Economic Fascism and the Power Elite

Against Leviathan

by David S. D'Amato

The state—the organization of the political means—is the institution that allows an idle, unproductive class of parasites to live at the expense of ordinary, working people, whose means are industrious activity and consensual exchange in the marketplace. We ought not assume, however, that the indigent segment of society, those who receive social welfare aid from the state, are necessarily foremost among the parasites of the political means. Rather, free-market libertarians from Albert Jay Nock to Murray Rothbard and Butler Shaffer have demonstrated that in the statist economy of theft and wealth redistribution, it is the elite—powerful, entrenched commercial players—who most benefit. Historically and empirically, this phenomenon of elite command of the apparatuses of government is readily apparent and unmistakable in its expression, particularly as regards the twentieth-century American economy. Economic historian Robert Higgs has argued that the American economy developed into a variant of corporatism or “tripartism,” an economic fascism defined by formal collusion between certain key interests and various arms of the state. “Corporatism,” writes Higgs, “faces the problem of factions directly; in effect, it resolves the problem of the people versus the interests by forthrightly declaring that the interests, when properly organized and channeled, are the people” (emphasis added).[1] Like every permutation of the authoritarian idea, the corporatism described by Higgs attempts to submerge the individual within the anatomy of the leviathan state—of which we must now regard many nominally “private” actors as a part.

These firms, in their partnership with the state, are “granted a deliberate, representational monopoly”[2] as payment for a level of control exercised by government. The iron triangles that form the fascist tripartism detailed by Higgs recall the thesis of C. Wright Mills’s groundbreaking sociological study, The Power Elite. In his masterwork, published first in 1956, Mills gives an account of an intermeshed elite made up of a “political directorate,” the “warlords” of the military establishment, and “corporate chieftains” at the helm of Big Business bureaucracies.[3]Hardly resulting from the legitimate free market defended by libertarians, the social and economic problems and crises we see all around us are in fact the moldering fruits of elite statism. And war, as both the engine of an entire economic paradigm and its attendant psychological and sociological substructure, has been the American state’s most preferred expedient, burdening peaceful, productive society with class rule. The permanent war economy, the unremitting exercise in plunder that now makes up a terrifyingly large portion of the economy at large, must necessarily poise itself upon antisocial state-worship. As Vicesimus Knox wrote, “Fear is the principle of all despotic government, and therefore despots make war their first study and delight.”[4] The existence of a corporate command-and-control economy, whose configuration grows out of layered state interventions, depends crucially on popular attitudes regarding the state. Only a public trusting of elite judgment and expertise would abide a system built on just the kinds of subjugation that the American ruling elite hypocritically claimed to defy in two world wars.

Fundamentally related to these insights into the practical relationships between Big Business and Big Government, is the proposal of Rothbard’s short-lived journal, Left and Right. Presenting the journal, Rothbard said that the title “highlights our conviction that the present-day categories of ‘left’ and ‘right’ have become misleading and obsolete.”[5] Left and right designations become particularly troublesome when we consider modern American conservatism as a “barren defense of the status quo.”[6]The concord of war statism reached by the political elite during the twentieth century certainly wasn’t liberal in any coherent or meaningful sense—a near antithesis of the liberalism of which Mises and Hayek regarded themselves as the legatees.

A Triangular Europe

Three Incompatible Conceptions

By Anthony de Jasay

Three incompatible conceptions of Europe are pulling to tear the Union apart. The likely outcome is its survival in muddle.

The germs of a formally united Europe was planted by the ignominious French surrender to Germany at the outset of World War II. At the end of that war France was liberated by Anglo-American power, something the deepest sentiments of the country never forgave the liberators. America got added as a constant object of dislike to the hereditary enemy England, the strength of the visceral hostility to the "Anglo-Saxons" and the free trading and capitalist order embodied by the Anglo-Saxons added to the sense of national panic that went with the loss of great power status, the loss of prestige, influence and the bleak prospect of a second-class future in a wholly alien post-war world.

De Gaulle, a rare master of bluff and the bold, confrontational stance, successfully played on his people's existential panic as well as on the patience of the "Anglo-Saxon" victors to reclaim for France a rank of great power and the confidence fit only for a winner in the war. However, based as this was on assertiveness, rhetoric, and occasional tantrums, the post-war position of France remained precarious. Throughout her history, France in asserting her ambitions, has nearly always overplayed a relatively weak hand and was made to pay a heavy price for it, notably in the two "Hundred Years Wars" in the 15th and 18th centuries that had bled her white in population and wealth. Gaullist posture after World Ward II looked dangerously like the eternal French temptation to overplay the weak hand history had dealt her. Wise heads, with Jean Monnet and Robert Schuman in the lead, saw an alternative at least in embryonic form, in a formally organised European quasi-state under what they believed to be inevitable French leadership. They and many allies, including the Belgian Paul-Henri Spaak and the Italian Alcide de Gasperi, neither of whom was an obvious French agent, set about erecting an increasingly elaborate construction with the avowed purpose of "ever-closer union". Starting with 6 nations, sixty years latter it counts 27 and is still growing as we write.

The first forty years of this project, from the early 1950s to the early 1990s, were shaped by two main forces. One was the deliberately low profile of Germany, penitent for its wartime doings and wholly devoted to performing the Wirtschaftswunder that restored and surpassed her pre-war economic strength. The other was the superior administrative skill and ruthlessness of the French high civil servants who captured the major part of the bureaucratic machinery of the Brussels quasi-government of the nascent European quasi-state. Put together, the two resembled a strong and docile German draft horse ridden by a self-confident mandarin of the French administrative labyrinth. The period was marked by two outstanding presidents of the Brussels machinery: from 1958 to 1967 the scrupulously impartial Walter Hallstein and from 1985 to 1994 Jacques Delors, an able and ruthless Socialist steam-roller, admired in France and detested in England, who served French interests too effectively for France's own good, ultimately giving his country rather a bad name. The Hallstein era was the golden age of the Common Market, the Delors era the age of ever heavier bureaucracy and finally the absurdly ambitious and an unenforceable Maastricht Treaty that drained the European project of its seriousness and credibility.

Until the reunification of Germany, the European project was clearly under French management. Germany was passive and patient and simply lent its weight to what France wished to happen. After reunification, Germany started to have an independent foreign policy. At the same time, the Brussels bureaucracy also began to lose its all-French aspect. In many top posts, English, German, Spanish and other officials replaced Frenchman and English crowded out French as the informal working language. All this has caused alarm in Paris. However, whistling in the dark as is its customary self-defence, the French political class came to repeat more and more insistently that France and Germany were like a married couple, always adopting a joint position toward the rest of Europe and governing it as equal partners.

A Franco-German partnership, as a straight Paris-Berlin line that served as an axis around which everything turned round and round, has become increasingly fictitious from about 2005 onwards. France's ever more evident economic decline and the rock-solid performance of Germany in fair weather and foul has emptied equal partnership of the two of all plausibility. The time has come for the straight line signifying the shared domination of Berlin and Paris to be replaced by a more tricky three-player triangle of Berlin, London and Paris. Each tied to the other two and leaning away from one as it leans toward the other, the equilibrium shifting with every move they made. The triangle is obtuse, with Germany occupying the broad angle, Britain and France the acute ones.

Germany, sincere federalist

Majority opinion in Germany sincerely favours the "ever closer union", the federal version of a united Europe, simply because the federal solution seems to them intrinsically less bad than all others and because it makes a Franco-German war very, very unlikely for at least the next two or three generations. In this, there is no hidden or subconscious ulterior motive. There seems to be no calculation that a federal union would allow Germany as the top dog to exploit the others.

But federalism would, on the contrary, make it difficult for the others to exploit Germany. At present, heavy deficit countries are clamouring for the creation of Eurobonds that would allow them to do their sovereign borrowing with what was in effect a German guarantee, entailing a much lower interest cost than the rate their un-creditworthy signature could command. Taxing, spending and borrowing powers all placed at the federal level would relieve Germany of the nagging demand to show more "solidarity".

France to have it both ways

"Ever closer union", in France's deepest unreasoned, reflexive sentiments, means a Fortress Europe that will stand up to all outsiders (notably to America), protect European industry and agriculture from the free-trading ravages of capitalist liberalism, defend a certain "social model" no less generous with the other fellow's money than the existing French "model" and adopted by all member states, an ever-agile grasp laid on all fields of human endeavour where the long hand of the state can reach a complete system of rules and regulations that leave no vacuum and little free choice, but where everything is either "legal" or "illegal", including "legal" hours of work, terms of employment, shop opening hours, a meticulously regulated compulsory education system and, in sum, an enlightened central authority untiringly searching for whatever it can change for what looks a good idea.

Armen Alchian RIP

The passing of one of the true intellectual giants of the 20th century

Armen Alchian passed away on February 20th at the age of 98.

David Henderson has a wonderful obituary in the WSJ:

What was so important about Alchian's work? There were three aspects. First, he was one of the last economists of his generation to communicate mainly in words and not equations. Second, although economists often use the word "unrigorous" to refer to communication in words rather than math, Alchian was profoundly rigorous, writing clearly and carefully and using basic logic to reach sometimes-startling conclusions. As a result, many of Alchian's papers, even those from the 1950s, are still widely cited.

Third, Alchian is known for his textbook, "University Economics," first published in 1964 and later called "Exchange and Production," coauthored with UCLA colleague William R. Allen. That text is unique in economics. It is much more literary and humorous than any other modern economics textbook that deals with complex issues for an undergraduate audience. Example: "Since the fiasco in the Garden of Eden, most of what we get is by sweat, strain, and anxiety."

Henderson goes on to explain that his favorite Alchian article is:

My personal favorite of his published papers is “The Economic and Social Impact of Free Tuition” (1968). Alchian pointed out that government aid to higher education is a transfer to the relatively rich. That’s because people who can make it through college, even though they may have a low current income, have a high wealth.

He compared subsidizing college to subsidizing drilling expenses for someone sitting on a large pool of oil. The untapped student’s potential is the analogue of the untapped oil. Alchian argued that lack of current income might be a justification for loans to aspiring college students but not for outright subsidies.

Don Boudreaux choses a different article:

My favorite Alchian article is his 1959 study “Costs and Outputs.”  If this article – which, amazingly, Alchian pulled from its forthcoming publication in the American Economic Review in order to put it into a festschrift for Bernard Haley edited by Moses Abramovitz (The Allocation of Economic Resources) – were more widely known and grasped, it would completely upend, and vastly improve, the standard textbook treatment of production costs and cost curves.  Among many other benefits of such an Alchianesque improvement would be that economists would no longer be able so easily to confound themselves, while pleasing the antitrust-plaintiffs’ bar, by using familiar costs curves and concepts (e.g., “AVC”) into supposing that so-called ‘predatory pricing’ is a coherent notion.

My favorite Alchian article is one he coauthored with the great Harold Demsetz (also of UCLA), Armen A. Alchian and Harold Demsetz, Production, Information Costs, and Economic Organization, 62 Am. Econ. Rev. 777 (1972), reprinted in The Economics of Legal Relationships 555 (Henry G. Manne ed. 1975).

In an analysis of how firms deal with agency costs, Alchian and Demsetz offered the useful example of two workers who jointly lift heavy boxes into a truck. The marginal productivity of each worker is very difficult to measure and their joint output cannot be easily separated into individual components. In such situations, obtaining information about a team member’s productivity and appropriately rewarding each team member are very difficult and costly. In the absence of such information, however, the disutility of labor gives each team member an incentive to shirk because the individual’s reward is unlikely to be closely related to conscientiousness.

In any team organization, one must have some ultimate monitor who has sufficient incentives to ensure firm productivity without himself having to be monitored. Otherwise, one ends up with a never ending series of monitors monitoring lower level monitors. Alchian and Demsetz solved this dilemma by consolidating the roles of ultimate monitor and residual claimant. According to Alchian and Demsetz, if the constituent entitled to the firm’s residual income is given final monitoring authority, he is encouraged to detect and punish shirking by the firm’s other inputs because his reward will vary exactly with his success as a monitor.

California Is Becoming a Feudal Society

Low- and middle-income residents are fleeing the state

By ALLYSIA FINLEY

During the Great Depression, some 1.3 million Americans—epitomized by the Joad family in John Steinbeck's "The Grapes of Wrath"—flocked to California from the heartland. To keep out the so-called Okies, the state enacted a law barring indigent migrants (the law was later declared unconstitutional). Los Angeles even set up a border patrol on the city limits. Soon the state may need to build a fence to keep latter-day Joads from leaving.

Over the past two decades, a net 3.4 million people have moved out of California for other states. But contrary to conservative lore, there has been no millionaires' march to Texas or other states with no income tax. In fact, since 2005 California has experienced a net in-migration of households earning more than $200,000, according to the U.S. Census's American Community Survey.

As it happens, most of California's outward-bound migrants are low- to middle-income, with relatively little education: those typically employed in agriculture, construction, manufacturing, hospitality and to some extent natural-resource extraction. Their median household income is about $40,000—two-thirds of the statewide median—and about 95% earn less than $80,000. Only one in 10 has a college degree, compared with 30% of California's population. Roughly 40% of the people leaving are Hispanic.

Even while California's Hispanic population has grown by more than 1.5 million since 2005, thanks to high birth rates and foreign immigration, two Hispanics have moved out for every one that has moved in from another state. By contrast, four Hispanics from other states have settled in Texas and Arizona for every three that have left.

It's not unusual for immigrants or their descendants to move in pursuit of a better life. That's the history of America. But it is ironic that many of the intended beneficiaries of California's liberal government are running for the state line—and that progressive policies appear to be what's driving them away.

For starters, zoning laws, which liberals favor to control "suburban sprawl," have constrained California's housing supply and ratcheted up prices. As Harvard public-policy professor Daniel Shoag documents in a working paper, land restrictions became common in high-income enclaves during the 1970s—coinciding with the burgeoning of California's real-estate bubble—and have increased income-based segregation and inequality.

The Lost Boys

The current elite has abused, as very few elites have abused in the past, the power of trust

By Richard Fernandez 

The situation facing Europe’s old and young illustrate the difficulties of a welfare state in collapse.  First the old. Britain’s establishment has been wracked not only by the pedophilia scandal at the BBC but by scandalous performance of the the National Health Service. The NHS, which its creators boasted would be the ‘envy of the world’, has been found to have been responsible for up to 40,000 preventable deaths under the helm of Sir David Nicholson ^[1], a former member of the Communist Party of Britain. “He was no ordinary revolutionary. He was on the hardline, so-called ‘Tankie’ wing of the party which backed the Kremlin using military action to crush dissident uprisings” — before he acquired a taste for young wives, first class travel and honors.

The stories of the pathetic deaths of the elderly under his care — 1,200 in one hospital alone — have scandalized the British public, especially when it emerged he spent 15 million pounds in taxpayer money to gag and prosecute whistleblowers — often doctors and administrators who could not stomach his policies.

The public money spent on stopping NHS staff from speaking out is almost equivalent to the salaries of around 750 nurses.

The figures were revealed after a two year battle by Conservative MP Steve Barclay, who eventually obtained them after tabling a number of Parliamentary Questions.

The figures show a total of £14.7m of taxpayers’ money was spent on almost 600 compromise agreements, most of which included gagging clauses to silence whistleblowers.

In reality it is the NHS, not James Bond, who has the real government license to kill. Cruelty to the old has become the new normal. It is now as acceptable as that other once unthinkable thing: infanticide. Now it is nothing, just move along. The highest priority of the system is to keep up appearances.

When incompetent doctors amputate limbs unnecessarily or kill patients in horrifying numbers the critics are simply silenced and the Doctor Deaths left to practice their trade — to this day — unmolested. The taxpayer pays for his own noose.

Yet even after the damning reports described a mayhem that would put a major Great War battle to shame, the British political establishment, including the Liberal Democrats, the Conservatives and the Labor party continued to support “Sir” David, presumably because he knew where the bodies were buried, both figuratively and literally. Sir David Nicholson is unconcerned; he’s not even remorseful. Both the Guardian ^[2] and the Telegraph ^[3] — on opposite sides of the political spectrum — registered their disgust. But it is to no avail: the former Communist who boasts of his “passion” for the job will Bury You.

The European Youth will remain outside the Death Pathways for some time yet. But they will spend the time waiting for their turn at affordable, caring and passionate medicine in poverty and hopelessness. With the exception of Germany youth unemployment in Europe is over 20% ^[4]. “A full 62% of young Greeks are out of work, 55% of young Spaniards don’t have jobs, and 38.7% of young Italians aren’t employed.”

The Lost Boys

A whole generation is finished. Like their counterparts a hundred years ago, the European young are being sent to their professional death in millions. The carnage at both ends of the age spectrum — with the old being killed off and the young’s professional lives essentially buried — is a sign that the welfare state, the future on offer to “Julia” and Sandra Fluke, is now an empty box.

Why borders matter

The muddle and mendacity of the EU elite rests on one fundamental misunderstanding

By Theodore Dalrymple 
There is no better way of discrediting an opinion than by attributing it to a psychological quirk or peculiarity. The task is then not to refute it, but to explain it away by reference to its murky psychic origins. For a number of years, doubt about the wisdom of a European project (whose end can only be seen as through a glass, darkly) was attributed by its enthusiasts to precisely such a quirk: one that combined some of the features of mental debility, arachnophobia and borderline personality disorder. One would not be altogether surprised to learn that the European Union had sent lobbyists to Washington to have Euroscepticism included in the forthcoming revised version of the Diagnostic and Statistical Manual of the American Psychiatric Association as a new diagnostic category.

By now, even the most convinced European projectors (to use a Swiftian term) must have noticed that their project is not going swimmingly. But every economic and political phenomenon is capable of more than one interpretation and explanation, and the projectors suggest that the solution to the current difficulties is the granting of even more powers to themselves or to people very like them, that is to say those who conjured up these difficulties in the first place.

For example, an article in Le Monde for 27 August, by Peter Bofinger, Jürgen Habermas and Julian Nida-Rümelin, translated from the German, is headed ‘More than ever, Europe’. It is every bit as stilted as the thought behind it, as if almost every sentence concealed a guilty secret:

There exist only two coherent strategies to overcome the crisis: the return to national currencies in the EU, which will leave each country on its own to face the unpredictable fluctuations of the highly speculative foreign exchange markets, or the institutionalised protection of a common fiscal, economic and social policy, having for its more ambitious goal the recovery of the capacity for influencing the markets that has been lost at national level. To which is also appended, over and above the crisis, the promise of a ‘Social Europe’.

In order to recover that sovereignty ‘of which the markets have robbed them’ Europeans must form a large bloc and mutualise their debts, in the process strengthening European institutions:

The most suitable way for Europe to strengthen its institutions would, perhaps, be to let itself be guided by the idea that the democratic European core must represent the totality of the citizens of the member states of the monetary union, but in such a way that each citizen is represented in his double character as citizen of the reformed Union and citizen of a people associated with the Union – which, under the first aspect, would involve him individually in a direct manner, and under the second, in an indirect way.

With ‘thinkers’ like this (one of them an ex-minister), who needs markets to bring about ruination? Leonid Brezhnev himself could hardly have expressed it better.

Brazil's president fights to win back business

Earth to Brasil : Welcome Back ! 

By Brian Winter
The conversations with Brazil's top business leaders often last two hours, and up to four. President Dilma Rousseff asks detailed questions but otherwise listens intently, staring back with an inscrutable frown that occasionally unnerves her guests.

There is talk of investments, and the need for shared prosperity - a favorite topic of Rousseff's. But in these meetings, the conversation inevitably comes back to the severe bottlenecks that have brought the economy back to earth after a historic boom last decade.
"Brazil needs to focus now on issues like productivity and reducing costs, because that's the only way we can grow in a sustainable fashion," said Marcelo Odebrecht, who runs a global conglomerate that bears his family's name.
"I think we've realized that, and the president is moving in that direction," he said in an interview. "That's her focus - looking at these obstacles, and getting Brazil growing again."
The meetings, which have intensified in recent weeks, are a critical part of Rousseff's efforts to convince Brazilian executives to start investing again and help lift the economy following two straight years of disappointing growth.
The chats with well-known figures such as Odebrecht and mining and energy tycoon Eike Batista come as Rousseff, a Marxist guerrilla in the 1970s who evolved into a pragmatic leftist, struggles with a perception that she is unfriendly or even hostile toward the private sector.
Just past the halfway point of her four-year term, the 65-year-old daughter of a Bulgarian aristocrat has indisputably made many enemies in the business world. She has condemned banks for charging high interest rates, intervened heavily in Brazil's exchange rate, and undertaken contentious reforms such as a cut in electricity rates that wiped billions of dollars from the market value of foreign and locally owned companies.
Rousseff has said all her decisions respected existing contracts and laws, and were necessary to try to return Brazil's economy to its glory days of fast growth in the late 2000s.
Her ability to convince business leaders that's true will be key to the rest of her presidency.
Without a rebound in investment, which has steadily fallen since Rousseff has been in office, Brazil will not have the resources to address supply-side bottlenecks in infrastructure and labor that caused the economy to grow just 0.9 percent in 2012.
A persistent economic slump could, in turn, endanger Rousseff's expected bid for re-election next year.
Reuters spoke with several ministers, presidential aides and business leaders who have participated in the meetings, trying to determine why executives have generally not yet heeded Rousseff's call to take risks and let their "animal spirits" flourish - a reference to a term used by the British economist John Maynard Keynes, one of her favorite historical figures.

Argentina – Another Default Looming?

Managing a coerced economy

Argentina has been frequently in the headlines of late, as it attempts to fend off the court challenges by the so-called 'hold-outs', i.e., investors who have not participated in the rather undignified 'debt restructuring' following the 2001 default. Most of the investors currently holding these bonds are activist 'vulture' funds, who are doing the world a great service by trying to prove that governments are not necessarily above the law when it comes to servicing and repaying their debt. At one point Elliott Capital Management even had an Argentine navy ship confiscated in Ghanaian waters, much to the chagrin of the Kirchner government. Normally, governments will quietly buy these 'pests' off, so as not to damage their standing with current lenders. However, Argentina with its crypto-fascist government and forever ruined reputation seems not to mind the risk.

According to the WSJ: 

“Worries that Argentina is inching closer to default sent the cost of insuring the country's government bonds to their highest level since November and pushed shares in its benchmark index lower.

The move followed remarks made by Argentina's lawyer in a U.S. appeals court hearing in New York on Wednesday, suggesting the government would choose to default if ordered to pay creditors who hadn't agreed to new terms for their debt resulting from the country's 2001 default. The cost to insure $10 million of Argentina's sovereign debt for one year rose to $6.6 million, the highest since the record $8.58 million set in November.

Argentina's Merval stock index fell 3.5% on Thursday, while the price of Argentina bonds due in 2017 fell to 71 cents to the dollar from 79 cents on Wednesday. Investors are no longer "complacent about the possibility of a sovereign default," said Gavan Nolan, credit analyst at Markit in London.

On Wednesday, Argentina asked the Second U.S. Circuit Court of Appeals to set aside a decision by U.S. District Judge Thomas Griesa last year that barred the country from making payments on its restructured debt unless it set aside additional funds for creditors who didn't participate in the restructuring. Judge Griesa awarded about $1.3 billion to a group that includes Elliott Management Corp.'s NML Capital Ltd. and Aurelius Capital Management LP.

U.S. Circuit Judge Reena Raggi questioned Argentina's lawyer, Jonathan Blackman, over the consequences should the court rule against the country. In response, Mr. Blackman said, "we would not voluntarily obey such an order." Analysts said his remarks imply Argentina would opt for default instead. After the hearing, Argentina Vice President Amado Boudou said: "It's not that Argentina won't pay. Argentina will always pay those who entered into the exchange. What Argentina won't do is break its own laws."

An adverse ruling could put Argentina in the position of either refusing to pay holdouts and defaulting on its bonds or paying holdouts and risk that investors who participated in debt restructurings in 2005 and 2010 would then sue the government for similar treatment. Argentina's next payment is due March 31. J.P. Morgan analysts said a ruling from the court is likely within about a month.”  (emphasis added)

There is of course a good reason why Argentina's government is prepared to risk a default: very few foreign lenders are lending it money anyway. This is due to the unpredictable and repressive economic policies the government pursues. Argentina's economy can probably be called a full-blown Zwangswirtschaft by now (literally: a 'coerced economy').

Congress Goes Bipartisan—Against Civil Liberties

The parties collude to defeat accountability for the national-security state

By W. JAMES ANTLE III

Civil liberties are theoretically a bipartisan concern. Conservative Republicans who don’t like Obamacare’s “death panels” should be outraged by presidential kill lists. Liberal Democrats who defend due process ought to be offended by secret surveillance law. Protectors of the First and Second Amendments should have a high regard for the Fourth, Fifth, and Sixth.
Yet restricting civil liberties is what actually commands bipartisan support in Washington. The same Congress that barely averted the fiscal cliff swiftly passed extensions of warrantless wiretapping and indefinite detention, assuring Americans that only the bad guys will be affected but evincing little interest in establishing whether this is really the case.
The same Congress that failed to come up with an agreement to avoid sequestration appears to have bipartisan majorities in favor of profligate drone use at home and abroad. Lawmakers are generally less exercised about the confirmation of likely CIA chief John Brennan than Defense Secretary Chuck Hagel.
At the very time it appears Washington is so dysfunctional that the two parties cannot get anything done, Democrats and Republicans cooperate regularly—when it it comes to jailing, spying on, and meting out extrajudicial punishments in ways that on their face contradict the Bill of Rights.
Senate Majority Leader Harry Reid argued that preserving the Bush administration’s national surveillance program—now for the benefit of the Obama administration—was more important than Christmas. Republican Sen. Saxby Chambliss didn’t even want any amendments.
The Senate overwhelmingly rejected an amendment that would apply the same protections against unlawful search and seizure to emails and text messages that already exist for letters, phone calls, and presumably the carrier pigeon.
Despite deep divisions over taxes and domestic spending, members of both parties tend to sing from the same song sheet about the Patriot Act, the National Defense Authorization Act, and the Foreign Intelligence Surveillance Act amendments.
So much for the Democrats’ bedrock belief in the right to privacy or Republicans’ convictions about limited government.
Civil libertarians are currently a rump caucus in both parties. But they are at least starting to work together. In fact, a critical mass of legislators seeks to use this week’s Brennan vote to extract additional drone memos from the Obama administration.

Italy: why the EU is panicked by populism

EU officials’ fear of ‘populism’, such as that expressed in the Italian election, is really a fear of the populace

by Dominic Standish 

In 1922, Benito Mussolini’s blackshirt fascists marched on Rome and took command of Italy’s government, 11 years before Adolf Hitler took over in Germany. Europe’s political elites were in crisis. Now, following Italy’s general election last weekend, this nation is once again at the forefront of a new spectre haunting Europe’s political establishment: not fascism this time, but populism.

On 19 February, Beppe Grillo, comedian turned de facto leader of Italy’s Five Star Movement (M5S), was cheered by a crowd of 30,000 people in central Milan on the first of his ‘Tsunami Tour’ rallies in Italian squares. In the election at the end of February, M5S won 25.55 per cent of the vote for Italy’s lower house of parliament, the Chamber of Deputies, and 23.79 per cent for the upper house, the Senate. It won more votes than any political party, creating deadlock in the formation of a new Italian government and sending shudders down the spines of Europe’s political and business classes.

These fearful reactions are partly driven by uncertainty over whether Italy will be able to form a stable government. For an Italian government to rule effectively, one party or coalition of parties must have a majority in both the lower and upper houses. Otherwise, proposed legislation will not receive the endorsement of both houses, and there is the permanent risk of a vote of no confidence in the government, leading to its downfall. The coalition led by Pier Luigi Bersani’s Democratic Party won a majority of seats in the lower house, but it failed to win a majority in the Senate. Silvio Berlusconi’s coalition, led by his People of Freedom Party, came second in both houses. But Bersani has ruled out forming a government with Berlusconi. Instead, he’s been trying to woo elected senators from Grillo’s M5S in an attempt to form a majority in the Senate. But Grillo has turned him down, describing Bersani as ‘a political stalker who has been bothering the M5S… with indecent proposals’.

But Europe’s anxious reaction to the rise of the M5S also goes beyond the practical problem of forming an Italian government. The M5S panic reveals a deeper fear of voters among the political elites in Italy and Europe more broadly. Established European politicians who have been suffering stunning declines in popularity and authority are struggling to understand how a movement formed in 2009 came to hold the balance of power in Italy by 2013. Yet while M5S has undoubtedly shaken the established political order in Italy, like Mussolini did, it would be a mistake to compare M5S to the fascist movement, as some have done. Because the truth is, M5S is less a political movement than a loose grouping of various anti-political sentiments.

It is interesting to look at the reasons some Italians give for voting for M5S. A colleague of mine said she was undecided even on the morning of the election. Despite following politics closely, she couldn’t bring herself to vote for one of the established parties, so she opted for M5S. Undoubtedly, many voted for M5S to send a signal that they want change, or to show that they simply don’t trust any of the main parties. A friend told me she attended one of Grillo’s Tsunami Tour rallies in Treviso and later voted for him, despite being unfamiliar with his political programme; a survey of 2,500 Italian voters found that only one-fifth of M5S voters were ‘convinced of [its] ideas’.

All Roads Lead To Rome

Fiddling while Rome burns

by Mark J Grant

Carlo is lying in a hospital bed. He is sick and I don’t mean the flu; the guy is seriously ill. Uncle Mario has promised to pick up the hospital bill if necessary and so Carlo isn’t so worried about that. The problem is that Carlo is a member of the Roman Soccer League and he is unable to play in the matches. He promises that he will be out soon. He swears that he will be better any day now. The hospital costs build, the doctors’ charges soar and Carlo is no better. In the meantime Carlo borrows and borrows and borrows to pay his bills. The family doctors have all assured both Carlo and Uncle Mario that he will be better soon but it has not been the case. Then a new doctor is brought in; Dr. Beppe. He examines Carlo and he looks at the other doctors and tells them that they are out of their minds. The patient is really sick, the medicine that they have prescribed is not working and Carlo is in danger of dying if something isn’t done. The entire family is horrified with this pronouncement, Uncle Mario takes a hard look at the size of the bill and gags and the family’s cousins in France and Germany begin to panic as Carlo is an important family member. The family doctors insist their medicine is the correct but the patient is lingering and worsening and the priests are hovering in the hallway.

“Nihil est incertius vulgo, nihil obscurius voluntate hominum, nihil fallacius ratione tota comitiorum.”

(Nothing is more unpredictable than the mob, nothing more obscure than public opinion, nothing more deceptive than the whole political system.)      - Cicero

This is Italy. This is precisely the circumstances. This contest will be decided by the mob; thumbs up or thumbs down. Even if you wish to believe in the far flung view that Bersani could form a new government; it will not survive as Grillo can block what he wants and on his own which makes no mention of Berlusconi who is not exactly Bersani’s ally either in spirit or political leaning. Odds on is that a new election will have to be called and that Grillo gathers even more votes as his political positions do not rest upon being a comedian but upon a new order for Italy. You may recall Ronald Regan in our own country, a former cowboy star and the positive affect that he had on America. Grillo may be the Ronald Regan of Italy and it means the worst of scenarios for Europe as the old guard is thrown out, the deceptors by design, and the people, the mob, has the All Roads Lead To Rome once again.

“The beating heart of Rome is not the marble of the Senate, it's the sand of the Coliseum. He'll bring them death and they will love him for it.”      -    Gladiator

Grillo refers to Berlusconi as “the psycho dwarf.” Grillo’s vision of Bersani is a “dead man walking.” In an interview that Grillo had with the New York Times over the weekend he said he would support neither side and that doing so “would be like Napoleon making a deal with Wellington.” He went on to say that, “We can change everything in the hands of respectable people, but the existing political class must be expelled immediately.” He has called for a nationwide referendum on Italy’s participation in the European Union and indicated that while Italy will pay its debts; it might be done in Lira.

Do not underestimate this man. Do not assume that Italy will go on as usual and that this is just a split between the Left and the Right because this is not the case. Grillo’s call is for a new order, a new way of doing business and a new spirit for the Italians. The day may yet come where he can echo Caesar’s famous words; “I came, I saw, I conquered.” In the meantime yields on Italian bonds are likely to go higher, the antagonism between Italy and the established order in Brussels and Berlin will foment and the European Union may be whacked at its bedrock during the process as Rehn and the rest fiddle while Rome burns.

There is an old saying that, “All roads lead to Rome.” Soon, quite soon, the political leaders in Brussels and Berlin may be reminded of it.

Beppe Grillo: Italy's new Mussolini

Beppe Grillo has much in common with Mussolini

By Nicholas Farrell 

The stand-up comedian Beppe Grillo, like the fascist dictator Benito Mussolini before him, has a craving to take over the piazza and mesmerise the crowd. Where once young Italians chanted the mantra ‘Du-ce! Du-ce!’ now they chant  ‘Bep-pe! Bep-pe!’. But it is not just a shared need to rant and rave at large numbers of complete strangers that hirsute Beppe and bald Benito have in common. Worryingly, for Italy and also for Europe (where democracy seems incapable of solving the existential crisis), there is a lot more to it than that.

Beppe Grillo founded the MoVimento 5 Stelle (M5S) in Milan on 4 October 2009. The capital ‘V’ stands for his signature slogan ‘Vaffa!’ which roughly speaking means ‘Fuck off!’ — in his case, to everything more or less, except wind farms. ‘Surrender! You’re surrounded!’ he bellowed over and over again at his rallies. The phrase was traditionally very popular with Italian fascists. He was referring to all Italy’s politicians, except his lot.

Now, less than four years after its foundation, his movement is the largest single party in the Chamber of Deputies, the lower house, after it secured 26 per cent of the poll at this week’s inconclusive Italian general elections. It is not, insists this fascist of the forest, a party. It is a movement. Parties, he is adamant, are the problem, not the solution.

Mussolini founded his Fasci di Combattimento in Milan on 23 March 1919 and less than four years later he was prime minister. Fascism was not, he insisted, a party but a movement. Parties, he was adamant, were the problem, not the solution. Fascism would be an ‘anti-party’ of free spirits who refused to be tied down by the straitjacket of parties with their dogmas and doctrines. This is precisely what Grillo says about his own movement.

Mussolini was the rising star in Italy’s Marxist party until his expulsion in 1914 because he — like the French and German Marxists but unlike the Italian ones — was in favour of Italian intervention in the first world war. He looked destined for the scrapheap.

Grillo, a former communist, was banned from national television in the late 1980s as a result of his defamatory performances. Things did not look rosy for him either. Forced to perform in piazzas and theatres, he took to ridiculing and demonising politicians, and then in 2005 he founded a blog that quickly became the most popular in Italy and a forum for the angry and the disaffected, mostly young, for all those whose state of mind is defined by the word ‘Vaffa!’. He duly began a national ‘Vaffa! Day’ or ‘V Day’ in 2007.

Shortly before he founded his movement, he tried to become leader of Italy’s main left-wing party — the ex-communist Partito democratico (PD) — but it would not let him stand in its leadership elections. At this week’s elections, the PD’s coalition was a winner of sorts with a majority of the seats in the lower house, thanks to the latest Italian electoral law that gives the majority of seats to the party with the most votes, however few. The PD’s coalition polled just 29.6 per cent of the vote compared with the 29.1 per cent of Silvio Berlusconi’s centre-right coalition. But despite that, the PD grouping gets 340 seats to his 121. In the senate, though, where different rules apply, no one has a majority.

The Keynesian Depression

A Premonition From a Halcyon Era

By Scott Minerd

In 1968, America was literally over the moon. Apollo 7 had just made the first manned lunar orbit and the nation would soon witness Neil Armstrong’s moonwalk. The United States was winning the war in Southeast Asia and the Great Society was on the verge of eliminating poverty. I remember my father taking me to the Buick dealership that summer in Connellsville, Pennsylvania, where he bought a 1969 Electra. As we drove home I asked him why we had bought the 1969 model when we had the 1968 one, which seemed equally good.

“That’s just what you do now,” my father said, “Every year you go and get a new car.” “Wouldn’t it be better,” I asked as a precocious nine year-old, “if we saved our money in case a depression happened?” I will never forget my father’s reply: “Son, the next depression will be completely different from the one that I knew as a boy. In that depression, virtually nobody had any money so if you had even a little, you could buy nearly anything. In the next depression, everyone will have plenty of money but it won’t buy much of anything.” Little did I realize, then, how prescient my father would prove to be.

Five years have passed since the beginning of the Great Recession. Growth is slow, joblessness is elevated, and the knock-on effects continue to drag down the global economy. The panic in financial markets in 2008 that caused a systemic crisis and a sharp fall in asset values still weighs on markets around the world. The primary difference between today and the 1930s, when the U.S. experienced its last systemic crisis, has been the response by policymakers. Having the benefit of hindsight, policymakers acted swiftly to avoid the mistakes of the Great Depression by applying Keynesian solutions. Today, I believe we are in the midst of the Keynesian Depression that my father predicted. Like the last depression, we are likely to live with the unintended consequences of the policy response for years to come.

This Depression is Brought to You By...

John Maynard Keynes (1883—1946) was a British economist and the chief architect of contemporary macroeconomic theory. In the 1930s, he overturned classical economics with his monumental General Theory of Employment, Interest and Money, a book that, among other things, sought to explain the Great Depression and made prescriptions on how to escape it and avoid future economic catastrophes. Lord Keynes, a Cambridge- educated statistician by training, held various cabinet positions in the British government, was the U.K.’s representative at the 1944 Bretton Woods conference and, along with Milton Friedman, is recognized as the most influential economic thinker of the 20th century.

Keynes believed that classical economic theory, which focused on the long-run was a misleading guide for policymakers. He famously quipped that, “in the long run we’re all dead.” His view was that aggregate demand, not the classical theory of supply and demand, determines economic output. He also believed that governments could positively intervene in markets and use deficit spending to smooth out business cycles, thereby lessening the pain of economic contractions. Keynes called this “priming the pump.”

On Your Mark, Get Set, Spend

Since the Second World War, policymakers concerned with both fiscal and monetary policy have opportunistically followed certain Keynesian principles, particularly using government spending as a stabilizer during periods of economic contraction. In 1968, steady economic growth and low inflation had led optimists to declare that the business cycle was dead. When President Nixon ended gold convertibility of the dollar in 1971 he justified it by declaring that he was a Keynesian. Even Milton Friedman, founder of the monetary school of economics, told Time magazine that from a methodological standpoint, “We’re all Keynesians now.”

The euro crisis is back

Europe's Reality Check

By Robert Samuelson

The euro crisis is back. Actually, it never left. But there was an extended period, beginning last summer, when Europe's political, business and media elites convinced themselves the worst had passed. The European Central Bank (ECB) -- Europe's Federal Reserve -- had tranquilized jittery bond markets. Italy and Spain, the two countries that might trigger a new crisis, would be able to borrow at reasonable interest rates, because the ECB had pledged to act as a lender of last resort. Though debtor nations still faced hard times, matters were slowly mending. So it was said.

No more. Italy's latest election quashes this optimism. The outcome seems a mix of absurdity and anarchy. One new political party, headed by a professional comedian named Beppe Grillo, received 26 percent of the vote. The business tycoon and former prime minister, Silvio Berlusconi, repeatedly pronounced politically dead, rose from the grave and almost won. Between Berlusconi's center-right coalition and Pier Luigi Bersani's center-left group (victor in the popular vote), there are major policy disagreements and, therefore, not much foundation for forming a government with a parliamentary majority.

But Italians did send a message. "The election wasn't just anti-austerity. It was also anti-German," says David Smick, editor of The International Economy magazine. "Berlusconi's rhetoric was very anti-German. In Italian politics now, it's dangerous to appear being the lapdog of [German Chancellor] Angela Merkel." In one dazzling stroke, Italian voters rejected both Europe's main response to high government debt -- cut spending, raise taxes -- and the policy's most powerful architect, Germany's Merkel. If Italy needs to be bailed out, the negotiations already look tortuous.

The resentment of austerity is no mystery. The Italian economy has contracted for six consecutive quarters; it is now 7.8 percent below its peak in the third quarter of 2007, reports economist Martin Schwerdtfeger of TD Economics. In 2013, the economy will shrink another 1 percent, he forecasts. Unemployment in December was 11.2 percent, up from 2007's 6.1 percent (annual average). This, too, will probably worsen in 2013. The point: Italians haven't gotten much return on their austerity.

The Pension Fund That Ate California

CalPERS’s corruption, insider dealing, and politicized investments have overwhelmed taxpayers with debt

by Steven Malanga

After spending years dogged by unpaid debts, California labor leader Charles Valdes filed for bankruptcy in the 1990s—twice. At the same time, he held one of the most influential positions in the American financial system: chair of the investment committee for the California Public Employees’ Retirement System, or CalPERS, the nation’s largest pension fund for government workers. Valdes left the board in 2010 and now faces scrutiny for accepting gifts from another former board member, Alfred Villalobos—who, the state alleges, spent tens of thousands of dollars trying to influence how the fund invested its assets. Questioned by investigators about his dealings with Villalobos, Valdes invoked the Fifth Amendment 126 times.

California taxpayers help fund CalPERS’s pensions and ultimately guarantee them, so they might wonder: How could a financially troubled former union leader occupy such a powerful position at the giant retirement system, which manages roughly $230 billion in assets? The answer lies in CalPERS’s three-decade-long transformation from a prudently managed steward of workers’ pensions into a highly politicized advocate for special interests. Unlike most government pension funds, CalPERS has become an outright lobbyist for higher member benefits, including a huge pension increase that is now consuming California state and local budgets. CalPERS’s members, who elect representatives to the fund’s board of directors, ignored concerns over Valdes’s suitability because they liked how he fought for those plusher benefits.

CalPERS has also steered billions of dollars into politically connected firms. And it has ventured into “socially responsible” investment strategies, making bad bets that have lost hundreds of millions of dollars. Such dubious practices have piled up a crushing amount of pension debt, which California residents—and their children—will somehow have to repay.

When California’s government-employee pension system was established in 1932, it was a model of restraint. Private-sector pensions were still rare back then, but California lawmakers had a particular reason for wanting a public-sector pension system: without one, unproductive older workers had an incentive to stay on the job and just “go through the motions” to get a paycheck, as a 1929 state commission put it. Pensions would encourage those workers to retire. The commission cautioned, however, against setting a retirement age so low that it would “encourage or permit the granting of any retirement allowance to an able-bodied person in middle life.”