and housing programs for inner-city residents were explicitly based on that assumption. These recommendations, plus the charge of white racism, received much of the publicity at the time and are what most people took away from the report. Publishers make a distinction between book buyers and book readers: The latter tends to be a small subset of the former. That distinction seems to apply here. It’s too bad that more people didn’t actually read the report. The Commission’s own account of the details of the Detroit riot tells a story that is fundamentally inconsistent with the Commission’s own conclusions and recommendations. Here’s the report’s first paragraph on Detroit: “On Saturday evening, July 22, the Detroit Police Department raided five ‘blind pigs.’ The blind pigs had their origin in prohibition days, and survived as private social clubs. Often, they were after-hours drinking and gambling spots.”

These “blind pigs” were places that inner-city black people went to be with their friends, to drink, and to gamble; in other words, they were places where people peacefully enjoyed themselves and one another. The police had a policy of raiding these places, presumably because the gambling and the unlicensed alcohol were illegal. The police expected only two dozen people to be at the fifth blind pig, the United Community and Civic League on 12th Street, but instead found 82 people gathered to welcome home two Vietnam veterans. The police proceeded to arrest them. “Some,” says the Commission report, “voiced resentment at the police intrusion.” Who’d have thunk it? The resentment spread and the riot began.

In short the triggering cause of the Detroit riot, in which more people were killed than in any other riot that summer, was the government crackdown on people who were going about their lives peacefully. For the rioters the last straw was the government’s suppression of peaceful, albeit illegal, black capitalism. Interestingly, in its many pages of recommendations for more government programs, the Commission never suggested that the government should end its policy of preventing black people from peacefully drinking and gambling.

This is par for the course. When a government intervention helps cause a problem, even those people who recognize that the intervention was somewhat to blame rarely call for an end to, or even a scaling down of, such intervention.

The government’s fingerprints show up elsewhere in the Commission’s report. Urban renewal “had changed 12th Street [where the riot began] from an integrated community into an almost totally black one,” says the report. It tells of another area of the inner city to which the rioting had not spread: “As the rioting waxed and waned, one area of the ghetto remained insulated.” The 21,000 residents of a 150-square-block area on the northeast side had previously banded together in the Positive Neighborhood Action Committee (PNAC) and had formed neighborhood block clubs. These block clubs were quickly mobilized to prevent the riot from spreading to this area. “Youngsters,” wrote the Commission, “agreeing to stay in the neighborhood, participated in detouring traffic.” The result: no riots, no deaths, no injuries, and only two small fires, one of which was set in an empty building.

What made this area different was obviously the close-knit community the residents had formed. But why had a community developed there and not elsewhere? The report’s authors unwittingly hint at the answer: “Although opposed to urban renewal, they [the PNAC] had agreed to co-sponsor with the Archdiocese of Detroit a housing project to be controlled jointly by the archdiocese and PNAC.” In other words, the area that had avoided rioting had also successfully resisted urban renewal, the federal government’s program of tearing down urban housing in which poor people lived and replacing it with fewer housing units aimed at a more-upscale market. Economist Martin Anderson, in his 1964 book, The Federal Bulldozer, had shown many of the problems with urban renewal. Even some of Anderson’s harshest critics at the time admitted that urban renewal could be called “Negro clearance.” Indeed, at the time, an even blunter term, also beginning with the letter “n,” was used.

But the Kerner Commission, even in the face of its own evidence, refused to admit that urban renewal was a contributing factor to the riots. Indeed, the Commission recommended more urban renewal. The Commission’s phrasing is interesting, though, because it admits so much about the sorry history of the program:

Urban renewal has been an extremely controversial program since its inception. We recognize that in many cities it has demolished more housing than it has erected, and that it has often caused dislocation among disadvantaged groups.

Nevertheless, we believe that a greatly expanded but reoriented urban renewal program is necessary to the health of our cities.

In short the commission’s antidote to poison was to increase the dose.

Staying isn’t an option

Under the Table

An American living in Cuba discovers Havana’s black-market epicurean scene.

by Julia Cooke

We prepared and ate family dinners together nearly every night throughout my childhood and adolescence, each of us taking a role in the family kitchen. Chopping, measuring, setting the table, stirring. Meals were rituals.

I’m standing on the porch of a rose-colored mansion in downtown Havana, waiting in line to enter the tienda de los rusos—the Russian store. It’s a room in the back of an embassy building where diplomatic imports are sold, cans of vegetables labeled in script I can’t read. I’ve seen them perched on the shelves of a musician friend of mine, Fernando. I’m not sure whether it’s legal since, technically, only the Cuban government can import and sell goods in this communist state. Yesterday afternoon, I was turned away from the gate by a man who asked if I was Russian. When I said I wasn’t, he told me to return this morning, and I walked in without a problem. I’ve been in Havana long enough to know that legality is malleable here. But I am nervous enough that I notice with some relief that the fuchsia and white bougainvilleas climbing the house’s fence hide the group of fifteen gathered people from the street.

We stand in clusters, the line visually disorganized but structurally rigid. A middle-aged woman sits between a teenage boy and girl and speaks to them alternately in jolty Russian and lilting Cuban. The man in front of me in line carries a bag that says “Es hora de estudiar Ruso!” (It’s time to study Russian!) As my turn to enter approaches, I have little idea of how large or small the shop is. All I know is what I’ve seen of the small, succulent canned mushrooms and that my landlady, Elaine, says they carry cheap, delicious fruit-flavored black teas. The only vegetables I’ve seen in Havana’s understocked grocery stores during the six months I’ve lived here are mealy canned peas and watery carrots. The only tea I can find is bland and overpriced. When Elaine gave me the address, she asked me to pick up extra for her. As it’s my turn, I step into the small, dark room, where the only light that enters is through two green-tinted windows.

I had been in Havana before, while studying abroad in college, and had made subsequent trips to the city. But this was the longest stretch I’d spent here. Havana’s contradictions fascinated me: TV news shows that railed against the yanqui imperialistas followed by reruns of Friends; empty supermarket shelves and hidden restaurants that served delicious platters of food; the fact that in a police state that threw political dissidents into jail, the open secret of Havana was that everyone did something illegal to augment the meager offerings of the ration books. At every turn, on each trip I took to the city, I learned something new about how life was lived there, and these discoveries thrilled me. I had begun to work on a book about youth culture in Havana a year before moving, taking month-long research trips and returning to where I was living in Mexico City. By the time I decided to head there for a year, my intellectual and professional goals also hid a vague personal curiosity: coming as I did from the rigid United States, I wanted to see if I could adapt to the more nuanced moral code that seemed to govern how people lived in Havana.

I had known since my first trip to the country that supermarket shelves there were lined with mealy canned vegetables; tin after tin of dark, oily tuna; ramen soups made in China; sugary cookies from Brazil; and beef as tough as hours-old chewing gum. There was rarely fresh bread or toilet paper. I never once saw aluminum foil or Ziploc bags anywhere in Havana. Grocery lists were little more than wishful thinking.

Even when I moved there at the end of the summer of 2009, the Cuban government was still trying to find a way back from the economic crisis that had followed the fall of the USSR in 1991, the innocuously dubbed “special period in a time of peace.” The national economy had lost around 80 percent of imports and exports and over a third of its GDP; the country had plunged into a poverty so deep that my friends’ parents told me stories of marinating and frying banana peels and grapefruit rinds. They called these dishes “cutlets” and ate them on bread. Throughout the nineties, the U.S. embargo had been continually tightened as Washington lawmakers and Miami exiles anticipated an overthrow that never materialized. Instead, certain policies on the island had been relaxed—the use of U.S. dollars was legalized, tourism was encouraged, and farmers were allowed to buy permits and sell directly to buyers atagromercados, fresh fruit and vegetable stands. Cubans got by, even if adults lost an average of 5 to 25 percent of their total body weight between 1990 and 1995. Decades later, the embargo still limits not only travel by U.S. citizens and trade by the government, but also sanctions companies from other countries that do business with Cuba. The imported goods in supermarkets include Canadian muesli priced at $14, about as much as a Cuban on a government salary earns in a month.

Somehow, though, I ate delicious meals at friends’ houses, welcome-back dinners generously served as if people knew that I was beginning to question putting my possessions into storage in Mexico City for a year. In the week following my September 2009 move, a diplomat friend who’d been there for nearly a decade made a noodle stir-fry with strips of chicken, fresh kale, beets and sesame seeds. Fernando was an expert ceviche-maker; he and his girlfriend invited me over for tangy, fresh fish piled atop saltine crackers, accompanied by cool bottles of Heineken. The next week, when I went to see my apartment for the first time, Elaine pushed me into a chair and served a moist, basic tortilla española made of inexpensive staples: eggs, potatoes and green peppers.

Learning from failure

The Importance of Failure

By Steven Horwitz and Jack Knych

In today’s society failure has become something to fear, avoid, and therefore prevent at all costs. Whether it is unemployment compensation, farm subsidies, or bailouts for failing companies, the world seems to view failure as having no redeeming social value. If success is all good and failure is all bad, then it seems as though we should do everything we can to remedy or prevent failure.

But is that so? Without denying the value of perseverance, and recognizing that the slogan “never give up” can be useful in overcoming certain obstacles, we must keep in mind that failure can act as a guide to more worthwhile activities. For example, in 1921 Walt Disney started a company called the Laugh-O-Gram Corporation, which went bankrupt two years later. If a friend of Disney or the government hadn’t let him fail and move on, he might never have become the Walt Disney we know today.

More important than this individual learning process is the irreplaceable role failure plays in the social learning process of the competitive market. When we refuse to allow failure to happen, or we cushion its blow, we ultimately harm not only the person who failed but also all of society by denying ourselves a key way to learn how best to allocate resources. Without failure there’s no economic growth or improved human well-being.

Economists, especially those of the Austrian school, often emphasize how entrepreneurs discover new knowledge and better ways of producing things. But entrepreneurial endeavors frequently fail and the profits thought to be in hand often don’t materialize. According to the U.S. Small Business Administration, over half of small businesses fail within the first five years. But failed entrepreneurial activity is just as important as successful entrepreneurial activity. Markets are desirable not because they lead smoothly to improved knowledge and better coordination, but because they provide a process for learning from our mistakes and the incentive to correct them. It’s not that entrepreneurs are just good at getting it right; it’s also that they (like all of us) can know when they’ve got it wrong and can obtain the information necessary to get it right next time.

On this view failure drives change. While success is the engine that accelerates us toward our goals, it is failure that steers us toward the most valuable goals possible. Once failure is recognized as being just as important as success in the market process, it should be clear that the goal of a society should be to create an environment that not only allows people to succeed freely but to fail freely as well.

The Knowledge Problem

Understanding this point requires a broader vision of the market process. For Austrian economists the fundamental economic problem is not the efficient allocation of given resources to our most valued ends at a given time, but rather how we overcome the “knowledge problem”—the division of knowledge that characterizes the social world. It is more important to figure this out than to master the problem of resource allocation because new knowledge drives economic growth and creates prosperity. If the main task of the market were merely to allocate known resources to their most efficient uses, economic growth would seem impossible, since we would be stuck in a primitive world. Where is there any room for the innovation or change that drives progress and improves our lives? If a plow is deemed the most efficient use of iron and all iron is constantly allocated to making plows, how could iron ever be allocated for a new invention such as a tractor? The answer is that entrepreneurs change the most efficient use of resources by discovering new uses. By understanding the economic problem posed by limited, unique, and dispersed knowledge, we can better understand the role failure plays in coping with this problem.

Competition figures prominently in this system. Competition promotes entrepreneurial activity and the discovery of knowledge by empowering a variety of decision-makers to try to find new and better ways of using resources as well as new ends to achieve. This decentralization ensures that what F. A. Hayek called the local knowledge of time and place will be best used. Centralized planning, like other forms of government allocation, necessarily relies on the knowledge of fewer people, limiting discovery and restricting knowledge-dissemination to fewer channels. Competition is a better way to overcome the knowledge problem.

Failure and Opportunity

We can understand the role of failure if we recognize, as Ludwig von Mises did, that all human action intends to “remove felt uneasiness.” We are always striving to improve ourselves by achieving our highest valued ends as often as we can. On these terms, failure is all around us because no human ever achieves a complete lack of felt uneasiness. We always have unsatisfied ends. Israel Kirzner uses the term “alertness” to describe how the entrepreneurial element of human action identifies which ends to strive for and which means are available. Kirzner says that for market action to occur, entrepreneurs must first be alert to opportunities for profit. The possibility of profit keeps entrepreneurs alert to the ways people strive for ends or make use of means that fail to remove felt uneasiness. Once they’ve noticed this failure in human knowledge, the same opportunity for profit spurs entrepreneurial activity to find a new way to achieve those ends, or to find better ends themselves. So a failure in human knowledge becomes the catalyst for producing new knowledge via the entrepreneurial process.

When entrepreneurs attempt to correct a particular failure in knowledge, they often fail themselves and incur losses because of competition. Although bankruptcy is painful in the short term, such failure is an integral part of how entrepreneurial activity and the market function. Failure in a competitive society informs market participants about which activities or jobs to strive for and which to avoid, lest they waste time and money. Jobs that add value to society should be pursued, while those that fail to add value should be eliminated. Markets help guide market participants far better than any bureaucracy can because bureaucracies lack the market’s key components of competition, profit, and loss, which reveal failures and allow for their correction.

Because competition is a voyage into the unknown, we can only know after the fact what works and what does not. Thus economic failure is not “waste.” Calling entrepreneurial failure a “waste” implicitly assumes that one knew ahead of time what the best use of resources was. Such knowledge is not available to anyone, which is why failure is necessary to provide the needed signals.

The subsidies, bailouts, stimulus packages, and other interventions that now increasingly characterize the U.S. economy disrupt this process. Farm subsidies (including cheap water out west), for example, prevent entrepreneurs from finding and capitalizing on failures of knowledge in farming. While there may be new and better ways to grow food, it is difficult for entrepreneurs to find this out if farmers are kept afloat by the government. Perhaps decentralized, local farming would be discovered as more profitable if larger monoculture farms that are possibly damaging the environment were allowed to fail. By preventing inefficient methods of production from suffering losses, subsidies reduce the degree of failure in agricultural markets and make it harder to know that misallocation has taken place and to correct it.

Not letting Chrysler and General Motors fail during the Great Recession prevented an entrepreneurial response to this misuse of resources. The bailouts created two types of negative incentives. First, the companies were encouraged to keep making cars when their losses showed the resources and labor could better be used elsewhere. Second, the government deterred any new entrepreneur from entering the industry and doing things better. Many politicians defended the bailout because they did not want the hundreds of thousands of autoworkers to become unemployed. But when hundreds of thousands of workers become unemployed they do not disappear. They find different jobs that would contribute to society in a better way than working for a bankrupt auto company. The physical assets of bankrupt companies also get reallocated to alert entrepreneurs looking for bargains. Failure is necessary for learning and for success.

The Keynesian argument for government jobs programs is that any sort of work will restart spending in a recession, even hiring people to dig ditches and fill them up. But do a higher GDP and a job by themselves make society better off? Would it be better to have a 2 percent unemployment rate with 8 percent of the employed population doing jobs that don’t add real value (so around 10 percent of the labor force is not adding real value) or more unemployment with everyone who is working really adding value?

Unemployment

Unemployment is a form of failure, and it involves the same considerations as when businesses fail. If a job no longer contributes value this needs to be made clear so that those workers can find jobs that actually do. Imagine if the disemployment of farmers had been prevented during the transition to an industrial economy. In 1941, 41 percent of the U.S. workforce was in agriculture. In 2011 the portion was 3 percent. Where would industry be today if we had prevented the majority of the 41 percent from losing their jobs and finding new ones? It is right that this sort of “failure” was allowed to occur because the displaced farmers found new jobs in the cities and elsewhere. Those new jobs helped society transition from agriculture to industry to services, creating even newer jobs all along the way. This is strong evidence that learning from failure takes place in labor markets.

Autopoiesis (life’s continuous production of itself) is one of the principal characteristics of life, and constant change is its essence. This applies to the economy as well. For us to maintain or increase a high standard of living we must constantly change how we do things. This change won’t be fueled by lucky guesses or by bureaucratic decrees, but instead often by entrepreneurial activity in the face of failure in the market. Since that activity drives the train of progress, it is in society’s interest that the tracks be cleared of governmental obstacles.

The endgame will be Hyperinflation

Europe’s Future Comes Into Focus: Hyperinflation

By Detlev Schlichter 

What struck me most when reading the first responses to the EU summit was this: Most of what you get from the mainstream media pundits or from the financial economists on Wall Street or in the city of London not only misses the relevant points, it usually gets things completely the wrong way round. What these analysts suggest is good policy is almost always bad policy and should be avoided under any circumstances.

Let’s go through the salient points:

1. Write-down of Greek debt to 50%

“Private-sector involvement,” aptly abbreviated PIS, is one of those dreadful phrases that conceals more than it explains. The private sector here means, of course, the banks that were stupid enough to give billions of euros to Greek politicians.

We all know what happens under capitalism to lenders who give money to borrowers, who end up being unable to pay: They lose their money. That is how it should be. That’ll teach them and, hopefully, make them more prudent lenders in the future.

Alas, this is Europe, so there is no capitalism. You can negotiate your losses with the political class and agree on the “appropriate” haircut. In July, a 20% write-off was agreed, now this was upped to 50. Either number is entirely arbitrary.

The positively Orwellian phrase “private-sector involvement” makes it sound as if these poor banks were just innocent bystanders — and respectable members of the private sector, for that matter — who got dragged into this unfortunate business at no fault of their own.

For how much should the “private” sector be “involved”? Well, I would say for exactly as much as it chose to involve itself in the first place, by voluntarily lending money to the Greek government. I mean, have the risk managers and credit analysts at the likes of Credit Agricole and Societe Generale ever been to Athens and inspected the bottomless pit in which their loans were dumped? Or have they, from the start, assumed that the German taxpayer or the ECB would cover their losses?

Of course, a haircut of 50%, as now agreed in Brussels, is better than the ridiculous 20% or so “agreed” in July. But looking at Greece’s dire financial situation, the haircut should be at least 60%, or maybe 90 or 100. There is no reason for the Greek citizens of this and future generations to suffer endlessly because of the corruption of their past governments and the stupidity of their bankers. Embrace default! Just stop paying, go bankrupt, shrink your government, role up your sleeves and start from scratch.

After a complete and proper default, the state will not get loans easily again. This, coincidentally, is an additional bonus of a complete government default. It keeps your future politicians honest. That would be the free-market solution. But again, we are in Europe.

An even bigger haircut, one decided not by political horse-trading but by the market and Greece’s true ability to pay, would be more helpful for the Greeks and would, conveniently, discipline the bankers. Why is it not considered?

Well, the politicians don’t like it, because it would shut much of the government bond market down and make it difficult or impossible for them to keep running deficits of their own, and also, because the banks have skillfully booby-trapped the entire financial system with explosive CDS (credit default swaps) that get triggered if the “private-sector involvement” gets too big. The bankers, increasingly, resemble financial terrorists, effectively declaring, “If you don’t bail us out, we blow the whole place up!”

The bottom line: A haircut of 50% is better than 20, but it is still too little for Greece, and the whole idea that the “private” sector negotiates losses with the politicians doesn’t bode well for the future.

2. Fiscal coordination

Nothing specific was agreed at the summit, but this is where we are going, and the mainstream economists are cheering for it.

For years now, we have heard this in endless macroeconomic research pamphlets and newspaper editorials: There can be no monetary union without a fiscal union. This is, of course, utter nonsense. Complete rubbish. And it doesn’t get any more right by repeating it at nauseam.

The money of capitalism, of the free market and global trade, has always been gold (or silver, but I will refer to gold here). A gold standard is the oldest and best currency union imaginable, and I would argue, the only one workable. Under a gold standard, various countries and their governments use the same currency, gold. There is no central bank and no printing press. Governments have to make do with the income they generate from taxing their local population.

In such a system, the state has to live, just like any other entity in society, within its means. Apparently, this is a truly fantastical notion for today’s politicians and mainstream economists. Under a gold standard, the state may also borrow from the market, but it is clear to the lenders that they assume full risk of default. There is no lender of last resort. This is a powerful constraint on government largesse.

The Greek crisis was a good test to see how closely the European fiat money union could resemble the workings of a proper gold standard. In theory at least, and as intended by the original designs for EMU, there should have been no bailout, and the whole mess should have been a local affair between the Greek government and its lenders, just as it would be under a gold standard.

All this nonsense about the falling apart of the euro was, of course, needless but politically motivated scaremongering. When a government defaults under a gold standard, there is no reason why any other government should give up gold as a currency. Had the no-bailout provision been adhered to, there would equally have been no reason why a Greek default should have affected the acceptance and the usability of the euro in any of the other countries, nor for the Greeks themselves. A currency union does not require a fiscal union.

But EMU is no gold standard, and it already failed its first test of whether it could even be a currency union of some discipline. The gold standard was abandoned globally, precisely so that governments would not have to live within their means. The euro is political paper money, fiat money. It is issued to allow persistent fiscal irresponsibility, as is any other paper currency. Central banks have always been created to fund the state and the banks. The ECB is no different.

This is the global picture in 2011: After 40 years of complete paper money, public debt around the world has reached such momentous dimensions that the major central banks are now increasingly funding the state directly. This is what is happening in the U.S., the U.K. and increasingly, the eurozone. It is either accepted with suspicious equanimity or enthusiastically supported by bank economists and the inflationistas in the mainstream media. The trend is the same pretty much everywhere. It is only that, within the eurozone, it is less clear which government has first call on the printing press. In other paper money economies, this can be done more straightforwardly.

To assume that some form of institutional framework for fiscal coordination will discipline the European governments and reduce the desire for ongoing central bank debt monetization is at least naive. Maybe outright stupid. All governments in Europe are fiscally irresponsible, even the German one.

In the run-up to EMU, Germany imposed the Maastricht criteria on her European partners. Anyone remember the 60% debt-to-GDP limit? Laughable. Today, Germany is at 83% and rising, which may look relatively prudent if compared with Belgium or Greece, but if Germany has to pay up on its already-agreed-upon commitments under the European Financial Stability Fund, she will go above 90% in one giant leap, roughly where Ireland was when her creditors said, “No mas!” Germany may have the lowest unemployment rate in 20 years and, last year, had the highest GDP growth in 20 years, but she is still running deficits, accumulating debt every year, just like anybody else in Europe.

On a long-enough timeline, everywhere is Greece!

The bottom line: We will see a plethora of treaty changes, top-level EU summits and other pointless boondoggles. All to no avail. To assume that governments will not collectively resort to the printing press and that they will, instead, discipline one another, when all of them are long-standing, habitual and incorrigible fiscal offenders, is beyond ridiculous! If you believe it, call me, I may have something I want to sell you!

3. “Unlimited firepower” courtesy of the central bank

I guess you might argue that it could have been worse. Merkel could have given in to demands by Sarkozy to use the ECB straight away to leverage the €440 billion bailout fund. Seems like she didn’t, and Sarkozy will have to go, hat in hand, to the Chinese and see if they have some change to spare. However, this is not a long-term solution, and once Italy and Spain are in trouble, the bailout fund will be depleted.

One of the most shocking aspects of this crisis is how acceptable it has become for the mainstream economists and the pundits in the media to point toward the “unlimited resources” of the ECB. True, a fiat money central bank can print unlimited amounts of paper and electronic money to bail out everybody, the government, the banks, the pension funds, etc. It is just that such a policy used to be advocated only by suicidal cranks. That’s likely because it is a sure recipe for complete currency annihilation.

Today, established and supposedly highly regarded economists point out the importance of “keeping the ECB engaged,” because only the ECB has the “unlimited” resources to underwrite the boundless fiscal profligacy of modern democratic governments and their vote-buying political elites, and to underwrite the gargantuan debt pile.

As the hysterical calls by the inflationistas for a bold ECB policy get ever shriller, Mario Draghi, the new money-printer-in-chief for Europe, has already signaled his support for the ECB’s debt monetization policy, that is, ongoing buying of depressed and ultimately worthless government bonds with the help of the euro printing press.

Anyone who has any savings stored in the euro-area should be extremely concerned about what is going on here, and in particular, about the tone of the debate. When the mainstream speaks of “unlimited” resources of the ECB, they do in fact mean unlimited. The creation of new euro-currency units will be without ANY LIMIT. And the remaining inflation will also be without limit.

The bottom-line…On the face of it, the German position has won: deeper haircuts and no use of the ECB for leveraging the EFSF for now. But from where is the money for the larger EFSF going to come? Italy and Spain will remain under pressure. Nobody has the money to save them or to recapitalize the banks again when the big deficit countries lose access to the market and fail.

The ECB is not off the hook. Resorting to the printing press has become a global policy theme for the past three years, and sadly, such thinking is now part of the mainstream. The balance sheet of the ECB will not shrink; it will grow. There is no exit strategy. Pressure for further and accelerated monetization of debt, of budget deficits and bank balance sheets, will continue and intensify.

Demography is destiny

The Conquest of the West

By Patrick J. Buchanan 

On Oct. 31, the U.N. Population Fund marks the arrival of the 7 billionth person on Earth and raises the population estimate for the planet at mid-century to 9.3 billion people.

There is a possibility, says the United Nations, that, by century’s end, world population may reach 15 billion. What does this mean for Western civilization?

It may not matter, except to identify who inherits the estate. For while world population is exploding, Western peoples are dying. Not a single European nation, except Muslim Albania, has a birth rate that will enable it to replace its present population.

By mid-century, Western man will be down to 12 percent of world population. By century’s end, he will be a tiny fraction, roughly equal to the white population of Rhodesia when Robert Mugabe came to power.

The demographic winter of the West has set in.

Between now and 2050, Russia, a nation of roughly 140 million, down from nearly 150 million at the breakup of the Soviet Union, is on schedule to lose an additional 24 million people.

“Hypermortality” is a word demographers use in discussing Russia.

Germany is to lose 8 million of her 82 million people. Ukraine has lost 6 million people since liberation in 1991 and will lose another 10 million by 2050. The population of Lithuania, Latvia and Estonia, 8 million in 1990, will by mid-century have fallen by 30 percent to 5.7 million.

Britain, however, is to add 12 million. But since emigration from Britain is bleeding the population and the birth rate of her native-born has been below zero population growth for 35 years, the U.N. has to be factoring in immigration from the old colonies in the Caribbean, the Middle East, the sub-Sahara and South Asia.

With the median age of European nations rising toward 50 and above, and a growing share of the population over 65, the continent is going to need millions of young immigrants to maintain the labor force and cope with seniors and elderly in retirement centers, assisted living facilities and nursing homes.

Where will they come from? Continents and countries with population surges and surpluses.

By 2050, Africa’s population will double from 1 billion to 2 billion people. Where today the six most populous Islamic nations — Indonesia, Egypt, Bangladesh, Pakistan, Nigeria and Turkey — have a combined population of 885 million, by 2050 their populations will have increased by 475 million to 1.36 billion. Of the 48 fastest-growing countries in the world, 28 are majority Muslim or have Muslim populations of more than one-third of the national population.

And since it is the Muslim nations of North Africa and the Middle East that are closest to Europe, with easiest access to the continent, Muslims will likely furnish most of the multitudes who are coming.

What will this mean for Europe? Religious and racial conflict.

On Sept. 11, 2001, after the twin towers fell and Germany expressed her anguish and solidarity with America, a strange event occurred. In the Turkish districts of Berlin, bottle rockets were fired all night in celebration.

In the banlieues around Paris and other French cities, Arab riots, assaults on police and mass arson of vehicles regularly occur. This summer in London, the immigrant enclaves exploded and poured out into the city night after night.

Angela Merkel of Germany, seconded by David Cameron of Britain and Nicolas Sarkozy of France, declared multiculturalism had “utterly failed.”

What is the future of Europe? What is the future of Western man? Houari Boumedienne, Algerian revolutionary and president of his country, predicted it at the United Nations in 1975.

“One day, millions of men will leave the Southern Hemisphere of this planet to burst into the Northern one. But not as friends. Because they will come in to conquer, and they will conquer by populating it with their children. Victory will come to us from the wombs of our women.”

Boumedienne’s words were spoken just as European and Western birth rates plunged below ZPG.

What, then, is the future?

A Russia with not one-tenth China’s population will not hold on to a continental nation twice China’s size. Already the Russian Far East is being invaded by Chinese crossing the Amur and Ussuri rivers to work, even as Mexicans cross the Rio Grande to reoccupy lands torn away from their ancestors in 1836 and 1848.

What is the future of the West?

China will retrieve all the lands lost to Russia in the 19th century and slices of Russia that China never owned. Mexicans and Hispanics will dominate from the Floridas to the American Southwest the lands Spain and Mexico lost to the United States in the 19th century.

Africans, whose lands were colonized and exploited by Europeans, and Muslims and Arabs, whose ancestors were turned back at Poitiers and Vienna, will succeed in the final conquest of Europe.

Demography is destiny.