Japan vs. Newton

Running head first into hard limits

by Chris Martenson

Conventional thinking and reporting has it that Japan is conducting a larger version of the same monetary experiment they’ve been running for about 15 years.  The implication here is that we can safely analyze what Japan is up to through the same monetary lens, as always, but with a slightly wider aperture.

By now, we are all familiar with the details.  Japan has initiated a program of monetary expansion that goes by the shorthand of 2-2-2.  In two years, the Bank of Japan (BoJ) will fully double the monetary base as it seeks a minimum of 2% inflation.

In the aftermath of this announcement, the yen weakened by a whopping 8% against the dollar, the Nikkei stock average vaulted up by roughly 10%, and the $10 trillion Japanese government bond market had to be frozen twice because of intense volatility. 

In truth, what Japan is running is as much a massive social experiment as it is a monetary experiment.  It has such enormous implications to everyone, but especially the Japanese people, that we should all be paying very close attention.

Creating Inflation

The basic formula for creating inflation involves more money and credit chasing too few goods.  Whether this is more goods (just not enough to match the growth in money and credit), the same amount of goods, or even fewer goods is not important.  What matters is that there is more money and credit than goods. 

On this front, so far, so good.  Japan is going to fully double (!) the monetary base in just two years.  In any tidy, mathematical world where economics is governed by linear, rational processes, this doubling of the monetary base would result in inflation.

Unfortunately, the real world is not very tidy. 

The monetary base is really an abstraction that refers to the amount of money that the banking system has available to pyramid into a greater number of loans.  As I am sure you have figured out by now, simply having more money in the system will not automatically result in more money chasing goods. 

In fact, without a good reason to borrow and then spend that money, those new funds may well just sit in the banking system chasing nothing related to real goods and services in the real economy.  Instead, that money will simply chase financial assets such as stocks and bonds.

The BoJ knows this, and yet their plan revolves around the idea that they can create inflation by simply doubling the monetary base.  Does this mean they are confident that there is pent-up consumer demand that was stymied by a lack of cheap funds from the banking system? 

The very short answer is ‘no.’  The BoJ knows perfectly well that more base money will do nothing to stimulate additional inflation via consumer demand, and they know this because Japan has had rock-bottom borrowing costs for a very long time.

The Real Target – Trust

So if the BoJ already knows that more base money will not lead to the buying of more goods and services, then what is their plan for stoking inflation?

Austerity is a Consequence, not a Punishment

Growth in a Time of Debt

By John Mauldin

Two seemingly different questions and comments from readers and friends crossed my path the last few days, but I saw a definite connection between them. The first question was, Why do we pursue austerity when it seems not to work? And then many readers wrote to ask this week, What do I think about the real problems that are surfacing in the Rogoff and Reinhart assertion that debt above a ratio of 90% debt to GDP seems to slow economic growth by 1% (especially since I have quoted that data more than a few times)? We’ll deal with each question separately and then see if we can connect the dots.

The first question comes from correspondence I have had with Ms. Aga Barberini, who works in the investment world in Milan, Italy. She came there from Poland some 20 years ago. The first part of her note contains the question on austerity, but I’ll pass along more of her letter, as I think it will give us all some insight into the seeming chaos that voters are facing in choosing a path for Italy. (And I hope my editors leave some of the charming grammar in her letter. You can almost hear the musical tones of her Italian English.)

I am worried for Italy, too. When I came here 20 years ago Italy was beautiful and rich; it was very good for a girl from Eastern Europe. Nowadays a lot of Italians go to Poland and settle down.

I guess it’s going to get worse, the austerity will be tighter. Please tell me why should we go ahead with austerity when IMF last month came out  saying that for every point of tax lifting in Italy we lose 2.5 points of GDP? First they said that the tax lifting would produce only 0.5 points of GDP slip, now they say they were wrong.

The political chaos is lasting. My husband says, why don't we vote for the comedian in June (as it is almost sure we are going to vote again soon)? Sure, Grillo is right in a lot of things and would clean the politics a lot. (By the way, did you know that the oldest bank in the world, Monte dei Paschi di Siena’s mess is reaching 20 billion euros? They took away the money doing ... the bank transfers ;-) The Banka d'Italia didn't see; CONSOB, the Italian SEC, didn't see...). But how can a serious person vote for the comedian?

But I say sometimes the one who is good for the revolution isn't necessarily good to rule the country.  Do you remember the guy called Lech Walesa? Thanks to him the communism [in Poland] was fallen – we all agree. Polish people were so thankful to him that we appointed him for the first democratic president. Than we found that he didn't have enough background to rule the country and enough culture to represent us on the international stage.

I will vote Berlusconi again. I can't stand communists even if they call themselves “the left.”

(Sidebar:  I was in Siena last summer and visited the ancestral home of the bank mentioned above, the world’s oldest, founded in 1472. I marveled that any bank could last so long. At thePalio last summer we met one of the senior managers of the bank. It turns out that it was local politicians who ran the board of the bank, and now the authorities are saying management hid the problems from them.)

So let me try to answer you, Aga.

The Climate Circus Leaves Town

As traditional energy sources go from doom and gloom to boom

By Steven F. Hayward

If you had told environmentalists on Election Day 2008 that four years later there’d be no successor treaty to the Kyoto Protocol, that a Democratic Congress would not have enacted any meaningful climate legislation, that domestic oil production would be soaring even after a catastrophic offshore oil spill, and that the environmental community would be having a lively internal debate about whether it should support reviving nuclear power, most might have marched into the ocean to drown themselves. Yet that’s the state of play four months into President Obama’s second term.

Start with climate change. Early in March, the hacker or leaker of the two email caches from the Climate Research Unit at the University of East Anglia that rocked the climate science world in 2009 and again in 2011 released the remaining batch of material. The news produced barely a shrug even among climate skeptics, partly because the file contains 220,000 emails and documents (as opposed to about 1,000 in round one, and 5,000 in round two), making it impossible to review comprehensively. But it also appears unnecessary, as the climate change story has been overtaken by facts on the ground. Most significant: The pause in global warming​​—​​now going on 15 years​​—​​has become so obvious that many of the leading climate scientists are grudgingly admitting that global warming has stopped. James Hansen, who recently stepped down as NASA’s chief climate scientist to become a full-time private sector alarmist, is among those admitting that the recent temperature record has flatlined.

After two decades of steady and substantial global temperature increase from 1980 to 1998, the pause in warming is causing a crisis for the climate crusade. It wasn’t supposed to happen like this. The recent temperature record is falling distinctly to the very low end of the range predicted by the climate models and may soon fall out of it, which means the models are wrong, or, at the very least, something is going on that supposedly “settled” science hasn’t been able to settle. Equally problematic for the theory, one place where the warmth might be hiding​​—​​the oceans​​—​​is not cooperating with the story line. Recent data show that ocean warming has noticeably slowed, too.

These inconvenient data are causing the climate science community to reconsider the issue of climate sensitivity​​—​​that is, how much warming greenhouse gases actually cause​​—​​as I predicted would happen in these pages three years ago: “Eventually the climate modeling community is going to have to reconsider the central question: Have the models the IPCC [Intergovernmental Panel on Climate Change] uses for its predictions of catastrophic warming overestimated the climate’s sensitivity to greenhouse gases?”

Is The Nation-State Leaking Culture?

Culture is the crucial glue binding the nation-state

by Cato

My pensée on the erosion of the nation-state construct focused, as is to be expected from me I suppose, narrowly on politics and economics.

My contention, briefly summarized, is that the individualization of technology and the globalization of markets are creating opposing tidal forces that are shredding the nation-state.  I tied the foundational idea of the nation-state to welfare state ideology; think of the nation-state as a horse and the welfare state as a rider.  Both constructs just assume any government of any nation-state will possess sovereign power, defined as the ability to do precisely as that sovereign government pleases.  But suppose that assumption is wrong.

Suppose the ties that bind the nation-state are being shredded by the tidal forces I described.  Suppose therefore that sovereign power is leaking out of both the nation-state construct and welfare state governments.  Suppose governments can no longer do precisely as they please.  Suppose technology is eroding sovereign politics and global markets are eroding sovereign economics.

All that said, and I think arguably true, the attack on the 400-500 year old nation-state construct goes deeper than politics and economics.  Consider the graphic I lead with in the last post in more detail.

All of the elements listed above are important.  Yet I contend the most fundamental of all the elements combining to create and sustain the nation-state is culture.  It’s culture that holds and focuses all of the others.

Territory can grow or shrink by war or treaty.  Nationality is redefined with simple oaths of allegiance.  History is routinely rewritten, most often as the adage goes by the winners.  Language changes and blends constantly.  Religion splits itself into dozens of sects: Christian subgroups and at least two warring factions of Islam, just as examples.  None of these serves as a solid foundation of the nation-state construct.  Culture does.

What does it mean to be “German” or “Japanese” or “Iranian” if not a total commitment to a deep, unconsciously embraced way of life, of thinking, of values?  Why is Oktoberfest a big deal in Cincinnati, Ohio and Fredericksburg, Texas among people who’ve never been to Munich and speak no German, if not the deeply embedded “cultural ties that bind”?  What does it mean to say “next year in Jerusalem” at a Seder dinner being held in Brussels or Istanbul or Moscow …  be that Moscow, Russia or Moscow, Indiana … if it’s not a restatement of cultural identity and unity?

Important Lessons In Domestic Terrorism

Franklin knew this

by Simon Black

In the first century AD, the Roman Empire was up to its eyeballs in domestic terrorism.

The biggest threat was a tiny Judaic sect known as the Zealots who routinely conducted public attacks, even against other Jews who didn’t agree with their views.

This is actually where the word ‘zealot’ comes from, and the group constitutes history’s first recorded example of terrorism.

The Zealots knew they could never defeat such a vast Empire… at least, not conventionally.

Instead, their chosen tactic was to create chaos and fear. And for a while they were successful.

Rome finally put down the threat in 74 AD with the siege of Masada. But the idea caught on, and ‘terrorism’ has been with us ever since.

Just in recent days, attacks on civilians have been attempted and/or carried out in Greece, the Philippines, Turkey, Kenya, Taiwan, Iraq, Kosovo, Thailand, Mali, Syria, India, Israel, Nigeria, and the United States.

Here in Indonesia they know a thing or two about domestic terrorism. Over the years, all sorts of religious extremists and separatists waged campaigns in the country.

To draw worldwide attention to their causes, they often conducted attacks specifically against Westerners.

As an example, the JW Marriott Hotel here in Jakarta has been targeted not once, not twice, but three times. Curiously they still have one of the best breakfast buffets in the world…

So what did the Indonesian government do? Why, destroy people’s civil liberties, of course!

The Social Purpose Of Tax Havens

Yet another attempt to send good money after bad to continue feeding the Leviathan

by Charles Gave

The Cahuzac affair in France has conveniently emerged just as the search for possible scapegoats to Europe’s quandary was intensifying. Thanks to the former French budget minister’s secret Swiss bank account, Europe can now move from its war against finance (Hollande declaring that finance was his enemy, the financial transaction tax, capping of bonuses, etc) to an outright war against tax havens (letting Cyprus sink, arm-twisting Luxembourg into abandoning its banking-secret policy, etc).

Leaving aside the EU’s increasing penchant for forcing members to adopt policies that blatantly go against national interests (like the Tobin tax in the UK), yesterday’s announcement by Luxembourg of an “open-book” policy raises the question of whether the EU is cutting off its nose to spite its face. If tax havens have existed and thrived for so long, they must have some sort of economic justification.

Beyond the debate on the "morality" of hiding one’s wealth, let us simply focus on the possible consequences of closing down havens. First assume that there are two kinds of deposits in these jurisdictions: the perfectly legal kind, and the illegal kind (such as the ones that Jerome Cahuzac had in Switzerland). For an economist, there is no reason to differentiate between the two. Combine them and the amounts get large. Large enough to offer both types of investors economies of scale, a large array of financial services needed, etc.

Now the reality for most tax havens is that their economies are far too small to absorb the excess savings that pour into their countries. Their banks thus end up being large buyers of assets outside of the country. All else being equal, this should be good news for “foreign assets”. If, for example, a Luxembourg bank decides to buy French or German bonds with the deposits of a Belgian dentist, then the yields in Germany and France will be lower than they would have otherwise been. If that account is now closed and moved to Singapore to buy SGD bonds (probably a smart trade anyway), then interest rates in France and Germany will move higher, while they fall in Singapore.

Europe’s welfare states are already on the brink...

Or to put it another way: when it comes to the illegal deposits, the economic net effect of Mr Cahuzac hiding his money in Switzerland was for this “gentleman” to have a lower tax rate. If the governments of the world now succeed in getting these deposits in the open, it will be equivalent to a tax increase, no more no less. And increasing taxes massively, when tax rates are already unbelievably high, would be a sure recipe for sending the struggling economies into a tailspin. Look at it this way: with their domestic economies already circling the drain, can the French, Italian or Spanish entrepreneurs stomach a tax increase? Once again, a war on tax havens is (at least for an economist without any moral compass) nothing but an attempt to increase taxes to prop up bankrupt welfare states; i.e., yet another attempt to send good money after bad to continue feeding the leviathan.

Pyongyang Machiavelli

All of Kim’s Men

Officials below the power circle of the Kim family may not play an overt role in N. Korea, but are vital to understanding the regime and its future

By Adam Cathcart

The man at the helm in North Korea today is an accident of history, surrounded by vestigial assertions of narcissistic genius that are de rigueur for North Korea's depiction of its own leaders. More than any time since the young Kim Il-song was surrounded by Soviet generals in the 1940s, the North Korean leader today is dependent upon advisors.

Advisors and officials below the rungs of the Kim family may not play an overt role in North Korea, but they are vital. And they need to be known, not least because they can be blamed, and possibly executed, when problems arise. The North Korean state marshaled the power of the North Korean rumor mill when it indicates that discord among advisors can be exploited by North Korea's adversaries, when in fact it cannot.

In terms of how he handles his own advisors, Kim Jong-un shows every indication that he is operating from manuals set down by his grandfather and father. Kim Jong-un is frequently likened to the young Kim Il-song, North Korea's guerilla fighter, Sovietized soldier, and state founder.

Kim Il-song's early experiences are particularly salient for his grandson: The elder Kim had been surrounded by older, more experienced advisors, most of whom happened to be Soviet Generals. (Kim Il-song also lacked strong fluency in the Korean language and a domestic powerbase, thanks to having spent long years abroad.) After the Korean War, Kim Il-song had been restless in purging his rivals from inside the Party. He was uncommonly successful. After 1956, there was no longer such thing as an internal opposition in North Korea. Assertions today of a possible internal resistance movement or factional opposition to Kim Jong-un akin to the Stauffenberg conspiracy in 1944 Germany or South Korea in the 1961 are simply off-base; such a movement would be not simply rootless, but completely ahistorical.

Kim Jong-un's advisors today are the descendants of the victorious elements in those purges. He is enabled by a web of advisors with a clear influence on the policy formation and implementation in Pyongyang.

Who are these advisors? How do they inflect the North Korean approach to governance, statecraft, culture, and diplomacy, which are all interwoven in the DPRK?

Bernanke is blowing new bubbles

Gold sell-off: There is only one question that matters

by DETLEV SCHLICHTER

Last Friday I participated in a (very short) debate on BBC Radio Four’s Today Programme on the future direction of gold. Tom Kendall, global head of precious metals research at Credit Suisse argued that gold was in trouble, I argued that it wasn’t. So yours truly is on record on national radio on the morning of gold’s two worst trading days in 30 years arguing that it was still a good investment.

Is it?

I still think that what I said on radio is correct and even after two days of brutal bloodletting in the gold market and two days of soul-searching for the explanations, I believe that this is the only question that ultimately matters for the direction of gold:

“Has the direction of global monetary policy changed fundamentally, or is it about to change fundamentally? Is the period of ‘quantitative easing’ and super-low interest rates about to come to an end?”

If the answer to these questions is ‘yes’ than gold will continue to be in trouble. If the answer is ‘no’, then it will come back.

Reasons to own gold

The reason for why I own gold and why I recommended it as an essential self-defense asset is not the chart pattern of the gold price, the opinion of Goldman Sachs, or the Indian wedding season but the diagnosis that the global fiat money economy has check-mated itself. After 40-years of relentless paper money expansion and in particular after 25 years of Fed-led global bubble finance, the dislocations in the global financial system are so massive that nobody in power dares to turn off the monetary spigot and allow market forces to do their work, that is to price credit and to price risk according to the available pool of real savings and the potential for real income generation rather than according to the wishes of our master monetary central planners.

The reason why for almost half a decade now all the major central banks around the world keep rates at zero and print vast amounts of bank reserves is that the system is massively dislocated and nobody wants the market to have a go at correcting this.

There are two potential outcomes (as I explain in my book): 1) This policy is maintained and even intensified, which will ultimately lead to higher inflation and paper money collapse. 2) This policy is abandoned and the liquidation of imbalances through market forces is allowed to unfold.

Gold is mainly a hedge against scenario 1) but it won’t go to zero in scenario 2) either. So far, I see little indication that central bankers are about to switch from 1) to 2) but we always have to consider the fact that the market is smarter than us and has its ears closer to the ground. What is the evidence?

Cyprus and EMU

Taken on their own, events in Cyprus were not supportive of gold, not because the island nation could potentially sell a smidgeon of gold into the market but because the EU masters decided to go for liquidation and deflation rather than full-scale bailout and reflation. Cyprus’ major bank is being liquidated not rescued and ‘recapitalized’ as in the bad examples of RBS, Northern Rock, Commerzbank, or more indirectly – via shameless re-liquification – in the case of Goldman, Morgan Stanley, Citibank and numerous others. The ECB’s balance sheet has been shrinking over the past 3 months, not expanding. Depositors in EMU (and even EU-) banks are being told that in future they shouldn’t rely on unlimited money-printing or on unlimited transfers from taxpayers in other countries to see the nominal value of their deposits protected. This is a strike for monetary sanity and a negative for gold. It should reduce the risk premium on paper money on the margin.

Culture and the Barbarians at the Gate

We are the barbarians we've been waiting for

By Jon N. Hall

A lot of attention is being paid to culture. We read about clashes of culture and culture wars. Concerning the Atlanta scandal of 35 educators indicted for inflating the test scores of their students, former Reagan budget director David Stockman on ABC's This Week said: "Cheating is symptomatic of a huge cultural problem we have. "Upon the death of Margaret Thatcher, Times columnist David Brooks wrote that she "was formed by her disgust with 1970s Britain," which she saw as a "moral shift... away from the culture of rectitude and toward the culture of narcissism."Something is wrong with the culture. But what exactly is culture?

The subtitle of David Mamet's The Secret Knowledge (2011) is: "On the Dismantling of American Culture." (Go to his website to read the first chapter or to order.) Mr. Mamet contends that "culture predates society." In Chapter 3 he writes:

The Culture, of a country, a family, a religion, a region, is a compendium of these unwritten laws worked out over time through the preconscious adaptations of its members --- through trial and error. It is, in its totality, "the way we do things here." It is born of the necessity of humans getting along. It does not come into being because of the inspiration, nor because of the guidance, of any individual or group, but it evolves naturally: those things which work are adopted, those which do not, discarded.

Mr. Mamet is writing about something deeper and more basic than what many think of as culture. In "Is the Nation-State Leaking Culture?" at Cato's Domain, Michael Booth writes:

Yet I contend the most fundamental of all the elements combining to create and sustain the nation-state is culture. It's culture that holds and focuses all of the others. [...] Culture is explosive. It's divisive. It's not contained by the nation-state but is a crucial glue binding the nation-state. When infused with historical grudges or religious "jihad" ... or even just a peaceful awakening sense of individualism and a desire for local control ... culture becomes a weapon with the power to shatter both the nation-state and the welfare state governments that ride along upon it.

Some nations are rather proprietary about their culture. France, for instance, has bemoaned the Americanization of its culture, (even while French suburbs fill up with Muslim émigrés who hate France and have no intention of being assimilated). American minorities speak of their own culture, as do American youth. (When young American barbarians are told they have their own culture, they're apt to express themselves with tattoos and nose rings.)

From Boston To Texas, It's Been A Freaky Week In America

It takes more than a bumper sticker

By MARK STEYN

This has been a strange and deadly week in America. On Monday, two bombs exploded at the Boston Marathon, the first successful terrorist attack on a civilian target on American soil since 9/11.

And yet a mere two days later, Boston's death toll was surpassed by a freak fertilizer accident at a small town in Texas.

In America, all atrocities are not equal: Minutes after the Senate declined to support so-called gun control in the wake of the Newtown massacre, the president rushed ill-advisedly on air to give a whiny, petulant performance predicated on the proposition that one man's mass infanticide should call into question the constitutional right to bear arms.

Simultaneously, the media remain terrified that another man's mass infanticide might lead you gullible rubes to question the constitutional right to abortion, so the ongoing Kermit Gosnell trial in Philadelphia has barely made the papers — even though it involves large numbers of fully delivered babies who were decapitated and had their feet chopped off and kept in pickling jars. Which would normally be enough to guarantee a perpetrator front-page coverage for weeks on end.

In the most recent testimony, one of the "clinic"'s "nurses" testified that she saw a baby delivered into the toilet, where his little arms and feet flapped around as if trying to swim to safety.

Then another "women's health worker" reached in and, in the procedure's preferred euphemism, "snipped" the baby's neck — i.e., severed his spinal column.

"Doctor" Gosnell seems likely to prove America's all-time champion mass murderer. But his victims are ideologically problematic for the media, and so the poor blood-soaked monster will never get his moment in the spotlight.

The politicization of mass murder found its perfect expression in one of those near parodic pieces to which the more tortured self-loathing dweebs of the fin de civilization west are prone. As the headline in Salon put it, "Let's Hope The Boston Marathon Bomber Is A White American." David Sirota is himself a white American, but he finds it less discomforting to his Princess Fluffy Bunny worldview to see his compatriots as knuckle-dragging nutjobs rather than confront all the apparent real-world contradictions of the diversity quilt. He had a lot of support for his general predisposition.

"The thinking, as we have been reporting, is that this is a domestic extremist attack," declared Dina Temple-Raston, NPR's "counterterrorism correspondent."

"Officials are leaning that way largely because of the timing of the attack. April is a big month for anti-government and right-wing individuals. There's the Columbine anniversary, there's Hitler's birthday, there's the Oklahoma City bombing, the assault on the Branch Davidian compound in Waco."

Miss Temple-Raston was born in my mother's homeland of Belgium, where, alas, there were more than a few fellows willing to wish the Fuhrer happy birthday back when he was still around to thank you for it. But it was news to me it was such a red-letter day in the Bay State. Who knew? At NPR, "counterterrorism" seems to mean countering any suggestion that this might be terrorism from you know, the usual suspects.

Biblical miserabilism disguised as science

Greens can't stand Earth's inhabitants

by Tim Black 

Environmentalist Andrew Simms, author of the posh grocers’ bible, Tescopoly, has a bit of a problem. And it is not just the nauseating, name-dropping self-obsession so evident in his new book, Cancel the Apocalypse: The New Path to Prosperity. (Of his changing perception of aeroplanes after 9/11, he writes: ‘Contrails behind disappearing jet engines meant something different also after a conversation I had with the author Philip Pullman, but I’ll come to that later.’ The tease.) No, Simms’ other problem is one that he shares with many other current environmentalists: an apocalypticism in want of an apocalypse, an environmentalist End of Days in want of a devastated, I-told-you-so terminus.

It’s getting ridiculous now. For the best part of a decade, prominent environmental types have been blithely telling us the end is nigh if we don’t change our producing and consuming ways. But have we listened to the terrifying drenched-then-scorched rhetoric? Have we met carbon-emissions targets? Have we stopped using aeroplanes, once handily likened by the Guardian’s leading environmental columnist to ‘child abuse’? Have we started to shun those Meccas of pre-packaged convenience, supermarkets, in favour of growing our own? Have we hell. And yet despite our unrepentant behaviour, despite our unwillingness to change our producing and consuming ways, we are still waiting for Gaia’s punishment, still awaiting the end which ought to be nigh.

You wouldn’t have thought it was possible given the kinds of headlines and commentaries that appeared routinely throughout the mid-Noughties. ‘“Almost too late” to stop a global catastrophe’, warned one UK broadsheet in 2006. An editorial in the Philadelphia Daily Inquirerstruck a similar dread note. ‘Now, the warning about the end of the world may yet become a grim and horrible reality, if not in our generation, then in our children’s or grandchildren’s generation.’ This, remember, was the era of ‘tipping points’, when climate change looked set to become ‘irreversible’ and ‘runaway’ unless WE ACT. NOW. Simms himself even started up a campaign in August 2008 with a rather specific deadline: ‘100 months to save the world.’

But 56 months down the line, things have changed somewhat. The apocalypticism, the catastrophism, so marked in recent environmentalist discourse, is losing what little real purchase it had. Doomsday increasingly looks like it has been postponed.

Even the scientific white noise is no longer providing a suitable soundtrack for the environmentalist disaster movie. For example, the UK’s official weather forecasters, the Met Office, released a forecast in December suggesting that global temperatures have not risen for over a decade and are unlikely to rise significantly in the period up to 2017. NASA’s James Hansen, the Godfather of contemporary greens, noted recently that the ‘five-year-mean global temperature has been flat for the last decade, which we interpret as a combination of natural variability and a slowdown in the growth rate of net climate forcing’. Which is bad news for the Panglooms out there.

The Reinhart – Rogoff Study Controversy

The Study and its Critics

By Pater Tenebrarum

In 2010, Carmen Reinhart and Kenneth Rogoff released an empirical study entitled 'Growth in a Time of Debt'. After crunching a long list of historical data series, they came to the conclusion that:

“..median growth rates for countries with public debt over 90 percent of GDP are roughly one percent lower than otherwise; average (mean) growth rates are several percent lower." Countries with debt-to-GDP ratios above 90 percent have a slightly negative average growth rate, in fact.”

Our first objection to the sentence above is that 'GDP' is a very poor 'measure' of economic growth in the first place. It omits the entire production structure preceding the final goods stage ex 'durable' capital investment; it uses 'hedonic indexing' in its calculation; and it actually counts government spending as contributing to 'growth'. A more useless economic statistic is really hard to imagine as far as we're concerned.

We suspect that in an unhampered free market economy no-one would get the absurd idea of going to the trouble of actually calculating it or something akin to it. The main reason why governments calculate such data is that they need a justification for meddling with the economy. Also, macro-economists need something to do. Again, in an unhampered free market economy many of today's macro-economists would have to compete in the private sector and offer skills to employers that are useful, or alternatively become entrepreneurs themselves and create products consumers actually want. It is a good bet very few consumers would be eager to purchase 'GDP' calculations.

It is quite different with the government – hence the intellectual output of most of today's economists, indeed of most intellectuals, is, to quote Hans-Hermann Hoppe, 'viciously statist'.

Reinhart and Rogoff are not outside of the mainstream – by dint of being monetarists, they are merely as close to free market thought as one is today 'allowed' to be by the establishment. In the 1940s, the Chicago School was regarded as part of the 'leftist fringe' (Hoppe), today they are considered the standard bearers of 'conservative economic thought', as evidenced by the fact that the Republican party cited their study frequently when urging to lower the deficit.

Now, we actually believe that Reinhart and Rogoff have detected a number of effects in their study that are very real and we also believe that cutting deficit spending would be an agreeable policy. In fact, doing away with the State altogether would be the most agreeable policy of all (it would be the very last act of 'public policy'), but let's not stray too far from the topic at hand.

Recently a number of economists based at the University of Massachusetts (a state that is incidentally also known by the nickname 'Taxachusetts') have taken a closer look at the study and discovered a few spreadsheet errors, weighting biases and coding errors (apparently nothing major that would actually invalidate the study's main conclusions, as the response of Reinhart and Rogoff indicates). In the wake of this discovery,  the 'howling of the Keynesians' immediately ensued. Even an at first glance fairly objective report on the errors discovered at the 'Roosevelt Institute' exudes, as a friend of ours put it, a 'strong Keynesian smell' – as evidenced by quotes such as this one:

 “The debt needs to be thought of as a response to the contigent circumstances we find ourselves in, with mass unemployment, a Federal Reserve desperately trying to gain traction at the zero lower bound, and a gap between what we could be producing and what we are. The past guides us, but so far it has failed to provide an emergency cliff. In fact, it tells us that a larger deficit right now would help us greatly.”

Chronicling The Decline And Fall Of Entitlement Democracy

America has now hurtled past the dependency tipping point

By Bill Frezza

It’s been a week of sober reflection, accompanied by a self-imposed news fast, during which I’ve struggled to understand the deeper meaning of our recent electoral catastrophe. Doing so undistracted by a thousand voices required strict electronic disengagement. I recommend this as one would take a purgative after eating a batch of bad oysters.

Many of us of the libertarian persuasion who had never previously voted Republican made an exception this time because the stakes were so high. In a purposeful departure from our usual  “pox on both their houses” approach, we waded into the partisan fray naively believing we could make a difference, ignoring the stink on those with whom we made common cause simply because the alternative was so much worse.

All for naught. After approaching it for decades, America has now hurtled past the dependency tipping point. We have scrapped the last vestiges of our constitutionally limited republic of strictly enumerated powers and replaced it with an unconstrained entitlement democracy neither better nor worse than any of the others whose failures have dotted the course of history—all over weighty issues such as who should pay for condoms.

Heeding the cry, Forward!, an electoral majority happily voted for itself unlimited benefits that will supposedly be paid for by a productive minority—even as the nation careens toward bankruptcy and said productive minority starts eyeing the exits. With demographic changes reinforcing a permanent ethnic tribalism that abjures the melting pot, the likelihood that our country will ever recover its founding values has vanished as thoroughly as our respect for the dead white men who pledged their lives, their fortunes, and their sacred honor to make our way of life possible.

So be it. Mourn, if you choose. But when you’re done you still have to pay the rent.

Making one’s way in a country increasingly falling under the spell of slogans used so effectively by Vladimir Lenin and his fellow travelers requires a new strategy, lest one fall into chronic despair. This is necessary because nothing is worse than becoming that one species of ideologue that no one can abide—a bore.

What should that new strategy be?

I searched for the answer as I reassessed my own mission as an opinion columnist. Today, that is a calling, not a true profession. The going rate for opinion pieces has dropped from $1.50 per word—eagerly paid by hungry editors back when magazines had business models that actually worked—to zero in today’s content-glutted, balkanized blogosphere. Let’s face it, as traditional publishing slowly perishes and is replaced by an electronically enabled mediocrity made possible by the removal of all barriers to entry, those of us who write do so solely to entertain what micro-audiences we can gather—a sorry business to be sure, yet one with deep cultural roots.

The Second Coming Of Kim Dotcom

Inside Mega 

By Andy Greenberg

Kim Dotcom, a.k.a. Kim Tim Jim Vestor, a.k.a. Kim Schmitz, doesn’t act much like a man with a net worth in the negative.

At 11 a.m. on a Tuesday he’s driving me around on a golf cart “safari” of his 60-acre estate outside of Auckland, New Zealand. He weaves among a grove of olive trees with alarming speed–he’s removed the speed regulator in his fleet of electric buggies, and they can clock up to 19 miles per hour. We swing past his 2,000-bottle-a-year vineyard and barrel down a hill toward his $30 million mansion, complete with a hedge maze, a five-flatscreen Xbox room and a 75-foot cascading water display.

Given that he owes millions of dollars to defense lawyers and now has to raise his five children on a $20,000-a-month government allowance meted out from his frozen bank accounts, wouldn’t it be wise to live a slightly simpler life?

“No way,” he says, leaning his massive 6-foot-7, 300-plus-pound body onto the cart’s steering wheel. “That would be allowing them to get away with this stunt. I won’t accept that. By staying here I’m saying, ‘Eff you! You can’t defeat me!’”

The “stunt” Dotcom refers to is the police helicopter raid on his compound that made global headlines 15 months ago, timed to coincide with the U.S. indictment that shut down his ultrapopular constellation of Mega-branded websites under charges of hosting half a billion dollars’ worth of pirated movies and music. Overnight Dotcom went from an underground entrepreneur to one of the most public and controversial figures on the Internet. His site domains, including the flagship Megaupload.com, are now the property of the U.S. government. His servers have been ripped out of data centers around the world and sit in evidence warehouses. He’s had to let go of 44 of his 52 house staff as well as Megaupload’s hundreds of employees. All but 2 of his 18 cars have been seized or sold.