The economics of the 'Turkish Spring'

Erdogan's spending spree has left Turks with a horrendous hangover

By Spengler 

Pitched battles between anti-government demonstrators and Turkish police over several days at Istanbul's Taksim Square constitute a national uprising against Recep Tayyip Erdogan's incipient Islamist dictatorship. As of this writing on June 2, tens of thousands of regime opponents are in control of the heart of Istanbul while police have withdrawn. The economic distress of Turkish households is an important factor in the country's political upheaval. 

News media have already dubbed the demonstrations a "Turkish Spring". That is a turnabout, for the "Turkish model" was touted two years ago as the solution to the economic and social problems of the failing police states of Arab nationalism. Erdogan's supposedly moderate Islamism and dynamic economic management supposedly offered a way out for Egypt and other failed economies of the Middle East. 

Erdogan had declared himself a "servant of Sharia" during his 1994 mayoral campaign in Istanbul, but most Western observers chose to take the would-be Turkish dictator at his subsequent word that he would respect the secular character of the Turkish state. 

It was never to be. Erdogan did not preside over an economic miracle - contrary to the credulous estimates of many Western observes - but arranged, rather the usual sort of Third World credit bubble, which has left Turkish consumers to tighten their belts in response to a devastating debt burden. "Economic troubles will dominate the political agenda, and Erdogan's claim to leadership of the Islamic world - let alone his own country - will look far less credible," I warned in this space April 23 (see Turkey's ticking debt time-bomb, Asia Times Online), just before Moody's assigned Turkey an investment-grade rating, perhaps the poorest judgment by the rating agency since it put a "Aaa" stamp on securities backed by subprime mortgages. 

Turkey's problems can't really be compared to the 2011 revolts in Muslim North Africa, to be sure: the country's economy will keep functioning, although far below the expectations of ordinary Turks, and its political system is robust. But the anti-government demonstrations denote a turning point in the fortunes of Turkish Islamism. 

The demonstrators' anger, to be sure, centers on Erdogan's creeping dictatorship: the gradual imposition of Islamic law in a Turkish state founded on secular principles, the jailing of hundreds of regime opponents, and the assimilation of enormous economic power into corrupt monopolies controlled by Erdogan's party. Leaked US diplomatic cables claimed in 2010 that Erdogan amassed a huge personal fortune through bribery during his term and commissions on the sale of Turkish assets to foreign investors. [1] Kemal Kilicdaroglu, leader of the secular opposition party CHP, compared Erdogan to Hitler. 

Average Swede to Repay Mortgage in 140 Years

Sweden Housing Crash Coming Up

By Mike "Mish" Shedlock

Swedish repay their mortgages so slowly that it will take 140 years on average, according to the IMF. 

The International Monetary Fund lamented Friday that Swedish households pay their mortgages so slowly that they are planning to do an average of 140 years.

"Financial stability is [...] reinforced by a steady reduction in repayment schedules - that exceed an average of 140 years," the IMF said in a statement after a mission in Sweden.

This statistic was revealed in March by a government agency, the inspection of the financial sector. It covers loans considered relatively safe, those where the real estate buyer had an initial contribution equal to or greater than 25% of the value of the property and pay the higher monthly interest alone.

According to the Washington-based institution, the Swedish real estate market is a major risk to the economy, along with the eurozone crisis.

"With household debt rising beyond 1.7 times disposable income, a sudden and significant drop in property prices could have an effect on consumption and banks, raising unemployment and further reduce the inflation, and increased the number of non-performing loans and financing costs for banks, "said the IMF.

Why bother paying anything at all? Yet think of the consequences of underwater mortgages on the banking system when an estate does not have enough money to repay loans. A housing bust will have enormous consequences in such a setup.

Wave of Unrest Spreads Across Turkey

Crackdown on Protest in Istanbul Park Sparks Nationwide Demonstrations Against Government Policies

By By JOE PARKINSON, AYLA ALBAYRAK and EMRE PEKER

An unexpected eruption of often-violent civil unrest swept across Turkey over the weekend, the culmination of a simmering clash over social policy between Prime Minister Recep Tayyip Erdogan and a broadening coalition of Turks that threatens the political stability of a key U.S. ally.

The demonstrations mushroomed after a police attack Friday on a small protest against government plans to replace a park in central Istanbul with a housing complex and shopping mall. After two days of clashes around the park and the adjacent Taksim Square, police withdrew Saturday afternoon, leaving protesters to occupy the area

Fueled by social-media images of the showdown, protests ricocheted around Turkey, and by the end of the weekend, hundreds of people had been injured and almost 2,000 detained in demonstrations that spread to half of Turkey's 81 provinces, according to the government.

Mr. Erdogan has won election three times, emboldening him to take a tougher line on everything from alcohol consumption to the media. The Turkish leader hit back over the weekend at critics who increasingly paint him as an autocrat, labeling the protesters "a minority."

"If you can call someone who is a servant of the country a dictator, then it leaves me speechless," he said in a televised speech. "I have no aim other than serving the nation." Mr. Erdogan and his ruling AKP party retain strong public support, and on Saturday he said he could summon five times as many people to the streets as the protesters.

While the protests are unlikely to herald the fall of Mr. Erdogan's government, they represent by far the biggest challenge to his 10-year rule.

The protests also lay bare the challenges Ankara faces as it tries to serve as a model for new Islamist governments in the region seeking to emulate the electoral success of Mr. Erdogan's Islamist-rooted Justice and Development Party. Analysts said the impact could also shift politics in Turkey, an important U.S. ally in a region convulsed by uprisings and political turbulence.

"What we've seen this weekend is a watershed event in Turkey and there's no going back for the people who have taken part," said Sinan Ulgen, chairman of the Center for Economic and Foreign Policy Studies, a research group in Istanbul. "Even if Mr. Erdogan doesn't want to change, we will see more mass protests if his government doesn't listen to this constituency, because these people now realize their power,"

'Frau Europa' becomes 'Frau Deutschland' again

A Setback for the EU’s Centralization Faction

By Pater Tenebrarum 

A German election is drawing close and it is evident in many small things that are happening lately. The latest is that Mrs. Merkel is now apparently distancing herself from her erstwhile demands to create a 'fiscal union' and give the eurocracy in Brussels more powers. Incidentally, her change of heart comes shortly after her summit with France's president Hollande, which indicates that the latter has probably let her know that France is none too happy with the idea either. Since this means that the drive toward more centralization will be slowed down, we take it as good news. 

“German Chancellor Angela Merkel has come out against handing the European Commission more powers, in the clearest sign yet that she is reining in her ambitions to create a "fiscal union" in which euro members cede control of their budgets to Brussels.

The comments, made in an interview with weekly Der Spiegel, come days after Merkel held talks with President Francois Hollande in Paris and the two unveiled joint proposals for the future shape of the euro area, including the creation of a permanent president of the Eurogroup forum of finance ministers.

Merkel spoke out strongly in favour of closer fiscal integration last year, but France and some other euro members have deep doubts about ceding sovereignty — a step which would require politically sensitive changes to the EU treaty — and Berlin appears to have realized that this resistance is too great to overcome for now.

With a German election looming in September and a new anti-euro party threatening to eat into support for her conservative bloc, Merkel may also be adjusting her message for voters at home, many of whom are leery about ceding national powers.

"I see no need in the next few years to give up more powers to the Commission in Brussels," Merkel said in the interview, adding that she agreed with Hollande on EU member states cooperating more on economic issues.

"We are thinking for example of the labour and pension markets but also of tax and social policy. Economic policy coordination in Europe is far too weak, it must be strengthened and this is rather different to giving more competences to Brussels," she said.” 

She still talks about the alleged need for 'more policy coordination', but luckily handing more powers to the bureaucrats in Brussels seems to be off the table for now. It will be interesting to see how the bureaucratic caste ensconced in Brussels will react to these news.  

What If Stimulus Is Self-Defeating?

The more stimulus is applied in today's global economies, the faster it will hit a wall

By Raul Ilargi

It's sort of funny to see a wider - though still faint - recognition developing in the financial world that perhaps it's true that the more stimulus is applied in today's global economies, the faster it will hit a wall. Some may finally even begin to see one or more inbuilt mechanisms at work. I personally think it all harks back to what I've long said, that stimulus by governments and central banks may have a function in certain economic cycles, but that applying it without across the board and thorough debt restructuring is a borderline criminal and useless use (and waste) of present and future taxpayer money. Still, we all know by now what will happen when stimulus starts to stutter: ever more will be blindly thrown at that wall.

News that Japan's main pension fund will increasingly be allowed to move from bonds into - domestic - stocks was received as a piece of real good news this week, after the Nikkei lost some 15% in a few days time. It's still up over 30% for the year though, and that should have all of us wondering, especially the fund managers - and its beneficiaries-: What are the chances that the fund's move into stocks coincides with the Nikkei having surpassed its top? That the increased purchases may perhaps lift it for a few days, but the downward move is in regardless? It's hard not to chuckle a little when you see that the Tokyo government and the fund want to execute the move because bond yields are so low, and at the same time they announce it, those yields triple.

Pensions funds - and non-financial institutions in general - (tend to) always lag behind developments. Needless to say, being always behind can be a very expensive quality to have. Millions of ageing Japanese may not be terribly happy if their pension money is moved into the stock market and it retraces it gains right back to where it came from, for a 30% loss.

And the desperate game of Abenomics will have repercussions throughout the world. Not just in emerging markets, South Africa, Brazil, Thailand et al, that already see a lot of damage from investment banks, who float freely on cheap profits from various QEs, recalibrating their Abezombie money away from emerging economies. No, Abenomics will hit the US and Europe even harder. Because, as our roving reporter VK phrased it: "JGBs are the base of the pyramid in the global bond markets. Risk is priced in JGBs. So Abenomics has destabilized the base of the pyramid in global bond markets. Risk is being repriced accordingly."

Japan is the world's largest creditor. A little over a year ago, Bloomberg wrote :

Investments abroad grew 3.3% to 582 trillion yen ($7.3 trillion) in 2011, rising for the third year, the Finance Ministry said in Tokyo today. Currency gains cut the value of existing holdings but encouraged increased investment abroad. Foreign investors increased Japanese assets by an extra 17 trillion, leaving the net creditor position of the country little changed at 253 trillion yen ($3.25 trillion), the world’s largest, the data showed.

The strange rebirth of liberal England

British politics and the young

Young Britons have turned liberal, both socially and economically. Politicians need to get on their side

The Economist

For the past 170 years The Economist has consistently advocated free trade, punctured government bloat and argued for the protection of individual liberties. It has also been consistently disappointed. Irksomely, political parties tend to plump either for economic liberalism or for social liberalism. Sometimes a small party boldly tries to combine the two—and is rewarded by becoming even smaller. In the United States our creed is so misunderstood that people associate liberalism with big government, when it advocates the opposite.

Yet now Britain, The Economist’s home, the land of Adam Smith (on lead guitar), John Stuart Mill (bass) and William Gladstone (vocals), there is reason for hope. Young Britons have turned strikingly liberal, in a classical sense (see article).

They are relaxed, almost to the point of ennui, about other people’s sexual preferences, drug habits and skin colour. Although, like older Britons, they do not think much of mass immigration, they are tired of politicians banging on about it. As for the row over gay marriage, soon to trouble the House of Lords, they can hardly see the problem.

The young want Leviathan to butt out of their pay cheques as well as their bedrooms. Compared with their elders, they are welfare cynics. Almost 70% of the pre-war generation, and 61% of baby-boomers, believe that the creation of the welfare state is one of Britain’s proudest achievements. Under 30% of those born after 1979 agree. The young are deficit-reduction hawks. They worry about global warming, but still generally lean towards Mill’s minimal “nightwatchman state” when it comes to letting business get on with it: they are relaxed about the growth of giant supermarkets, for example.

It’s only Locke ‘n’ roll, but I like it

This is not just the young being the young. Rather, it is a generational change. In 1987 Britons aged between 18 and 34 were less likely than all other age groups to agree with the proposition that benefit cuts would encourage people to stand on their own two feet: now the young are more hard-hearted than most. They are also more socially liberal than were previous generations at the same stage of life.

Ten Thousand Commandments: An Annual Snapshot of the Federal Regulatory State

A mandate that is off the rails

By George Will

Texting while driving is dangerous, especially if you are driving a train. A commuter train engineer was texting on Sept. 12, 2008, near Los Angeles, when he missed a stop signal and crashed into a freight train. Twenty-five people died.

Congress supposedly is incapable of acting quickly, and we are supposed to regret this. In 2008, however, Congress acted with dispatch. We should regret that it did. Herewith another lesson about the costs of the regulatory state, especially when it is excited, eager to make a gesture and propelled by an uninformed consensus.

On Jan. 6, 2005, nine people had been killed in Graniteville, S.C., by chlorine gas leaking from a derailed freight train, but Congress did not spring into action. In 2008, however, California’s 53-person congressional delegation was 12 percent of the House and 24 percent of a House majority. So in less than a month after the commuter train collision, Congress, with scant opposition from railroads, and without meaningful cost-benefit analyses, passed legislation requiring most railroads to implement, by 2015, positive train control (PTC), a technology to stop trains by overriding some human mistakes.

So far, railroads have spent more than $2.7 billion on a system estimated to cost $10 billion to $14 billion — plus perhaps $1 billion in annual maintenance. PTC has not been installed, partly because it is not sufficiently developed. CSX Corp., which includes railroads among its assets, says the railroad industry is the nation’s most capital-intensive — and the $11 billion combined capital investments of all U.S. railroads in 2010 were approximately equal to the cost of PTC. The 2015 mandate will not be met.

The Federal Railroad Administration estimates that were PTC to be installed on thousands of locomotives and tens of thousands of miles of track, it would prevent perhaps 2 percent of the approximately 2,000 collisions and derailments, preventing seven deaths and 22 injuries annually. But because a dollar spent on X cannot be spent on Y, the PTC mandate must mean the sacrifice of other investments crucial to railroad safety (and efficiency).

Japan's Easy Money Tsunami

The more things change, the more they stay the same

by David Howden

The Bank of Japan has just embarked on one of the most inflationary policies ever undertaken. Pledging to inject $1.4 trillion dollars into the economy over the next two years, the policy is aimed at generating price inflation of 2% and further depreciating the Yen. The idea is to fight “deflation” and increase exports.

The end result of this policy will be an assuredly larger balance sheet at the Bank of Japan (projected to nearly double to $2.9 trillion). Despite being lower than it was 25 years ago, the Japanese Stock Index has increased by 70% since November of last year. However happy people have been about higher stock prices, eventually the economic effects will be harmful; indeed the recent stock price crashes foreshadow still more troubles to come.

In my own contribution to Guido Hülsmann’s recent edited book The Theory of Money and Fiduciary Media, I take a critical look at these exact policies – expansions of the money supply aimed at stimulating output by way of manipulating the exchange rate. At the 100-year anniversary of the publication of Ludwig von Mises’ The Theory of Money and Credit, we can see that Mises had already grappled with the issues of currency depreciation in a manner superior to modern monetary economics. Furthermore, with the refinement of his business cycle theory in his book Human Action, we find that Mises also outlined the detrimental effects of such expansionary monetary policies.

The exchange rate determines the price a foreigner will have to pay for a domestically produced good. Increases in the money supply will generate inflationary price pressures that will in turn increase prices. This leads to a higher exchange rate, which means it takes more domestic currency to purchase a unit of foreign currency. This makes it cheaper for foreigners to buy our goods so exports increase. Conclusion: countries can stimulate exports and increase the number of jobs in export industries by inflating their money supply.

Unfortunately, this is not the end of the story.

Towards the end of poverty

The world’s next great leap forward

Nearly 1 billion people have been taken out of extreme poverty in 20 years. The world should aim to do the same again

The Economist

In his inaugural address in 1949 Harry Truman said that “more than half the people in the world are living in conditions approaching misery. For the first time in history, humanity possesses the knowledge and skill to relieve the suffering of those people.” It has taken much longer than Truman hoped, but the world has lately been making extraordinary progress in lifting people out of extreme poverty. Between 1990 and 2010, their number fell by half as a share of the total population in developing countries, from 43% to 21%—a reduction of almost 1 billion people.

Now the world has a serious chance to redeem Truman’s pledge to lift the least fortunate. Of the 7 billion people alive on the planet, 1.1 billion subsist below the internationally accepted extreme-poverty line of $1.25 a day. Starting this week and continuing over the next year or so, the UN’s usual Who’s Who of politicians and officials from governments and international agencies will meet to draw up a new list of targets to replace the Millennium Development Goals (MDGs), which were set in September 2000 and expire in 2015. Governments should adopt as their main new goal the aim of reducing by another billion the number of people in extreme poverty by 2030.

Take a bow, capitalism

Nobody in the developed world comes remotely close to the poverty level that $1.25 a day represents. America’s poverty line is $63 a day for a family of four. In the richer parts of the emerging world $4 a day is the poverty barrier. But poverty’s scourge is fiercest below $1.25 (the average of the 15 poorest countries’ own poverty lines, measured in 2005 dollars and adjusted for differences in purchasing power): people below that level live lives that are poor, nasty, brutish and short. They lack not just education, health care, proper clothing and shelter—which most people in most of the world take for granted—but even enough food for physical and mental health. Raising people above that level of wretchedness is not a sufficient ambition for a prosperous planet, but it is a necessary one.

Classical Liberalism’s Impossible Dream

The Emperor is naked

By Robert Higgs

I can understand why someone might embrace classical liberalism. I did so myself more than forty years ago. People become classical liberals for two main reasons, which are interrelated: first, because they come to understand that free markets “work” better than government-controlled economic systems in providing prosperity and domestic peace; second, because people come to believe that they may justifiably claim (along more or less Lockean lines) rights to life, liberty, and property. These two reasons are interrelated because the Lockean rights provide the foundation required for free markets to exist and operate properly.

Like Locke, classical liberals recognize that some persons may violate others’ rights to life, liberty, and property and that some means of defending these rights adequately must be employed. On this basis they accept government (as we know it), but only with the proviso that the government must be limited to protecting people against force and fraud that would unjustly deprive them of life, liberty, and property. They believe that government (as we know it) can perform these functions, whereas private individuals without such government would be at the mercy of predators and hence that their lives would be, as Hobbes supposed, solitary, poor, nasty, brutish, and short. Nobody wants that.

So, to repeat, I can understand why someone might become a classical liberal. However, as the years have passed, I have had increasing difficulty in understanding why someone would remain a classical liberal, rather than making the further move to embrace genuine self-government in place of the classical liberal’s objective, “limited government.” My difficulty arises not so much from a dissatisfaction with government’s being charged with protecting the citizens from force and fraud, but from a growing conviction that government (as we know it) does not, on balance, actually carry out these tasks and, worse, that it does not even try to carry them out except in a desultory and insincere way—indeed, as a ruse.

A nightmare vision of the welfarist trap

Benefits is a timely reminder that left-wingers weren't always such big fans of welfarism

by Neil Davenport 

Among a broad spectrum of British left-wingers, the welfare state is treated as the most sacred institution in British society. Unemployment benefit, child benefit, incapacity benefits, housing benefit… all are held up as paragons of a left-inspired virtue. Nothing agitates left-leaning commentators more than Lib-Con proposals to slash welfare payments. Apparently the poor, the plebs and ‘the vulnerable’ could not cope without the army of welfare professionals providing them with support and sustenance.

Yet this hagiographical account of the welfare state is a fairly new turn on the left. Left-wingers weren’t always so taken with welfarism. It seems that the more the left’s faith in ordinary people’s capacity to sort their lives out has declined, the more it has endowed the state with extraordinary qualities, virtues and powers.

Back in the 1970s and 80s, some radical sociologists deplored the expansion of welfarism, viewing it as an extension of bureaucratic control over the citizenry. Sociology texts asked, ‘Who benefits from benefits?’, and the answer was often: the establishment and those at the top of the class system. Following Marx’s point that very early systems of welfare were a ‘disguised form of alms’, radical sociologists argued that welfare simply ‘bought off’ the lower orders and encouraged them to identify with and respect state structures.

In the 1980s, many a crusty anarchist would point out the inconsistency among some left-wingers of being anti-state while simultaneously claiming welfare benefits. In promoting the idea that the state was ‘neutral’, and that it might possibly be coaxed to improve poor people’s lives further, welfarism actively discouraged political independence of the state and its offshoots.

It was this radical tension - of being politically opposed to the state while advocating economic dependence on it - that was explored in Zoe Fairbairns’ dystopian feminist novel, Benefits. Written in the febrile political atmosphere of late-1970s Britain, Benefits is about a future state’s sinister attempts to control women’s fertility, and to encourage responsible parenting, through the introduction of a universal ‘wages for housework’ benefit.

Although rarely out of print since it first appeared in 1979, Benefits has recently been re-issued, with a new introduction by Fairbairns, for the e-reader age. It is now being marketed as a political attack on ‘anti-welfarist Tories’, yet as Fairbairns points out, anyone who views Benefits as simplistically ‘anti-Thatcherite’ is missing its key point: that welfare benefits can become a weapon of social engineering and control. On top of critiquing aspects of welfarism, Benefits lays into radical feminism’s self-defeating slogan, ‘The personal is political’, while passionately championing women’s liberation and equal rights - feminism’s one-time aims.

Bush Wasn’t a Conservative and Obama Isn’t a Liberal

Tyranny and the Rule of Law

By Mary Theroux

Americans need to stop picking the politicians they support based on how those politicians self-identify. Each of us needs to know what values we hold, and when all the evidence shows that the guy claiming to represent those values doesn’t, give up the party line.

Conservatives are supposed to be for limited government—both in size and centrality of power—restrained foreign adventuring, and economic liberty. In the immediate aftermath of September 11, 2011, the Independent Institute warned repeatedly against the terrorist attacks being used as the premise for vastly expanding the size and scope of government power—as such crises have historically been used to do, as chronicled in Robert Higgs’s brilliant Crisis and Leviathan: Critical Episodes in the Growth of American Government.

Michael Barone dismissed such warnings in the Wall Street Journal, confidently declaring that since Republicans held both the House and the Presidency, runaway government would not be a problem. The Republican House, of course, proceeded to grant the Republican Executive unprecedented budgets and powers, quadrupling the size of the federal government under their “Conservative” watch.

Likewise, conservatives figured they could “trust” a Republican to tell them the truth about things like imminent threats, and provided full support for expansionary wars. The supposed conservative in the White House was also the first Republican president to support the federal department of education, bringing on “No Child Left Behind.”

The entire litany of non-conservative positions and acts under President George W. Bush could not fit in a Beacon post.

Modern-day liberals are supposedly in favor of peace and civil liberties, especially those protected by the First and Fourth Amendments, and to be defenders of the economically disadvantaged.

And thus was Barack Obama brought to power, promising peace and preemptively awarded the Nobel Peace Prize, heralded as the great liberal hope.

7 Major Myths About Immigration

Separating Myth from Reality

By Alvaro Vargas Llosa

Now that the Senate is finally debating a bill that would overhaul the immigration system, legislators would do well to separate myth from reality.

Myth 1: There are more immigrants than ever and these immigrants break the mold of previous waves.

Between 1860 and 1920, fourteen percent of the population was foreign-born. The average for the 20th century is 10-plus percent. The proportion is not different today—about 13 percent. Until the 1880s immigration originated in northern and western Europe but in subsequent decades they came from southern, central and eastern Europe, which was culturally, politically and economically different. Not to mention Asians, who arrived in significant numbers.

Myth 2: Immigrants migrate because they are very poor.

The poorest people migrate internally. Rich countries such as South Korea have sent many migrants to the U.S. while Bangladeshi women, who are very poor, have migrated little even in Asia, the region with the highest rate of migration. Europe was a net exporter of people until 1980. Family ties, occupational preference, distressed conditions at home and historical ties matter. U.S. involvement in Cuba, the Philippines and the Dominican Republic in the early the 20th century was a critical factor in the movement of citizens from those countries to America. Business interests were key at various times in pushing for the legal hiring of Mexicans.

Myth 3: These immigrants are culturally different and threaten the American way of life.

Immigrants are religious, family-oriented, entrepreneurial and no more prone to crime than natives. Seventy percent of Hispanics who moved to the U.S. in the last two decades are Catholic (one fifth are “born again” Christians) and 23 percent are Protestant. One in two undocumented households has couples with children; only thirteen percent of them are headed by single parents—against one third of native households. The percentage of immigrant workers who are self-employed mirrors that of natives. Immigrant-led gentrification has revived neighborhoods from New York to Florida. Adjusted for age, the proportion of immigrants who are criminals mirrors that of natives.

That's no way to run a country

Penalties for politicians 

By Glenn Harlan Reynold

We entrust an inordinate amount of power to people who don't feel any pain when we fall down.

As scandals explode across Washington -- from the IRS scandals, to the Benghazi scandal, to the HHS donations scandal, to Pigford and more -- one thing that I've noticed is that the people involved don't seem to suffer much. There are consequences, but not for them. Likewise, Rep. Anthony Weiner, D-N.Y., left office in disgrace, but wound up with surprisingly lucrative consulting gigs.

This reminds me of something writer Robert Heinlein once said: "Any government will work if authority and responsibility are equal and coordinate. This does not ensure 'good' government, it simply ensures that it will work. But such governments are rare — most people want to run things, but want no part of the blame. This used to be called the 'backseat driver' syndrome."

Government officials are happy making and executing plans that affect the lives of millions, but when things go wrong, well ... they're willing to accept the responsibility, but they're not willing to take the blame. What's the difference? People who are to blame lose their jobs. People who are "responsible," do not. The blame, such as it is, winds up deflected on to The System, or something else suitably abstract.

But when you cut the linkage between outcomes and experience, you make learning much more difficult. When you were a toddler learning to walk, you fell down a lot. This was unpleasant: shocking, at least, and often painful. Thus, you learned to fall down a lot less often.

But imagine if falling down didn't hurt. You wouldn't have learned not to fall, or at least, you would have accumulated a lot more bruises along the way.

Given the low penalties for failure it faces, our political class is one for whom falling down is usually painless and even -- given the surprisingly common tendency of people who have presided over debacles to be given promotions rather than the boot -- actually pleasurable. The leaders move society's arms and legs, but we're the ones who collect the bruises.

Is It Fixable?

Short Answer : NO 

By Simon Black 

In the 15th century, the highest standard of living in the world belonged to China. Places like Nanjing had reached the pinnacle of civilization with incredibly modern infrastructure, robust economies, substantial international trade, great healthcare, and a rising middle class.

Across the globe, Europeans were living out short, mud-filled, brutish lives in squalid poverty, dying off by the thousands from the bubonic plague. They were practically Neanderthals compared to the Chinese, and explorers like Marco Polo wrote fanciful tales of wealth and opulence in the east.

If you had told a Chinese merchant at the time that, over the course of the next several hundred years, global primacy would shift to Europe (and a relatively unknown American continent), you would have been laughed at. It was simply unthinkable given how advanced China was over the west.

And yet, it happened. History shows us that the great things about western civilization (Industrial Revolution, technological achievement) and the not-so-great things about western civilization (imperialism, slavery, genocide) caused the tables to turn and primacy to shift from east to west.

Ironically, the tables are turning yet again, and its driven by a number of factors.

At the tail end of World War II, a new global financial system was concocted that was heavily biased to disproportionately benefit the United States. Over the subsequent decades, foreign countries would obligingly mop up US government largess and finance out of control retail consumption.

Keynesian Economics, R.I.P.

After 77 years, the long run had arrived for Keynesian Economics

by Burt Abrams

In 2009, Keynesian economists in the Obama administration were downright giddy with excitement. The American Recovery and Reinvestment Act (ARRA) passed by congress was the “biggest peacetime fiscal stimulus in U.S. history” that promised to return the economy to full employment in short order. The Act’s $787 billion (equivalent to about 5% of our national output) in tax cuts and spending came from federal borrowings that added to our national debt, a small price to pay for pushing the economy back to full employment, or so we were told. Sufficient time has now passed to assess the impact of ARRA. The Congressional Budget Office contends the Act’s biggest effect hit in 2010 and by 2013 the Act’s effects had become negligible. The graph from the Federal Reserve Bank of St. Louis showing real output before and after ARRA tells a different story.

The shaded area of the graph measures the period of our Great Recession. Positive economic growth returned in the second quarter of 2009, before ARRA had a chance to impact the economy. But notice the big jump up in GDP in 2010 and subsequent drop as ARRA’s impact petered out. You don’t see it? Neither do I. In fact the graph seems to be consistent with a economic recovery following the Federal Reserve’s pushing of it’s federal funds interest rate down near zero in November, 2008. The economy continues to recover slowly, seemingly hampered by a variety of government policies and uncertainties (e.g., wasteful subsidies and expenditures, expansions to unemployment insurance and Medicaid, uncertainties about Obamacare, concerns about future tax burdens, etc.). What we don’t see is any noticeable impact of the “biggest peacetime fiscal stimulus in U.S. history.” Calls for even more Keynesian fiscal stimulus and government borrowing seems pointless at best and, at worst, downright dangerous given all we know about public indebtedness.

To help put the nail in the Keynesian coffin, I’ve taken the liberty to compose an appropriate obituary. Feel free to dispense it widely.

Detroit Heads to the Pawn Shop

Desperation has hit a new low in Detroit

by Walter Russell Mead

Last week, Emergency Manager (and bankruptcy lawyer) Kevyn Orr decided to list the holdings of the Detroit Institute of Arts among the city’s assets in preparation for a possible bankruptcy. If the city goes through with it, it could be forced to sell off any of its assets—which now include the museum’s collection.

Museum administrators are outraged, but the choice may be keeping the art or paying for vital public services. According to Orr, the city has “long-term obligations of at least $15 billion, unsustainable cash flow shortages and miserably low credit ratings that make it difficult to borrow.” But as the WSJ reports, the city may not have a choice:

“Kevyn Orr doesn’t want the collection sold,” Mr. Nowling said. “But in bankruptcy, it could be eyed by creditors.” [...]

But legal experts say that in a municipal bankruptcy, it is possible for a city to sell assets, even cultural icons. James Spiotto, a bankruptcy attorney and author on municipal-finance issues based in Chicago, said that “in order to provide essential government services like public safety, roads and education, certain other programs are going to be curtailed or eliminated. So it’s not surprising that the sale of art is on the table.”

The collection, which include treasures by Bruegel, Rodin and van Gogh as well as Diego Rivera’s famous “Detroit Industry” murals, is ostensibly worth billions of dollars, but those measures can’t really capture what such artistic treasures mean to a community.

Unfortunately the city is already struggling to keep the lights on. Local businesses recently had to step in to buy the city police cars and ambulances. Meanwhile, Detroit has closed nearly a quarterof the city’s firehouses, and the department’s equipment is beginning to fall apart. At this point, the city may need the money more than it needs the art.

Oscillating between liberal and conservative Keynesianism for 60 years should be enough

The Fiscal Debate Continues

by Peter Boettke

As a public debate over austerity in the Eurozone and the US continues a significant side of the debate continues to assert that what is needed is Keynesian economics 101.  Another side of the debate, which isn't really paid attention to beyond lip-service, argues that all we have had for the past 60+ years is Keynesian policies and the legacy of which is what we must confront now.  The democratic states of the west since WWII have simply oscilated between liberal Keynesianism and conservative Keynesianism, and we have never moved in the actually implementation of public policy into an "After Keynesian macroeconomics" world, let alone returned to the more orthodox teachings of pre-Keynesian macroeconomics.  Instead, we have lived in an age of "economic illusion" where common sense economics was denied, and governments used the tools of monetary and fiscal policy to distort market signals, disrupt the coordination of economic plans, and deceive an unorganized and ill-informed public.

The reason why the situation isn't worse is because of the great gains achieved during that 60+ year period due to technological innovations, and the opening up of trading opportunities throughout the globe.  As Adam Smith argued long ago, the power of self interest enables a market economy to overcome any number of impertinent obstructions that human folly may thrust upon it.  But a market cannot overcome an infinite number of obstructions; there is a tipping point.  There also is a question of arithmetic -- which is very often unpleasant for current generation politicians as they strive to spend more, and pass the payment to others.  Sooner or later the bill comes due, and in the case of many public expenditures there is no connection whatsoever to "investment" that paid off through time.  Instead, the fiscal commons just produced an overspending in the "here and now" and a promise to pay a "big bill" down the road.  That big bill has accumulated over those 60+ years, and policy makers now the Eurozone and the US are grappling with that reality.  Like their predecessors, they would like nothing better than a justification to send this bill down the road to future generations so they can continue to spend.