The Future of America's Working Class

Britain's situation should represent a warning about America's future

by Joel Kotkin

Watford, England, sits at the end of a spur on the London tube's Metropolitan line, a somewhat dreary city of some 80,000 rising amid the pleasant green Hertfordshire countryside. Although not utterly destitute like parts of south or east London, its shabby High Street reflects a now-diminished British dream of class mobility. It also stands as a potential warning to the U.S., where working-class, blue-collar white Americans have been among the biggest losers in the country's deep, persistent recession.

As you walk through Watford, midday drinkers linger outside the One Bell pub near the center of town. Many of these might be considered "yobs," a term applied to youthful, largely white, working-class youths, many of whom work only occasionally or not at all. In the British press yobs are frequently linked to petty crime and violent behavior--including a recent stabbing outside another Watford pub, and soccer-related hooliganism.

In Britain alcoholism among the disaffected youth has reached epidemic proportions. Britain now suffers among the highest rates of alcohol consumption in the advanced industrial world, and unlike in most countries, boozing is on the upswing.

Some in the media, particularly on the left, decry unflattering descriptions of Britain's young white working class as "demonizing a whole generation." But many others see yobism as the natural product of decades of neglect from the country's three main political parties.

In Britain today white, working-class children now seem to do worse in school than immigrants. A 2003 Home Office study found white men more likely to admit breaking the law than racial minorities; they are also more likely to take dangerous drugs. London School of Economics scholar Dick Hobbs, who grew in a hardscabble section of east London, traces yobism in large part to the decline of blue-collar opportunities throughout Britain. "The social capital that was there went [away]," he suggests. "And so did the power of the labor force. People lost their confidence and never got it back."

Food is too cheap and too expensive?

Poor saps 

by Rob Lyons 

Earlier this month, Jan Kees Vis, the global director for sustainable sourcing development at Unilever, told the CropWorld 2012 conference in London that food was too cheap encouraging waste. ‘Places that offer food for lunch – chilled, day-fresh [food] – have made incredible growth, but the result is a lot of food is wasted’, he said. ‘A big factor in why we waste so much food is that food has become too cheap. If it weren’t, we wouldn’t waste so much of it.’

On Monday, a report on the Guardian website suggested that Britain is in ‘nutrition recession’. The article begins: ‘Austerity Britain is experiencing a nutritional recession, with rising food prices and shrinking incomes driving up consumption of fatty foods, reducing the amount of fruit and vegetables we buy, and condeming [sic] people on the lowest incomes to an increasingly unhealthy diet.’ A related article about a fairly typical couple in Bristol, Nicola and Tony, illustrated the point. The couple have two sons but have just £40 per week to spend on food for the family, despite the fact that they both work.

America's Double Trouble and The Reckoning

U.S. Debt Higher than Greece

By Andy Sutton

Now that the untold billions have been spent trying to convince America that our leaders actually know what they’re doing, they’re going to get put to an early test, and a critical one at that. Looming large are two big issues: the debt ceiling (again), and the ‘fiscal cliff’ automatic budget cuts. While they may seem like two separate issues, it all really ties together rather nicely into one big package that can be loosely labeled as yet another attempt to spend more than is brought in and at the same time justify it.  The good news is that the players are the same so the egos are the same and we can use that as barometer based on how they ‘handled’ the situation in 2010. The bad news is the egos are the same and they did a pitiful job in 2010, opting to simply kick the can down the road as opposed to actually embarking on any meaningful reform pathway.

The ‘American Superiority’ Myth

We’ve all heard countless times from mainstream economists, policymakers, and their ilk that America is somehow immune from consequences. They always pin their argument on the dollar standard.  ‘Our’ central bank issues the reserve currency of the globe and that alone immunizes us from any repercussions. The 25% unemployment of Spain and Greece? The 50% unemployment among the young people in Spain? Forget about it! Never going to happen here because our paper is better than everyone else’s. Right? Sounds good, but only if you take them at their word and ignore the realities that lie just under the surface.

While it may be true that the reserve status can buy us some extra time, it is by no means a guarantee against hardship. In fact, it is quite the opposite in that it guarantees that our beating will be worse than everyone else’s because we’ll be the last to fall. Greece’s problems started when debt/GDP crossed the 103% area. The rest of the PIIGS and all of Europe for that matter ran into problems in that same area, a few points here and there.

The Looters Are in Control

The message is, “You lost.”

By Wayne Siggard,

The election was all about new math:  47 = 51. The foresight and genius of the Founders knew no bounds.  Ben Franklin said, “Once the people find they can vote themselves money, that will herald the end of the republic.”  The trumpets have sounded.  The heralds have announced the awakening of the masses to that reality.  The greatest and most free nation the world has ever known has just sold its birthright for a mess of pottage; or, at least, the promise of an Obama phone. The takers have voted to take control over the producers.

Everyone will now get a fair shot — except that those who work in government and those who take government welfare will get a fairer shot.  Obama knows that you didn’t build that company.  You didn’t live frugally and save more money than your neighbor while they spent theirs on drugs or riotous living.  He knows this because he didn’t get anything without government assistance — affirmative action put him ahead of more qualified people who earned a spot that he took, just like Elizabeth Warren. You couldn’t possibly have gotten anything on your own merit or hard work.

"A claim for material position can be met only by a government with totalitarian powers." – Friedrich von Hayek

Von Mises said that full government control of all activities of the individual is virtually the goal of both national parties.  Have you ever tried to drill an oil or gas well?  Have you ever tried to build a house or commercial building?  Have you ever tried to manufacture and sell a product?  The International Building Code (IBC) increases in size, restrictions and requirements every year. Why? Because a bureaucracy needs to expand to justify its existence.

"Power tends to corrupt, and absolute power corrupts absolutely." – Lord Acton 

Liberty vs. War

A Brief History

by Jeffrey M. Herbener

In his book, Anatomy of the State, Murray Rothbard wrote,

Just as the two basic and mutually exclusive interrelations between men are peaceful cooperation or coercive exploitation, production or predation, so the history of mankind, particularly its economic history, may be considered as a contest between these two principles.[1]

This contest has been one-sided. In the ancient world, empires dominated political life. Merciless systems of slavery, theft, and war ruled around the world. One exception in a territory surrounded by such empires was the tribes of Israel. Even though warned by God himself of the misery they would suffer if they willingly surrendered the freedom they enjoyed under the decentralized polity of the judges in order to have an earthly king rule over them, they clamored for their own enslavement. It is instructive that the prize the Israelites deemed worth paying so heavy a price to obtain was to have a king to lead them in battle. With Saul as king, Israel no longer enjoyed periods of peace as under the judges, but was constantly at war. As Samuel had warned, Saul took their sons for soldiers, their daughters and male and female servants as slaves, the best of their lands, produce, and flocks and thereby, reduced the Israelites to servitude.[2]

The Israelites would not be the last people to succumb to the siren song of war. About the importance of war as a device for aggrandizing the power of the state in its contest against liberty, Rothbard wrote,

In war, State power is pushed to its ultimate, and, under the slogans of "defense" and "emergency," it can impose a tyranny upon the public such as might be openly resisted in time of peace. War thus provides many benefits to a State, and indeed every modern war has brought to the warring peoples a permanent legacy of increased State burdens upon society.[3]

War not only vastly extends the wealth transfers used by the state to bolster its rule but advances pro-state ideology. Because the state lives parasitically on the production of its hosts, those who benefit from the state's wealth transfers must always be a minority of the population. The majority must be the victims of the state and, therefore, their acquiescence in predation by the state must be engineered; otherwise that state is finished. The legitimacy of the state must be manufactured and maintained through ideology.

The Parasite That Kills Its Hostess

You may lose your job, but the proletarian masses will come out ahead. Or not.

By Robert Tracinski

The news about the bankruptcy of Hostess, maker of the Twinkie and other legendary junk foods, touched off some memories of growing up in a mid-sized Midwestern town in the 1970s and '80s. No, not that kind of memory, though come to think of it, the 1980s was the last time I actually ate a Hostess snack. What I'm recalling has a lot less nostalgic charm: the whole phenomenon of a kamikaze labor union that keeps demanding more for workers--who end up getting nothing when their employer goes belly-up.

That's pretty much what the unions did, or tried to do, to three of the big employers in our area, and it taught me some early lessons about the real nature of labor unions and of government intervention.

I grew up in an area known as the Quad Cities, a cluster of four towns in Illinois and Iowa, on opposite banks of the Mississippi River. The big local employers at the time were the Rock Island Arsenal, which made howitzers and machine guns for the US Army, the celebrated Rock Island Line, and two big manufacturers of farm equipment, John Deere and International Harvester.

What might strike you about this list is that half of these companies no longer exist. I watched them go down, and that's why the Hostess story seems so familiar.

Take the Rock Island Line, the popular name for the Chicago, Rock Island, and Pacific Railroad. The line's Wikipedia entry tells the story pretty much as I remember it, only worse.

"By the summer of 1979, the Brotherhood of Locomotive Engineers and the United Transportation Union had accepted new agreements. The Brotherhood of Railway and Airline Clerks (BRAC) held firm to their demand that pay increases be back dated to the expiration date of the previous agreement.

How Bimbos Saved the American Republic

For those worried about America becoming a plutocracy, bimbos are the unsung heroes, our magnificent hidden resource

by Robert Weissberg
Another American election has come and gone, this one noteworthy for its complete absence of candidates from America’s richest, most famous family dynasties. As far as I can tell, names with an Old Money, Social Register flavor—Rockefellers, Mellons, Fords, Astors, Vanderbilts, Morgans, Amours, Stanfords, Carnegies, and the du Ponts—are a rarity in today’s political landscape. Yes, the last half-century has seen three Rockefellers (Winthrop, Nelson, and Jay) and two generations of Bushes plus a few Kennedys, but this stream is all but dry.

The absence of these names is hardly trivial. The Founders feared the political consequences of powerful, rich families, even in the absence of aristocratic titles. The Constitution recognized this possibility when it authorized hoi polloi-dominated state legislatures to choose Senators rather than direct election where only the richest, most powerful could win an expensive statewide election. The Electoral College centered on states, not the popular vote, likewise insulated the Republic from influential dynastic families (e.g., the Adamses of Massachusetts, the Livingstons and Van Rensselaers of New York) that might dominate a particular state or region but not the entire nation.

The retreat of prominent families from civic life is a complicated story, but let me suggest one critical but often neglected explanation: the salutary role of bimbos (also known as tarts, floozies, vamps, and more recently, Natashas). In a nutshell, as these gorgeous and typically empty-headed women marry into rich families, the family’s genetic stock declines. With this decline, public careers for offspring slip beyond reach. Yes, the descendants of John Jacob Astor or Commodore Vanderbilt still enjoy money and power, but this is not power over the public realm. The Republic has been saved.

Never Has Less Cost More

Dismal economic growth is the flip side of trillion dollar deficits 

By J.T. Young

The official verdict is in: Washington has never paid so much for so little. Last week, the Congressional Budget Office released its final tally on the federal government's "fourth consecutive year with a deficit above $1 trillion." And in return, America finished the fourth year of its worst peacetime economic recovery since the Depression.

If government spending was supposed to equal prosperity, America has not gotten what it's paid for. Not that it hasn't paid a lot.

The federal government spent $3.5 trillion in fiscal year 2012. As CBO observes: "Federal spending has totaled between $3.5 trillion and $3.6 trillion in each of the past four years…" Prior to these four years, government spending had never broken $3 trillion.

Put into perspective, the entire federal debt held by the public did not reach the last four years' levels of annual spending until 1995.

Little surprise then that Washington racked up mind-boggling deficits over these last four years. Before these last four years, Washington's annual deficit had peaked at $459 billion. Last year's deficit? $1.1 trillion -- well more than twice the record high before these last four years' -- and the lowest of the four.

Put into perspective, total federal spending did not equal last year's deficit spending until 1989.

The Care and Breeding of Docile Students

Imposing docility by expelling troublemakers

by Robert Weissberg

The American people have increasingly become docile and reliant on government largess. I see a parallel between this burgeoning dependency and the breeding of dachshunds. 

The dachshund was bred as a killing machine to burrow and eradicate badgers, rabbits and, in the United States, prairie dogs. Its body is muscular with paws adapted to digging, and it has a keen sense of smell. Its large lung capacity allows it to dig underneath its prey to catch it by surprise. Packs of dachshunds were even used to hunt wild boar and wolverines. Thus, in their natural state they are not pets suitable for small children.

But little money is to be made breeding subterranean killing machines no matter how cute or adorable. Professional breeders have therefore wisely bred out the dachshund’s hyper-aggressive traits to arrive at an animal that more closely resembles a submissive toy poodle. It does not take much. Just cull out the snarly ones and voilà—you have a cute, tame wiener dog. 

World Bank Back In Charge Of Global Warming Business

Channeling the cash into the pockets of the bank, broker and trader "community" of climate-conscious finance professionals

By Andrew_McKillop

Following a Group of 20 finance ministers meeting in Mexico City this month, in the wake of superstorm Sandy, Bank of Italy governor Ignazio Visco told reporters: “The World Bank has gone back to being in charge of climate change,” “For a certain period....., it had stopped”.

This followed the report on climate change by the Potsdam Institute for Climate Impact Research, commissioned by the World Bank and released this month, which bluntly says "a 4 degC warmer world must be avoided".

The report was itself a superproduction of gory predictions, a throwback to the days before the ill-fated (for alarmists) Copenhagen conference on climate change of December 2009. It starkly says the world risks “cataclysmic changes” caused by extreme heatwaves, rising seas and depleted food stocks as it heads toward a "probably unstoppable" global warming of 4 degrees Celsius this century.

Gaza crisis has more to come

Τime may be running dangerously short

By Victor Kotsev 
On Sunday night, an Egyptian effort to establish a ceasefire between Israel and the Gaza militant factions reportedly collapsed. An Israeli ground invasion of the Gaza Strip loomed, after missiles landed near Tel Aviv for four days in a row - once near Jerusalem, even farther away. 
Though nobody was hurt in these specific attacks, they came as a slap in the face of the stated goals of the ongoing Israeli operation: stopping the missile fire and restoring deterrence. Rockets had not been aimed at the heart of Israel for over 20 years, since the former Iraqi dictator Saddam Hussein fired Scud missiles during the First Gulf War. Therefore, as tanks and artillery units rolled toward Gaza and reserve soldiers were reporting for duty (75,000 initially, an increase of more than 40% of the army's active personnel), a long and bloody operation appeared to be in store, and only an effective miracle of diplomacy could prevent that. 
Pinning down the beginning of the crisis is almost as difficult as forecasting its end. The Atlantic published an elaborate timeline of its gradual escalation, which involved the targeted assassination of a top Gaza militant, Ahmed al-Jabari, as well as the firing of some 150 rockets into southern Israel during the previous weekend. 

The storm that blew away rationalism

The belief that recent storms were caused by climate change echoes Medieval Europe's superstitions about weather

by Dominic Standish 

After flooding disruption in New York, the Caribbean and Venice over the past few weeks, global warming has acted as a prism through which bad weather events have been interpreted. Now, following his re-election, President Barack Obama has indicated that the US needs to address the threat of global warming.

Hurricane Sandy brought havoc in the Caribbean, especially Haiti, and caused approximately 60 deaths. Then the storm hit the US east coast; New York experienced exceptional floods and at least 40 people lost their lives. Next, Venice in Italy witnessed high flooding on 11 November, when the city’s tide measurements reached their sixth-highest level for 140 years. No one died from these floods in Venice, but - like Haiti and New York - the economic impact was significant.

The Butcher, the Brewer, the Baker, and the Bureaucrat

Or How a Welfare-State Altruist “Cares”

by Robert Tracinski

A long, brutal recession is prompting a certain degree of soul-searching and even philosophical debate in this election year. One example is a piece of honest introspection from a left-leaning commentator who stumbles upon an important truth while still showing us the cultural and philosophical blinders of the mainstream cultural elites.

The honest part is a sort of inadvertent admission of those blinders. In a piece mostly devoted to denouncing Federal Reserve Chairman Ben Bernanke for failing to print more money, Jonathan Chait ends up offering a poignant reflection on the distance between the cultural elites in Washington, DC—including himself—and those who are suffering in this economy.

The political scientist Larry Bartels has found (and measured) that members of Congress respond much more strongly to the preferences of their affluent constituents than their poor ones. And for affluent people, there is essentially no recession. Unemployment for workers with a bachelors degree is 4 percent—boom times. Unemployment is also unusually low in the Washington, D.C., area, owing to our economy’s reliance on federal spending, which has not had to impose the punishing austerity of so many state and local governments.

2013 Looks a Lot Like 1937 in Four Fearsome Ways

When Government Plays God

By Amity Shlaes

Will 2013 be 1937? This is the question many analysts are posing as the stock market has dropped after the U.S. election. On Nov. 16, they noted that industrial production, a crucial figure, dropped as well.

In this case, “1937” means a market drop similar to the one after the re-election of another Democratic president, Franklin D. Roosevelt, in 1936.

The drop wasn’t immediate in that case; it came in the first full year after the election. Industrial production plummeted by 34.5 percent. The Dow Jones Industrial Average dropped by half, from almost 200 in early 1937 to less than 100 at the end of March 1938.

It’s hard to imagine stock indexes dropping by half today, or unemployment rising past 15 percent, as they did in the “depression within the Depression.” But the parallels are visible enough to be worth tracing. They have to do with the danger of big government, and can be captured in a few categories.

The Unadulterated Gold Standard Part Two

Free Market Money

by Keith Weiner

In Part I, we looked at the period prior to and during the time of what we now call the Classical Gold Standard.  It should be underscored that it worked pretty darned well.  Under this standard, the United States produced more wealth at a faster pace than any other country before, or since.  There were problems; such as laws to fix prices, and regulations to force banks to buy government bonds, but they were not an essential property of the gold standard.

The essential was that people had a right to own and trade gold coins.  They had the right to deposit them in a bank, if the bank offered attractive terms (especially the payment of interest).  Banks had a right to take deposits, to buy assets, and to pay interest.  Banks had a right to issue paper notes that were claims against gold.  Banks had a right to lend their deposits (fractional reserves).

Despite some government interference, the Classical Gold Standard enabled a Golden Age of prosperity and full employment that is totally out of reach today (not to be confused with the rapid development of technology).  This is not to say there were not business failures, bank failures and panics – what were later called depressions and now recessions.  A free market does not attempt to guarantee that no one can ever lose money.  It is merely an environment in which no one is forced to subsidize someone else’s risks or losses.

The Unadulterated Gold Standard Part One

Free Market Money

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.

According to Craig K. Elwell, in his 2011 Congressional Research Service Report:

“Because world markets valued them [gold and silver] at a 15½ to 1 ratio, much of the gold left the country and silver was the de facto standard.”

Subsequently, the government changed direction.  Elwell notes:

“In 1834, the gold content of the dollar was reduced to make the ratio 16 to 1.  As a result, silver left the country and gold became the de facto standard.”

The whole of the West is falling into the economic black hole of permanent no-growth

We’re heading for economic dictatorship

By Janet Daley

Forget about that dead parrot of a question – should we join the eurozone? The eurozone has officially joined us in a newly emerging international organisation: we are all now members of the Permanent No-growth Club. And the United States has just re-elected a president who seems determined to sign up too. No government in what used to be called “the free world” seems prepared to take the steps that can stop this inexorable decline. They are all busily telling their electorates that austerity is for other people (France), or that the piddling attempts they have made at it will solve the problem (Britain), or that taxing “the rich” will make it unnecessary for government to cut back its own spending (America).

So here we all are. Like us, the member nations of the European single currency have embarked on their very own double (or is it triple?) dip recession. This is the future: the long, meandering “zig-zag” recovery to which the politicians and heads of central banks allude is just a euphemism for the end of economic life as we have known it.

Now there are some people for whom this will not sound like bad news. Many on the Left will finally have got the economy of their dreams – or, rather, the one they have always believed in. At last, we will be living with that fixed, unchanging pie which must be divided up “fairly” if social justice is to be achieved. Instead of a dynamic, growing pot of wealth and ever-increasing resources, which can enable larger and larger proportions of the population to become prosperous without taking anything away from any other group, there will indeed be an absolute limit on the amount of capital circulating within the society.

The Complicated Geopolitics of Decline

Germany & Russia Edition

by WALTER RUSSELL MEAD

The upcoming meeting between Angela Merkel and Vladimir Putin is a meeting of the two most important political leaders in contemporary Europe. The FT has the story:

Angela Merkel will spell out growing German concerns about the clampdown on civil society in Russia when she meets Vladimir Putin on Friday, signalling a sharp cooling of the traditionally close German-Russian partnership.

The German chancellor, who is flying to Moscow for an inter-governmental summit, will be armed with a sweeping resolution passed by the Bundestag expressing alarm at recent political developments in Russia since the return of Mr Putin to the Kremlin.

Merkel’s trip is notable for another reason. Despite Russia’s immense size, its nuclear arsenal and its energy wealth, Germany is clearly the stronger power with more hopeful long-term prospects than Russia. The dust from the end of the Cold War has settled, leaving Germany once again the most important European power and leaving a frustrated Russia on the outside looking in.

Few things are more obvious in geopolitics than the decline of Europe compared to other parts of the world. It’s one of the oldest and most marked trends in world affairs. In 1914 European powers ruled most of the world, and the past hundred years have seen a steady decline: the collapse of the great empires, the eclipse of Europe by the superpowers during the Cold War, and, since the Cold War, the rise of Asia and lately the euro crisis have all marked new stages in Europe’s decline.

Depopulating Russia Could Get Angry

Russia’s Future - Grumpy Petro-Giant Armed-to-the-Teeth with Social Unrest

By Michael Lee

Although Russia’s population has peaked and is now decreasing, this resource-rich Eurasian giant will not go gently into the good night of decline.

Nor will the rich tapestry of Russian history, populated with larger-than-life autocrats such as Ivan the Terrible, Peter the Great, Lenin, Stalin and Putin, and defined by world-shaking events like the Russian Revolution, the Cold War and the collapse of the Soviet Union, become uneventful in the 21st century.

While Russian society will age and shrink throughout this century, it will at the same time rise to become an energy superpower. Situated at the crossroads of the world between the shifting geo-political landscapes of Eurasia, I expect a restless, cat-and-mouse Russian foreign policy for the future while the nation manages its growing geopolitical influence as a restored global power spanning an enormous landmass across Europe and Asia.

“With its natural gas and oil pipelines that tie Europe to Russia like an umbilical cord, Russia has unchecked power and influence that in a real sense exceed the military power and influence it had in the Cold War… Russia is in a stronger position relative to Western Europe than it has ever been in its history.” - Marshall I.Goldman, author of Petrostate: Putin, Power and the New Russia

Europe’s New Fascists

Europe must face old ghosts once more

By WILLIAM WHEELER

ONE evening in September 2011, Ali Rahimi, a 27-year-old Afghan asylum seeker, was hanging around with friends outside his building in central Athens when more than a dozen Greeks approached. Several men set upon Mr. Rahimi, one with a knife. Panicked, he fled into his apartment and fought back, managing to push the men out the door. He found blood gushing from just above his heart, one of five stab wounds in his back and chest.

Mr. Rahimi survived and is staying put for now. But his friend, Reza Mohammed, who was also injured in the attack, is considering what was once unthinkable: moving back to Afghanistan, which he feels would be safer than Greece.

Greece is the major entry point for Asian and African migrants and asylum seekers headed into Europe; there are about one million of them in the country today, thanks to the failure of successive Greek governments to establish a functioning migration or asylum policy, and a European Union regulation that allows member states to return asylum seekers to the country where they first entered Europe, which is often Greece.

Parts of Athens feel like a war zone. Racist gangs cruise the streets at night in search of victims. Themis Skordeli, a member of the group that is accused of stabbing Mr. Rahimi, ran unsuccessfully for Parliament on the ticket of Golden Dawn, a fascist group that is currently the third most popular party in Greece.

Golden Dawn was founded in 1985 under the order of the imprisoned leader of the Greek junta. The party entered the international spotlight after some of its members reportedly participated in the 1995 Srebrenica massacre of Bosnian Muslims. Its publication praises the Third Reich and often features photographs of Hitler and other Nazis.

Understanding the "Exorbitant Privilege" of the U.S. Dollar

Scarcity and demand

The dollar rises for the same reason gold and grain rise

by Charles Hugh Smith

Which is easier to export: manufactured goods that require shipping ore and oil halfway around the world, smelting the ore into steel and turning the oil into plastics, laboriously fabricating real products and then shipping the finished manufactured goods to the U.S. where fierce pricing competition strips away much of the premium/profit?

Or electronically printing money and exchanging it for real products, steel, oil, etc.?

I think we can safely say that creating money out of thin air and "exporting" that is much easier than actually mining, extracting or manufacturing real goods. This astonishing exchange of conjured money for real goods is the heart of the "exorbitant privilege" that accrues to the issuer of the global reserve currency (U.S. dollar).

To understand the reserve currency, we must understand Triffin's Paradox, a topic I discussed in What Will Benefit from Global Recession? The U.S. Dollar (October 9, 2012) and Is There Any Correlation Between the U.S. Dollar and Gold (Or Anything Else?)
(November 14, 2012).

It seems very few grasp the implications of the Paradox, and even fewer relate it to global trade. I recently discussed Triffin's Paradox and The Rule of Law in a video program with Gordon T. Long, who noted that the U.S. Council on Foreign Relations (CFR) described the conditions in which Triffin's Paradox becomes unsustainable:

"To supply the world's risk-free asset, the center country must run a current account deficit and in doing so become ever more indebted to foreigners, until the risk-free asset that it issues ceases to be risk-free. Precisely because the world is happy to have a dependable asset to hold as a store of value, it will buy so much of that asset that its issuer will become unsustainably burdened."

Goat Economics

Why the Laffer Curve Is No Joke

By Charlie Musick

Goat herding is one of the world's oldest economic professions.  It is because goats are excellent at reproduction, and easy to feed and raise. A female goat will on average birth around 2 kids per year. Simple math would suggest that if you start with 2 goats, you can double your herd each year. Thus in 10 years you will be quite wealthy with over 1000 goats (2^10 = 1024).

But as one can imagine, it turns out that goat herding is a little more complicated than that. First, the normal life expectancy of a goat is around 10 years.  This means you will lose about 10% of a herd to old age annually. Additionally, while goats may birth two kids per year, the viability rate is around 75% such that each female will only net an average of 1.5. Still, if you do the calculations, starting with 10 female goats you will have around 1496 female goats after 10 years.

Since raising goats is a rather simple economic activity, it is easy to model the impact of taxation on goat farming. Assuming the government comes and takes various numbers of the new goats (income) each year in goat taxes, one can easily calculate the impact of the size of the herd, and ultimately how much total revenue the government would receive over 10 years at various tax rates. It turns out that the optimum tax rate is in the 20-30% range to maximize total 10 year revenue.

Few things about health care in US

Inconvenient Truths 

By Scott Atlas

Like the Olympic tribute to Britain’s NHS, countries wear nationalized health systems as badges of pride.  In those same countries, assertions like “fifty million Americans have no access to care” and “US health care is scandalous” are widespread. Despite their frequency, these denunciations are wholly contradicted by facts.

No charge is repeated more often than this statistic: 16%, almost 50 million Americans, lack health insurance. But ten million were not even US citizens; millions more claimed to have no health insurance but were using insurance; and 13 million adults and 5 million children were already eligible for government insurance, but had not enrolled. Claims about uninsured Americans have been greatly exaggerated.

The truth is that health insurance does not equate with health care access. Statistics Canada stated “waiting time has been identified as a key measure of access.” Affirming 2005’s Chaoulli v. Quebec, in which Supreme Court justices famously concluded “access to a waiting list is not access to health care,” countless studies document grave consequences from prolonged waits. A growing list of European countries, including Denmark, England, Finland, Ireland, Italy, the Netherlands, Norway, Spain, and Sweden, have been forced by public outcry and laws to address unacceptable waits for care.

Meanwhile, it is understood that “waiting lists are not a feature in the United States,” as stated in a 2007 study and separately underscored by the OECD (“[the US is] a country where waiting time is not a policy concern”).  Indeed, Americans would be stunned to hear the reality of nationalized insurance:

• In its latest “care guarantee,” Sweden found it necessary to stipulate that patients must be able to see a doctor within seven days; patients should not wait more than 90 days to see a specialist; and treatment should be scheduled within 90 days…six months from presentation;

Putin and Merkel Tango in Moscow

Gazprom Stirs Up Old Ghosts, But Deals Are Signed

By Wolf Richter   

Last week, the German Parliament passed a resolution that asked Chancellor Angela Merkel to needle Russian President Vladimir Putin about the resurgence of repressive, antidemocratic tendencies in Russia. It did not go unnoticed at the Kremlin. And it paved the way, so to speak, for her trip to Moscow on Friday—to re-cement their “strategic partnership.”

Complaints about the resolution filtered back to the point where Foreign Minister Guido Westerwelle, just before departing for Moscow, warned his countrymen not to overdo their criticism of Russia. It’s in the interests of Germany, he mused, to expand the “strategic partnership”; Russia was needed as a geopolitical and economic partner.

Indeed. Merkel arrived in Moscow with her entourage that included eight ministers and corporate chieftains by the planeload—she doesn’t leave home without them. With Merkel and Putin looking on, these chieftains and their Russian counterparts signed contracts for billions of euros, a ritual that German chancellors have to perform when abroad. It’s part of Germany’s mercantilist foreign policy. Siemens CEO Peter Löscher bagged perhaps the biggest deal, a declaration of intent to deliver 695 electric locomotives for €2.5 billion ($3.2 billion) to Russian Railways (RZD), an elephantine state-owned company with 950,000 employees.

That’s what really mattered. Criticism of Russia—carefully calibrated and range-bound—would be for consumption at home, where anti-Russian sentiment has been rising. With elections coming up next year, Merkel, the consummate political animal, is treading a fine line: deliver a bland rebuke that would barely satisfy voters in Germany and help arrange deals that would fully satisfy German industry.