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.”

The hero of Watergate becomes a Beltway villain

Woodward’s Apostasy

By HARRY STEIN

Bob Woodward’s charge that he was threatened by a high-ranking Obama administration official after publishing a column critical of the White House was, it turns out, at least somewhat exaggerated. But it’s no accident that the media has chosen to focus on Woodward’s characterization of his exchange with White House economic director Gene Sperling, while all but ignoring the essence of the column that touched off the brouhaha in the first place: that Obama’s claims about Republican responsibility for the looming sequester were false, and that it was “months of White House dissembling” that had “eroded any semblance of trust between Obama and congressional Republicans.”

Indeed, the media treatment of the episode provides an all-too-telling glimpse into the administration’s relationship with the press. It hardly bears repeating that from the start of Barack Obama’s career on the national stage, he has enjoyed an unprecedented kinship with the media—one that, as frustrated opponents rightly observe, often seems indistinguishable from outright alliance. On contentious issues like those involving the budget, especially, the administration has been hugely dependent on a compliant press—not only to shore up public support for its ongoing campaign of class warfare, but also to marginalize competing arguments.

So overt has the media cheerleading been on the president’s behalf that few have noted the potential pitfalls that the arrangement holds for both sides. By now, the media are so all-in with Obama that they cannot call his credibility into question, even when the facts demand it. By the same token, so reliant is Obama on the lapdog media that he is uniquely vulnerable to what might be called Emperor’s New Clothes Syndrome: any meaningful breach in the code of silence and the whole damn thing could come crashing down.

Enter Bob Woodward. For weeks, coverage of the looming sequester had been going precisely the way the administration intended. Indeed, the media’s handling of this difficult and complicated story is a reminder of why, notwithstanding four-plus years of bungling, the president has paid no political price for the stalled economy. Though frustrated Republicans believed that they had both math and logic on their side—the mandated cuts amounted to less than 2 percent of a $4 trillion budget, and federal spending would remain massively higher than when Obama took office—the White House–generated scare stories appeared day after day. In short order, we heard, there would be four-hour waits at airports; draconian cuts to special education; a gutting of mental-health services; a military unable to react to the Iranian mullahs’ saber-rattling. Here in southern Arizona, where I live, local news reports have been rife with tales of released illegals running amok.

Then out of nowhere came Woodward—the iconic co-hero of Watergate, a man who convinced many of today’s media stars to enter the biz in the first place—declaring in his February 22 column that it was all a crock. Not only was the sequester legislation Obama’s own creation, and not Congress’s, as he’d had been everywhere proclaiming; the president also had great discretionary power to determine which cuts would be made. Moreover, in insisting on new taxes not required in the legislation, the president, whom the media portray as fair-minded and reasonable, was “moving the goal posts.”

I Want Mo'

Mo’ Debt, Mo’ Problems (Mo’ Keynesian Cynicism)

By Gonzalo Lira

Christ, is Matt Yglesias stupid. Stupid or high, or maybe he’s just a cynical bastard—I really can’t make up my mind. 

He just wrote a piece in Slate proposing that the U.S. government go into even more debt, ballooning the Federal debt to even higher levels than the “mere” 120% of GDP it currently is.

His “reasoning”? To take advantage of the lower interest rates currently prevalent in the bond markets.

Prima facie, Yglesias sounds reasonable. As he rightly points out, 

[T]he inflation-adjusted yield on 10-year Treasury bonds was negative 0.56 percent. Savers, in other words, want to pay the American government for the privilege of safeguarding their money. For the longest-dated bonds we sell, the 30-year Treasury bond, rates were 0.51 percent. That’s higher than zero, but far below the long-term average economic growth level. [emphasis in the original]

All good up to this point.

But then in the very next breath—I mean, literally the very next line—he writes something of startling imbecility: 

A sensible country would be taking advantage of that fact [of record-low interest rates] to finance some valuable public undertakings. Alternatively, if we think there’s nothing worth spending money on we could enact a big temporary tax cut aimed at reducing the unemployment rate and boosting the population’s skill level. [. . .] Another way of looking at it is that global financial markets are sending a clear signal to the United States. At a time when demand for goods and services is depressed, demand for American government debt is sky-high. The responsible choice is to let the supply meet the demand and borrow more. [emphasis in the original]

Right. Clever, even: To fix the situation of over indebtedness, just borrow more.

This thinking reveals the key blindness of Yglesias and other Keynesians: They completely misunderstand the economic moment the world is living in—and are thus oblivious to the rationale and the consequences of the policy decisions that have been taken up to now.

Let me take a step back and explain.

The reason that the global economy is in the sorry state that it’s in today is because of overindebtedness that has grown like a cancer since 1987. That year, in response to the ’87 Crash, Alan Greespan instituted the famed “Greenspan Put” of low-interest rates to prop up the economy during every downturn.

War is Peace

After Invading Mali, Socialist French President Wins UN Peace Prize

by  Alex Newman

In an Orwellian move that has already been widely criticized and ridiculed by analysts across the political spectrum, the United Nations announced February 21 that Socialist French President François Hollande (pictured) would be awarded a UN “Peace Prize” for his government’s invasion of Mali to support a military coup-installed regime battling separatist rebels. Human rights groups say the controversial international military intervention, led by Hollande in France but heavily supported by the UN and Obama, has already resulted in civilian massacres and possibly war crimes. 
The largely discredited international prize, awarded by the UN Educational, Scientific and Cultural Organization (UNESCO), was offered to Hollande for his alleged “valuable contribution to peace and stability in Africa.” That “contribution,” of course, was the French government’s bloody military campaign that began earlier this year in defense of the illegitimate regime ruling parts of Mali out of the capital city of Bamako. Unlike Obama’s Nobel Peace Prize, however — awarded before he escalated and began multiple unconstitutional wars — Hollande earned his award only after starting a war for “peace.”  
The armed intervention in Mali — justified under the guise of fighting “Islamic extremism,” defending “democracy,” and enforcing UN decrees — included aerial bombings of rebel targets and thousands of French troops deployed on the ground. As The New American has documented, however, even as Hollande claims to be waging a war on terror in Mali, his government has been among the most vocal supporters of brutal Islamic jihad in Syria targeting the secular dictatorship of Bashir al-Assad.     
Considering the UNESCO jury that awarded the prize, though, analysts were not surprised that it went to a socialist now described by critics even on the hard left as a warmonger and even a war criminal. In typical UN fashion, the chairman of the global organization’s “Félix Houphouët-Boigny Peace Prize” jury was former Mozambique President Joaquim Chissano — a founding member of the Marxist terror group-turned ruling Communist political party known as the Mozambique Liberation Front (FRELIMO).
“After analyzing the global situation, it is Africa that held the attention of the jury with the various threats affecting the continent,” Chissano said in a statement released by the UN after the jury’s meeting in Paris. “Having assessed the dangers and the repercussions of the situation on Africa, and on Mali in particular, as well as on the rest of the world, the jury appreciated the solidarity shown by France to the peoples of Africa.”

Minimum Intellingence

Thai Bankruptcies Rise as Minimum Wage Rolls Out

By Suttinee Yuvejwattana & Sharon Chen

Confederate International Co., a Thai family-owned maker of nightwear, lost a German customer of 22 years after last month’s minimum-wage increase in the Southeast Asian nation raised costs.

“They stopped talking to us, even though we have done business together for a long time,” said Veerayuth Sookhattako, 57, owner of the Chiang Mai-based company that ships about 80 million baht ($2.7 million) of apparel to Germany and France each year. “I established this company 28 years ago. I don’t want to let it go, but I may need to close down our business by the end of the year if we can’t get new orders.”

Veerayuth isn’t alone. Last quarter, 7,221 Thai companies closed down, 27 percent higher than in the same period a year earlier, when the worst floods in 70 years swamped most of the country. The figure is also more than double the average of 3,000 in the previous nine years, according to data from theNational Economic & Social Development Board.

Prime Minister Yingluck Shinawatra’s government raised the daily minimum wage to 300 baht throughout the country last month, after a similar increase in April in seven provinces including Bangkok. Before the increase, minimum wages ranged from 159 baht in northern Phayao province to 221 baht in Phuket, according to the Labour Protection and Welfare Department.

Government stimulus measures, including the wage rise and increased payments to farmers, come as the country’s manufacturers struggle with a stronger baht and slowing export demand amid a global slowdown.

Baht Strength

“The problem with the Thai minimum-wage hike is there might be competitiveness issues because this will lead to high costs for firms and if there’s no way to offset these costs, it translates into higher inflation for consumers,” said Eugene Leow, a Singapore-based economist at DBS Group Holdings Ltd. “There’s also some concern about how strong the Thai baht is.”

The baht is the biggest gainer this year among 11 widely- traded Asian currencies tracked by Bloomberg. The Bank of Thailand held the benchmark rate for a third straight meeting this month even after Finance Minister Kittiratt Na-Ranong renewed calls for lower borrowing costs to discourage inflows that boosted the baht to a 17-month high in January.

Wages in Asia almost doubled between 2000 and 2011, according to the International Labor Organization, and workers from China to Indonesia have pushed for more pay in recent years to counter rising living expenses. The increases will permanently increase business costs, forcing companies to boost prices, according to a report from HSBC Holdings Plc.

The End of China?

A crisis of legitimacy as the nation's young people and business elite question communist rule

By PATRICK J. BUCHANAN

“Why did the Soviet Union disintegrate? Why did the Soviet Communist Party collapse? An important reason was that their ideals and convictions wavered,” China’s new leader, Xi Jinping, told a closed meeting of party elite in Guangdong province.

“Finally all it took was one quiet word from Gorbachev to declare the dissolution of the Soviet Communist Party, and a great party was gone,” said Xi, according to notes obtained by the New York Times.

“Everyone is talking about reform, but in fact everyone has a fear of reform,” said Chinese historian Ma Jong. “The question is: Can society be kept under control while you go forward? That is the test.”
That is indeed the test.
What is it that gives a party its legitimacy, its right to rule? What holds a nation together when its cradle faith, its founding ideology, has been abandoned by both elites and the people? That is China’s coming crisis.
With victory in the civil war with the Nationalists in 1949, Mao claimed to have liberated China from both Japanese imperialists and Western colonialists, and restored her dignity. “China has stood up!” he said.