Changing the way sovereign debt works

Victory for a US vulture fund that could make solving the euro crisis even more difficult

By Tim Fernholz

When bankers and public officials huddle around tables in Brussels and Athens, trying to figure out how to keep Greece in the euro, their problems might be compounded by a lawsuit brought by an ornery US investment fund.

Whether seizing an historic Argentine naval vessel or trying to take the gold Argentina keeps in the New York Federal Reserve, the efforts of the New York hedge fund Elliott Associates and its subsidiaries  to recoup money the country owes them are relentless. Thanks to an Oct. 26 decision (pdf) in a federal circuit court, they are more likely than ever to get paid—and change the way sovereign debt works.

In 2001, Argentina defaulted on its debt. It eventually went through two restructurings, in 2005 and 2010, to begin paying consenting bond holders between 25 and 29 cents on the dollar value of its bonds (i.e., a “haircut” of up to 75%). Elliott, earning the moniker of “vulture fund,” had bought up the country’s debt on the cheap and did not participate in these restructurings, holding out and suing the country in US court for the $1.33 billion face value of its bonds.

Why is it so difficult for Greece to reform

In a Dysfunctional Status Quo, Reform Triggers Collapse

by Charles Hugh Smith

The dream of every conventional reform movement is to rid the system of its dysfunctional features while preserving the Status Quo.

But what the reformers don't understand is that the Status Quo is dysfunctional not because of bad policies or a few corrupt officials--it is corrupt and dysfunctional from the ground up.

Dismantle the dysfunctional parts and you've dismantled the entire Status Quo.

This is why it is so difficult for countries to reform their dysfunctional regimes. Consider China, everyone's favorite example that trees can indeed grow to the sky and beyond:

Reform unlikely, says China expert Roderick MacFarquhar (via Maoxian)

MacFarquhar, a professor of history and political science at Harvard University, said the vested interests of the political elite were so entrenched in a corrupt system that an overhaul would amount to dismantling the regime.

Germany's Schaeuble says debt reduction is global task

No sustainable growth can be built on a mountain of debt

By Gernot Heller

The United States and Japan must share responsibility with Europe for ensuring global economic stability, German Finance Minister Wolfgang Schaeuble said, signaling that a G20 meeting this weekend should not focus solely on the euro zone crisis.

Speaking in an interview before finance ministers and central bankers from the Group of 20 nations meet in Mexico, he said top economies must pursue structural reforms and fiscal consolidation to win back market trust and build sustainable growth.

Schaeuble also said in emailed answers to questions submitted by Reuters that he saw no danger of delay in the introduction of Basel III rules on banking capital that are due to be phased in from January.

Schaeuble does not want the two-day G20 meeting in Mexico City to concentrate exclusively on the euro zone crisis to the detriment of other urgent issues such as the "fiscal cliff" facing the United States and Japan's debt problems.

The Unadulterated Gold Standard

Free Market Gold

by Keith Weiner

The choice of the word “unadulterated” is not accidental.  There were many different kinds of gold standard, including what we now call the Classical Gold Standard, the Gold Bullion Standard, and the Gold Exchange Standard.  Each contained flaws; each was adulterated.

For example, in the Coinage Act of 1792, the government forced the price of one thing to be fixed in terms of another thing.  The mechanism was in Section 11:

“And be it further enacted, That ”the proportional value of gold to silver in all coins which shall by law be current as money within the United States, shall be as fifteen to one…”

Of course, people respond to such distortions.  When the government fixes the price of something too low, then people will hoard or export it.  If the price is fixed too high, then they will flood the market with it.

Drugs addict sons, make widows in Punjab

Punjab faces the loss an entire generation to killer drugs

By Priyanka Bhardwaj 

For once Rahul Gandhi uttered the right words when he stated an indigestible fact that human resource potential of Punjab in the northwest of India is being destroyed because seven out of every 10 young men are addicted to drugs. 

The scion of India's longest-running political dynasty had no sooner opened his mouth, at a rally organized by National Students University of India at Punjab University campus in state capital of Chandigarh, than the states' ruling Shiromani Akali Dal-Bharatiya Janata Party (BJP) alliance and sundry detractors accused him of making "derogatory, irresponsible" public statements and demanded a public apology. 

Rahul, general-secretary of the Indian National Congress party, had merely cited from a report prepared by the current state regime, and also referred to in another document of Punjab government entitled State Disaster Management Plan For 2010-11, which reads "some 73.5 per cent of state's youth between 16 and 35 years are confirmed drug addicts." 

Desperate French Government Threatens To “Requisition” Vacant Buildings

Regardless of who owns them

By Wolf Richter   

Prime Minister Jean-Marc Ayrault made it official: the government would requisition vacant buildings regardless of who owned them, including office buildings. It would then convert them to apartments and make them available to the homeless and the “badly housed.”

As a first step, he asked for “an inventory of available buildings.” That list should be on his desk in “a few weeks,” he said. He was in a rush to identify these properties “so that we can undertake at least several operations in January and February 2013.” A desperate move to halt the collapse of his numbers. And another broadside at investors.

It’s getting tough for him and President François Hollande. As France sinks deeper into its economic mire, people are losing patience: those who still have confidence in Hollande plunged to 36%, the lowest level of any president six months after taking office (the data go back to 1981). He dropped to 31% among workers —a catastrophe for a Socialist—and to 21% among shop keepers, artisans, business owners, and CEOs [they’d already stirred up the pot: A Capitalist Revolt in Socialist France].

Greek, European Officials Dispute Budget Reprieve

No End In Sight

By ALKMAN GRANITSAS And STELIOS BOURAS

Greece said Wednesday that a loan agreement it is negotiating with its creditors would give the country an additional two years to meet its budget targets in exchange for deep budget cuts and other measures.

Senior euro-zone officials, however, said no deal has been reached and no extension has been granted because a report by representatives of the country's creditors on Greece's progress on repairing its economy wasn't ready. Greece's creditors, the euro zone and the International Monetary Fund, are still at odds over how to come up with as much as €20 billion ($26 billion) necessary to finance the delay.

But a draft of the loan agreement indicated Greece would be given extra time. Under the terms of that draft, being negotiated by the Greek government and a delegation of inspectors from the so-called troika—the European Commission, the IMF and the European Central Bank—Greece would have until the end of 2016 to meet a targeted budget surplus of 4.5%, before taking into account interest payments on the national debt

Currently, Greece has until the end of 2014 to meet that target.

Will the Kurds Get Their Way?

Kurdish Nation-Building and State-Making

By OFRA BENGIO

The turn of the 21^st century marks a definite period of Kurdish awakening. This social revolution is occurring separately within each of the four communities, but also through trans-border activities that are increasingly bringing the groups’ political consciousness together. It is a revolution that is very likely to shake the geostrategic pillars of the Middle East to their foundations. 

In some ways, the rising Kurdish wave resembles the somewhat more advanced Tuareg wave in North Africa and the western Sahel. The Tuareg rising has already destroyed the territorial integrity and political order of one state, Mali, and threatens others. The Kurdish rising may very well do the same. 

Wary of Future, Professionals Leave China in Record Numbers

Some people want to live in a more transparent and democratic society

By IAN JOHNSON

BEIJING — At 30, Chen Kuo had what many Chinese dream of: her own apartment and a well-paying job at a multinational corporation. But in mid-October, Ms. Chen boarded a midnight flight for Australia to begin a new life with no sure prospects.

Like hundreds of thousands of Chinese who leave each year, she was driven by an overriding sense that she could do better outside China. Despite China’s tremendous economic successes in recent years, she was lured by Australia’s healthier environment, robust social services and the freedom to start a family in a country that guarantees religious freedoms.

“It’s very stressful in China — sometimes I was working 128 hours a week for my auditing company,” Ms. Chen said in her Beijing apartment a few hours before leaving. “And it will be easier raising my children as Christians abroad. It is more free in Australia.”

The Third Industrial Revolution

Why yesterday's plan for the economy won't work for tomorrow

BY DAVID ROTHKOPF

In the late 19th century, roughly half of Americans worked in agriculture. By 2000, that fraction had fallen to under 2 percent. During the last century alone, we have seen those involved in the production of goods (from mining to manufacturing to construction) fall from about a third of the population to just under one in five. Over the same period, the proportion of Americans involved in services more than doubled, from 31 percent in 1900 to almost 80 percent by the turn of the last century. Since 1900, the number of farms in the United States has fallen 63 percent, and the average farm size has grown by two-thirds.

The U.S. economy has, in the past 150 years, seen stunning changes. It has gone from agrarian to industrialized, from primarily rural to primarily urban and suburban -- from one in which primarily men worked to one in which by 2010 more than half of professional workers were women, from one in which most people did not complete high school to one in which 40 percent of 18- to 24-year-olds are enrolled in college, from one in which most American companies made their money in the United States to one in which about half the sales of S&P 500 companies come from other countries.

Entering the Greatest Depression in History

More Bubbles Waiting to Burst

By Andrew Gavin Marshall

Introduction

While there is much talk of a recovery on the horizon, commentators are forgetting some crucial aspects of the financial crisis. The crisis is not simply composed of one bubble, the housing real estate bubble, which has already burst. The crisis has many bubbles, all of which dwarf the housing bubble burst of 2008. Indicators show that the next possible burst is the commercial real estate bubble. However, the main event on the horizon is the “bailout bubble” and the general world debt bubble, which will plunge the world into a Great Depression the likes of which have never before been seen.

Housing Crash Still Not Over

The housing real estate market, despite numbers indicating an upward trend, is still in trouble, as, “Houses are taking months to sell. Many buyers are having trouble getting financing as lenders and appraisers struggle to figure out what houses are really worth in the wake of the collapse.” Further, “the overall market remains very soft [...] aside from speculators and first-time buyers.” Dean Baker, co-director of the Center for Economic and Policy Research in Washington said, “It would be wrong to imagine that we have hit a turning point in the market,” as “There is still an enormous oversupply of housing, which means that the direction of house prices will almost certainly continue to be downward.” Foreclosures are still rising in many states “such as Nevada, Georgia and Utah, and economists say rising unemployment may push foreclosures higher into next year.” Clearly, the housing crisis is still not at an end.[1]

A Most Secret Tragedy

The Great Leap Forward aimed to make China an industrial giant—instead it killed 45 million

Closely monitored by the authorities Ganzu province. Yumen. 1958. Whatever the city, whatever the region, the sound of drums and cymbals announces a workers delegation marching to administration headquarters to tell of a new high in their production. Oil workers from the Petrol Combine, whose production has jumped 200% in the past ten years.

By MICHAEL FATHERS

It is difficult to look dispassionately at some 45 million dead. It was not war that produced this shocking number, nor natural disaster. It was a man. It was politics and one man's vanity. The cause was famine and violence across rural China, a result of Mao Zedong's unchecked drive to turn his country rapidly into a communist utopia and a leading industrial nation.

The dead were in effect victims of Mao's determination, at the end of the 1950s, to push the Soviet Union off its perch as leader of the world communist movement following Nikita Khrushchev's denunciation of Stalin. Khrushchev had boasted in May 1957 that the Soviet Union would overtake the United States as the world's leading industrial and agricultural power within 10 years. Mao sought a similar goal for China, but over a much shorter period. In "Tombstone," Yang Jisheng quotes the words of Mao, which became a rallying call: "go all out, aim high, and achieve greater, faster, better and more economical results in socialist construction."

Destructive Aliens

The Broken-Window Fallacy

by Robert P. Murphy

Free-market economists have triumphantly cited the broken-window fallacy whenever someone opines that a destructive act, whether a natural disaster or man-made catastrophe, is paradoxically "good for the economy." The reference is to a classic lesson given by the economist Frédéric Bastiat in 1850.

Especially after Paul Krugman went on CNN and discussed the virtues of faking an alien invasion, libertarians were having a field day with the "broken-window" charge. The so-called progressive Left have been pushing back, claiming that Krugman's critics don't really understand what Bastiat was saying.

Organised Crime Is Thriving in US

Federal & Local Law Enforcement Agencies Try to Take Family Motel from Innocent Owners

Russ Caswell and his family have owned and operated the Motel Caswell in Tewksbury, Mass., for two generations.  The Caswells may have their property taken from them by local and federal law enforcement officials through a process known as “civil forfeiture.

by The Institute of Justice

Imagine you own a million-dollar piece of property free and clear, but then the federal government and local law enforcement agents announce that they are going to take it from you, not compensate you one dime, and then use the money they get from selling your land to pad their budgets—all this even though you have never so much as been accused of a crime, let alone convicted of one.

That is the nightmare Russ Caswell and his family is now facing in Tewksbury, Mass., where they stand to lose the family-operated motel they have owned for two generations.

Markets in everything

Vintage typewriters replace computer keyboards

By Mark J. Perry

Advertised here as a:

“A groundbreaking advancement in the field of obsolescence!”

“Our USB Typewriter circuitry can transform your manual typewriter into a retro-futuristic marvel. Use a gorgeous vintage typewriter as the main keyboard for your Mac or PC, or type with ink-on-paper while electronically recording your keystrokes! The USB Typewriter also makes an outstanding keyboard dock for your iPad or tablet PC.”

European Eyes Open Wide Shut

Not Exactly The Greek Orthodox

By Mark Grant

God asked Adam, "What's wrong?" Adam replied, "I'm lonely." So God said: "Adam, I will make you a partner. She will wash and cook and clean for you, she will listen to what you have to say and never interrupt you. She won't nag you about your actions and she will even bear your children. She will stay loyal to you and never be influenced by other men." So Adam asked, "Well, what's his gonna cost me?" 

“An arm and a leg,” said God. Then Adam asked, "Well what can I get for a rib?"  And the rest is history. It is always the history that matters; if you pay attention. 

It has been almost three years since I said that Greece would go bankrupt. I first made that pronouncement on January 13, 2010 and advised exiting the credit. The yield on the Greek ten year was 4.38%. Lots of water underneath the bridge since then. Greece has made a second run at it, Portugal plunged into the rapids, Ireland grabbed its banks and headed over the falls and now Greece is about to take a third try at obliteration. I have stated and long held the view that Greece would keep on with it until the very last Euro that could be soaked from Europe was handed out and then the game would stop.

Where is the Cash ?

Spain Announces Yet Another Impossible Solution to Its Problems

By Graham Summers

Spain continues to heap one impossible idea on top of another.

The latest “plan” consists of Spain creating a bad bank called SAREB that will buy up bad assets in Spain in an effort to clean up the country’s finances.

SAREB was part of the €100 billion Spanish bailout plan which was set forth in June. Once again, none of it makes any sense.

          Spain's Bad Bank to Buy Up Assets

SAREB, which is set to begin operations on Dec. 1, will absorb soured investments that have dragged down the balance sheets of Spanish banks since the collapse of the country's housing market four years ago.

Fernando Restoy, head of Spain's bank-bailout fund, said SAREB will likely purchase about €60 billion of toxic assets using Spanish resources and some of the funds allocated under the bank-bailout agreement 

It will apply an average 63% discount on land and housing units and an average 46% discount on real estate loans, he said, and will aim to sell the assets to investors over the next 15 years, with a return on investment of at least 14% for any investors in the bad bank.

 Wait a second… isn't Spain bankrupt?

An Iceberg Called Bernanke

Manipulating interest rates is only the tip of the Federal Reserve’s agenda

By CHARLES HUGH SMITH

No wonder the policies of the Federal Reserve are so widely misunderstood: in many ways the Fed is like an iceberg, with its public pronouncements being only the visible 10 percent above water. The real mass of the Fed’s actions lies beneath the surface, invisible to us mere citizens.

Consider the Fed’s public mandate, which is to “promote stable prices, maximum sustainable output and employment.” This is solid public relations, selflessly focused on the good of the nation, but it’s also deeply disingenuous, as the Fed’s less PR-pretty agenda is rather obviously to preserve the banking sector’s profits and power.

We can find clues to the Fed’s real goals in its actions behind closed doors—the 90 percent of the iceberg that’s out of public view.

On the surface, the Fed has increased its balance sheet by about $2 trillion since the 2008 global financial crisis. This electronically created money purchased about $1.1 trillion in mortgage-backed securities (MBS) to support the housing market and $1 trillion in Treasury bonds to keep interest rates low. These two goals—super-low interest rates (also known as “zero interest rate policy,” or ZIRP) and supporting assets such as housing and stocks—are the core strategies the Fed publicly deploys to boost growth and employment.

Supporting the banks is not mentioned, for obvious PR reasons. Yet a Government Accountability Office audit found that the Fed provided $16.1 trillion in “emergency program” loans to global banks from 2007 to 2010. A Levy Institute study uncovered a total of $29 trillion in Fed support—roughly ten times larger than the Fed’s public programs. For context, the annual U.S. gross domestic product is about $15 trillion.

This suggests we should take the Fed’s assurances that its policies are all for the public good with a grain of salt roughly the size of the Fed’s D.C. headquarters at 20th and Constitution Avenue.

Who Is for Hope and Change?

A band of brethren united, no more

By PATRICK J. BUCHANAN

“Providence has been pleased to give this one connected country to one united people — a people descended from the same ancestors, speaking the same language, professing the same religion, attached to the same principles of government, very similar in their manners and customs, and who, by their joint counsels, arms, and efforts, fighting side by side throughout a long and bloody war, have nobly established general liberty and independence.”

So wrote John Jay in Federalist No. 2, wherein he describes Americans as a “band of brethren united to each other by the strongest ties.”

That “band of brethren united” no longer exists.

No longer are we “descended from the same ancestors.”

Indeed, as we are daily instructed, it is our “diversity” – our citizens can trace their ancestors to every member state of the United Nations — that “is our strength.” And this diversity makes us a stronger, better country than the America of Eisenhower and JFK.

No longer do we speak the same language. To tens of millions, Spanish is their language. Millions more do not use English in their homes. Nor are their children taught in English in the schools.

Killing Economic Prosperity

Debt And Deficits 

by Lance Robert

What is really causing the economic malaise that the U.S. faces today?  Most economists believe that it is the lack of aggregate demand that is causing the problem which can be rectified by continued deficit spending.  The current Administration believes that it is simply the lack of the "rich"  not paying their "fair share" and that a redistribution of wealth will solve the issue.  Romney believes that his 5-point plan will create 12 million jobs in the near future.  All are wrong.   

Raising Taxes Ain't Gonna Do It

First of all, as we have discussed in the past, raising taxes and redistributing wealth will impede economic growth.  Louis Woodhill put it best:  

"To 'tax' is to take away something from someone and give it to the government. 'The rich' are rich because they own a lot of assets. So, what it means to 'tax the rich' is to take assets away from rich people and transfer them to the government.

So, what are the assets that the rich own? The rich don't have money bins full of cash, like Scrooge McDuck. Rather, they own things like factories, office buildings, and oil wells, either directly or indirectly via stocks and bonds. In other words, the rich own most of the 'nonresidential fixed assets' of the nation. These assets certainly count as 'wealth', but what they are physically are the tools that workers use to produce America's GDP.”

This is critically important to understand.  By increasing taxes, to generate additional revenue for the government, you decrease the available capital that could be used for productive investments.  Since the government doesn’t want factories, office buildings, or oil wells, but rather cash, this forces the liquidation of productive investments thereby reducing capacity for economic growth.

California, Here We Stay

Reasons not to flee an imploding state

By Victor Davis Hanson

California’s multidimensional decline—fiscal, commercial, social, and political—sometimes seems endless. The state’s fiscal problems were especially evident this past May, when Governor Jerry Brown announced an “unexpected” $16 billion annual budget shortfall. Two months later, he signed a $92 billion budget that appears balanced only if voters approve an $8.5 billion tax increase in November. According to a study published by a public policy group at Stanford University, California’s various retirement systems have amassed $500 billion in unfunded liabilities. To honor the pension and benefit contracts of current and retired public employees, state and local governments have already started to lay off workers and slash services.

Not just in its finances but almost wherever you look, the state’s vital signs are dipping. The average unemployment rate hovers above 10 percent. In the reading and math tests administered by the National Assessment of Educational Progress, California students rank near the bottom of the country, though their teachers earn far more than the average American teacher does. California’s penal system is the largest in the United States, with more than 165,000 inmates. Some studies estimate that the state prisons and county jails house more than 30,000 illegal aliens at a cost of $1 billion or more each year. Speaking of which: California has the nation’s largest population of illegal aliens, on whom it spends an estimated $10 billion annually in entitlements. The illegals also deprive the Golden State’s economy of billions of dollars every year by sending remittances to Latin America.

Meanwhile, business surveys perennially rank California among the most hostile states to private enterprise, largely because of overregulation, stifling coastal zoning laws, inflated housing costs, and high tax rates. Environmental extremism has cost the state dearly: oil production has plunged 45 percent over the last 25 years, even though California’s Monterey Shale formation has an estimated 15.4 billion barrels of recoverable oil, according to the U.S. Energy Information Administration. Geologists estimate that 3 trillion cubic feet of natural gas sit untapped as well. Those numbers could soar with revolutionary new methods of exploration (see “California Needs a Crude Awakening,” Summer 2012).

The Man Who Saved Colombia

What Colombians Needed—and Found in Their Last President—was Churchillian Mettle

By Alvaro Vargas Llosa

Certain political leaders, whatever their aspirations, become overwhelmed by events they once thought they could master. Think of Alexander Kerensky (cast aside by Russia’s October Revolution) or even Jimmy Carter (reduced to political impotence by stagflation and Iran). Other leaders, though, meet enormous challenges with a vision and a resolve that allow them to shape events and guide the course of history—think of Winston Churchill (defying Hitler), Margaret Thatcher (resurrecting Britain) or Helmut Kohl (reunifying Germany). To this second group belongs Alvaro Uribe Vélez, the president of Colombia from 2002 to 2010.

The country he inherited, upon his election, was a perfect hell. Various paramilitary groups and Marxist terrorist organizations, pre-eminent among them FARC (the Revolutionary Armed Forces of Colombia), controlled half of the country’s territory, often aided by Colombia’s left-wing neighbors, Venezuela and Ecuador. Every year, an average of 28,000 Colombians were killed and 3,000 kidnapped, usually to coerce a ransom. Drug traffickers generated $3 billion annually. Unemployment was close to 16%.

Who Really Cares About the Poor?

Subsidizing vs Eliminating Poverty

Havana - 2012

By John C. Goodman

Capitalism favors the rich. Socialism helps the poor. These are core beliefs of almost everybody on the left, including our president. Ah, but it turns out that this worldview is completely wrong.

Economists associated with the Fraser Institute and the Cato Institute have actually found a way to measure "economic freedom" and investigate what difference it makes in 141 countries around the world. This work has been in progress for several decades now and the evidence is stark. Economies that rely on private property, free markets and free trade, and avoid high taxes, regulation and inflation, grow more rapidly than those with less economic freedom. Higher growth leads to higher incomes. Among the nations in the top fifth of the economic freedom index in 2011, average income was almost 7 times as great as for those countries in the bottom 20 percent (per capita gross domestic product of $31,501 versus $4,545).

What about the effects on the poorest citizens? In the 2011 report, the average income of the poorest tenth of the population in the least free countries was around $1,061. By contrast, the the poorest tenth of the freest countries’ populations earned about $8,735. If you are poor, it pays to live where capitalism is less hobbled.

What about equality of incomes? As it turns out there is almost no global relationship between the distribution of income and the degree of economic freedom. But in a way, that’s good news. It means that the rich don’t get richer and the poor poorer under capitalism. Everybody becomes better off.

The enemy within

Obama’s EPA Plans for 2013

By S. Fred Singer

The November elections will determine the direction of US climate policy—and therefore also energy policy and the pace of economic growth: jobs, standards of living, budget deficits and inflation. Obama has already promised to make climate change the centerpiece of his concern—with all that implies: “Green” energy policy, linked to loss of jobs (Keystone pipeline disapproval), rising gas prices (ethanol mandates), and crony capitalism (Solyndra).”

By contrast, Romney is a climate skeptic—and Ryan has been quite outspoken: the perfect anti-Gore. The science supports Romney-Ryan—notwithstanding the UN-IPCC, and the bulk of the climate scientists living high on the hog on government grants.

All of this emerged from campaign rhetoric—but it needs to be spelled out more clearly. Note that Obama no longer promises to “heal the Earth and stop the rise of the oceans.” He has also been uncharacteristically quiet about his efforts to “make electricity prices skyrocket.” But there is more in store if he is re-elected and unleashes the full regulatory apparatus of the EPA.

Senate report

Earlier this month, Senator James Inhofe (R-Okla. ), Ranking Member of the Senate Committee on Environment and Public Works, released a new EPW Minority Report entitled, “A Look Ahead to EPA Regulations for 2013: Numerous Obama EPA Rules Placed On Hold until after the Election Spell Doom for Jobs and Economic Growth.”

Fascism without the funny hats

Our System Is Not Socialism, but Participatory Fascism

By Robert Higgs

I continue to encounter many discussions in which the author or speaker bemoans the economic order’s drift toward socialism or, in some cases, its actual existence as such. If this characterization were simply a matter of linguistic imprecision, it might not matter much. But it is much more than a matter of terminology, because one’s understanding of the nature of our current economic order hinges on how we characterize it.

Socialism is a system in which all the major means of production are owned and operated by the state. Except perhaps for small firms or farms, all productive enterprises are state enterprises. All natural resources belong to the state. All resources are allocated and employed as the state dictates, insofar as its dictates can actually be carried out in practice (all such systems display much slack between orders given and actual conduct on the ground, owing to corruption and attempts to “fix” flaws embedded in the state’s overall plan).

Obviously the economic order that prevails in the economically advanced countries is not socialism. Indeed, these systems are commonly called capitalistic or market-oriented, notwithstanding the many types of government intervention that pervade their markets—various taxes, subsidies, direct government production, and regulations galore. Some people refer to these systems as “mixed economies,” which at least helps us to recognize that they are not market economies in any pure sense, not even in an approximate one. But in calling them mixed economies, we gain no insight into their nature or operation.

Jürgen Habermas’ European Dreams

Going to the Dentist

by Theodore Dalrymple       

Compared with reading a book by Professor Habermas, going to the dentist is a pleasant experience. He has made his career as a torturer – not of people, but of language. The esteem in which he is widely held is to me mysterious and itself of sociological and psychological interest, worthy of further research. Audiences have been known almost to swoon at his Teutonically polysyllabic vaticinations. He is largely incomprehensible; where he is comprehensible, he is either banal or wrong, or both. He is often funny, but not intentionally.

Let us take his banality first. At the bottom of page 69 of this short but frivolously dense book entitled THE CRISIS OF THE EUROPEAN UNION: A Response , we read with respect to his scheme for a world body that will deliver universal justice (modeled more or less on the triumphantly successful European Union): 

“But any design for a world order aiming at civilizing the exercise of political authority, no matter how farsighted it might be, must take account of the fact that the historical asynchronicity of regional developments and the corresponding socio-economic disparities between the multiple modernities cannot be erased overnight.”

Do we really need a professor of philosophy  – indeed, do we need anyone – to tell us this? Professor Habermas tries to squeeze significance out of truisms, as a constipated man tries to squeeze stools out of a reluctant colon, by the use of locutions such as ‘multiple modernities’ and the printing of the word ‘overnight’ in italics. But is there a single person in the world who thinks that all economic differences between individuals and nations could be ironed out overnight, and who either needs to or would be disabused of this notion by Professor Habermas’s contradiction of it? Academic vacuity can go no further.