Monday, October 24, 2011

Typing and laughing at the same time


Not Alarmist Enough
Normally, I might not deal with a four year old paper by James Hansen, the NASA doyenne of serial doomcasters. However, I note that this paper has been cited ten times this year alone, so I thought I might comment.
At some point when he was not giving a Press Conference, or getting arrested, or spending time complaining that he was being “muzzled”, Mr. Hansen wrote:
Abstract. I suggest that a `scientific reticence’ is inhibiting the communication of a threat of a potentially large sea level rise. Delay is dangerous because of system inertias that could create a situation with future sea level changes out of our control. I argue for calling together a panel of scientific leaders to hear evidence and issue a prompt plain-written report on current understanding of the sea level change issue.
I love the naked power grab. I mean, what an audacious plan!
First, you unilaterally declare that there is some huge looming disaster a long ways in the future. Using a variety of methods fair and foul, you obtain the full cooperation of other scientists, governments, educational institutions, and the media the world around. With all of you, the whole chorus, baying for skeptic’s blood in full voice, you spend a quarter century trying to convince the people of the oncoming Thermageddon.
Second, after said quarter century you notice that despite having the entire resources of the educational and media institutions of the planet and the blind agreement of other scientists and billions of dollars poured into trying … you have not been able to establish your case. Heck, you haven’t even been able to falsify the null hypothesis. In fact, after a long string of predictions of doom, none of which came to pass, and at the tail end of a 15-year hiatus in the warming, the US public doesn’t believe a word you say. Oops. Over two-thirds of them think climate scientists sometimes falsify their research. Oops.
In response, you say that the problem is that scientists have been too retice … too re … sorry, it’s hard to type and laugh at the same time … you say that scientists have been to reticent, that they haven’t been alarmist enough or aggressive enough in promoting their views.
That’s the problem? After 25 years of unbridled alarm from scientists and everyone else from Presidents to my kid’s teachers, the problem is that scientists are not alarmist enough, they’re too reticent to state their true opinion? Really? That’s the reason the public doesn’t believe you? Is that your final answer?
(Does he really, in his heart of hearts, believe that? Possible, I guess, but it presupposes a level of self-delusion that is scary …)
The real beauty of the plan, however, the sting in the tale, is the proposed solution—a “panel of scientific leaders” to inform the people of the error of our ways. I mean, the IPCC did so well, let’s make a sea level rise mini-IPCC. Staff it with people who will know what to say, who won’t have to be prompted.
Mr. Hansen claims he is a scientist first and an activist second. He and far too many other climate scientists are activists first, and scientists maybe fourth or fifth if at all. He proposes convening a Star Council of Jim and his hand-picked acolytes to lecture us sternly on a radical sea level rise slated to occur when they are dead? He wants us to listen to his pals make predictions they’ll never be held accountable for? And all this from the man who in 1988 predicted a 10 foot (3m) sea level rise putting parts of NYC underwater in forty years? Fuggedaboutit. He probably felt safe with such a long-term prediction. In any case, we’re more than halfway there, and since 1988 the sea level in NYC has gone up by 2.5 inches (6 cm). Would you buy a sea level prediction from Jim?
There certainly are many problems in the field of climate science. Reticence on the part of climate scientists to clean up their own backyard is high on the list.
Reticence on the part of climate scientists to make alarmist claims, about sea level or any other imagined future disaster, is not on the list at all.
The main problem, however, is thinking that it’s a communications problem. It’s not. The problem is that Jim and his Climategate pals lied and cheated and pulled strings and even destroyed evidence in order to advance their views. All of that was revealed clearly in the UEA emails. They stand convicted by their own words.
As a result, lots of folks don’t believe a word that the climate scientists say. And reasonably so. I have seen no reason to believe they are now acting differently. There has been no “mea culpa” from even one individual involved. Noble Cause Corruption appears to have rotted the ethical parts of their brains entirely. They don’t even think they did wrong … and the rest of the honorable, decent, good climate scientists? Well, by and large they played the faithful dog Spot, they rolled over and played dead.
That’s the problem, not communications or reticent scientists. I had hoped that Climategate would lance the boil and the healing could begin … foolish boy, wrong again …
So no, I believe I’ll pass on the brilliant plan for the formation  of the Official Panel Of The Sea-Level Wise Men. No need to even read the novel, most of us have seen the IPCC movie, and would prefer not to be forced to sit through a bad sequel.

Gauchos and gadflies

Argentina’s debt default
Creditors’ decade-long battle with Argentina shows just how tangled sovereign defaults can be
by The Economist editors
AS GREECE flirts with disaster and several other European countries buckle under heavy debts, creditors’ experience with Argentina should serve as a sobering reminder about the mess that can follow a sovereign default. A decade after the Latin American country welshed on $81 billion, disgruntled creditors are still chasing their money. The litigation, and Argentina’s defiance in the face of judgments against it, complicate its plans to return to international capital markets.
Argentina’s default, after a severe economic crisis, sparked social unrest and runs on banks. It subsequently presented creditors with a take-it-or-leave-it offer of 35 cents on the dollar. They considered this derisory: previously, delinquent countries had typically paid 50-60 cents. But the government stood firm and roughly three-quarters of the bondholders took part in a debt exchange in 2005. More joined in 2010, bringing the total to 93%.
But the rest, holding $6 billion-worth of debt (excluding accrued interest), continue to insist on a higher payout, pointing to Argentina’s strong commodity-led recovery. They were able to hold out because Argentina’s bonds had no “collective-action clause” forcing everyone to participate if it reached a threshold of takers. Such clauses have since become commoner in emerging markets, and are due to become standard in Europe as part of the European Stability Mechanism, a planned replacement for the euro zone’s current bail-out fund.
The holdouts are a motley crew. The noisiest are two “vulture” funds that bought many of their bonds in the secondary market: EM and NML Capital, an affiliate of Elliott Management, a hedge-fund group with a long history of butting heads with countries in default. The other main constituency is a group of 60,000 individuals from Italy, where Argentine bonds had been a popular retail investment.
Because the bonds were mostly issued under New York, not Argentine, law—a move designed to give comfort to investors and reduce the interest rates they demanded—the creditors could sue in America. Argentina played for time, at one point unsuccessfully arguing that only the agent through which the bonds were issued, not the beneficial holders, could sue. But over the years courts have handed down hundreds of judgments against Argentina, including $3 billion-worth for NML and EM.
Getting the country to cough up is another matter. Unlike companies, countries cannot officially go bust so their creditors don’t have the benefit of a clear insolvency framework. It comes down to what assets they can persuade a judge to “attach”, or deem subject to seizure. National sovereign-immunity laws protect many state-owned assets abroad, such as embassies. In America, however, stuff that is used for commercial purposes is fair game.
Judge Thomas Griesa, who has presided over much of the litigation, has branded Argentina’s manoeuvres “immoral”, turning the writ of American courts into a “dead letter”. But he acknowledges that it is not a normal commercial party. He likes to remind the plaintiffs that they have rights but may not have remedies.
The upshot is a game of cat and mouse as creditors resort to novel tactics to get their money. This is bread-and-butter stuff for Elliott, which has stretched the legal envelope several times before in pursuit of sovereign deadbeats. The firm is going after assets belonging to Argentina’s central bank (known at home as the BCRA), invoking the “alter ego” theory. This states that the BCRA is a fair target because it lacks separateness from the government, which has used it to finance pet projects and to pay favoured creditors. Judge Griesa has upheld this theory. Lawyers disagree about whether an appeals-court ruling in New York in July undermined it.
One target is BCRA funds held at other central banks. EM and NML came close to seizing $105m parked with the Federal Reserve Bank of New York, but an appeals court ruled that the money was not for “commercial” use and was thus immune. This case could end up in the Supreme Court. The creditors have sent subpoenas to banks that work with Argentina, asking for details of its commercial activities worldwide. Earlier this year Britain’s top court ruled that they could pursue claims in British courts.

He/she who gets out first gets out best.


There Is No Way To Stop Europe's First Domino From Falling
By Charles Hugh Smith
The dominoes of debt are toppling in Europe, and there is no way to stop the forces of financial gravity.
After 19 months of denial, propaganda and phony fixes, the political and finance leaders of the European Union are claiming a "comprehensive solution" will be presented by Wednesday, October 26 — or maybe by the G20 meeting on November 3, or maybe on Christmas, when Santa Claus delivers the gift global markets are demanding: a "solution" that actually pencils out and that forces monumental writeoffs of debt and thus equally monumental losses on European banks and bondholders.
There have been any number of insightful descriptions of what's going on beneath the artifice, spin and lies, for example:
I have summarized the fundamentals in this one graphic: the European dominoes of debt. Simply put, there is no way the EU authorities can stop the first domino — Greek default or equivalent writedown of its impossible debt load — from toppling the over-leveraged banks which will be rendered insolvent when forced to recognize their losses.
dominoes
That leaves each nation with the politically unsavory option of bailing out its premier banks with taxpayer money, and squeezing the money out of its citizenry via higher taxes and austerity. That assumption of bank debt will in turn trigger downgrades of heavily indebted sovereign nations such as France — moves that will raise rates and make the bailout even more costly to taxpayers, who will also be suffering from reductions of income due to global recession.
Once the banks and bondholders accept a 50%–75% writedown in Greek debt, then the other debtor nations will be justified in demanding the same writedown in their crushing debts. This dynamic leads to estimates that 3 trillion euros will be needed to bail all the players out. Alternatively, total losses will equal 3 trillion euros, wiping out banks and bondholders of sovereign debt.
The German economy is simply not big enough to fund a 3 trillion-euro bailout. Germany has 81 million people and its GDP is $3.3 trillion; the EU GDP is roughly $16 trillion. Compare those with the U.S., with 315 million people and a GDP of around $14.6 trillion.
As an act of self-preservation, Germany will be forced to either exit the euro outright or cloak its withdrawal with a "euro 1 and euro 2" scheme, a scenario I first laid out in March 2010: Why the Euro Might Devolve into Euro1 and Euro2 (March 2, 2010). Other recent entries on the end-state of the European debt crisis:
In any event, the last domino — the artifice of a single currency — will fall one way or another.
It's important to understand that the supposedly "prudent" economies of France, Germany, South Korea and Canada are just as heavily indebted as the U.S. or "drowning in debt" nations such as Italy. In the long view, is Germany's load of 284% of GDP really that different from Italy's 313%? Yes, the mix of debt is different, but the point is that all of Europe, and indeed the developed world, is overloaded with debt: state, bank and private.

Who is the soggiest of them all?


What Countries—and Their Citizens—Owe   

Data from the McKinsey Global Institute show that sovereign debt is only part of the debt problem. Households and banks owe, too

At least it’s been clear just how underwater all the struggling countries have been, right? Not exactly. If you add household, business, and bank debt to the total, the picture is a good deal spookier. By this measure, the U.K. is the soggiest.

Dostoyevsky’s prophecy


Knowledge without Knowledge
 
By Theodore Dalrymple

Recently I reviewed a short book by David Horowitz, a man whose has changed his political and philosophical outlook somewhat down the years, to put it no stronger. He has mellowed with age, a process that seems perfectly normal, indeed almost biological, until one remembers than not everyone does mellow with age. Some remain mired in the swamp of their youthful convictions.   

As it happens, I had in my library a book edited in 1971 by Mr Horowitz, in the days when he was still a leader of the American New Left. It was a collection of essays about the life and work of Isaac Deutscher, the British Marxist biographer of Stalin and, most famously, of Trotsky. Deutscher was also a prolific journalist and essayist.

Isaac Deutscher was born in Poland, a subject of the Tsar, in 1907, and died a British citizen in 1967. His move to England in 1939 saved his life; if he had either stayed in Poland or moved to Russia (where he was offered a post at a university) he would almost certainly not have survived the war.

Deutscher was an infant prodigy, brought up as a religious Jew but losing his faith at an early age. He transferred his religious longings at about the age of twenty to the secular faith of Marxism, and never lost that faith to the day he died. Happy the man who lives in his faith, but unhappy the man who lives in a country in which his faith has become an unassailable orthodoxy.

When one reads Deutscher aware of the fact that English was his sixth or seventh language, one is truly astonished, for his prose in his sixth or seventh language is lucid and even elegant, with absolutely no hint that he is not a native-speaker, and a highly-educated one at that. As a sheer linguistic feat this is, if not completely unexampled, very remarkable indeed. Although a Marxist, he modelled himself as a stylist on Gibbon and Macaulay, and if he does not quite reach their level – well, who does nowadays?

His language was clear, but his thought was not. He was what might be called a dialectical equivocator, made dishonest by his early religious vows to Marxism. This made him unable to see or judge things in a common-sense way. His unwavering attachment to his primordial philosophical standpoint, his irrational rationalism, turned him into that most curious (and sometimes dangerous, because intellectually charismatic) figure, the brilliant fool. He was the opposite of Dr Watson who saw but did not observe: he observed, but did not see. He was the archetype of the man, so common among intellectuals, who knows much but understands little.

A good example of this capacity to misunderstand despite a great deal of knowledge occurs in his posthumous short book, Lenin’s Childhood. When he died, Deutscher was working on a projected biography of Lenin, but only the chapter devoted to Lenin’s childhood existed in anything like publishable form; it was edited by his wife and collaborator, Tamara.

From the purely literary point of view, the fragment is characteristically excellent, the very model of its type, written in beautifully balanced prose and with a judicious amount of detail. Of course, an account of so factual a matter as Lenin’s childhood must be influenced deeply by the biographer’s overall assessment of Lenin’s character and achievements, for the child is father to the man and it is the final character and achievements of that man that the childhood in part is to explain or at least prefigure. In Lenin’s case, we are interested in the childhood because of what he became, not for its own sake; and it is inevitable that we shall look for different germs of the future in it if we consider Lenin the nearest man to the devil incarnate who has ever existed from those that we shall seek if we regard him (as Deutscher did, according to his wife) as ‘the most earthly of all who have lived on this earth of man’ – clearly a religious way of putting it, incidentally. What is to be explained differs completely in the two cases: the person who thinks of Lenin as the frozen-blooded murderer who could order executions by the thousand without so much as the flicker of an eyelid will look for different things in his childhood from the person who thinks that he was the brilliant saviour of the world.

Be that as it may, there is a single reference to Dostoyevsky in the fragment that illustrates perfectly Deutscher’s learned obtuseness. Writing of Lenin’s father, an inspector of schools who was loyal to the Tsar and the Orthodox church, Deutscher says:
In his young years memories of the suppression of the Decembrist rising were still fresh and forbidding. Then came the terror that crushed the Petrashevsky circle and broke a man of Dostoyevsky’s stature.
Admittedly I do not read Russian, unlike Deutscher, but still I do not think it would be possible to write a single sentence that could misunderstand Dostoyevsky more fundamentally, completey and deeply that the second which I have just quoted. Far from breaking Dostoyevsky, his imprisonment, death sentence, reprieve and exile were the making of him, in the sense that they were the experiences upon which his subsequent philosophy, for good or evil, was based.

Teaching Moment


U.S. schools teach how to do less with more
In one of those inspired innovations designed to keep American classrooms on the cutting edge of educational excellence, the administration has been sending Joe Biden out to talk to schoolchildren. Last week, it was the Fourth Grade at Alexander B. Goode Elementary School in York, Pennsylvania, that found itself on the receiving end of the vice president's wisdom:
"Here in this school, your school, you've had a lot of teachers who used to work here, but because there's no money for them in the city, they're not working. And so what happens is, when that occurs, each of the teachers that stays have more kids to teach. And they don't get to spend as much time with you as they did when your classes were smaller. We think the federal government in Washington, D.C., should say to the cities and states, look, we're going to give you some money so that you can hire back all those people. And the way we're going to do it, we're going to ask people who have a lot of money to pay just a little bit more in taxes."
Who knew it was that easy?
So let's see if I follow the vice president's thinking:
The school laid off these teachers because "there's no money for them in the city." That's true. York City School District is broke. It has a $14 million budget deficit.
So instead Washington, D.C., is going to "give you some money" to hire these teachers back.
So, unlike York, Pennsylvania, presumably Washington, D.C., has "money for them"?
No, not technically. Washington, D.C., is also broke – way broker than York City School District. In fact, the government of the United States is broker than any entity has ever been in the history of the planet. Officially, Washington has to return 15,000,000,000,000 dollars just to get back to having nothing at all. And that 15,000,000,000,000 dollars is a very lowball figure that conveniently ignores another $100 trillion in unfunded liabilities that the government, unlike private businesses, is able to keep off the books.
So how come the Brokest Jurisdiction in History is able to "give you some money" to hire back those teachers that had to be laid off?
No problem, says the vice president. We're going to "ask" people who have "a lot of money" to "pay just a little bit more" in taxes.
Where are these people? Evidently, not in York, Pennsylvania. But they're out there somewhere. Who has "a lot of money"? According to President Obama, if your combined household income is over $250,000 a year you have "a lot of money." Back in March, my National Review colleague Kevin Williamson pointed out that, in order to balance the budget of the United States, you would have to increase the taxes of people earning more than $250,000 a year by $500,000 a year.
OK, OK, maybe that $250K definition of "bloated plutocrat" is a bit off. After all, the quarter-mil-a-year category includes not only bankers and other mustache-twirling robber barons, but also at least 50 school superintendents in the state of New York and many other mustache-twirling selfless public servants.
So how about people earning a million dollars a year? That's "a lot of money" by anybody's definition. As Kevin Williamson also pointed out, to balance the budget of the United States on the backs of millionaires you would have to increase the taxes of those earning more than $1 million a year by $6 million a year.
Not only is there "no money in the city" of York, Pennsylvania, and no money in Washington, D.C., there's no money anywhere else in America – not for spending on the Obama/Biden scale. Come to that, there's no money anywhere on the planet: Last year, John Kitchen of the U.S. Treasury and Menzie Chinn of the University of Wisconsin published a study called "Financing U.S. Debt: Is There Enough Money In The World – And At What Cost?"
Don't worry, it's a book with a happy ending! U.S. government spending is sustainable as long as by 2020 the rest of the planet is willing to sink 19 percent of its GDP into U.S. Treasury debt. And why wouldn't they? After all, if you're a Chinese politburo member or a Saudi prince or a Russian kleptocrat or a Somali pirate, and you switched on CNN International and chanced to catch Joe Biden's Fourth Grade Economics class, why wouldn't you cheerily dump a fifth of your GDP into a business model with such a bright future?
Since 1970, public school employment has increased 10 times faster than public school enrollment. In 2008, the United States spent more per student on K-12 education than any other developed nation except Switzerland – and at least the Swiss have something to show for it. In 2008, York City School District spent $12,691 per pupil – or about a third more than the Swiss. Slovakia's total per student cost is less than York City's current per student deficit – and the Slovak kids beat the United States at mathematics, which may explain why their budget arithmetic still has a passing acquaintanceship with reality. As in so many other areas of American life, the problem is not the lack of money but the fact that so much of the money is utterly wasted.
But that's no reason not to waste even more! So the President spent last week touring around in his weaponized Canadian bus telling Americans that Republicans were blocking plans to "put teachers back in the classroom." Well, where are they now? Not every schoolmarm is down at the Occupy Wall Street drum circle, is she? No, indeed. And, in that respect, York City is a most instructive example: Five years ago (the most recent breakdown I have), the district had 440 teachers but 295 administrative and support staff. If you're thinking that sounds a little out of whack, that just shows what a dummy you are: For every three teachers we "put back in the classroom," we need to hire two bureaucrats to put back in the bureaucracy to fill in the paperwork to access the federal funds to put teachers back in the classroom. One day it will be three educrats for every two teachers, and the system will operate even more effectively.
It's just about possible to foresee, say, Iceland or Ireland getting its spending under control. But, when a nation of 300 million people presumes to determine grade-school hiring and almost everything else through an ever more centralized bureaucracy, you're setting yourself up for waste on a scale unknown to history. For example, under the Obama "stimulus," U.S. taxpayers gave a $529 million loan guarantee to the company Fisker to build their Karma electric car. At a factory in Finland.
If you're wondering how giving half-a-billion dollars to a Finnish factory stimulates the U.S. economy, well, what's a lousy half-bil in a multitrillion-dollar sinkhole? Besides, in the 2009 global rankings, Finnish schoolkids placed sixth in math, third in reading and second in science, while suffering under the burden of a per-student budget half that of York City. By comparison, America placed 17th in reading, 23rd in science, and 31st in math. So the good news is that, by using U.S. government money to fund a factory in Finland, Fisker may be able to hire workers smart enough to figure out how to build an unwanted electric car that doesn't lose its entire U.S. taxpayer investment.
In a sane world, Joe Biden's remarks would be greeted by derisive laughter, even by fourth-graders. Certainly by Finnish fourth-graders.

Saturday, October 22, 2011

Opinions vs Facts


Income inequality can be explained by household demographics
The Occupy Wall Street (OWS) protest has returned national attention to the topic of income inequality; see recent commentary from bloggers Megan McArdle here and James Pethokoukis here and here. Both highlight empirical evidence that challenges the narrative that income inequality has gotten worse over time.
Most of the discussion on income inequality focuses on the relative differences over time between low-income and high-income American households, but it’s also instructive to analyze the demographic differences among income groups at a given point in time to answer the question: How are high-income households different from low-income households? Recently released data from the Census Bureau (available herehere, and here) for American households by income quintiles in 2010 allows for such a comparison: see the chart below.
Here is a summary of some of the key demographic differences between American households in the bottom and top income quintiles in 2010:
1. On average, there were significantly more income earners per household in the top income quintile households (1.97) than earners per household in the lowest-income households (0.43).
2. Married-couple households represented a much greater share of the top income quintile (78.4 percent) than for the bottom income quintile (17 percent), and single-parent or single households represented a much greater share of the bottom quintile (83 percent) than for the top quintile (21.6 percent).
3. Roughly 3 out of 4 households in the top income quintile included individuals in their prime earning years between the ages of 35-64, compared to only 43.6 percent of household members in the bottom fifth who were in that age group.
4. Compared to members of the top income quintile, household members in the bottom income quintile were 1.6 times more likely to be in the youngest age group (under 35 years), and three times more likely to be in the oldest age group (65 years and over).
5. More than four times as many top quintile households included at least one adult who was working full-time in 2010 (77.2 percent) compared to the bottom income quintile (only 17.4 percent), and more than seven times as many households in the bottom quintile included adults who did not work at all (65 percent) compared to top quintile households whose family members did not work (13.3 percent).
6. Family members of households in the top income quintile were about five times more likely to have a college degree (60.3 percent) than members of households in the bottom income quintile (only 12.1 percent). In contrast, family members of the lowest income quintile were 12 times more likely than those in the top income quintile to have less than a high school degree in 2010 (26.7 percent vs. 2.2 percent).
Bottom Line: American households in the top income quintile have almost five times more family members working on average than the lowest quintile, and individuals in higher-income households are far more likely than lower-income households to be well-educated, married, and working full-time in their prime earning years. In contrast, individuals in low-income households are far more likely to be less-educated, working part-time, either very young or very old, and living in single-parent households.
The American economy and labor market are extremely dynamic, and evidence shows that individuals are not stuck forever in a single income quintile but instead move up and down the income quintiles over their lifetimes. It’s very likely that many high-income individuals who were in their peak earning years in 2010 were in a lower income quintile in prior years, before they acquired education and job experience, and they’ll move again to a lower quintile in the future when they retire.
Last November, presaging today’s protests on Wall Street, columnist Nicholas Kristof wrote in the New York Times (“A Hedge Fund Republic?”) that if Americans want to observe “rapacious income inequality,” they don’t need to travel to a banana republic. Rather, he suggests that “you can just look around” the United States to see “stunning inequality.” Given the significant differences in household characteristics by income group, it shouldn’t be too stunning that there are huge differences in incomes among American households, and it has nothing to do with “rapaciousness.” Rather, it can be easily explained by household demographics.

Another protectionist central planner


Hitler's Economics
by Llewellyn H. Rockwell Jr.
For today's generation, Hitler is the most hated man in history, and his regime the archetype of political evil. This view does not extend to his economic policies, however. Far from it. They are embraced by governments all around the world. The Glenview State Bank of Chicago, for example, recently praised Hitler's economics in its monthly newsletter. In doing so, the bank discovered the hazards of praising Keynesian policies in the wrong context.
The issue of the newsletter (July 2003) is not online, but the content can be discerned via the letter of protest from the Anti-Defamation League. "Regardless of the economic arguments" the letter said, "Hitler's economic policies cannot be divorced from his great policies of virulent anti-Semitism, racism and genocide…. Analyzing his actions through any other lens severely misses the point."
The same could be said about all forms of central planning. It is wrong to attempt to examine the economic policies of any leviathan state apart from the political violence that characterizes all central planning, whether in Germany, the Soviet Union, or the United States. The controversy highlights the ways in which the connection between violence and central planning is still not understood, not even by the ADL. The tendency of economists to admire Hitler's economic program is a case in point.
In the 1930s, Hitler was widely viewed as just another protectionist central planner who recognized the supposed failure of the free market and the need for nationally guided economic development. Proto-Keynesian socialist economist Joan Robinson wrote that "Hitler found a cure against unemployment before Keynes was finished explaining it."
What were those economic policies? He suspended the gold standard, embarked on huge public works programs like Autobahns, protected industry from foreign competition, expanded credit, instituted jobs programs, bullied the private sector on prices and production decisions, vastly expanded the military, enforced capital controls, instituted family planning, penalized smoking, brought about national healthcare and unemployment insurance, imposed education standards, and eventually ran huge deficits. The Nazi interventionist program was essential to the regime's rejection of the market economy and its embrace of socialism in one country.
Such programs remain widely praised today, even given their failures. They are features of every "capitalist" democracy. Keynes himself admired the Nazi economic program, writing in the foreword to the German edition to the General Theory: "[T]he theory of output as a whole, which is what the following book purports to provide, is much more easily adapted to the conditions of a totalitarian state, than is the theory of production and distribution of a given output produced under the conditions of free competition and a large measure of laissez-faire."
Keynes's comment, which may shock many, did not come out of the blue. Hitler's economists rejected laissez-faire, and admired Keynes, even foreshadowing him in many ways. Similarly, the Keynesians admired Hitler (see George Garvy, "Keynes and the Economic Activists of Pre-Hitler Germany," The Journal of Political Economy, Volume 83, Issue 2, April 1975, pp. 391–405).
Even as late as 1962, in a report written for President Kennedy, Paul Samuelson had implicit praise for Hitler: "History reminds us that even in the worst days of the great depression there was never a shortage of experts to warn against all curative public actions…. Had this counsel prevailed here, as it did in the pre-Hitler Germany, the existence of our form of government could be at stake. No modern government will make that mistake again."
On one level, this is not surprising. Hitler instituted a New Deal for Germany, different from FDR and Mussolini only in the details. And it worked only on paper in the sense that the GDP figures from the era reflect a growth path. Unemployment stayed low because Hitler, though he intervened in labor markets, never attempted to boost wages beyond their market level. But underneath it all, grave distortions were taking place, just as they occur in any non-market economy. They may boost GDP in the short run (see how government spending boosted the US Q2 2003 growth rate from 0.7 to 2.4 percent), but they do not work in the long run.
"To write of Hitler without the context of the millions of innocents brutally murdered and the tens of millions who died fighting against him is an insult to all of their memories," wrote the ADL in protest of the analysis published by the Glenview State Bank. Indeed it is.
But being cavalier about the moral implications of economic policies is the stock-in-trade of the profession. When economists call for boosting "aggregate demand," they do not spell out what this really means. It means forcibly overriding the voluntary decisions of consumers and savers, violating their property rights and their freedom of association in order to realize the national government's economic ambitions. Even if such programs worked in some technical economic sense, they should be rejected on grounds that they are incompatible with liberty.
So it is with protectionism. It was the major ambition of Hitler's economic program to expand the borders of Germany to make autarky viable, which meant building huge protectionist barriers to imports. The goal was to make Germany a self-sufficient producer so that it did not have to risk foreign influence and would not have the fate of its economy bound up with the goings-on in other countries. It was a classic case of economically counterproductive xenophobia.
And yet even in the US today, protectionist policies are making a tragic comeback. Under the Bush administration alone, a huge range of products from lumber to microchips are being protected from low-priced foreign competition. These policies are being combined with attempts to stimulate supply and demand through large-scale military expenditure, foreign-policy adventurism, welfare, deficits, and the promotion of nationalist fervor. Such policies can create the illusion of growing prosperity, but the reality is that they divert scarce resources away from productive employment.
Perhaps the worst part of these policies is that they are inconceivable without a leviathan state, exactly as Keynes said. A government big enough and powerful enough to manipulate aggregate demand is big and powerful enough to violate people's civil liberties and attack their rights in every other way. Keynesian (or Hitlerian) policies unleash the sword of the state on the whole population. Central planning, even in its most petty variety, and freedom are incompatible.
Ever since 9-11 and the authoritarian, militarist response, the political left has warned that Bush is the new Hitler, while the right decries this kind of rhetoric as irresponsible hyperbole. The truth is that the left, in making these claims, is more correct than it knows. Hitler, like FDR, left his mark on Germany and the world by smashing the taboos against central planning and making big government a seemingly permanent feature of western economies.
David Raub, the author of the article for Glenview, was being naïve in thinking he could look at the facts as the mainstream sees them and come up with what he thought would be a conventional answer. The ADL is right in this case: central planning should never be praised. We must always consider its historical context and inevitable political results.