Laughing In The Face Of Goliath

The Virtue Of Fighting Back

By Brandon Smith
With the passage of the National Defense Authorization Act and all the malicious intent contained within its virulent pages, many in the Liberty Movement, once relegated as “extremists” in documents such as the MIAC Report and the Virginia Fusion Center white papers, now find themselves faced with the very real possibility of being targeted as “enemy combatants” in their own country and in their own front yards.  No longer is the fight between globalist and Constitutionalist obscured in the mire of cold war style information drilling and propaganda.  Today, it’s all out in the open, and it’s nothing to be taken lightly.  Unfortunately, however, an incessant belief remains amongst a large subsection of Americans, who assume that there is no need to act, or to choose sides.  Apathy and fear cling to our culture like manure to a new leather shoe.

In my years as an analyst and activist, I cannot possibly estimate how often I have heard cries of nihilism, futility, and submission.  The redirections and rationalizations used by naysayers and quivering weaklings at the onset of any social crisis always carry the taste of logic, but in those of us who have resolved to stand firm in our principles, such excuses elicit reactions of utter disgust.  There is nothing more distasteful to the courageous than being presented with a man who would sell his own soul (or the souls of others) for a few extra minutes of oxygen.

Life is inherently dangerous.  Always has been.  Always will be.  Regardless of the time or place in which we live, the threat of calamity is ever present.  American culture has strained every sinew and burst every blood vessel trying to wrap itself in a bubble of artificial safety…to no avail.  While we live, there is no permanent escape from struggle, beyond increasingly brief moments of calm.  At bottom, those who embrace the reality of danger and conflict, and who have the will to see it through, are the men and women who are most likely to make a difference in this world.  Those who run, hide, or easily surrender, matter little in the grand streams of history.  They become cannon fodder buried in the dreary dust bowl pages of abandoned encyclopedias, and nothing more.

As the preeminence of this cold hard truth dawns on us, we are faced with what amounts to a very simple choice, at least, in my mind.  Terror or valor.  Slavery or freedom.  Obedience or defiance.

The stature and vicious nature of our opponent appears overpowering, just like any other monster worth the effort to slay.  The greatest enemy of the citizenry, though, has never been the leviathans of establishment and oligarchy, but the apprehensions of the people themselves.  Let’s examine this concept more thoroughly by confronting the attitudes of some activists towards the very solutions that could save them and their country if they only had the guts to hold fast…

Organization

In the Liberty Movement, more than any other political and philosophical social shift I can think of, the process of practical organization has been ridiculously subdued.  The alarm that arises over the possibility of being added to multiple arbitrary lists of alphabet agencies from the FBI to the DHS has until recently inspired a sort of proactive paralysis.  In most situations, whether we like it or not, activism involves exposure, and risk.  Sorry folks, that’s just how it goes.  Frankly, if you are not on a government list somewhere, then you probably aren’t much of a threat, and therefore, need to try harder.

Solid organization does not necessarily require centralization or a top down command structure.  In fact, the more decentralized a group or network is, the more flexible and durable it becomes.  What is required, though, are common objectives and consistent leadership through example.  In a movement at odds with itself at the most basic level, the juggernaut of elitism rolls forward unimpeded across lands of ghosts and jello.

Without mutual aid, mutual defense, and synchronous strategies, individual proponents of Constitutional law and transparency will find themselves completely isolated from one another.  Faces in a crowd of destitute and hungry.  Ultimately, what the government does or does not do when it comes to categorizing our movement is not our concern.  Safe haven relocation, barter networking, open protest, neighborhood defense, will attract negative responses from elitists because these strategies WORK.  When faced with the potential of full spectrum national collapse and economic implosion, federal intervention or demonization becomes a rather puny concession in comparison.  Our very first concern should be that of local insulation and survival in the wake of financial Armageddon, not the chest beating of overconfident bureaucrats.

Protest

Protest, for the most part, has become a completely ineffective tactic for legitimate change, not because it is passé, but because the methods used today have not evolved for several decades.  Public demonstrations in modern times in the face of technically advanced media manipulations must assert a specific objective in order to be successful.  The objective could be as simple as refusing to move from a particular place despite the perceived consequences, or preventing an opponent from finishing a task.  Signs and slogans are meaningless compared to the act of drawing a line in the proverbial sand and denying the enemy access.  The problem is, many protest groups in these times are afraid to commit so completely too any redress of grievances.

A peaceful protest requires incredible courage, including the courage to get arrested, or to take a beating.  It demands an unwavering sense of urgency.  That which can be accomplished today MUST be accomplished today, or not at all.  There may not be an opportunity tomorrow.

Subtergenekon and Other Crimes

In Turkey, alleged terrorism requires a brand-new vocabulary

By Claire Berlinski

George Orwell’s greatest act of genius was the invention of Newspeak, the official language of Oceania, devised to meet the ideological needs of “Ingsoc,” or English Socialism. Explaining the nature of a mass trial in Turkey likewise requires the construction of a language all its own. Of late, journalists’ trials have received particular notice in the foreign press, but only because the arrest of journalists excites other journalists. In fact, early-morning raids, mass arrests, detentions without trial, and mass trials are a common feature of the Turkish landscape—for academics, students, suspected members of the so-called KCK (the urban wing of the terrorist Kurdish group PKK), lawyers of suspected members of the KCK, heads of soccer teams and their associates, members of parliament, generals, admirals, and an indeterminate number of unfortunates who just got sucked up in the vacuum.

It’s relatively fortunate to be a famous arrested journalist: at least there’s hope that someone will notice you’re in jail. The Turkish government denies that the arrested journalists were arrested for journalism—or rather, it says that only eight of them were; the others, it says, are in jail because they are terrorists. This is where a new language must be invented, because the word “terrorist” doesn’t do justice to the concept that the government has in mind. Take, for example, Interior Minister İdris Naim Şahin’s recent explanation of the concept:

The efforts of the terrorist group are not limited to vicious attacks. . . . There is psychological terror, scientific terror. There is a backyard feeding the terror. There is the terror propaganda. There is an effort to portray it as innocent, reasonable and right. . . . Some support terror by seriously distorting it, making it sound reasonable by inventing excuses. By drawing pictures, reflecting it onto canvas, writing poems, reflecting it onto poems, writing daily columns. . . . They try to demoralize the military and the police fighting against terror by making them subjects in their artistic work. In such ways, they take on those who fight terror. The backyard is Istanbul, Izmir, Bursa, Vienna, London, Washington, university lecterns, associations, NGOs. They have infiltrated all these places. Sometimes it is the cultural center, educational association. Other times it is a think tank.

Let us say, then, that the accused have been charged with the crime of subtle terrorism—what an official of Oceania might have abbreviated to subter.

Just how many journalists are in jail for subter? The number is in dispute. Not long ago, the Turkish Journalists’ Union put it at 72, but Justice Minister Sadullah Ergin explained that “three don’t exist, six were never arrested, and 48 are terrorists.” Of the 48, no one knows how many have been charged with subter, as opposed to realter. That debate was overtaken by events when recently 49 more members of the media were detained and 36 of them arrested. This probably sets a new record, not to mention a new challenge for record-keepers.

This week, ten journalists—including the two most famous ones, Ahmet Şık and Nedem Şener—are on trial. They’re not being tried for journalism, of course; they are, according to the indictment, members of Ergenekon, a shadowy, ultranationalist group that has been endeavoring to foment a coup against the Turkish government. This crime, too, cries out for a name of its own: subtergenekon, say. It is exceedingly subtle, you see, because Şık is best known in Turkey for having written the definitive two-volume exposé of Ergenekon. That, according to the indictment, was his cover—an interesting example of prosecutorial subtergiversation. The indictment focuses on Şık’s latest, unfinished book, The Imam’s Army, which claims that the followers of Fethullah Gülen—a Turkish preacher living in self-imposed exile in Pennsylvania—have infiltrated the police. Şık describes a close relationship between the AKP (Prime Minister Recep Tayyip Erdoğan’s party) and the Gülenists, arguing that the former has used the latter to bring the security forces under its control. The government seized and banned Şık’s draft of the book, but it has since been published in Turkey. If the writing of the book is an act of subter, as the indictment claims, it is a very subtle subter indeed; I myself read a good deal of it without suffering any harm at all; it is even available now in the Atatürk Airport bookstore, an odd place to sell such a lethal weapon. Yet Şık remains in jail.

Şener, too, has been charged with subtergenekon. He is best known for researching the murder of the Armenian-Turkish journalist Hrant Dink and for proposing that the police and the state were involved in it. Şener’s trial coincides with the trial of Dink’s alleged murderers.

The subter trials commence with the reading of the indictment aloud, a particularly lengthy process in the case of these journalists, as it contains several years’ worth of quotations from the journalists’ tapped phone conversations, including every detail of their vacation plans, weight-loss regimens, and grocery purchases, which the prosecutors claim are cryptic descriptions of their plot to topple the government. Prosecutors, for example, found damning evidence in this comment: “He brought watermelon and bananas. You send the melons, then eat the bananas.” Evidence of subtermelonkon?

The prosecutors accuse the journalists of “preparing the political environment for a junta” and of being members of a “fake terrorist organization.” A fake terrorist organization? No one knows what that means. I was following the reading of the indictment on Twitter until the judge banned Tweeting from the courtroom. (In a separate trial of another group of journalists, the judge banned food from the courtroom on the grounds that it represented a poisoning risk.) The journalists covering the case—presubtergons, we might call them, as they are likely to face arrest soon—have become adept at Tweeting covertly, despite the threat of a six-month prison term. Tweets from the courtroom stopped briefly when undercover cops began looking for the malefactors, then began again as the malefactors further refined their covert Tweeting, then stopped again as the indictment droned on. The reading of conversations 15,916, 15,917, and 15,918 began to wear everyone down. Pro-government countergenekon journalists, meanwhile, accused the presubtergon journalists of being part of the illegal network. They were, after all, lending support to subtergenekon, a crime that we might call supsubtergenekon.

Ece Temelkuran, a prominent columnist from the mainstream daily Habertürk, had a hard time explaining the proceedings for the press overseas: “The international media seems to be confused about the bizarre arguments in the indictment. So are we as Turkish journalists.” I’ve read the indictment myself, and I can testify that if you’re trying to understand it, you might as well read it backward. A new word is required here, too, to indicate a legal argument so weird that everyone believes something is being lost in translation—except that it’s not. Let’s call it an argument that’s been ergenerated.

Still, some of the Tweets that Temelkuran has translated make a comic sort of sense, like this one: “Right now in Turkey journalists in the courtroom being asked ‘why did you write news?’ Not a joke! Real!” Others make sense but aren’t funny at all: “Relatives, friends of arrested journalists are trying to have a word in the court after months of isolation.” And then there’s this one: “Arrested journalist Doğan Yurdakul . . . sits with a gloomy, tired face. Wasn’t allowed to see his wife before her death.” Yurdakul’s wife died of cancer in September. When the court asked him to state his marital status, he answered, “I was married. Now I am a widower.”

Something is rotten in the United Kingdom

Revelry and Mayhem

 

By Theodore Dalrymple

Is that British youths enjoying themselves—or killing someone?
The full beauty and refinement of contemporary British culture were evident in a short item in the Guardian this week:

Four people died at the weekend following attacks during New Year’s Eve parties in Luton, Sheffield, London, and Toft Monk in Norfolk. A teenage girl and boy were arrested in Bedfordshire after a 42-year-old man was found stabbed outside his partner’s house in Luton, and a man in his 20s is in custody in north London after a 22-year-old man died of shotgun wounds in Clerkenwell. In Sheffield, a man died following a confrontation at the Stars and Mayfair Party suites, and in Norfolk two men aged 38 and 45 are in custody after a man in his 20s died outside a pub in the village of Toft Monk.

Four murders in a population of more than 60 million is not very many. Yet this is to miss their emblematic quality. The undertow of aggression and violence in what passes for social life in Britain (a country that not so long ago was remarkable for its low level of public disorder) is so obvious that only those with their eyes shut could miss it. Nowadays, wherever the British gather socially, you get the feeling that things could get nasty at any moment. The young British get drunk en masse, they scream and shout en masse, they make fools of themselves en masse, and they become aggressive and paranoid en masse.

Indeed, it has become increasingly difficult to distinguish between the sound of young British people enjoying themselves and the sound of young British people committing murder in the street. I do not exaggerate. Twice in recent years I have heard the “normal” sound of drunken revelry outside in the early hours of the morning, only to discover later that it was the sound of someone being stabbed or beaten.

The citizenry either joins in the menacing revelry itself or retires behind closed doors like the Transylvanian peasantry avoiding Dracula after dark. Our supine leaders do nothing, afraid of appearing old-fashioned and stuffy and perhaps of offending the alcohol industry, which actively promotes mass drunkenness. Their paralysis in the face of so simple a problem to solve does not augur well for their ability to confront the much more serious and complex problems confronting the country.

Is Ron Paul 2012's Black Swan?

The Great Non Debate

by Tyler Durden

For five years, the writing on the wall has been crystal clear. As 2007 began, the US Foreclosure Market Report for 2006 showed that foreclosures for the year had reached 1.2 million, an increase of 42 percent over the 2005 figure. In early February 2007, in the midst of a growing rash of bankruptcies among small US sub-prime mortgage issuers, New Century Financial announced that it was “recalculating” its “profits for the previous three quarters. New Century was one of the three biggest mortgage brokers in the US. In two days, its stock price dropped 40 percent. Six months later, President Bush was calling the now obvious collapse in the US real estate market a “blip” on the US economy. Two months after that, the stock market peaked. A year after that, in September/October 2008, the global economy froze solid and was only thawed by the biggest explosion of money creation in history. Now, here we are at the start of 2012. Nothing has changed. No positive steps have been made. The symptoms have been disguised under an avalanche of palliatives but the disease continues to eat away at the substance of the system on which it feeds. The major effort of government and “mainstream” analysts everywhere has been to avoid, deflect and actively silence any nascent discussion of the root of the problem.

The root of the problem is perfectly illustrated in the fact that since August 1971, the funded debt of the US government has risen from $US 400 Billion to $US 15,236 Billion. The severity of the problem is illustrated by the fact that with Mr Obama having yet to complete his third full year as President, he has presided over $US 4,600 Billion (or almost one-third) of that increase. The root of the problem is the abandonment of money - the final legal connection between Gold and the US Dollar was ended in August 1971. The severity of the problem is the grotesque expansion of what has taken its place.

None of this has been or is being discussed because the establishment in the US and everywhere else does not want it discussed. A REAL “black swan event” - an event that deviates by 180 degrees from what is “normally expected” - would be a political debate over root causes and basic principles. The great merit of Ron Paul - and the great service he is giving to his own and every other nation - is the fact that he is doing everything he can to raise the debate to that level. That makes Dr Paul a unique politician, a man who tells people what most of them DON’T want to hear or understand.

Or at least they don’t think they want to understand it. Dr Paul’s great and merited attractiveness to a growing number of admirers has a very simple source. He is that rarest of creatures - a FREE man. He is beholden to nobody. He has developed his ideas and his convictions over a long and fruitful life of independent thinking. He does not compromise. He homes in on the fundamental issue and principle of any political issue and serves it up without salt or other “seasoning”. He says what he means and he means what he says. He is the living embodiment of the “dream” that most Americans have long since given up on as they saw it slip further and further beyond their grasp. He is the only prominent person who is doing everything he can to turn the non-debate which masquerades as the “mainstream” in the US and global political economy into something of substance. That, far more than the presidency, is his goal.

Baking a Cake

Finance in Parrot Talk

By Anthony de Jasay

Part I

George Stigler, the 1982 Nobel laureate, was almost as great a humorist as he was an economist. His deadpan irony was devastating. In his The Economist as Preacher and Other Essays he speaks of "that most irresistible of all the weapons of scholarship, infinite repetition."(1)

I call "parrot talk" the loud and relentless repetition of some plausible fallacy that is first launched as an original and debatable notion by some minor authority or small group, often with an axe to grind, and then, by a mysterious process of perverse selection, is taken up and hammered home by public intellectuals and the media, triumphantly becoming a firmly established truth. When used as prophecy or forecast it is liable to be self-fulfilling. When used as explanation and diagnosis, it dictates the remedy. In either case, it is capable of causing deep and lasting damage in political thought and the public policy the thought tends to shape.

In the present column I will be dealing with a few particularly insidious and dangerous subjects of parrot talk. I will first recall a few that I had identified in earlier writings. Then I will present some more recent untruths, such as the idea of "financial capitalism", the supposedly vital need, to stock up the banks with extra capital, monetisation of the debt, and the alleged vices of modern capitalism, such as speculations and short-termism.

Fundamental Fallacies(2)

Among my Collected Papers there is an essay entitled "Parrot Talk."(3) It treats a number of fallacies in political philosophy that, looking plausible and pleasing to most people's ears are being repeated on every possible occasion with an air of assured conviction. Each time they are declared, more academic parrots take them up and relay them in ever wider circles until they become ineradicable common knowledge that feeds prevailing political thought.

One of these fallacies, pilloried in "Parrot Talk," is the separateness of production and distribution. The gross national cake is first baked according to the laws of economics, and then sliced and distributed according to the collective decisions of society. It remains unsaid that the very reason why a cake of a certain size is baked at all (rather than a sweeter, bigger or smaller one or indeed none) is that its distribution will be of a certain kind and not a different one. Income is not a grabbed and redistributed with impunity without reacting back on production.

Another fallacy, often repeated to reassure the voter called "liberal" in English English that he has little to fear from the candidate called "liberal" in American English, is that it is possible to bring about equality of opportunity without enforcing equality of outcomes. It takes a minute of extra thought to realise that once preceding outcomes are allowed to be unequal, current opportunities cannot possible remain equal.4 But this extra minute of thought is suppressed by the rising noise of parrot talk. Finally, the essay notes that the most widely accepted modern theory of justice lays down, as its first principle, that everybody must have a right to the greatest possible liberty compatible with the same liberty for everybody else. One may ask why having a right to liberty is better, or different, than having liberty itself. Adding the "right to" should raise suspicious second thoughts, or perhaps it is just empty verbiage—but having a right always sounds nice, and passes well in parrot talk.

Must Safety-First Economics Prevail?

What the earlier "Parrot Talk" essay sought to do in political thought, the present one aims to do in the current language parrots use about finance. It is written by taking as read certain well-established theses of neo-classical economics that are basic to what in English English is called "liberalism".

Thanks to incessant repetition in the last few years, public opinion is now convinced that risk is a bad thing and ought to be purged from the economy as far as possible. Economics, on the contrary, teaches that some risk is inevitable because the future is not predictable, and necessary for efficiency. The size and severity of risk and its price should and under a regime of free contract would adjust to each other. The wish to avoid risk by paying the market to bear it (e.g. by hedging, forward dealing or insurance) would, in equilibrium, be equal to the willingness of the market to assume that risk. This situation is an optimum, because neither the marginal risk-avoider nor the marginal risk-bearer can expect to do better by moving away from it. The spectacular stock and bond market losses of 2008-2009 showed that the expectations of large operators, such as the insurer as AIG, may occasionally be spectacularly wrong (especially if biased by existing regulations and Fannie Mae activities, as was the case in the U.S. residential mortgage market), but they did not invalidate the theorem. The losses were the outcomes of zero-sum games and as far as one can tell, they involved no destruction of tangible value. As Milton Friedman would say, for every loser, there was a gainer. Damage did occur due to massive mismanagement of the shock waves, but not because risk was allocated by price in the first place. After all the ensuing parrot talk, the received truth now is that risk is bad and almost reprehensible and should be purged from the system. Poor system! Risklessly, it would be heading for an unpromising future.

Europe is getting old

World GDP

By The Economist

THE world’s recovery from recession is slowing, according to The Economist’s measure of global GDP, based on 52 countries. Third-quarter growth expanded by 3.6% across the world, down by 1.5% from the same period in 2010. The last 12 months have seen the developing world expand at about 7%. Developed countries, meanwhile, have been dragging their heels, weighed down by the euro crisis. Qatar and Ghana are predicted to be the fastest growers of 2011, with GDP increases of 19% and 14% respectively. At the other end of the spectrum, war-torn Libya and debt-laden Greece will both shrink by around 5-6%. In absolute terms, the world will produce $70 trillion worth of goods and services in 2011, according to IMF forecasts, up from $63 trillion in 2010. Around two-thirds of this will come from developed economies, a proportion that will shrink over time.

Growth in 2012

Which economies will grow and shrink the fastest in 2012?

By The Economist

LIBYA’S economy will grow faster than any other in 2012, according to the Economist Intelligence Unit’s forecasts, boosted by reconstruction following the fall of Muammar Qaddafi’s regime. The surge is a bounce-back from an even more precipitous slump while war raged. In Iraq, post-conflict chaos has delayed recovery but performance in 2012 may mark the start of something new. Mongolia is enjoying a mining boom and will benefit from investment in that sector; Angola and Niger will gain from relatively high commodity prices. China will continue to experience robust growth; this is fortunate since demand generated by the world’s second-largest economy will counteract some of the drag from the rich world. As for the fastest shrinkers, Europe’s economies feature prominently, as they remain embroiled in the Euro crisis. But Sudan will suffer the heaviest economic contraction, having lost three quarters of its oil reserves to South Sudan when that country seceded in July.

The Culture of Violence in the American West

The Not-So-Wild, Wild West

By Thomas J. DiLorenzo 

In a thorough review of the “West was violent” literature, Bruce Benson (1998) discovered that many historians simply assume that violence was pervasive—even more so than in modern-day America—and then theorize about its likely causes. In addition, some authors assume that the West was very violent and then assert, as Joe Franz does, that “American violence today reflects our frontier heritage” (Franz 1969, qtd. in Benson 1998, 98). Thus, an allegedly violent and stateless society of the nineteenth century is blamed for at least some of the violence in the United States today.

In a book-length survey of the “West was violent” literature, historian Roger McGrath echoes Benson’s skepticism about this theory when he writes that “the frontier-was-violent authors are not, for the most part, attempting to prove that the frontier was violent. Rather, they assume that it was violent and then proffer explanations for that alleged violence” (1984, 270).

In contrast, an alternative literature based on actual history concludes that the civil society of the American West in the nineteenth century was not very violent. Eugene Hollon writes that the western frontier “was a far more civilized, more peaceful and safer place than American society today” (1974, x). Terry Anderson and P. J. Hill affirm that although “[t]he West . . . is perceived as a place of great chaos, with little respect for property or life,” their research “indicates that this was not the case; property rights were protected and civil order prevailed. Private agencies provided the necessary basis for an orderly society in which property was protected and conflicts were resolved” (1979, 10).

What were these private protective agencies? They were not governments because they did not have a legal monopoly on keeping order. Instead, they included such organizations as land clubs, cattlemen’s associations, mining camps, and wagon trains.

So-called land clubs were organizations established by settlers before the U.S. government even surveyed the land, let alone started to sell it or give it away. Because disputes over land titles are inevitable, the land clubs adopted their own constitutions, laying out the “laws” that would define and protect property rights in land (Anderson and Hill 1979, 15). They administered land claims, protected them from outsiders, and arbitrated disputes. Social ostracism was used effectively against those who violated the rules. Establishing property rights in this way minimized disputes—and violence.

The wagon trains that transported thousands of people to the California gold fields and other parts of the West usually established their own constitutions before setting out. These constitutions often included detailed judicial systems. As a consequence, writes Benson, “[t]here were few instances of violence on the wagon trains even when food became extremely scarce and starvation threatened. When crimes against persons or their property were committed, the judicial system . . . would take effect” (1998, 102). Ostracism and threats of banishment from the group, instead of threats of violence, were usually sufficient to correct rule breakers’ behavior.

Dozens of movies have portrayed the nineteenth-century mining camps in the West as hot beds of anarchy and violence, but John Umbeck discovered that, beginning in 1848, the miners began forming contracts with one another to restrain their own behavior (1981, 51). There was no government authority in California at the time, apart from a few military posts. The miners’ contracts established property rights in land (and in any gold found on the land) that the miners themselves enforced. Miners who did not accept the rules the majority adopted were free to mine elsewhere or to set up their own contractual arrangements with other miners. The rules that were adopted were often consequently established with unanimous consent (Anderson and Hill 1979, 19). As long as a miner abided by the rules, the other miners defended his rights under the community contract. If he did not abide by the agreed-on rules, his claim would be regarded as “open to any [claim] jumpers” (Umbeck 1981, 53).

The mining camps hired “enforcement specialists”—justices of the peace and arbitrators—and developed an extensive body of property and criminal law. As a result, there was very little violence and theft. The fact that the miners were usually armed also helps to explain why crime was relatively infrequent. Benson concludes, “The contractual system of law effectively generated cooperation rather than conflict, and on those occasions when conflict arose it was, by and large, effectively quelled through nonviolent means” (1998, 105).

When government bureaucrats failed to police cattle rustling effectively, ranchers established cattlemen’s associations that drew up their own constitutions and hired private “protection agencies” that were often staffed by expert gunmen. This action deterred cattle rustling. Some of these “gunmen” did “drift in and out of a life of crime,” write Anderson and Hill (1979, 18), but they were usually dealt with by the cattlemen’s associations and never created any kind of large-scale criminal organization, as some have predicted would occur under a regime of private law enforcement.

In sum, this work by Benson, Anderson and Hill, Umbeck, and others challenges with solid historical research the claims made by the “West was violent” authors. The civil society of the American West in the nineteenth century was much more peaceful than American cities are today, and the evidence suggests that in fact the Old West was not a very violent place at all. History also reveals that the expanded presence of the U.S. government was the real cause of a culture of violence in the American West. If there is anything to the idea that a nineteenth-century culture of violence on the American frontier is the genesis of much of the violence in the United States today, the main source of that culture is therefore government, not civil society.

The Real Cause of Violence in the American West

The real culture of violence in the American West of the latter half of the nineteenth century sprang from the U.S. government’s policies toward the Plains Indians. It is untrue that white European settlers were always at war with Indians, as popular folklore contends. After all, Indians assisted the Pilgrims and celebrated the first Thanksgiving with them; John Smith married Pocahontas; a white man (mostly Scots, with some Cherokee), John Ross, was the chief of the Cherokees of Tennessee and North Carolina; and there was always a great deal of trade with Indians, as opposed to violence. As Jennifer Roback has written, “Europeans generally acknowledged that the Indians retained possessory rights to their lands. More important, the English recognized the advantage of being on friendly terms with the Indians. Trade with the Indians, especially the fur trade, was profitable. War was costly” (1992, 9). Trade and cooperation with the Indians were much more common than conflict and violence during the first half of the nineteenth century.

One Market, One Money, One Government for All?

The French Don’t Get It

By Martin Feldstein

The French government just doesn’t seem to understand the real implications of the euro, the single currency that France shares with 16 other European Union countries.

French officials have now reacted to the prospect of a credit rating downgrade by lashing out at Britain. The head of the central bank, Christian Noyer, has argued that the rating agencies should begin by downgrading Britain. The finance minister, Francois Baroin, recently declared that, “You’d rather be French than British in economic terms.” And even the French Prime minister, Francois Fillar, noted that Britain had higher debt and larger deficits than France.

French officials apparently don’t recognize the importance of the fact that Britain is outside the eurozone, and therefore has its own currency, which means that there is no risk that Britain will default on its debt. When interest and principal on British government debt come due, the British government can always create additional pounds to meet those obligations. By contrast, the French government and the French central bank cannot create euros.

If investors are unwilling to finance the French budget deficit – that is, if France cannot borrow to finance that deficit – France will be forced to default. That is why the market treats French bonds as riskier and demands a higher interest rate, even though France’s budget deficit is 5.8% of its GDP, whereas Britain’s budget deficit is 8.8% of GDP.

There is a second reason why the British situation is less risky than that of France. Britain can reduce its current-account deficit by causing the British pound to weaken relative to the dollar and the euro, which the French, again, cannot do without their own currency. Indeed, that is precisely what Britain has been doing with its monetary policy: bringing the sterling-euro and sterling-dollar exchange rates down to more competitive levels.

The eurozone fiscal deficits and current-account deficits are now the most obvious symptoms of the euro’s failure. But the credit crisis in Europe, and the weakness of eurozone banks, may be even more important. The persistent unemployment differentials within the eurozone are yet another reflection of the adverse effect of imposing a single currency and a single monetary policy on a heterogeneous group of countries.

President Nicolas Sarkozy and other French politicians are no doubt unhappy that the recent European summit failed to advance the cause of further EU political integration. It was French officials Jean Monnet and Robert Schuman who launched the initiative for European political union just after World War II with the call for a United States of Europe. The French regarded the creation of the euro as an important symbol of progress toward that goal. In the 1960’s, Jacques Delors, then the French finance minister, pressed for a single currency with a report, “One Market, One Money,” which implied that the European free-trade agreement would work only if its members used a single currency.

For the French, achieving a European political union is a way to increase Europe’s role in the world and France’s role within Europe. But that goal looks harder to reach now than it did before the beginning of the European crisis. By attacking Britain and seeking to increase British borrowing costs, France is only creating more conflict between itself and Britain, while creating more tensions within Europe as a whole.

Looking ahead, stopping the eurozone financial crisis does not require political union or a commitment of German financial support. It depends on individual eurozone countries – especially Italy, Spain, and France – making the changes in their domestic spending and taxation that will convince global financial investors that they are moving toward budget surpluses and putting their debt-to-GDP ratios on a downward path.

France should focus its attention on its domestic fiscal problems and the dire situation of its commercial banks, rather than lashing out at Britain or calling for political changes that are not going to occur.

Not with a bang ...

The Decline and Fall of the Euro?

By Daniel Gros

Great empires rarely succumb to outside attacks. But they often crumble under the weight of internal dissent. This vulnerability seems to apply to the eurozone as well.

Key macroeconomic indicators do not suggest any problem for the eurozone as a whole. On the contrary, it has a balanced current account, which means that it has enough resources to solve its own public-finance problems. In this respect, the eurozone compares favorably with other large currency areas, such as the United States or, closer to home, the United Kingdom, which run external deficits and thus depend on continuing inflows of capital. 

In terms of fiscal policy, too, the eurozone average is comparatively strong. It has a much lower fiscal deficit than the US (4% of GDP for the eurozone, compared to almost 10% for the US).

Debasement of the currency is another sign of weakness that often precedes decline and breakup. But, again, this is not the case for the eurozone, where the inflation rate remains low – and below that of the US and the UK. Moreover, there is no significant danger of an increase, as wage demands remain depressed and the European Central Bank will face little pressure to finance deficits, which are low and projected to disappear over the next few years. Refinancing government debt is not inflationary, as it creates no new purchasing power. The ECB is merely a “central counterparty” between risk-averse German savers and the Italian government.

Much has been written about Europe’s sluggish growth, but the record is actually not so bad. Over the last decade, per capita growth in the US and the eurozone has been almost exactly the same.

Given this relative strength in the eurozone’s fundamentals, it is far too early to write off the euro. But the crisis has been going from bad to worse, as Europe’s policymakers seem boundlessly capable of making a mess out of the situation.

The problem is the internal distribution of savings and financial investments: although the eurozone has enough savings to finance all of the deficits, some countries struggle, because savings no longer flow across borders. There is an excess of savings north of the Alps, but northern European savers do not want to finance southern countries like Italy, Spain, and Greece.

That is why the risk premia on Italian and other southern European debt remain at 450-500 basis points, and why, at the same time, the German government can issue short-term securities at essentially zero rates. The reluctance of Northern European savers to invest in the euro periphery is the root of the problem.

So, how will northern Europe’s “investors’ strike” end?

The German position seems to be that financial markets will finance Italy at acceptable rates if and when its policies are credible. If Italy’s borrowing costs remain stubbornly high, the only solution is to try harder.

The Italian position could be characterized as follows: “We are trying as hard as humanly possible to eliminate our deficit, but we have a debt-rollover problem.”

The German government could, of course, take care of the problem if it were willing to guarantee all Italian, Spanish, and other debt. But it is understandably reluctant to take such an enormous risk – even though it is, of course, taking a big risk by not guaranteeing southern European governments’ debt.

The ECB could solve the problem by acting as buyer of last resort for all of the debt shunned by financial markets. But it, too, is understandably reluctant to assume the risk – and it is this standoff that has unnerved markets and endangered the euro’s viability.

Managing a debt overhang has always been one of the toughest challenges for policymakers. In antiquity, the conflicts between creditors and debtors often turned violent, as the alternative to debt relief was slavery. In today’s Europe, the conflict between creditors and debtors takes a more civilized form, seen only in European Council resolutions and internal ECB discussions.

But it remains an unresolved conflict. If the euro fails as a result, it will not be because no solution was possible, but because policymakers would not do what was necessary.

The euro’s long-run survival requires the correct mix of adjustment by debtors, debt forgiveness where this is not enough, and bridge financing to convince nervous financial markets that the debtors will have the time needed for adjustment to work. The resources are there. Europe needs the political will to mobilize them.

Suddenly, the world turned upside down

The New International Economic Disorder

By Mohamed A. El-Erian

A new economic order is taking shape before our eyes, and it is one that includes accelerated convergence between the old Western powers and the emerging world’s major new players. But the forces driving this convergence have little to do with what generations of economists envisaged when they pointed out the inadequacy of the old order; and these forces’ implications may be equally unsettling.

For decades, many people lamented the extent to which the West dominated the global economic system. From the governance of multilateral organizations to the design of financial services, the global infrastructure was seen as favoring Western interests. While there was much talk of reform, Western countries repeatedly countered serious efforts that would result in meaningful erosion of their entitlements.

On the few occasions that such resistance was seemingly overcome, the outcome was gradual and timid change. Consequently, many emerging-market economies lost confidence in the “pooled insurance” that the global system supposedly put at their disposal, especially at times of great need.

This change in sentiment was catalyzed by the financial crises in Asia, Eastern Europe, and Latin America in the late 1990’s and early 2000’s, and by what many in these regions regarded as the West’s inadequate and poorly designed responses. With their trust in bilateral assistance and multilateral institutions such as the International Monetary Fund shaken, emerging-market economies – led by those in Asia – embarked on a sustained drive toward greater financial self-reliance.

Once they succeeded in overcoming a painful crisis-management phase, many of these countries accumulated previously unthinkable levels of international reserves as precautionary cushions. They extinguished billions in external indebtedness by generating and sustaining large current-account surpluses. And they increased the scale and scope of domestic financial intermediation in order to reduce their vulnerability to external storms.

These developments stood in stark contrast to what was happening in the West. There, unprecedented leverage, massive debt creation, and a seemingly infinite sense of credit entitlement prevailed. Financial excesses become the rule rather than the exception, facilitated by financial innovation and the erosion of lending standards and prudential regulation.

Suddenly, the world turned upside down: “rich” countries were running large deficits and, in some cases, tipping from net creditor status to net indebtedness, while “poor” countries were running surpluses and accumulating large stocks of external assets, including financial claims on Western economies.

Little did these countries know that their divergent paths would end up fueling large global imbalances, and eventually trigger a financial crisis that has shaken the prevailing international economic order to its foundations.

There is no restoring fully that order. Rather than recovering strongly, sluggish Western growth is periodically flirting with recession at a time of high unemployment and multiplying debt concerns, particularly in Europe. In an amazing turn of events, virtually every Western country must now worry about its credit ratings, while quite a few emerging economies continue to climb the ratings ladder. We can now consider the image of Western delegations heading to emerging countries to plead, cap in hand, for financial support, both direct and through the IMF.

At first blush, this unusual convergence between Western and emerging countries seems to reflect what advocates of a new international economic order had in mind. But appearances can be misleading, and, in this case, they are misleading in a significant way.

Advocates envisaged an orderly process in which economic convergence accompanied and facilitated global economic growth. They foresaw a collaborative process guided by enlightened policymaking. But what is occurring is far different and more unpredictable.

Rather than exhibiting enlightened leadership, Western policymakers have consistently lagged realities on the ground, with a bewildering mixture of denial, misdiagnosis, and bickering undermining their responses. Rather than proceeding in an orderly manner, today's global changes are being driven by the disorderly forces of de-leveraging emanating from a Europe in deep financial crisis and an America seemingly unable to restore sustained high rates of GDP growth and job creation.

Multilateral institutions, particularly the IMF, have responded by pumping an unfathomable amount of financing into Europe. But, instead of reversing the disorderly deleveraging and encouraging new private investments, this official financing has merely shifted liabilities from the private sector to the public sector. Moreover, many emerging-market countries have noted that the policy conditionality attached to the tens of billions of dollars that have been shipped to Europe pales in comparison with what was imposed on them in the 1990’s and early 2000’s.

Fortunately, despite having lagged rather than led this process of consequential (and increasingly disorderly) global change, it is not too late for policymakers to catch up. But doing so requires more than just better national policymaking in Europe and America; it is also time for urgent and deep reform of the multilateral system and its main institutions. That process requires joint leadership by the emerging world as a true equal and partner of Western powers

Cheap money drives out good

The ugly side of ultra-cheap money
By Bill Gross

Gresham’s law needs a corollary. Not only does “bad money drive out good,” but “cheap” money may as well. Ultra low, zero-bounded central bank policy rates might in fact de-lever instead of relever the financial system, creating contraction instead of expansion in the real economy. Just as Newtonian physics breaks down and Einsteinian concepts prevail at the speed of light, so too might easy money policies fail to stimulate at the zero bound.

Historically, central banks have comfortably relied on a model which dictates that lower and lower yields will stimulate aggregate demand and, in the case of financial markets, drive asset purchases outward on the risk spectrum as investors seek to maintain higher returns. Near zero policy rates and a series of “quantitative easings” have temporarily succeeded in keeping asset markets and real economies afloat in the US, Europe, and even Japan. Now, with policy rates at or approaching zero yields and QE facing political limits in almost all developed economies, it is appropriate to question not only the effectiveness of historical conceptual models but entertain the possibility that they may, counter-intuitively, be hazardous to an economy’s health.

Importantly, Gresham’s corollary is not another name for “pushing on a string” or a “liquidity trap”. Both of these concepts depend significantly on perception of increasing risk in credit markets which in turn reduce the incentive of lenders to expand credit. Rates at the zero bound do something more. Zero-bound money – credit quality aside – creates no incentive to expand it. Will Rogers once fondly said in the Depression that he was more concerned about the return of his money than the return on his money. But from a system wide perspective, when the return on money becomes close to zero in nominal terms and substantially negative in real terms, then normal functionality may breakdown.

A good example would be the reversal of the money market fund business model where operating expenses make it perpetually unprofitable at current yields. As money market assets then decline, system wide leverage is reduced even if clients transfer holdings to banks, which themselves reinvest proceeds in Fed reserves as opposed to private market commercial paper. Additionally, at the zero bound, banks no longer aggressively pursue deposits because of the difficulty in profiting from their deployment. It is one thing to pursue deposits that can be reinvested risk free at a term premium spread – two/three/even five year Treasuries being good examples. But when those front end Treasuries yield only 20 to 90 basis points, a bank’s expensive infrastructure reduces profit potential. It is no coincidence that tens of thousands of layoffs are occurring in the banking industry, and that branch expansion is reversing industry wide.

In the case of low yielding Treasuries the Gresham’s corollary at first blush seems illogical. If a bank can borrow at near 0 per cent then theoretically it should have no problem making a profit. What is important, however, is the flatness of the yield curve and its effect on lending across all credit markets. Capitalism would not work well if Fed funds and 30-year Treasuries co-existed at the same yield, nor if commercial paper and 30-year corporates did as well. It is not only excessive debt levels, insolvency and liquidity trap considerations that delever both financial and real economic growth; it is the zero-bound nominal yield, the assumption that it will stay there for an “extended period of time” and the resultant flatness of yield curves which are the culprits.

Conceptually, when the financial system can no longer find outlets for the credit it creates, then it de-levers. The point should be understood from a yield as well as a credit risk point of view. When both yield and credit are at risk from the standpoint of “Gresham’s law,” the mix can be toxic. The recent example of MF Global emphasises the concept, as does the behaviour of depositors in some struggling European economies. If an investor has money on deposit with an investment bank/broker that not only appears to be at risk but returns nothing, then why maintain the deposit? Perhaps an investor would be more comfortable with a $100 bill at home in a mattress than a $100 bill on deposit with a broker – Securities Investor Protection Corporation notwithstanding. If so, system wide delevering takes place as opposed to the credit extension historically necessary for an expanding economy.

Historical examples and central bank staff models will likely not validate this new Gresham’s corollary. Fed chairman Ben Bernanke blames policy rate increases in the midst of the 1930s for an economic relapse, and a lack of credit expansion for Japan’s lost decades 60 years later. But all central banks should commonsensically question whether ultra-cheap money continually creates expansions as opposed to destroying liquidity, delevering and obstructing recovery. Gresham as opposed to Keynes may become the applicable economist of this new day.

January Surprise

Is Obama preparing a trillion-dollar, mass refinancing of mortgages?

By James Pethokoukis

This could be just the beginning. If President Barack Obama’s legally dodgy appointment of Richard Cordray to head the consumer finance agency should stick, it may open the door to more such actions. Here’s Jaret Seiberg of the Washington Research Group:

To us, the most important takeaway from a recess appointment of Cordray is that the President could use this same maneuver to put a housing advocate in charge of FHFA.

And why is that important? The Federal Housing Finance Agency is the regulator and conservator of Fannie Mae and Freddie Mac. And the FHFA currently has an acting director, Edward DeMarco. If Obama replaces him with a “housing advocate” via the same recess appointment process, here’s what might happen next, according to Seiberg:

That could lead to a mass refinancing program for agency-backed mortgages that would go well beyond the existing HARP program. That could hurt agency MBS pricing and result in higher financing costs going forward. Yet it also could be a big boost for the economy and housing going into the election.

Indeed, my sources tell me the Obama administration has been eager to implement just such a plan, but needs to have its own man heading the FHFA to make it happen. The plan would be modeled after one originally devised by Columbia University economists Glenn Hubbard (a campaign adviser to Mitt Romney and AEI visiting scholar) and Christopher Mayer. In recent congressional testimony, Mayer described how the mass refinancing plan would work:

Under our plan, every homeowner with a GSE mortgage can refinance his or her mortgage with a new mortgage at a current fixed of 4.20 percent or less. … To qualify, the homeowner must be current on his or her mortgage or become so for at least three months. … Other than being current, we would impose no other qualification or application, except for the intention to accept the new rate (that is, no appraisal, no income verification, no tax returns, etc.).

Mayer estimates that some $3.7 trillion of mortgages would be refinanced. That’s right, this would be the Mother of All Mortgage Refinancing Plans. It would help roughly 30 million borrowers save $75 billion to $80 billion a year. As Mayer puts it: “This plan would function like a long-­lasting tax cut for these 25 or 30 million American families.”

On his website, Hubbard says the plan would have an immediate fixed cost to the government of $121 billion $242 billion with half that cost split equally between the government and lenders. And he calculates the economic impact as follows:

1. We estimate that 72 percent of owner occupant homeowners would be eligible to refinance at no cost to them. Their monthly mortgage payments would fall by an average of $355, for a total national fiscal injection $7.1 billion each month.

2. The typical borrower would reduce his or her principal and interest payments by about $350 dollars, a total reduction in mortgage payments of nearly $100 billion per year.

3. The macroeconomic stimulus effect should also include an additional housing wealth effect. At the low end of our estimates, improved mortgage market operations would reduce house price declines by 10 percent. With an estimated aggregate housing valuation of about $18 trillion, housing wealth would increase about $1.8 trillion relative to what it might fall to without this program. If we assume a relatively low marginal propensity to consume out of housing wealth of 3.5 percent, U.S. consumption would rise by $63 billion relative to what would otherwise have occurred.

4. Combining these estimates gives a total macroeconomic stimulus of as $118 billion per year in lower mortgage payments and any new consumer spending due to a housing wealth effect. In addition to the direct macroeconomic stimulus, jump-starting the stalled housing market will increase employment in a variety of industries that depend on housing transactions (mortgage and real estate brokers, home supply companies, moving companies, etc.) as well as increase the efficiency of the labor market by reducing impediments to households moving to take another job.

Bottom line: Talk about a political and economic game changer in this presidential election year. Obama could offer a trillion-dollar stimulus — as measured over a decade –that would directly and immediately impact tens of millions of Americans suffering from the housing depression. Cash in their pockets. Imagine the electoral impact on key states, such as Florida, suffering from both high unemployment and devastated housing markets.

And the beauty part for Obama? He wouldn’t need approval from Congress to do it. Even though many Republicans would scream that the plan would reward irresponsible homeowners who took on too much leverage — indeed, talk of a housing bailout is what launched the Tea Party movement – they probably couldn’t stop it. And Hubbard already has an answer to the moral hazard issue: “This proposal requires borrowers to give up a share of future appreciation in order to participate. Lenders must eat a portion of the losses as well. Everyone gives a little bit.”

The 2012 battle for the White House is looking razor close. A mass refinancing plan might be enough to tip it to Obama.