Indifference to what we know of human nature

Riots of Passage

 

When rites of passage disappear from public life, civilization does as well, and one result is young men running amok.

By Roger Scruton

Τhe riots in British cities over the summer have been assimilated by our opinion-formers into the easy categories that govern their thinking. Leftwing writers have cited urban deprivation, poverty, and racism--in other words, factors for which the rioters cannot be blamed. Right-wing writers have pointed their fingers at multiculturalism, the welfare trap, and the breakdown of family life -- again, factors for which the rioters cannot be blamed. The fact is, however, that those responsible for the riots were those who took part in them. Rioting is natural to human beings, and is a frequently observed effect of our inherent savagery. Young men are particularly prone to riot: and in the conditions of the hunter-gatherer it is to be assumed that, between sleeping, copulating, and eating, they didn't do much else. Young men lapse into riot as soon as there issomething to be gained from doing so, and whenever there is nothing serious to be lost. What needs explaining is not the fact that they riot, but rather the far more extraordinary fact that on the whole they don't. What is it, down the ages, that has contained the energies of our youth, and ensured that they respect the lives and property of others?

The answer is "civilization." But that answer repeats the question. What exactly makes a civilization? What is it that lifts human beings out of their savage condition and endows them with the respect for order, the consideration for others, and the habits of obedience without which the claim of humanity for a special place on our planet is no better than the claim of rats, toads, or mosquitoes?

In the 19th and early 20th centuries, anthropologists had the chance to observe societies that had neither writing nor formal institutions of government, but which were nevertheless in possession of the precious thing that herds, packs, and riots lack, namely perpetuity. Those "primitive" societies existed from generation to generation, and each new generation absorbed the customs and acknowledged the obligations that were passed on by its parents, unconsciously preparing itself in turn to pass those benefits to its offspring. Although there were disputes and rivalries, and although violence would erupt from time to time, and sometimes exist in ritualized and repeated forms, the normal condition was one of peaceful association, in which each member of the tribe felt bound to every other in a web of obligations that could not be guiltlessly transgressed. The many "I's" were subsumed in a single "we," and what made this possible, more than any other factor, was the interest that the tribe took in the critical transitions on which its perpetuity depended. Each birth was acknowledged as an event in the life of the tribe, as well as an event in the life of the parents. The transition from childhood to adult responsibility was not, as now, a private accomplishment, to be achieved anyhow or not at all, but a public concern, to be given ceremonial recognition. In the ceremony of initiation obligations would be solemnly assumed and the interest of the tribe acknowledged as greater than the interests of any individual. Marriage was likewise a public rite, and when, at last, the individual was laid to rest among his ancestors, that passage too was marked out as the concern of everyone.

Rites of passage (as Arnold van Gennep named them a hundred years ago) still exist here and there in our world, notably in societies untouched by modern communications. But nobody can deny that they are disappearing from Europe in general, and from Britain in particular. When the right-wing commentators complain of the breakdown of family life, they don't really mean that homes are now fungible and troubled. That has been the case from the beginning of civilization. I was raised in such a home. What the commentators mean, or ought to mean, is that the crucial institution on which children depend for their security, namely marriage, is disappearing. Out of wedlock births are now the norm in Europe, and the only people who urgently seek to get married are homosexuals, anxious for a recognition that is rapidly losing its real significance. The absence of this crucial rite of passage means that birth, too, is a private matter, no longer an event in the life of a community but a private passion of the mother, who is helped through her ordeal (should she choose to go through with it) by the same welfare system that will take charge of the child.

But perhaps the most important loss is that of the rite of passage out of childhood. Coming of age was a formal welcome offered by the community. In response to this welcome the adolescent assumed the benefits and burdens of membership: maturity ceased to be a biological phenomenon and was recreated as a social gift. In complex societies like ours this transformation was not marked by a single ceremony, although here and there the old ceremonies existed. It was marked by a multitude of small-scale undertakings: local offers of membership and conferrals of responsibility that were looked on with pride by the participants and by those in charge.

Teams, scout troops, schools, and clubs all offered their local rites of passage; Bar-Mitzvah, Confirmation, and first Communion were religious icons embossed on the same ready currency. In a hundred ways adults maintained the boundary between childhood and maturity, and offered maturity on terms -- terms that involved the whole community, and which could be accepted only by conceding the right of the community to obedience in the things that mattered most to it.

I GUESS WHAT I AM SAYING HERE is plain common sense. If so, however, why should we be surprised if our societies lose the precious gift of perpetuity, when the great transitions in which membership can be publicly acknowledged no longer exist? Children stumble into adulthood today, unprepared and unendorsed. Little or nothing protects them from the spectacle of adult disorder. The traditional goals, such as marriage and family, are no longer held out as stages on life's way. And the proliferation of sexual imagery and temptation destroys both the innocence of childhood and the responsibility of adult life, so that the boundary between the two is erased. In a very real sense children are left to fend for themselves, to forge out of the debris that they witness the only kind of membership that can be rescued from it, which is that of the gang.

The essence of the gang is that it lives in antagonistic relation to its surroundings. The world around the gang belongs to others, to those who have no claim to membership and whose property and lifestyle mark them out as alien. Hence the gang emerges into a world already closed to it, and it must do something to make its presence known. Various avenues suggest themselves. One is to vandalize the public space and leave a rival mark on it. This is the real meaning of graffiti, which are the signatures of gangs, designed both to deface the public space and to privatize its meaning.

Other self-made rites of passage are available. The violent confrontation with other gangs is one of them, and in British cities this form of initiation is quite common, leading in recent years to many deaths through knife attacks. Riot too can be a rite of passage -- a way of "joining in" that offers both membership and liberation, and which fulfils the longing for vengeance against a world that has hitherto offered nothing but the sign of others' ownership. It does not normally escalate to the extent that we have witnessed in Britain this last summer. But riot is there in the background of adolescent life, as everyone knows who lives close to one of our large inner city schools.

It is not only in Britain that these effects are witnessed. Every public space in Germany has been defaced by graffiti, and little or nothing is done to punish those responsible--after all, punishment belongs to the authoritarian way of life that the Germans are trying so hard to forget. At the same time, this freedom to deface does not satisfy the hunger of young Germans for membership or their anger against a world that has failed to provide it. Every Friday night for the past four years automobiles have been set alight in Berlin, and an article in Die Welt am Sonntag recently compared the situation in the German capital with that in Tottenham, where the British riots began. Nor is the German obsession with neo-Nazism entirely absurd. Deprive young people of a rite of passage into the social order and they will look for a rite of passage out of it. That, in my view, is the true explanation of the Norwegian mass murderer Breivik, a man whose father had rejected him, who found no society that would include him, and who took his revenge on young people who seemed to be enjoying the very membership that he lacked.

It is one thing to acknowledge the need for rites of passage, another to propose a way of rediscovering them. So far the efforts of politicians in Europe and America have been negative. The effect of current policies has been to subsidize out-of-wedlock births, to remake marriage as a contract of cohabitation, and to drive religion, which is the true guardian of rites of passage, from the public sphere. Those policies have been embarked on with the best of intentions, but with a remarkable indifference to what we know of human nature. The way back to perpetuity will be long and painful, but it is surely evident that the first step must be to stop subsidizing the alternative.

The laziness of inevitablism

THE POST-WESTERN MIDDLE EAST

by Mark Steyn, February 23, 2011

Listening to lifelong regime toadies belatedly call for the seizure of Mubarak's assets or calibrate the precise moment when it's safe to demand the overthrow of the strongman you've happily served all your life, I'm reminded of the Hakim of Bahrain's visit to London for the Queen's Coronation in 1953. Late in the evening, at the end of the banquet, the diminutive Sheikh Salman came upon the Prime Minister, Winston Churchill, sitting at the bottom of a staircase, and attempted to ingratiate himself with a view to winning support for some land claim Bahrain had against Qatar. It had been a bibulous night and Sir Winston was in no mood to discuss the fine points of Arabian territorial disputes.

"Tell him," the PM instructed David Weir, Britain's Political Resident in Bahrain and "gentleman in attendance" to the non-English-speaking Hakim, "tell him that we never desert our friends." Pause. "Unless we have to."

As Ben Ali and Mubarak and Gaddafi have discovered, their "friends" have reached the point when they "have to". Nothing personal. That's just the way it is. Insofar as any comparisons to Europe in 1989 are valid, it's Romania: The most perilous moment for any dictatorship is when the strongman's flunkeys conclude he's outlived his usefulness.

Since Sheikh Salman's day, the Hakims have upgraded themselves to Emirs and then Kings. What comes next? In Bahrain, a Sunni royal family rules a largely Shia population. By the time the dust settles, what emerges in the Gulf monarchies is likely to be regimes far friendlier to Iran, if not in fact wholly owned Iranian subsidiaries. What emerges in Egypt is likely to be a regime far more hostile to Israel. There are different local factors in play from the Mahgreb to the Shatt al-Arab, but if you want a shorthand for the region as a whole, think of it this way: It's the dawn of the post-western Middle East.

There are two phases to recent Arab history. The modern Middle East was an Anglo-French concoction, cooked up by London and Paris somewhat haphazardly after the collapse of the Ottoman Empire. In the waning of British and French imperial power after World War Two, Washington and Moscow stepped into the breach, in many cases replacing sputtering monarchies with strongmen of a secular pan-Arab nationalist bent.

Say what you like about dynastic rulers but generally they're beyond ideology: in a sense, a king is his own ideology. When you replace an hereditary monarch with a designated sonofabitch, it's easy to get misled into thinking he represents some force larger than himself. As we now know, Mubarak represented nobody and nothing: Both "Nasserism", the ideology that propped up the regime in its first two decades, and the region's broader post-war secular nationalism were fictions, and unsustainable ones. An hour or so after the dictator fell, I said to Megyn Kelly on Fox that we were witnessing "the unraveling of the American Middle East".

That's looking at it from our point of view. Looking at it from theirs, the regimes are belatedly aligning themselves with demographic reality. Across the last half-century, the chancelleries of the great powers invested their effort in maintaining "stability": The result was that governments were superficially stable while their populations wholly transformed - and a huge chasm opened up between an ever more Islamic populace and the regimes they're ruled by. Say what you like about Mubarak but he wasn't into female genital mutilation. Unfortunately for him, his people were - or at any rate the menfolk were. So he banned it. Because he's a dictator, and what he says goes, right? And the net result of that ban is that, on the day he fell, precisely 91 per cent of the country's women were estimated to have undergone FGM: Long before the "Facebook Revolution", Egypt voted with its clitorises.

Likewise, say what you like about Colonel Gaddafi but a guy who hires as bodyguards his own personal detachment of Austin Powers fembots is unlikely to be hung up on the small print of this or that hadith. The trajectory we're now on has less to do with "social media" than with Monday's fatwa by Imam Qaradawi, Egypt's Khomeini wannabe, calling for the assassination of Gaddafi.

The eminent scholar dismisses the Gaddafi clan as "swords of pre-Islamic ignorance" - which shows you how he regards what's underway: The anciens régimes were "pre-Islamic", which means that what follows will be ...more Islamic.

Last week I wrote about the laziness of inevitablism - the assumption that social progress moves only in one direction. I see that The Ottawa Citizen's Dan Gardner, a man strangely obsessed for one so hunky with trying to attract my attention, is now mocking me for waxing nostalgic for the Egyptian monarchy:

Here's Mark Steyn pining for King Farouk. Cheering on democracy in the Arab world? That's so 2005.

I'll stand by that - if only because the messy fledgling multiparty Iraq of 2005 has far more in common with Egypt under Farouk than it does with Egypt under Mubarak. The Kingdom of Egypt in the period between 1922 and 1952 was flawed and ramshackle and corrupt, but it got closer to a functioning, pluralist society than anything in the 60 years since. For example, in 1923, Egypt's first full year as a sovereign state, the country's Minister of Finance was a man called Joseph Cattaui, a Member of Parliament and a Jew.

Try to imagine that now: a Jew serving as an Arab Muslim nation's Finance Minister - or even getting elected as an obscure backbench MP. Sounds like something from a Give-peace-a-chance multifaith fantasy. But it actually happened - and then it stopped happening, and then it became inconceivable for it to happen ever again under any plausible scenario.

The Egyptian royal house (descended from Albanians) was nobody's idea of a punctilious constitutional monarchy, and Jews there had a rough couple of years in the 1940s. But the Kingdom of Egypt was a better deal than anything that followed. The CIA thought so little of Farouk that their plan to depose him was codenamed "Operation Fat Fucker". Ha-ha. The fuckers they replaced him with had the last laugh. Nasser rounded up Jews for "Zionist activities", removed them from Parliament, confiscated their businesses, and closed down their newspapers. Do you think Imam Qaradawi's minded to see a Jewish Finance Minister back in Cairo? Alas, there are no Jews left now - but there are still plenty of Copts to stick it to.

Colonel Gaddafi? On seizing power in 1969, he immediately canceled any debts owed to Libyan Jews and confiscated all their property. A postwar Jewish population of 40,000 fell on his watch to zero: The last Libyan Jew, Esmeralda Meghnagi, died in 2002, and with her one of the oldest Jewish communities on earth. And in much of the Middle East - including, disgracefully, the de facto American protectorate of Iraq - the Christian community is headed the same way.

The Middle East got worse. The Anglo-French-installed monarchies of the mid-20th century were less bad than the Russo-American-backed dictators of the late 20th century. As for the early 21st, the new Middle East will be friendlier to the Muslim Brotherhood and friendlier to Iran - and less friendly to western interests than at any time since the discovery of oil.

"We never desert our friends. Unless we have to."

And by the time we had to, they'd been comprehensively deserted by massive sociocultural demographic factors the realpolitik crowd gave barely a thought to. And, absent a strategy for battling ideology and ideas, we'll just have to live with whatever's next.

Liberals gone mad

Labor rejoices its carbon tax victory - but will it be a kiss of death?

 

IT was an embrace that sealed the vote on Julia Gillard's carbon tax. Not surprisingly, opposition MPs have dubbed the moment the "Judas Kiss".

By Alison Rehn

But it was a kiss between rivals that left an air of impending political death hanging over the Prime Minister's leadership.

Kevin Rudd yesterday ensured that the final and lasting image as Labor MPs celebrated their political victory was his continuing ambition to reclaim the job that was taken from him last year.

Not surprisingly, opposition MPs have dubbed the moment the "Judas Kiss". And it did nothing to dampen talk among Labor ranks of a possible Rudd challenge by the end of the year, or early next. Savouring what she could of bedding down a policy that polls show the majority of the electorate opposes, Ms Gillard hailed the vote as a historic step forward.

The government's 18 Clean Energy Future bills passed the lower house at 9.37am with a majority of just two votes - and with the critical support of independents Tony Windsor and Rob Oakeshott, and Greens MP Adam Bandt.

With the bills only requiring a rubber stamp from the senate next month, Australia is assured of becoming the first country in the world with an economy-wide carbon tax by July 1.

Ms Gillard said Opposition Leader Tony Abbott had voted to be on the wrong side of history and would be judged harshly by future generations.

"This is a significant day for the Australian nation, not only for Australians today but for the generations of children to come who will live in a cleaner environment as a result of today's legislation," she said. "It's been a difficult debate but the debate is now concluded."

Mr Abbott vowed to continue to fight against the tax and made a pledge "in blood" to repeal it if he won office.

"I am giving you the most definite commitment any politician can give that this tax will go. This is a pledge in blood this tax will go," Mr Abbott said.

The day wasn't without drama, when dozens of protesters were ejected from the Parliamentary public gallery after shouting down the PM with chants of "No Mandate" and "Democracy is Dead".

Ms Gillard continued to press for the $23 a tonne tax - which will convert to a floating price emissions trading scheme in 2015 - as an economic and environmental transformation.

Although agriculture and petrol will be excluded, a Productivity Commission report recently found the tax would be one of the most comprehensive carbon pricing schemes of any comparative nation.

According to government figures, compensation will ensure 90 per cent of households will be either fully or partly compensated for the estimated $9.90 a week rise in the cost of living.

The government claims it will reduce emissions by 160 million tonnes of carbon a year - the equivalent of taking 45 million cars off the road.

An emissions trading scheme was supported by former prime minister John Howard and former Liberal leader Malcolm Turnbull and is the second attempt by Labor to introduce a carbon price.

The government's related $300 million steel transformation plan was also passed with the additional support of Queensland independent Bob Katter.

"This is a historic part of the political process in this country and, boy, are we happy." Greens leader Bob Brown said.

A one-party people

It's Hard To Be a Racist

By W. Williams

Years ago it was easy to be a racist. All you had to be was a white person using some of the racial epithets that are routinely used in song and everyday speech by many of today's blacks. Or you had to chant "two, four, six, eight, we don't want to integrate" when a black student showed up for admission to your high school or college. Of course, there was that dressing up in a hooded white gown. In any case, you didn't have to be sophisticated to be a racist.

Today all that has changed. Rep. Charles Rangel, D-N.Y., pointed that out back in 1994 when the Republican-led Congress pushed for tax relief. Rangel denounced Republicans' plan as a form of modern-day racism, saying, "It's not 'spic' or 'nigger' anymore. (Instead,) they say, 'Let's cut taxes.'" That means the simple use of the N-word is not enough to make one a racist. If it were, blacks would be the nation's premier racists. Today it's the call for tax cuts that makes you a racist. That's why the "tea" party, short for "taxed enough already," is nothing more than organized racists. What makes tea partyers even more racist is their constant call for the White House and Congress to return to the confines of the Constitution.

Racism has other guises. Say that you're a believer in Martin Luther King's wish, expressed in his "I Have a Dream" speech, that our "children will one day live in a nation where they will not be judged by the color of their skin, but by the content of their character." The call to judge people by the content of their character rather than the color of their skin is really code for racism. There's no question about one's racial antipathy if he voted for measures such as California's Proposition 209, Michigan's Proposal 2, Washington state's Initiative 200 or Nebraska's Civil Rights Initiative 424. These measures outlaw judging people by the color of their skin for admission to college, awarding of government contracts and employment.

The call for equal treatment is simply racism by stealth and is far more insidious than name-calling and hood-donning.

One might think that seeing as America elected its first black president, it would usher in the end of racism; but it's all a racist plot that's easily uncovered simply by asking: "Who really elected Obama to the presidency?" It surely wasn't black people. Of the 69 million votes that Obama received in the 2008 election, I doubt whether even 7 or 8 million came from blacks. That means white people put Obama in office, and that means he is beholden to white people, not black people.

You say, "Williams, that's preposterous! What's your evidence?" Just look at the unemployment statistics. White unemployment is 8 percent, and black unemployment is double that, at 17 percent, and in some cities, black unemployment is near 30 percent. It's gotten so bad under Obama's presidency that New York's Urban Justice Center has appealed to the United Nations Human Rights Council for help. But Obama's tired of black complaints. Obama told the Congressional Black Caucus to "Stop whining!" "Take off your bedroom slippers; put on your marching shoes. Shake it off. Stop complaining; stop grumbling; stop crying." This kind of talk is unprecedented. Just ask yourself: "When have I ever heard a Democratic or a Republican leader talk this way to his party's strongest supporters? Would Obama tell Jews to stop whining about Israel? Would he tell unions to stop grumbling about card check? Would he tell feminists, if they were complaining about sex discrimination, to shake it off?"

This kind of political treatment of blacks should not be surprising, because black people are a one-party people in a two-party system. That means Democratic politicians have learned to take the black vote for granted, and Republicans make little effort to get it. That's not smart for blacks to set themselves up that way.

In the meantime, the debasement of paper money continues

The second crisis of socialism

by DETLEV SCHLICHTER

The world is facing the worst financial crisis since at least the 1930s “if not ever,” the Governor of the Bank of England said last week when he explained to an increasingly sceptical and weary public the Bank’s decision to print yet more fiat money and use it to buy yet more government bonds. I doubt that his words or his actions will do much to restore confidence. And they will not mean an end to this crisis.

What type of crisis is this?

This is a financial crisis for sure. Its root causes are firmly located in money, credit, debt and banking. And I don’t think that the Governor was exaggerating when he speculated about its magnitude. This is the Big One.

As we all agree that this is not just another business cycle, the question is, what are we dealing with here? How should we define this crisis and in what context can it best be understood?

This crisis is systemic, not cyclical. It is a crisis of institutions. It is a crisis of policy. It is a crisis of our financial architecture.

When this crisis started in 2007 and intensified throughout 2008, it was often labelled a “crisis of capitalism”. You don’t hear that so often anymore. Granted, there are still the occasional lapses, sadly even by economists, but the longer the crisis goes on and the longer the spotlight remains on money and banking, the more it dawns on the public just how much the present financial architecture is evidently defined not by the “invisible hand” of the market but the controlling hand of the state. When yet another round of bank “recapitalization” is announced, presumably at taxpayers’ expense and thus driving home the point once more that the banks are above the fray of normal and fallible capitalist enterprise, and when the salvation for our debt-laden economy is declared for the umpteenth time to be sought in yet more debt-funded government spending, or in yet another injection of more money created under state monopoly by the central bank and handed to the public as an apparent incentive to take on yet more debt, the public is beginning to wonder if policy makers have not lost the plot, and if we should not fear the ‘stimulus’ more than the unchecked market.

Why are we in this mess?

“Undercapitalized banks” is code for banks that lent too much. How can banks have lent too much, and obviously have done so for years, decades even, and have done so the world over in the most enduring and persistent credit binge in history, when they are all under the control of the state central bank, which in a paper money system has the monopoly of printing (unlimited) bank reserves and administratively setting short-term interest rates, and thus controlling lending conditions? Is this not properly called state failure, rather than market failure?

Please remember, the switch from apolitical, inflexible, and hard commodity money to limitless paper money under state control was a political decision, not the result of market forces. And it only came into full bloom with the closing of the gold window by the politician Richard Nixon in 1971. Our financial system is the outcome of political design and popular macroeconomic theory, both now revealed to have been self-serving and flawed, not the result of spontaneous human cooperation on markets. The move to fully elastic fiat money freed both the state and its protégés, the banks, from the golden fetters of inelastic commodity money. Without the straightjacket of a gold standard, the state obtained unrestricted control over the printing press and could engage in “managing” the economy, saving the banks, avoiding or shortening recessions, and determining borrowing conditions – and setting them more generously, not least for itself.

After 40 years of government-controlled money, this is the result.

This crisis is the inevitable outcome of the dangerous belief that low interest rates, and investment and lasting prosperity, can be had via the short cut of money printing, and its twin sisters, artificially low lending rates and never-ending bank credit creation, rather than the time-honoured hard way (and capitalist way) of saving and true capital formation.

This is not a crisis of capitalism. My good friend Brian Micklethwait coined a much better phrase for it: This is the second crisis of socialism. We are witnessing the demise of the paper money standard, 40 years after the global fiat money system was freed of its last link to gold, and money everywhere became simply an unchecked territorial monopoly of the state. What we are now finding out is this: the state and the banks need a straightjacket or they will sooner or later drag us all into a black hole.

Why is this system socialist?

There are two ways in which a monetary system can be organized: either the market chooses what is money, or the state does.

The money of the free market, of capitalism, has always been commodity money that is outside of political control. Wherever the trading public was free to choose, it picked commodities of fairly inelastic supply as monetary assets. Almost all societies, throughout all cultures and civilizations, have come to use precious metals as money.

Commodity money is apolitical money. Nobody can create it at will and use it to fund himself or to manipulate the economy. Crucially, human cooperation via trade does not stop at political borders, and commodity money has always transcended such borders. If gold was money this side of the border, it was usually equally money on the other side, regardless of whose image was printed on it.

By contrast, complete paper money systems that have no link to an underlying commodity are always creations of politics. In such systems, money can be “printed” at essentially no cost and thus practically without limit. But not by everybody. Money printing is the privilege of the state and its central bank. Money, in this system, is entirely elastic. But it is political money and closely linked to political authority. In a paper money world, if you cross a political border you have to swap your money for different money. All the efficiency of today’s 24-hours-a-day, multi-trillion-dollar foreign exchange market, which so easily impresses the untrained observer to whom it may epitomize global capitalism itself, is nothing but the market’s attempt to cope as best as possible with the inefficiency of monetary nationalism and monetary segregation that is the result of every national government wanting its own paper money under its own territorial political control.

To call this system capitalist means depriving the word capitalism of any meaning.

In this brave new system of fully elastic fiat money we put our financial affairs not in the hands of the unfettered market but in the hands of the state, of politicians and central bankers. This system is properly called a socialist one, not a capitalist one. And this system has failed.

Who are the beneficiaries?

For decades this system has benefitted the state, the banks, the wider financial industry – all of which have grown relative to any other section of society – and those who have assets to be used as collateral for leveraging the balance sheet: real estate, equity portfolios, company stock options. The costs of this system have been spread across the broader public via inflation and the occasional taxpayer bailout. This has been socialism for the rich.

Just like the first crisis of socialism – the collapse of the planned economies under Soviet guidance in 1989 – this crisis, the crisis of government-controlled finance, will also see the overthrow of the present establishment. Although the party leadership is still telling us that they have things under control: Fear not, comrades, with some deficit spending and some astute money printing tractor production will soon reach targets again.

And just like the collapsing socialist state, the state-paper-money bureaucracy, too, has its true believers. People like Adam Posen, the Bank of England’s quantitative-easing enthusiast, who maintains his childlike optimism for and unwavering faith in the power of the printing press. If £200 billion of newly printed money, cleverly placed by the apparatchiks into the coffers of the banks and government, have not solved the crisis, surely the next £75 billion will. And why stop here? With another £175 billion, or £275 billion, or £375 billion, everybody in the UK should find a nicely paying job again. To people like Posen the problem with the planned economy is not that it is planned but that the plan wasn’t bold enough.

Mervin King, on the other hand, strikes me as a more Gorbachev-like figure, not a non-believer but too sceptical and too smart to be a fully signed-up party member. There is a fascinating interview with him from September of last year that got little attention in financial market circles, presumably because it was part of a BBC history program on Chinese paper money rather than on today’s monetary policy. Please check it out here, it is well worth listening to. If you go to 11 min 58 secs, the question asked is this: Are all paper money systems doomed to fail? King answers, no, he thinks, not all of them (although every single one has indeed failed) but he admits that the recent crisis has made him a bit more cautious in his assessment. Maybe the jury on whether paper money could be made to work at all was still out. Remarkable, for a central banker, I thought.

In my new book Paper Money Collapse – The Folly of Elastic Money and the Coming Monetary Breakdown (John Wiley & Sons, 2011) I show – conclusively, I believe – that systems of elastic money are always inferior to systems of inelastic money, and that elastic money systems cannot be made to be stable, that they must disrupt the market and lead to the accumulation of imbalances over time. They must end in economic disintegration and chaos. Paper money is not only suboptimal it is unsustainable.

This crisis is simply the demise of the latest incarnation of a state fiat money system. Like the first crisis of socialism, this crisis, too, will affect the lives of many people, it will cause upheaval and it will dispossess an elite of its entrenched position of power and privilege. Like the first crisis of socialism, it is an opportunity for liberty.

But unlike the first crisis of socialism, there is, this time, no Berlin Wall that we can tear down, nor some muddy patch in the Hungarian countryside with a hole in the fence through which we can climb. Today’s monetary socialism is global. And the collapse of this system will be global, too.

Obviously, the state has everything to lose, and state power has a habit of not accepting a loss of power lightly. Who knows? Maybe the state will nationalize the banks, introduce capital controls, confiscate private gold ownership or tax it heavily, ban Bitcoin, and force every pension fund to buy more government bonds.

In that case, some may argue that we are not in the summer of 1989 but in the spring of 1968. It wouldn’t change the endgame, just the timeline. But I still believe it is too late. We are closer to this system’s Berlin Wall moment than many people think.

Toys for the Boys

Eurozone: It Seemed a Good Idea At the Time

By Anthony de Jasay

In the type of society we live in, two kinds of order are intertwined. One is driven by agreements, contracts and custom resulting in exchanges between individuals exercising the freedom of choice that the circumstances of each permit. Their circumstances are partly a result of the past, partly of their own doing. The other kind of order is driven by command. Command in the form of laws and ad hoc regulations and orders determining what society or its various groups and categories must and must not do. It thus produces collective choices to which individuals are forced to conform by the principle of submission leading to political obedience. Political obedience is considered legitimate because the collective choice rule on which it rests, for example majority rule, is claimed to be of people's own choosing.

Collective choice where some, perhaps a majority but perhaps just a small and assertive group, decides for society as a whole, has the power to pre-empt or otherwise override the order based on freedom of exchange. They have obvious, identifiable incentives to do so. The response to incentives takes two major forms. One is redistribution; by collective choice, taxation on the revenue side and the provision of public goods and services on the expenditure side transfer resources from those who produce them to those who will consume them. The welfare state is the typical result, but a warlike state armed to the teeth could also be created in this way by collective choice.

Collective choice can, and all too often does, produce another and potentially quite vicious result. Friedrich A. Hayek, whose severe diagnosis of this result was his most valuable contribution to political philosophy, called it Constructivism.1 Disrespectfully and suggestively, one might also call it "Toys for the Boys."

The Boys are usually well-educated, intelligent and very ambitious men and women forming networks at or close to the centres of power. They are over-represented in political parties, the higher reaches of regulatory agencies and in the better sort of print and audio-visual media. Their fertile minds keep producing good ideas, blueprints of new structures that, if duly constructed, should make the world a better place. For the Boys, such Toys promise a double boon. One is the satisfaction of being the champion of a good thing, of progress. The other less easily avowed, is that as newly constructed institutions come with new job opportunities, exciting career prospects will beckon to the inventors and promoters of the new Toys.

A grand and ambitious one was being constructed module by module over four decades, starting with the Coal and Steel Community, continuing with the Common Market and then the European Union. In the crucial 1992 Maastricht Treaty, the member states undertook to respect certain rules of good fiscal behaviour (an undertaking contemptuously ignored by both Germany in some years and France nearly all the time) and agreed to adopt a common currency, the euro. The Eurozone, intended by the more nationalistic and socialist of its sponsors "to look the dollar area in the face", became reality in 1999.

Its appeal was not only to Euro-idealism and anti-Americanism, but also to economic interest. It was confidently forecast to raise the area's growth rate by between 0.5 and 1 per cent a year, a cumulative gain of astronomical proportions. It was also promised not to raise prices: 2 deutschmarks were to become 1 euro, but a 2 DM cup of coffee was not supposed to become a 2 euro cup. (Those who promised this have not learnt of the "money illusion". The cup of coffee promptly rose to 2 euros—but this was the least of the euro's disappointments). Perhaps the main economic effect of the common currency was that under its umbrella, staunchly held over them by the European Central Bank which in its early years acted as the spiritual heir of the highly conservative Bundesbank, the member states had a fairly free hand to run up budget deficits with little fear for the effect on their currency. The country that went the furthest out on this limb was Greece, and the Eurozone woke up to the weight of the sovereign debt pressing upon most of its other member states, too, when Greece was found to be facing almost imminent bankruptcy with its sovereign debt at about 160 per cent of its modest GDP.

Two rescue plans and a lot of acute pain later, Greece is edging closer and closer to insolvency and the prevailing intention of the Eurozone powers-that-be is that they must keep throwing good money after bad, for Greece must be "saved" at all costs even if she preferred not to be saved. Extravagant calculations of the cost of quitting the euro are being floated, Greece would lose 40 per cent of its GDP if it reverted to the drachma, while if Germany led a dissident group of the fiscally honest countries, Austria, Finland and the Netherlands, into a separate currency area—as proposed by H. O. Henkel, one of Germany's most prestigious industrialists—she would lose 20 per cent of her GDP straight away and 10 per cent in subsequent years. The absurdity of these estimates is exceeded only by the childish credulity of their audience. The gravest forecasts of the Cassandras do not even have numbers attached: they simply say that if Greece went, Portugal, Ireland, Italy and Spain, and maybe France, too, would "necessarily" follow and the consequences would be "incalculable". Therefore neither Greece nor any other country must leave the Eurozone. Q.E.D. With everybody busily engaged in frightening everybody else, and this in a modern economy with an advanced financial system that cannot function without a measure of confidence, the consequences may be "incalculable" indeed. It does seem a pity that freedom of speech comprises the freedom to spread panic on the back of half-baked scenarios and a refusal to lose face and admit honestly that the good idea was not such a good one after all.

It is hard to credit but sadly true that it has become a firmly held dogma that if Greece is not "saved", the whole Eurozone will fall apart by way of a cataclysmic chain reaction. Looking so marvellous and exciting in 1999, the great Toy looks fragile and a source of anguish in 2011. No one is courageous and sceptical enough to ask why default by a country accounting for a minuscule 3 per cent of the zone's economy should fatally cause the whole zone to "explode". "Chain reaction" is the muttered answer. But is economics really the same as nuclear physics? The grim answer probably is that if enough people believe it, it may become rather like it.

Logically enough, the Boys, refusing to lose face over their currency area, are pinning new hope on another and more powerful new Toy, a real federal union with a centralised budget for the whole area—the sole realistic condition for converting the national debts of the member states into a common Euro debt for which all are jointly and severally responsible and that the "nasty speculators would not dare to attack". Much could and no doubt will be written about the whys and wherefores of such a budget and debt union, about sovereign nations willing to submit to it and about Germany accepting the role intended for her, namely that of guarantor of last resort and rich aunt. All this column can predict at this stage is that no folly is too great, and that we can look forward to many a future summit meeting just like the dozens that brightened the past.

Footnotes

      1. See Friedrich A. Hayek's chapter on "Reason and Evolution" in Law, Legislation and Liberty: A New Statement of the Liberal Principles of Justice and Political Economy. Vol. 1 Rules and Order. (University of Chicago Press, 1973), for a full description of this topic.

The Community Reinvestment Act disaster story

Wall Street's Gullible Occupiers

 

The protesters have been sold a bill of goods. Reckless government policies, not private greed, brought about the housing bubble and resulting financial crisis.

By PETER J. WALLISON

There is no mystery where the Occupy Wall Street movement came from: It is an offspring of the same false narrative about the causes of the financial crisis that exculpated the government and brought us the Dodd-Frank Act. According to this story, the financial crisis and ensuing deep recession was caused by a reckless private sector driven by greed and insufficiently regulated. It is no wonder that people who hear this tale repeated endlessly in the media turn on Wall Street to express their frustration with the current conditions in the economy.

Their anger should be directed at those who developed and supported the federal government's housing policies that were responsible for the financial crisis.

Beginning in 1992, the government required Fannie Mae and Freddie Mac to direct a substantial portion of their mortgage financing to borrowers who were at or below the median income in their communities. The original legislative quota was 30%. But the Department of Housing and Urban Development was given authority to adjust it, and through the Bill Clinton and George W. Bush administrations HUD raised the quota to 50% by 2000 and 55% by 2007.

It is certainly possible to find prime borrowers among people with incomes below the median. But when more than half of the mortgages Fannie and Freddie were required to buy were required to have that characteristic, these two government-sponsored enterprises had to significantly reduce their underwriting standards.

Fannie and Freddie were not the only government-backed or government-controlled organizations that were enlisted in this process. The Federal Housing Administration was competing with Fannie and Freddie for the same mortgages. And thanks to rules adopted in 1995 under the Community Reinvestment Act, regulated banks as well as savings and loan associations had to make a certain number of loans to borrowers who were at or below 80% of the median income in the areas they served.

Research by Edward Pinto, a former chief credit officer of Fannie Mae (now a colleague of mine at the American Enterprise Institute) has shown that 27 million loans—half of all mortgages in the U.S.—were subprime or otherwise weak by 2008. That is, the loans were made to borrowers with blemished credit, or were loans with no or low down payments, no documentation, or required only interest payments.

Of these, over 70% were held or guaranteed by Fannie and Freddie or some other government agency or government-regulated institution. Thus it is clear where the demand for these deficient mortgages came from.

The huge government investment in subprime mortgages achieved its purpose. Home ownership in the U.S. increased to 69% from 65% (where it had been for 30 years). But it also led to the biggest housing bubble in American history. This bubble, which lasted from 1997 to 2007, also created a huge private market for mortgage-backed securities (MBS) based on pools of subprime loans.

As housing bubbles grow, rising prices suppress delinquencies and defaults. People who could not meet their mortgage obligations could refinance or sell, because their houses were now worth more.

Accordingly, by the mid-2000s, investors had begun to notice that securities based on subprime mortgages were producing the high yields, but not showing the large number of defaults, that are usually associated with subprime loans. This triggered strong investor demand for these securities, causing the growth of the first significant private market for MBS based on subprime and other risky mortgages.

By 2008, Mr. Pinto has shown, this market consisted of about 7.8 million subprime loans, somewhat less than one-third of the 27 million that were then outstanding. The private financial sector must certainly share some blame for the financial crisis, but it cannot fairly be accused of causing that crisis when only a small minority of subprime and other risky mortgages outstanding in 2008 were the result of that private activity.

When the bubble deflated in 2007, an unprecedented number of weak mortgages went into default, driving down housing prices throughout the U.S. and throwing Fannie and Freddie into insolvency. Seeing these sudden losses, investors fled from the market for privately issued MBS, and mark-to-market accounting required banks and others to write down the value of their mortgage-backed assets to the distress levels in a market that now had few buyers. This raised questions about the solvency and liquidity of the largest financial institutions and began a period of great investor anxiety.

The government's rescue of Bear Stearns in March 2008 temporarily calmed the market. But it created significant moral hazard: Market participants were led to believe that the government would rescue all large financial institutions. When Lehman Brothers was allowed to fail in September, investors panicked. They withdrew their funds from the institutions that held large amounts of privately issued MBS, causing banks and others—such as investment banks, finance companies and insurers—to hoard cash against the risk of further withdrawals. Their refusal to lend to one another in these conditions froze credit markets, bringing on what we now call the financial crisis.

The narrative that came out of these events—largely propagated by government officials and accepted by a credulous media—was that the private sector's greed and risk-taking caused the financial crisis and the government's policies were not responsible. This narrative stimulated the punitive Dodd-Frank Act—fittingly named after Congress's two key supporters of the government's destructive housing policies. It also gave us the occupiers of Wall Street.

Been there, done that

Private Health Insurance Increases 400% in Sweden To Avoid Long Waiting Lines and Inconsistent Care

By Mark Perry

 From  The Local: Sweden's News in English:

 "While Sweden has long taken pride in its public healthcare system, lengthening queues and at times inconsistent care have prompted many Swedes to opt for private healthcare with many gaining the benefit through insurance policies offered by employers, currently responsible for 80% of healthcare insurance market.

The idea behind private health insurance is simple enough: those put off by the idea of heading to publicly funded clinics and hospitals can purchase a policy through an insurance company and instead enjoy speedy medical attention with private doctors. As many as 500,000 Swedes are now estimated to be using private healthcare insurance, up from 100,000 only ten years ago.  And a flawed public system is often cited as the cause of the rapid expansion. Long queues are one of the main complaints for consumers of Sweden's public healthcare services, with patients sometimes forced to wait as much as fifteen times longer for treatment compared to private options."