Prosperity's timeless sources – Part III

Uniqueness of the Scottish miracle

by Reuven Brenner 

The Scottish lesson, rarely mentioned in history books, shows what else can be behind economic miracles other than the factors - migration of hard-working, skilled people, stable money and significantly lower taxes - indicated in the second part of this series. 

Scotland in 1750 was a very poor country. The land was of poor quality, and illiterate people engaged in near-subsistence agriculture; there were no navigable rivers; barren mountains and rocky hills hindered communication. The main export at the time was processed tobacco. Yet, less than a century later, Scotland stood with England at the forefront of the world's industrial nations. Its standard of living was the same as England's, whereas in 1750 it was about half. How did the Scots do it? 

The Union of 1707 made Scotland part of England. It came under England's system of taxes, laws and currency and was allowed access to English markets - a mini version of the later European common market. 

The union also abolished the Scottish parliament, leaving Scotland without a distinct administration until 1885. That turned out to be the biggest blessing (reminding one of Hong Kong's later success under distant British rule: no democracy there, but the closest approximation of low, flat taxes, a stable currency and open, but held accountable, financial markets), as it prevented the banking system and financial markets from becoming an instrument of government finance. The result was a financial market that developed in response to the demands of the private economy. 

By 1810 there were 40 independent banks. The orthodoxy of the times held that banks should lend only if the loans were backed by the security of goods in transit or in process, and for no more than 90 days. In contrast, the Scottish banks were free to lend for unspecified periods of time with no requirement to be backed by securities. Briefly: the Scottish banks offered the precursors of junk bonds, venture capitalists, and perhaps "angel investing". 

Bills of exchange, the main assets of banks in other countries at the time, were the least important ones for the Scottish banks. The largest volume of loans was made to manufacturers and merchants, who got credit backed only by their own signature with two or more people as sureties. The banks flourished with tiny reserves (1% of liabilities in specie), and irregular financial reports (annual balance sheets were prepared starting only in 1797). 

The Scottish financial historian, A W Kerr, captures the specific feature of the country's financial markets:

Prosperity's timeless sources – Part II

The myth of government aid

By Reuven Brenner 
Historians and economists, most heavily subsidized, are very good at creating and perpetuating mythologies serving their financial masters. At times the myths are about nationalism, falsely suggesting that economic miracles have been due to the genius of people living within arbitrary national borders. At other times they are about the extremely beneficial roles of foreign aid. 

The post-World War II West Germany miracle fits more the pattern of being brought about by incentives and a large population influx of "vital fews", though in popular memory its success is associated more with the US's Marshall Plan. Taking a closer look though, the impact of that aid has been greatly exaggerated. 

Economists have estimated that from 1948 to 1950 Marshall Plan aid amounted to between 5% and 10% of European gross national product (GNP), though one must be extremely skeptical of these high numbers. European statistics - in fact, all statistics everywhere following wars - were characterized by rationing, price controls and extensive black markets. The mismeasurement has the effect of overestimating the Marshall Plan's impact. 

There were, after all, no miracles in Europe after World War I, when aid and loans to Europe were also estimated to amount to about 5% of its GNP. True, the world moved toward lowered tariffs after World War II, which it did not after World War I. One inference would seem to be that miracles may be linked with lowered tariffs rather than foreign aid. Such inference though does not play well for politicians and local interests wedded to territory. 

So what fueled the West German miracle? From 1945 to 1961, Western Germany accepted 12 million, for the most part, well-trained immigrants. About 9 million were Germans from Poland and Czechoslovakia. Others fled East Germany's communist paradise. 

Although the movement of that capital did not appear at the time on the books, its importance can be inferred from the significantly higher ratio of working persons to total population in West Germany than in other countries in the 1950s and 1960s: 50% in Germany versus 45% in France, 40% in the UK, 42% in the US and 36% in Canada. 

Prosperity's timeless sources - Part I

Facts behind miracles

By Reuven Brenner 

Politicians and economists promise growth, prosperity and higher standards of living. What do they mean by these terms? 

Are there good, relatively objective measures by which to judge whether people in a country expect technological and political innovations (including fiscal ones) to be beneficial and lead to the creation of more wealth? How can we be sure that a financial innovation, a change in company strategy or a change in government policy makes a society better or worse off? 

The answer is that changes in the total market value of firms (value of stocks added to the value of outstanding debt) in a society added to the value of its governments' outstanding obligations would be the best estimate to make such judgment - once financial markets are well-developed, and institutions exist to hold matchmakers, be it in finance or government, accountable. 

Then, when this sum increases, it means that the society's ability to generate revenues and pay back debt - whether private or public - has increased. And the contrary: when this sum drops (measured it terms of a relatively stable unit, rather than a particular currency), people signal that either their governments or the companies' management are making - or persisting longer than expected - with erroneous decisions. 

The reason is simple: holding matchmakers in financial markets and governments accountable mitigate the magnitude and persistence of mistakes. By so doing they bring faster the better matching of capital and talent. 

When the aforementioned sum diminishes, where does the wealth go? That depends. 

The smaller is capital's and people's ability to move, the more the diminished value becomes a permanent loss. Those things that are expected to be solid - people's efforts and ingenuity - melt into thin air. More mistakes are made and they are expected to last longer. The decrease reflects diminished expectations of generating future revenues (since every mistake is a cost). Yet, generating future revenues is what "growth" and the ability to pay back debt means. 

When capital and people can move, though, the wealth that disappears in one country reappears in others. 

There are few better examples to illustrate these points than the wealth created by the various diaspora - Armenian, Chinese, the Huguenots, Jew - as well as the poorer immigrants of Europe, who built the newer continents. (Few of the rich left Europe. The emigrants were driven out of their homelands by politics and regulations). Let us briefly look in the first part of this series at how the movement of the most gifted and energetic of those people led to many of the world's economic "miracles". 

The Cinderella stories of poor or impoverished societies suddenly and quickly leapfrogging others have provoked admiration, envy, and intense discussions about why the outdone stumbled, and the humbler rose. The riches of oil-producing Middle East countries do not provoke such discussions because those countries fit the "finding treasure" pattern. But how do societies do it when they not only lack natural resources, but are even endowed with natural disasters? Can other countries emulate them and achieve similar degrees of prosperity?

In Praise of Income Inequality

You cannot make the poor richer by making the rich poorer

by Richard A. Epstein 

One month into the second term of the Obama administration, the economic prognosis looks mixed at best. On growth, the U.S. Department of Commerce reports the last quarter of 2012 produced a small decline in gross domestic product, without any prospects for a quick reversal. On income inequality, the most recent statistics (which only go through 2011) focus on the top 1 percent.

“Incomes Flat in Recovery, But Not for the 1%” reports Annie Lawrey of the New York Times. Relying on a recent report prepared by the well-known economist Professor Emmanuel Saez, who is the director for the Center of Equitable Growth at Berkeley, Lawrey reports that the income of the top 1 percent has increased by 11.2 percent, while the overall income of the rest of the population has decreased slightly by 0.4 percent.

Growth vs. Equality

What should we make of these numbers? One approach is to stress the increase in wealth inequality, deploring the gains of the top 1 percent while lamenting the decline in the income of the remainder of the population. But this approach is only half right. We should be uneasy about any and all income declines, period. But, by the same token, we should collectively be pleased by increases in income at the top, so long as they were not caused by taking, whether through taxation or regulation, from individuals at the bottom.

This conclusion rests on the notion of a Pareto improvement, which favors any changes in overall utility or wealth that make at least one person better off without making anyone else worse off. By that measure, there would be an unambiguous social improvement if the income of the wealthy went up by 100 percent so long as the income of those at the bottom end did not, as a consequence, go down. That same measure would, of course, applaud gains in the income of the 99 percent so long as the income of the top 1 percent did not fall either.

This line of thought is quite alien to thinkers like Saez, who view the excessive concentration of income as a harm even if it results from a Pareto improvement. Any center for “equitable growth” has to pay as much attention to the first constraint as it does to the second. Under Saez’s view of equity, it is better to narrow the gap between the top and the bottom than to increase the overall wealth.

To see the limits of this reasoning, consider two hypothetical scenarios. In the first, 99 percent of the population has an average income of $10 and the top 1 percent has an income of $100. In the second, we increase the income gap. Now, the 99 percent earn $12 and the top 1 percent earns $130. Which scenario is better?

This hypothetical comparison captures several key points. First, everyone is better off with the second distribution of wealth than with the first—a clear Pareto improvement. Second, the gap between the rich and the poor in the second distribution is greater in both absolute and relative terms.

Why the Euro Crisis Isn't Over

The economist who dared to predict Europe's mess, and was fired for it, says there is much more pain to come

By BRIAN M. CARNEY

Seventeen years ago, Bernard Connolly foretold the misery that awaited the European Union. Given that he was an instrumental figure in the EU bureaucracy and publicly expressed his doubts in a book called "The Rotten Heart of Europe," he was promptly fired. Mr. Connolly takes no pleasure now in having seen his prediction come true. And he takes no comfort in the view, prevalent in many quarters, that the EU has passed through the worst of its crisis and is on the cusp of revival.

As far as Mr. Connolly is concerned, Europe's heart is still rotting away.

The European political class, he says, believes that the crisis "hit its high point" last summer, "because that was when there was an imminent danger, from their point of view, that their wonderful dream would disappear." But from the perspective "of real live people, and families and firms and economies," he says, the situation "is just getting worse and worse." Last week, the EU reported that the euro-zone economy shrank by 0.9% in the fourth quarter of 2012. For the full year, gross domestic product fell 0.5% in the euro zone.

Two immediate solutions present themselves, Mr. Connolly says, neither appetizing. Either Germany pays "something like 10% of German GDP a year, every year, forever" to the crisis-hit countries to keep them in the euro. Or the economy gets so bad in Greece or Spain or elsewhere that voters finally say, " 'Well, we'll chuck the whole lot of you out.' Now, that's not a very pleasant prospect." He's thinking specifically, in the chuck-'em-out scenario, about the rise of neo-fascists like the Golden Dawn faction in Greece.

Mr. Connolly isn't just any Cassandra. When he predicted disaster, he was running the European Commission's Monetary Affairs Committee, the Brussels bureaucracy charged with ushering the euro into being. His public confession of fear that the monetary union would inevitably produce an economic crisis not only cost him his job, he says, it also cost him his pension, and he was barred from his office even before his dismissal was official. In the introduction to the paperback edition of "The Rotten Heart of Europe," Mr. Connolly describes how his photograph was posted at entrances to the commission's offices, as if he were a wanted criminal.

In the meantime, the debasement of paper money continues

Incredible confusions

Part 1: ‘Positive Money’ and the fallacy of the need for a state money producer

I am usually inclined to encourage the inquiry of the fundamental aspects of money and banking. This is because I tend to believe that only by going back to first principles is it possible to cut through the thicket of widely accepted but deeply flawed theories that dominate the current debate in mainstream media, politics and the financial industry. From my own experience in financial markets I can appreciate how convenient and tempting it is in a business context, where quick and easy communication is of the essence, to adopt a certain, widely shared set of paradigms, regardless of how flimsy their theoretical foundations. Fund managers, traders and financial journalists live in the immediate present, preoccupied as they are with what makes headlines today, and they work in intensely collaborative enterprises. They have neither the time nor inclination to question the body of theories – often no longer even perceived as ‘theories’ but considered accepted common wisdom – that shapes the way they view and talk about the outside world. Thus, erroneous concepts and even outright fallacies often remain unquestioned and, by virtue of constant repetition, live comfortably in the bloodstream of policy debates, economic analysis, and financial market reportage.

This goes a long way in explaining the undeserved survival of a number of persistent modern myths: deflation is the gravest economic danger we face; Japan has been crippled by deflation for years and would grow again if it only managed to create some inflation; lack of ‘aggregate demand’ explains recessions and must be countered with easy monetary policy; and money-printing, as long as it does not lead to higher inflation, is a free lunch, i.e. we can only expect good from it. None of these statements stand up to scrutiny. In fact, they are all utterly absurd. Yet, we can barely open a newspaper and not have this nonsense stare us in the face, if not quite as bluntly as stated above, than at least as the intellectual soil from which the analysis or commentary presented has sprung. Deep-rooted misconceptions can only be dismantled through dissection of their building blocs and a discussion of basic concepts.

The dangers of going back to basics

However, going back to basics and to first principles, analyzing critically the fundamental aspects of our financial system, is not free of danger. Here, too, lies a minefield of potentially grave intellectual error, and when things go wrong here, at the basic level, the results and policy recommendations derived from such analysis are bound to be nonsensical too, if not even more nonsensical than what the mainstream believes. In this and the following essays I am going to address some of the erroneous notions at the fundamental level of money and banking that seem to have gained currency in the public debate of late.

The Quiet Revolution

As Country Club Republicans Link Up With The Democratic Ruling Class, Millions Of Voters Are Orphaned

By Angelo Codevilla

On January 1, 2013 one third of Republican congressmen, following their leaders, joined with nearly all Democrats to legislate higher taxes and more subsidies for Democratic constituencies. Two thirds voted no, following the people who had elected them. For generations, the Republican Party had presented itself as the political vehicle for Americans whose opposition to ever-bigger government financed by ever-higher taxes makes them a “country class.”  Yet modern Republican leaders, with the exception of the Reagan Administration, have been partners in the expansion of government, indeed in the growth of a government-based “ruling class.” They have relished that role despite their voters. Thus these leaders gradually solidified their choice to no longer represent what had been their constituency, but to openly adopt the identity of junior partners in that ruling class. By repeatedly passing bills that contradict the identity of Republican voters and of the majority of Republican elected representatives, the Republican leadership has made political orphans of millions of Americans. In short, at the outset of 2013 a substantial portion of America finds itself un-represented, while Republican leaders increasingly represent only themselves.

By the law of supply and demand, millions of Americans, (arguably a majority) cannot remain without representation. Increasingly the top people in government, corporations, and the media collude and demand submission as did the royal courts of old. This marks these political orphans as a “country class.” In 1776 America’s country class responded to lack of representation by uniting under the concept: “all men are created equal.” In our time, its disparate sectors’ common sentiment is more like: “who the hell do they think they are?”

The ever-growing U.S. government has an edgy social, ethical, and political character. It is distasteful to a majority of persons who vote Republican and to independent voters, as well as to perhaps one fifth of those who vote Democrat. The Republican leadership’s kinship with the socio-political class that runs modern government is deep. Country class Americans have but to glance at the Media to hear themselves insulted from on high as greedy, racist, violent, ignorant extremists. Yet far has it been from the Republican leadership to defend them. Whenever possible, the Republican Establishment has chosen candidates for office – especially the Presidency – who have ignored, soft-pedaled or given mere lip service to their voters’ identities and concerns.

Thus public opinion polls confirm that some two thirds of Americans feel that government is “them” not “us,” that government has been taking the country in the wrong direction, and that such sentiments largely parallel partisan identification: While a majority of Democrats feel that officials who bear that label represent them well, only about a fourth of Republican voters and an even smaller proportion of independents trust Republican officials to be on their side. Again: While the ruling class is well represented by the Democratic Party, the country class is not represented politically – by the Republican Party or by any other. Well or badly, its demand for representation will be met.

Representation is the distinguishing feature of democratic government. To be represented, to trust that one’s own identity and interests are secure and advocated in high places, is to be part of the polity. In practice, any democratic government’s claim to the obedience of citizens depends on the extent to which voters feel they are party to the polity. No one doubts that the absence, loss, or perversion of that function divides the polity sharply between rulers and ruled.

Representation can be perverted. Some regimes (formerly the Communists, and currently the Islamists) allow dissent from the ruling class to be represented only by parties approved by the ruling class. Also, in today’s European Union the ruling class’ wide spread and homogeneity leaves those who do not like how their country is run with no one to represent them. Though America’s ruling class is neither as narrow as that of Communist regimes nor as broadly preclusive as that of the European Union, the Republican leadership’s preference for acting as part of the ruling class rather than as representatives of voters who feel set upon has begun to produce the sort of soft pre-emption of opposition and bitterness between rulers and ruled that occurs necessarily wherever representation is mocked.

To see how America’ country class can be represented, let us glance at how the current division of American politics into a ruling class and a country class came about and why it is inherently unstable.

Ins and Outs 

Those who attribute the polarization of American politics to the partisan drawing of congressional districts at the state level have a point: The Supreme Court’s decision in Baker v. Carr (1962) inadvertedly legalized gerrymandering by setting “one man one vote” as the sole basis of legitimacy for drawing legislative districts. Subsequent judicial interpretations of the 1965 Voting Rights Act demanded that districts be drawn to produce Congressmen with specific features. No surprise then that Democratic and Republican legislatures and governors, thus empowered, have drawn the vast majority of America’s Congressional districts to be safe for Democrats or Republicans respectively. Such districts naturally produce Congressmen who represent their own party more than the general population. This helped the parties themselves to grow in importance. But the U.S. Senate and state governments also have polarized because public opinion in general has.

Political partisanship became a more important feature of American life over the past half-century largely because the Democratic Party, which has been paramount within the U.S. government since 1932, entrenched itself as America’s ruler, and its leaders became a ruling class. This caused a Newtonian “opposite reaction,” which continues to gather force.

A Politician's Promise

The mass-mind prefers to grovel at the feet of those who promise them a first class ticket to the land of plenty

by James E. Miller
The sure sign of a halfwit is someone who believes a politician’s promise. They can be observed at candidate rallies with their faces beaming and their hands grasping tightly to a cardboard sign. In bars and restaurants they speak endlessly on how their preferred dictator is smarter, kinder, and cuter than the rest. In doing so, they make up for a lack of drunkenness with exuberance over the prospect of being ruled over. This mix turns the political enthusiast into a package more bothersome than either the chastising puritan or the destitute drunk.

This heap of idiocy finds its source in the promises made by public officeholders. Instead of relying on intelligence and reason to make their case, all an aspiring politico has to do is declare before a mob what he can give it in exchange for their votes. Every election hinges upon the degree that he can manipulate the public into believing his sincerity. Electoral contests are won and lost by the biggest coalition of fools who chant slogans devoid of actual meaning and purpose.

With the recent reelection of Barack Obama, there is speculation abound on how far the soon-to-be anointed king will deliver on his promised agenda. His leftist base of support is expecting an aggressive launch of statist initiatives aimed at righting some undefined injustice. Many of Obama’s detractors seriously believe he will use the Oval Office to institute a kind of socialist hell. Both are wrong. Obama’s second term will be a continuation of the centralization and consolidation of the state that has been occurring since the ratification of the Constitution. The path has already been laid out by the ruling cadre of politicians, high level bureaucrats, military generals, CEOs of banks, and the heads of politically-favored corporations. Obama’s promise of a robust American economy will not come to fruition because that was never the goal. Like all presidencies before it, the Obama presidency is there to ensure the “right” people keep having their pocket’s filled.

Meanwhile, an increasing number of young adults are becoming disillusioned with their own future and income earning potential. Many have witnessed the success of their parents and are now questioning why they aren’t experiencing the same level of achievement. In other words, they make perfect targets for political sloganeering. Through pledges for good jobs, these unemployed will easily be whipped into a frenzy of support for whichever candidate promises them a decent, salaried job. Their role as dupes has already been enshrined by the political class.

American Dream Fades for Generation Y Professionals

Dashed expectations crimped even some of the most innovative corners of the economy

By Elliot Blair Smith 

After being dismissed from her job as a Midtown Manhattan securities attorney in October 2009, Christina Tretter-Herriger hitched a used horse trailer to her Dodge Ram pickup and drove 1,628 miles to Texas.

The 32-year-old lawyer sold skin-care products in Houston before finding work as the assistant general counsel of a futures-trading firm where an irate customer punctuated a recorded voice-mail message with gunfire.

“No one was left with the impression that he just happened to be phoning from a sporting clays range,” she says.

Eighteen months and two busted jobs later, the daughter of a retired physician and a former editor at Vogue circled back to upstate New York and hunkered down at a small legal office that pays about one-quarter of her former $165,000 salary.

Generation Y professionals entering the workforce are finding careers that once were gateways to high pay and upwardly mobile lives turning into detours and dead ends. Average incomes for individuals ages 25 to 34 have fallen 8 percent, double the adult population’s total drop, since the recession began in December 2007. Their unemployment rate remains stuck one-half to 1 percentage point above the national figure.

Three and a half years after the worst recession since the Great Depression, the earnings and employment gap between those in the under-35 population and their parents and grandparents threatens to unravel the American dream of each generation doing better than the last. The nation’s younger workers have benefited least from an economic recovery that has been the most uneven in recent history.

‘Permanently Depressed’

“This generation will be permanently depressed and will be on a lower path of income for probably all of their life -- and at least the next 10 years,” says Rutgers professor Cliff Zukin, a senior research fellow at the university’s John J. Heldrich Center for Workforce Development. Professionals who start out in jobs other than their first choice tend to stay on the alternative path, earning less than they would have otherwise while becoming less likely to start over again later in preferred fields, Zukin says.

Newtown’s Unanswerable Questions

It is not likely that psychiatrists could have prevented the massacre

BY THEODORE DALRYMPLE

The horrific massacre of the innocents in Newtown was bound to result in a search for preventive action so that nothing like it could ever happen again, and hence also for its real or final cause. To ward off fatalism, we tell ourselves that the massacre could, and therefore that it should, have been prevented; or alternatively, that it should, and therefore that it could, have been prevented. But as the cacophony of opinion demonstrates, the world is an irreducibly complex place. Agreement about what ought to have been done has all too predictably not been reached.

It is tempting to argue that the perpetrator must have been insane, for if such a person isn’t insane, who is? We close the circle by then explaining his action by his insanity. In other words, we know the perpetrator was insane because he did x, and that he did x because he was insane. Molière satirized such reasoning 300 years ago: the doctor explains that opium makes people sleepy because of its dormitive quality. Let us suppose for the sake of argument, however, that the perpetrator did have a psychiatric condition that could have been diagnosed before his terrible act: What follows from this?

First, he was of age (20) to refuse to see a doctor if he so wished, and he might very well have so wished. By all accounts, there were no grounds on which psychiatric attention could have been forced upon him. He was strange, he was socially isolated, his mother worried about him; but he was a good student and had committed no acts that would have justified compulsory treatment, as would have been the case if (for example) he had attacked someone under the influence of delusion.

Second, even if he had agreed to consult a psychiatrist, there is no certainty that the psychiatrist could have done anything for him and thus averted the disaster. Nor would the psychiatrist necessarily have had any reason to suspect a mass killing as a possible outcome in this case; the best predictor of future behavior is, after all, past behavior, and the killer had (as far as has been revealed) no history of violence. Further, the psychiatrist would probably have seen several, perhaps many, similar cases that did not end in mass killing—an outcome that after all remains rare. The Newtown killing might have taken a psychiatrist by surprise as much as anyone else.

In fact, psychiatrists are no better than others at predicting violence by disturbed people, except possibly among the psychotic. They tend to overestimate the dangers, and in making predictions, they face the problem of the false positive and the false negative. In the case of a false positive, you think that someone is dangerous when he isn’t; in the case of a false negative, that he is not dangerous when he is. False predictions of rare events (such as mass killings) generally outweigh true ones by a large factor—an important point to remember, especially if you wish to grant or withdraw civil liberties on the basis of such predictions.

75 Economic Numbers From 2012 That Are Almost Too Crazy To Believe

A good summary of the problems that the U.S. economy is currently facing

by Michael Palmer

What a year 2012 has been!  The mainstream media continues to tell us what a “great job” the Obama administration and the Federal Reserve are doing of managing the economy, but meanwhile things just continue to get even worse for the poor and the middle class.  It is imperative that we educate the American people about the true condition of our economy and about why all of this is happening.  If nothing is done, our debt problems will continue to get worse, millions of jobs will continue to leave the country, small businesses will continue to be suffocated, the middle class will continue to collapse, and poverty in the United States will continue to explode.  Just “tweaking” things slightly is not going to fix our economy.  We need a fundamental change in direction. 

Right now we are living in a bubble of debt-fueled false prosperity that allows us to continue to consume far more wealth than we produce, but when that bubble bursts we are going to experience the most painful economic “adjustment” that America has ever gone through.  We need to be able to explain to our fellow Americans what is coming, why it is coming and what needs to be done.  Hopefully the crazy economic numbers that I have included in this article will be shocking enough to wake some people up.

The end of the year is a time when people tend to gather with family and friends more than they do during the rest of the year.  Hopefully many of you will use the list below as a tool to help start some conversations about the coming economic collapse with your loved ones.  Sadly, most Americans still tend to doubt that we are heading into economic oblivion.  So if you have someone among your family and friends that believes that everything is going to be “just fine”, just show them these numbers.  They are a good summary of the problems that the U.S. economy is currently facing.

The following are 75 economic numbers from 2012 that are almost too crazy to believe...

#1 In December 2008, 31.6 million Americans were on food stamps.  Today, a new all-time record of 47.7 million Americans are on food stamps.  That number has increased by more than 50 percent over the past four years, and yet the mainstream media still has the gall to insist that “things are getting better”.

#2 Back in the 1970s, about one out of every 50 Americans was on food stamps.  Today, about one out of every 6.5 Americans is on food stamps.

#3 According to one calculation, the number of Americans on food stamps now exceeds the combined populations of “Alaska, Arkansas, Connecticut, Delaware, District of Columbia, Hawaii, Idaho, Iowa, Kansas, Maine, Mississippi, Montana, Nebraska, Nevada, New Hampshire, New Mexico, North Dakota, Oklahoma, Oregon, Rhode Island, South Dakota, Utah, Vermont, West Virginia, and Wyoming.”

Forget Sharia, The New Egyptian Constitution Enshrines Socialism

If you want proof that human beings are incapable of learning from history, the new Egyptian constitution is exhibit A

By Bill Frezza

It isn’t every day that the world gets to watch the birth of a new constitutional democracy. As the political drama in the land of the Pharaohs unfolds, the Western commentariat seems totally focused on the extent to which Egypt‘s new constitution will be informed by Sharia law. Alas, nary a peep can be heard about a far greater threat to Egypt’s freedom and prosperity.

The drafters of the new Egyptian constitution are blessed with having the history of two centuries of constitutional democracies to study. Evidence abounds on what works and what doesn’t, of which economic policies lead to rapid growth and which to stagnation and bankruptcy. Yet with all this information at their fingertips, the Egyptian people appear set to go to the polls to endorse … socialism.

Let’s peel back the draft Egyptian constitution and count the ways in which it paves the road to ruin.

PART I: Chapter Three: Economic Principles

Article 14

National economy shall be organized in accordance with a comprehensive, constant development plan, ensuring the increase of national income, enhancement of standard of living, elimination of poverty and unemployment, increase of work opportunities, and increase of production.

The development plan shall establish social justice and solidarity, ensure equitable distribution, protect consumer rights, and safeguard the rights of workers, dividing development costs between capital and labor and sharing the revenues justly.

Wages shall be linked to production, bridging income gaps and establishing a minimum wage that would guarantee decent living standards for all citizens, and a maximum wage in civil service positions with exemptions regulated by law.

Bang, right out of the blocks—a centrally planned economy.  No doubt this will be managed by just and wise bureaucrats, appointed on their merits and without regard to connections, and magically immune to graft—given how corruption is so rare in Egypt’s political culture. How could central planners possibly fail with all the tools the constitution puts at their disposal, like wage and price controls, unconstrained income redistribution, and centralized allocation of capital?

H. G. Wells on the Dictatorial Century

The “Master Spirit” Takes Charge

By Thomas F. Bertonneau

In his monumental Experiment in Autobiography (1934), the English novelist and public intellectual Herbert George Wells (1866 – 1946) claims to understand the German dictator Adolf Hitler intuitively. The discussion will shortly come to that – but first some background.

Writing of his “mid schoolboy stage” at Thomas Morley’s school in 1878 and 79, and trying to reconstruct his thirteen-year-old worldview, Wells recalls, along with much else, his adolescent fondness for indulging in compensatory military fantasies rooted in a rebellious but invariably thwartedlibido dominandi. “The flavor of J. R. Green’s recently published (1874) History of the English people had drifted to me either directly or at second hand,” as the autobiographer writes, “and my mind had leapt all too readily to the idea that I was a blond and blue-eyed Nordic, quite the best make of human being known.” Wells remarks that, “England was consciously Teutonic in those days, [and] the monarchy and Thomas Carlyle were strong influences in that direction.” Discussion of Britain as a romantic “Keltic Fringe” hung in the air, as Wells writes; “and the defeat of France in 1870-71 seemed to be the final defeat of the decadent Latin peoples.” The convictions that, “We English, by sheer native superiority, practically without trying, had possessed ourselves of an Empire on which the sun never set” and that, “the errors and infirmities of other races” were compelling Britain towards “world dominion” fastened themselves unquestionably in young Georgie’s mind. The adult Wells would put it this way: “All that was settled in my head,” such that the array of associated notions informed the lad’s “active imagination.”

The smallish and high-voiced Georgie, “an undernourished boy, meanly clad,” as Wells confesses, “liked especially to dream that [he] was a great military dictator like Cromwell, a great republican like George Washington or like Napoleon in his earlier phases”; and he “used to fight battles whenever [he] went for a walk alone” in the vicinity of Bromley, in Kent.

No one suspected that a phantom staff pranced about me and phantom orderlies galloped at my commands, to shift the guns and concentrate fire on those houses below, to launch the final attack upon yonder distant ridge. The citizens of Bromley town go out to take the air on Martin’s Hill and look towards Shortland across the fields where once meandered the now dried-up and vanished Ravensbourne, with never a suspicion of the orgies of bloodshed I once conducted there.

Wells fondly remembers how he “entered, conquered, or rescued, towns riding at the head of [his] troops, with [his] cousins and schoolfellows recognizing [him] with surprise from the windows.” Crowned heads and elected leaders would converge on his triumph to offer congratulations. “With inveterate enemies, monarchists, Roman Catholics, non-Aryans and the like,” Wells adds, “I was grimly just.” It is in recalling the racial theme that Wells likens himself as he was in those days to the Leader of National Socialism: “I had ideas about Aryans extraordinarily like Mr. Hitler’s.” Those ideas would have included the picture of “the Great Aryan People going to and fro in the middle plains of Europe… varying their consonants according to Grimm’s Law… and driving inferior breeds into the mountains,” as well as the thesis that the Aryan accomplishment consummated itself everywhere when it “squared accounts with the Jews.” Yet as Wells says in distinguishing himself, “Unlike Hitler I had no feelings about the contemporary Jew.” So it is in Wells’ attestation, that, “the more I hear of Hitler the more I am convinced that his mind is almost the twin of my thirteen year old mind in 1879; but heard through a megaphone and – implemented.”

The shifting focus of global affairs

Giving Europe What It Needs But Does Not Want

by George Handlery

The current American administration has made an announcement that is beyond partisanship. Accordingly, America considers herself not to be primarily a country of the Atlantic zone but as a member of the Pacific’s community. With this, the USA reacts rationally to her interests and her location. Consequently, Europe’s priority is abandoned and the Pacific Rim becomes a core interest. The measure is justified on several levels.

A reason for the reorientation is the rise of superpowers in the Pacific, such as China. Her modernization –yet without system change- returns to her the ability to play her traditional role. At the level of power politics, we should not only consider size, population and the will to use armaments. Such considerations make India a dark horse that has good chances to assert herself if she wishes. Japan is a major player that innately rejects dominance. Regardless of her past performance and economic might, Nippon compares to Europe’s Great Powers. By 1945 these have lost the muscle mass to cut the cake in the major league. 

This “pre season” ceding of rankings has ignored two powerhouses. First, Russia comes to mind. As in the US’ case, we have here a Euro-zone actor that is also a major player in any Asian league. Moscow’s real estate engages it in Asia. In time, the intensity of this engagement might undergo an upgrading. Russia’s relationship to Beijing might not continue to be defined by today’s issues. Russia is a beneficiary of the “Unequal Treaties” to whose challenge every Chinese political movement is committed. That the “Chinats” and the “Chireds” share here a common denominator underlines the extent of a national consensus. 

Accordingly, Russia’s Far Eastern outposts and the rise of China create a potential for collisions. Due to their size, the ramifications are significant. Time might prove this to have been the understatement of the decade. Whatever the future of the one-and-a-half million square kilometers that Czarist Russia took from decaying Imperial China, even if she wants to hug the sidelines, the US, as a power of the heavy weight class, cannot remain uninvolved. As the case of the islands between Viet Nam, the Philippines, Japan and National China tells, America’s involvement in the Pacific theater is growing. In discussing “significance”, the economy is a decisive element. While Europe declines with the “help” of its Euro, the value of its assets nose-dives. Among the advanced economies there, only non-members such as Switzerland and Norway are holding their own. Compare Europe with East Asia, and you hit on a sustainable decisive discrepancy.

Japan's Ultimate Confusion

Does Japan desire to continue as a tier-one nation, or is she content to drift into tier-two status?

By HIRO AIDA

"All the balls are in our court now," quipped one Japanese pundit. Rightly so. Now that U.S. President Barak Obama has been reelected, he says, all the alliance issues, including the stalled plan to relocate a U.S. Marine Corps base in Okinawa and delayed participation in the Trans-Pacific Partnership trade talks, must be taken off the back burner they were put on throughout the presidential election season. But now the player on the Japanese side responsible for hitting the ball back into America’s court, Prime Minister Yoshihiko Noda, is likely to be benched when Japan holds parliamentary elections on December 16. The problem is, however, even bigger than that: The player on the Japanese side has changed so often, “like every 10 minutes,” that the game has hardly advanced at all.

"We don’t expect any major change of U.S. policy towards Japan," said another former diplomat-cum-pundit, "but the problem is on the Japanese side. We are experiencing ultimate confusion. We need to think about what message we get through to the U.S. and how we act."

These two pundits were voicing widespread concerns in Japan about the relationship with the United States. For Japan, the choice of Obama or Romney mattered far less than Japan’s own imminent choices amid both domestic and regional crises. The country feels itself afflicted with a siege mentality for the first time in many decades—one that could even be compared to the ABCD (American-British-Chinese-Dutch) natural resource encirclement on the eve of the Pearl Harbor attack—although so far that comparison has remained too edgy to be voiced publicly.

This time the feelings of encirclement began with a sudden visit in July by Russian Prime Minister Dmitri Medvedev to one of the islands to the north of Hokkaido that are claimed by both nations. These islands were seized by the Soviet Union illegally, Japan claims, following the surrender of Japan on August 15, 1945. The Japanese saw this visit as an egregious affront, particularly coming as it did in the summer season, the traditional time that Japan pays tribute to the war dead.

The Christmas Truce of World War I

A candle lit in the darkness of Flanders

by John V. Denson

The Christmas Truce, which occurred primarily between the British and German soldiers along the Western Front in December 1914, is an event the official histories of the "Great War" leave out, and the Orwellian historians hide from the public. Stanley Weintraub has broken through this barrier of silence and written a moving account of this significant event by compiling letters sent home from the front, as well as diaries of the soldiers involved. His book is entitled Silent Night: The Story of the World War I Christmas Truce. The book contains many pictures of the actual events showing the opposing forces mixing and celebrating together that first Christmas of the war. This remarkable story begins to unfold, according to Weintraub, on the morning of December 19, 1914:

"Lieutenant Geoffrey Heinekey, new to the 2nd Queen's Westminister Rifles, wrote to his mother, 'A most extraordinary thing happened. . . . Some Germans came out and held up their hands and began to take in some of their wounded and so we ourselves immediately got out of our trenches and began bringing in our wounded also. The Germans then beckoned to us and a lot of us went over and talked to them and they helped us to bury our dead. This lasted the whole morning and I talked to several of them and I must say they seemed extraordinarily fine men. . . . It seemed too ironical for words. There, the night before we had been having a terrific battle and the morning after, there we were smoking their cigarettes and they smoking ours." (p. 5)

Weintraub reports that the French and Belgians reacted differently to the war and with more emotion than the British in the beginning. The war was occurring on their land and "The French had lived in an atmosphere of revanche since 1870, when Alsace and Lorraine were seized by the Prussians" in a war declared by the French (p. 4). The British and German soldiers, however, saw little meaning in the war as to them, and, after all, the British King and the German Kaiser were both grandsons of Queen Victoria. Why should the Germans and British be at war, or hating each other, because a royal couple from Austria were killed by an assassin while they were visiting in Serbia? However, since August when the war started, hundreds of thousands of soldiers had been killed, wounded or missing by December 1914 (p. xvi).

The Federal-State Crack-up

Congress itself must start undoing the consequences of its own self-indulgence

By MARIO LOYOLA

For decades, Democrats and Republicans alike have invested heavily in governance schemes that erode the Constitution’s separation of powers and mar its proper functioning. The Federal judiciary has uniformly rubber-stamped these schemes. The consequence has been an unsustainable spree of borrowing, spending and overregulation at the Federal level, cyclical fiscal crises at the state level, and less accountable and less representative government at every level. 

These governance schemes are generally of two kinds: one erodes the separation of powers between Federal and state governments, while the other erodes the separation of powers within the Federal government. In the first category is “cooperative federalism”, whereby the Federal government uses monopoly powers to coerce and subvert the prerogatives of state governments. In the other is Congress’s delegation of vast rule-making authority to administrative agencies. 

These two categories of concern are often treated as being entirely distinct, but they share profound similarities. Both are methods for Congress to escape accountability by hiding its power in other institutions of government. Cooperative federalism allows Congress to hide its power within the decision-making of state governments, while its delegation of rule-making authority allows it to hide its power in the far-flung bureaucracy of the Executive Branch. 

The Federal judiciary has a crucial role to play in maintaining and policing the boundaries of America’s basic institutions of state. It is a role it abdicated when confronted with the popular nationalist programs of the New Deal. The constitutional doctrines the judiciary has invoked to let Congress blur these critical separations of power are deeply flawed as a matter of constitutional law, and they have ultimately become unsustainable as a matter of political economy. Federal courts must begin to enforce a strict separation of powers, both between the Federal and state governments and within the Federal government itself. And Congress itself must start undoing the consequences of its own self-indulgence. 

The Return of Toxic Nationalism

The spread of universal values is being rolled back on many fronts, from Russia to the Middle East

By ROBERT D. KAPLAN

Western elites believe that universal values are trumping the forces of reaction. They wax eloquent about the triumph of human rights, women's liberation, social media, financial markets, international and regional organizations and all the other forces that are breaking down boundaries separating humanity.

Tragically, they are really observing a self-referential world of global cosmopolitans like themselves. In country after country, the Westerners identify like-minded, educated elites and mistake them for the population at large. They prefer not to see the regressive and exclusivist forces—such as nationalism and sectarianism—that are mightily reshaping the future.

Take Cairo's Tahrir Square in early 2011. Western journalists celebrated the gathering of relatively upper-income Arab liberals with whom they felt much in common, only to see these activists quickly retreat as post-autocratic Egypt became for many months a struggle among the military, the Muslim Brotherhood and the Islamist Salafists—with the Coptic Christians fearing for their communal survival.

Though secular liberals have resurfaced to challenge Egypt's Islamist president, Mohammed Morsi, do not be deceived. The military and the Muslim Brotherhood both have organized infrastructures. The liberals have only spontaneous emotion and ad hoc organizations. An Islamist-Nasserite regime-of-sorts is likely to emerge, as the military uses the current vulnerability of the Muslim Brotherhood to drive a harder bargain.

Egypt and the Middle East now offer a panorama of sectarianism and religious and ethnic divides. Freedom, at least in its initial stages, unleashes not only individual identity but, more crucially, the freedom to identify with a blood-based solidarity group. Beyond that group, feelings of love and humanity do not apply. That is a signal lesson of the Arab Spring.