Up From Totalitarianism

A remarkable ex-Marxist on God, socialism, and Princess D

By JOSEPH SHATTAN

LESZEK KOLAKOWSKI WAS a philosopher and historian of ideas. He received his doctorate in 1953 for his study of Spinoza. Under different circumstances, he might have led a satisfying but obscure academic life, publishing dense scholarly works that hardly anyone read, and remaining largely aloof from the world’s troubles and turmoil.

It was Kolakowski’s misfortune, however, to be born in Poland in 1927, on the eve of that nation’s darkest hour. As a teenager, he endured the Nazi occupation, lived among Poles who risked their lives saving their Jewish compatriots, and taught himself Latin, French, and German, as well as philosophy. In 1959, he was appointed to the chair of the history of modern philosophy at Warsaw University, but soon found himself in hot water with the authorities because of his political views. In 1968, Poland’s Communist government expelled him from Warsaw University and banned him from teaching and publishing. After a brief stay in Canada and the U.S., he settled in England and was senior fellow at All Soul’s College, Oxford, until his retirement.

Throughout his lifetime, Kolakowski never ceased to write. His masterwork, Main Currents of Marxism, traced the trajectory of what Kolakowski called “the greatest fantasy of the 20th century,” which began in an attempt to create a perfect society, and ended up as the foundation for “a monstrous edifice of lies, exploitation and oppression.”

But Kolakowski was the author of some 30 other books, as well as countless articles, nearly all of which were directed at general audiences, and dealt with the most urgent issues of our time. His daughter, Agnieszka Kolakowska, has brought together many (but by no means all) of his essays in a splendid collection called Is God Happy?

As might be expected, many of these essays deal with Marxism, socialism, and communism. For example, in a devastating response to British leftist E.P. Thompson, who accused Kolakowski of betraying the socialist idea, Kolakowski explained why that idea was flawed from the outset:

All attempts to examine [the socialist] experience lead us back not only to contingent historical circumstances but to the very idea of socialism and the discovery of incompatible demands hidden in this idea.…We want a society with a large autonomy of small communities, do we not? And we want central planning in the economy. Let us try to think now how both work together. We want technical progress and we want perfect security for people; let us look closer how both could be combined. We want industrial democracy and we want efficient management: do they work well together? Of course they do, in the leftist heaven everything is compatible and everything settled, lamb and lion sleep in the same bed.” [“My Correct Views on Everything,” 1974]

Maximizing mistakes and profits

How Hospitals Profit From Making Mistakes

by Michael Krieger

One of the many things holding the nation back at the moment is the complete lack of incentive to be a creative, productive and honest member of society versus the tremendous incentive to be a corrupt, thieving, lackey for the establishment.  In a free market system, with a strict set of rules governing the game that is applied to everyone equally, market signals and incentives exist for companies to create a great product and to meet customer needs with great service.  In contrast, within a crony capitalist system, the primary incentive is to get as close as possible to political and corporate power in order to financially benefit from their oligarchical ownership of the controlled economy.

It is only within a completely disconnected from reality, crony, fraudulent economy where you could have a situation in which hospitals actually earn much larger profit margins from making mistakes and harming their patients, than from providing excellent care.  We learn from theNew York Times that:

Hospitals make money from their own mistakes because insurers pay them for the longer stays and extra care that patients need to treat surgical complications that could have been prevented, a new study finds.

Changing the payment system, to stop rewarding poor care, may help to bring down surgical complication rates, the researchers say. If the system does not change, hospitals have little incentive to improve: in fact, some will wind up losing money if they take better care of patients.

The Party at Wall Street is not sustainable

The bubbles being created by the Fed will be far greater and more devastating than any other in history

By Michael Pento

When central bankers dedicate their existence to re-inflating asset bubbles, it shouldn’t at all be a surprise to investors that they eventually achieve success. Ben Bernanke has aggressively attempted to prop up the real estate and equity markets since 2008. His efforts to increase the broader money supply and create inflation have finally supported home prices, sent the Dow Jones Industrial average to a record nominal high and propelled the bond bubble to dizzying heights.

The price of any commodity is highly influential towards its consumption. This concept is no different when applied to money and its borrowing costs. Therefore, one of the most important factors in determining money supply growth is the level of interest rates. The Federal Reserve artificially pushed the cost of money down to 1% during the time frame of June 2003 thru June 2004. It is vitally important to note that these low interest rates were not due to a savings glut; but were rather created by central bank purchases of assets. This low cost of borrowed funds affected consumers’ behavior towards debt and was the primary reason for the massive real estate bubble.

Today, the Fed Funds rate has been pushed even lower than it was in the early 2000’s. In addition, unlike a decade ago when the Fed held the overnight lending rate at 1% for “just” one year, the central bank is in the process of pegging short-term rates at near zero percent for what will amount to be at least seven years. However, this time the primary borrower of the central bank’s cheap money isn’t consumers as much as it is the Federal government. Mr. Bernanke has already increased the monetary base by over $2 trillion since the Great Recession began in late 2007, which has helped cause the M2 money supply to grow by $3 trillion–an increase of 40%!

Therefore, it isn’t such a mystery as to why there are now partying down on Wall Street like it is 1999; and we are once again amused with anecdotes of real estate buyers making millions flipping homes.

But all this money printing has not, nor will it ever, restore the economy to long-term prosperity. Despite the Fed’s efforts to spur the economy, GDP growth increased just 1.5% during all of 2012 and grew at an annual rate of just 0.1% during Q4 of last year. The future doesn’t bode much better. This year consumers have to deal with higher taxes, rising interest rates and record high gas prices for March. Don’t look for exports to rescue the economy either. Eurozone PMIs are firmly in contraction territory and Communist China is busy dictating the growth rate of the economy by building more empty cities—clearly an unsustainable and dangerous economic plan.

This means that the Federal Reserve will keep interest rates at record lows for significantly longer than the time it took to construct any of its previous bubbles. Also, the central bank will take years to reduce its $85 billion per month pace of monetary base expansion back to neutrality. Meanwhile, surging money growth will continue to force more air into the stock, real estate and bond markets for several years to come.

Debt, Growth, and the Illusions of Social Scientism

Everyone interprets the world by applying a theory

by Tomas Salamanca

For all the politicians and economists who have been doggedly nonchalant about escalating levels of public debt, this was a good week. Making their week was the revelation that the statistical calculations in an influential paper were off. It is not often that a math error causes such a mix of glee and consternation as we have seen over the past several days. But the computations in question, advanced by Kenneth Rogoff and Carmen M. Reinhart, both professors at Harvard, are widely thought to have swayed governments in the Western world towards austerity policies. Thanks to a paper out of the University of Massachusetts, the empirical grounds for those policies have allegedly been swept away. Actually, what the Rogoff-Reinhart affair demonstrates is that empirical evidence does not, and indeed cannot, decide economic controversies.

That it can is the defining conceit of the neo-classic orthodoxy in contemporary economics. In this, the economics profession has long been following the dominant trend in the social sciences where a philosophic commitment to positivism became firmly ensconced in the post-World War II era. Positivism is the view that the truth of statements concerning the world we experience through our five senses can only be established by passing the test of observation. It is a philosophy influenced by the enormous success of the natural sciences in comprehending the physical and non-human universe.

Its proponents in the social sciences believe that this accomplishment holds the key to eventually securing important truths about human affairs. If the testing of hypotheses through experiments and the analysis of data is what finally advanced our understanding of the natural order after millennia of idle speculation and disagreements, then that method of inquiry is our surest bet to replicate this intellectual achievement in the human order. Because so much of their subject-matter is reducible to numbers, economists have been more disposed than the general run of social scientists to adopt sophisticated mathematical techniques and models in generating empirical tests.

Though the quantitative approach taken by Rogoff and Reinhart was relatively straight-forward – what they basically did was sort the historical data into four different groups by level of public debt and then calculate the average level of real GDP growth for each group – they did go the positivist route of testing a hypothesis. Their hypothesis was that, beyond a certain level, public debt would exhibit a significant relationship with economic growth. Using figures from 1946 to 2009, Rogoff and Reinhart originally found that, on average, real growth falls 0.1% per year when the public debt of an advanced economy exceeds 90% of GDP. That compares to an annual growth rate of 2.8% at debt levels between 30-90% of GDP and 4.1% when debt was under 30% of GDP.

Cyprus and the Unraveling of Fractional-Reserve Banking

Better Still, Free Banking

By Joseph Salerno

The “Cyprus deal” as it has been widely referred to in the media may mark the next to last act in the the slow motion collapse of fractional-reserve banking that began with the implosion of the savings-and-loan industry in the U.S. in the late 1980s.

This trend continued with the currency crises in Russia, Mexico, East Asia, and Argentina in the 1990s in which fractional-reserve banking played a decisive role. The unraveling of fractional-reserve banking became visible even to the average depositor during the financial meltdown of 2008 that ignited bank runs on some of the largest and most venerable financial institutions in the world. The final collapse was only averted by the multi-trillion dollar bailout of U.S. and foreign banks by the Federal Reserve.

Even more than the unprecedented financial crisis of 2008, however, recent events in Cyprus may have struck the mortal blow to fractional-reserve banking. For fractional-reserve banking can only exist for as long as the depositors have complete confidence that regardless of the financial woes that befall the bank entrusted with their “deposits,” they will always be able to withdraw them on demand at par in currency, the ultimate cash of any banking system.

Ever since World War Two governmental deposit insurance, backed up by the money-creating powers of the central bank, was seen as the unshakable guarantee that warranted such confidence. In effect, fractional-reserve banking was perceived as 100-percent banking by depositors, who acted as if their money was always “in the bank” thanks to the ability of central banks to conjure up money out of thin air (or in cyberspace).

Perversely the various crises involving fractional-reserve banking that struck time and again since the late 1980s only reinforced this belief among depositors, because troubled banks and thrift institutions were always bailed out with alacrity—especially the largest and least stable. Thus arose the “too-big-to-fail doctrine.” Under this doctrine, uninsured bank depositors and bondholders were generally made whole when large banks failed, because it was widely understood that the confidence in the entire banking system was a frail and evanescent thing that would break and completely dissipate as a result of the failure of even a single large institution.

Getting back to the Cyprus deal, admittedly it is hardly ideal from a free-market point of view. The solution in accord with free markets would not involve restricting deposit withdrawals, imposing fascistic capital controls on domestic residents and foreign investors, and dragooning taxpayers in the rest of the Eurozone into contributing to the bailout to the tune of 10 billion euros.

Nonetheless, the deal does convey a salutary message to bank depositors and creditors the world over. It does so by forcing previously untouchable senior bondholders and uninsured depositors in the Cypriot banks to bear part of the cost of the bailout. The bondholders of the two largest banks will be wiped out and it is reported that large depositors (i.e., those holding uninsured accounts exceeding 100,000 euros) at the Laiki Bank may also be completely wiped out, losing up to 4.2 billion euros, while large depositors at the Bank of Cyprus will lose between 30 and 60 percent of their deposits. Small depositors in both banks, who hold insured accounts of up to 100,000 euros, would retain the full value of their deposits.

Better or Worse?

It all comes down to how much you have to lose

by Daniel Greenfield

All politics are the politics of the future. The one cause that we all champion, regardless of our political orientation, is the cause of the future. All that we fight for is the ability to shape the future.

The fundamental political question is, "Do you believe things are getting better or worse?" Ruling parties tend to answer, "Better", opposition parties tend to answer, "Worse". The deeper answer to that question though lies in our perceptions of the past and the future.

The left tends to view the past negatively and future shock positively. It wants change to disrupt the old order of things in order to make way for a new order. It hews to a progressive understanding of history in which we have been getting better with the advance of time, the march of progress mimics evolution as a means of lifting humanity out of the muck and raising it up on ivory towers of reason through a ceaseless process of change.

The right often views the past positively, it sees change as a destroyer that undermines civilization's accomplishments and threatens to usher in anarchy. It fights to conserve that which is threatened by the entropic winds of change. The conservative worldview is progressive in its own way, but it is the progress of the established order. It sees progress emerging from the accretion of civilization, rather than from the disruption of revolution.

Where the left tends to be unrealistically optimistic about the future, acting like a child running to the edge and jumping off, without remembering all the bumps and bruises before, the right tends to be pessimistic about the future. It tends to be wary of change because it is all too aware of how dangerous change can be.

Youth who do not understand the value of what is around them rush to the left. As they achieve a sense of worth, of the world around them and of their labors, they drift slowly to the right. Age also brings with it a sense of vulnerability. Knowing how you can be hurt, how fragile the thin skin of the body, the fleshy connections and organs dangling within, brings with it a different view of the world. Once you understand that you can lose and that you will lose, then you also understand how important it is to defend what you have left.

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.)