Pope Francis Is No Economist

This is not “Render unto Caesar the things which are Caesar’s.” It’s stick-‘em-up politics, plain and simple.

by Bill Frezza

We all hoped this guy would be different. Jorge Bergoglio’s spontaneous ruminations upon becoming Pope revealed a humble, loving heart. Too bad that in his formal writing the new Holy Father couldn’t resist biting the invisible hand that feeds a lot more poor people than the Vatican ever has.

Most of Evangelii Gaudium, Pope Francis’s first apostolic exhortation, is an ennobling call to the faithful. Ninety percent of its 223 pages make a learned and passionate case for why Christians should spend more time calling others to Jesus, a subject on which Pope Francis is truly an expert. His writing offers a joyful and inclusive spirituality that even this atheist can appreciate.

But when it comes to economics, the Pontiff’s expertise isn’t much to go by, judging by his ahistorical, populist attack on an economic system that has done more to alleviate poverty than a thousand Mother Theresas ever could.

For example:

Some people continue to defend trickle-down theories which assume that economic growth, encouraged by a free market, will inevitably succeed in bringing about greater justice and inclusiveness in the world. This opinion, which has never been confirmed by the facts, expresses a crude and naïve trust in the goodness of those wielding economic power and in the sacralized workings of the prevailing economic system.

Never been confirmed by the facts? From which countries do the poor flee, and to which do they go? In which countries can the poor become rich, and in which are they doomed by birth to spend their lives in misery?

The culture of prosperity deadens us; we are thrilled if the market offers us something new to purchase. In the meantime all those lives stunted for lack of opportunity seem a mere spectacle; they fail to move us. One cause of this situation is found in our relationship with money, since we calmly accept its dominion over ourselves and our societies.

Where does the Pope think the money that maintain Vatican City’s splendor came from? Would he prefer to have his bills paid by feudal lords seeking indulgences rather than collect donations honestly earned by people creating wealth in a free market? Does he understand the difference between getting money and making money?

It gets worse. Here he is quoting Saint John Chrysostom.

Not to share one’s wealth with the poor is to steal from them and to take away their livelihood. It is not our own goods which we hold, but theirs.

The Pope may drive around in a modest Ford Focus , but does he wear blinkers around the Vatican’s fabulous displays of opulence? Who does more to feed and clothe the yearning masses of meager means, the Catholic Church or Walmart? Which has employed more of the poor in both developed and developing countries, giving them an opportunity to lift themselves up by their bootstraps?

In fact, wealth creation does not take from the poor. Rather, in many cases, it means employing the poor. In most cases, it means finding ways to produce goods and services more efficiently, making them accessible to more people, or producing entirely new goods and services that benefit humanity overall. In a free economy, people only get wealthy when customers value what producers create.

Today’s economic mechanisms promote inordinate consumption, yet it is evident that unbridled consumerism combined with inequal­ity proves doubly damaging to the social fabric. Inequality eventually engenders a violence which recourse to arms cannot and never will be able to resolve.

As if coupling redistributionist dogma with fear of mob weren’t bad enough, Pope Francis then engages in some liberation theology nostalgia to subject what should be the inalienable right of private property to some higher, “communal” goal.

Solidarity is a spontaneous reaction by those who recognize that the social function of property and the universal destination of goods are realities which come before private property. The private ownership of goods is justified by the need to protect and increase them, so that they can better serve the common good; for this reason, solidarity must be lived as the decision to restore to the poor what belongs to them.

This is not “Render unto Caesar the things which are Caesar’s.” It’s stick-‘em-up politics, plain and simple.

My advice to Pope Francis: Read Free to Choose before writing your next exhortation.

Europe and Its Slippery Energy Slope

Europe must untangle its energy Gordian knot, fast.

By Llewellyn King 

Europe, at present the world's largest market and largest economic bloc, is in decline and living standards are in danger. That was the sober message at an energy conference here, delivered by a battery of speakers from across eastern Europe.

The narrative is that energy is what is dragging Europe down – not low birthrates and pervasive social-safety networks, but increasing dependence on expensive energy imports and hopelessly tangled markets.

Although delegates gathered to discuss the particular problems of eastern Europe, many had comments about the energy dependence across Europe; its labyrinthine regulations in nearly all 28 countries, its inability to form capital for large projects like nuclear, and governments intruding into the market.

The result is a patchwork of contradictions, counterproductive regulations, political fiats and multiple objectives that leave Europeans paying more for energy than they need to and failing to develop indigenous sources, such as their own shale gas deposits in Ukraine and Poland. It also leaves countries dependent on capricious and expensive gas from Russia, unsure of whether they can build needed electric generating plant in the future and poorly interconnected, sometimes by both gas pipelines and electric lines.

Good intentions have also had their impact. The European Commission has pushed renewable energy and subsidized these at the cost of others. The result is imperfect markets and, more important, imperfectly engineered systems.

Germany and other countries are dealing with what is called “loop flow” – when the renewables aren't performing, either because the wind has dropped or the sun has set, fossil fuels plants have to be activated. This means that renewable systems are often shadowed by old-fashioned gas and coal generation that has to be built, but which isn't counted toward the cost of the renewable generation.

With increasing use of wind, which is the most advanced renewable, the problem of loop flow is increased, pushing up the price of electricity. Germany is badly affected and the problem is getting worse because it heavily committed to wind after abandoning nuclear, following the Fukusima-Daiichi accident in Japan.

Frank Umbach, associate director of the European Center for Energy and Resource Security at King's College, London, said energy costs in Germany are now driving manufacturing out of the country and to the United States.

Umbach said that as Britain de-industrialized 15 years ago, Germany was beginning to go the same way. He said Britain had been able to sustain itself through financial services and other service-sector jobs, but that was not a prospect for Germany, the industrial mainstay of the European Union. Now Britain, with its new nuclear policy, is trying to re-industrialize, he said.
Umbach urged that Europe get serious about shale gas and even burning coal. His argument was that there are environment safeguards available and that more are being developed, such as the new less environmentally assaulting techniques in hydraulic fracturing (fracking) used to extract tightly bound natural gas from shale formations.

Several speakers said the region has to face the reality that it is no longer able to generate the capital it needs for liquified natural gas terminals, nuclear power plants and unconventional gas recovery in Ukraine, Poland and in the Black Sea offshore Romania and Bulgaria.

The Forever Man

The peculiar metrics of socialist metaphysics

by Richard Fernandez

As the New Unionist pointed out after the fall of Berlin Wall, “socialism hasn’t failed — it hasn’t been tried yet”.  And when the new attempt at true socialism fails, then repeat and rinse.  Since it’s the duty of all true socialists to try and try again two things are needed. Unlimited money and unlimited time.

The first was provided in principle by the Constitutional Amendment whose 100th anniversary falls this year. “The Sixteenth Amendment (Amendment XVI) to the United States Constitution allows the Congress to levy an income tax without apportioning it among the states or basing it on the United States Census. This amendment exempted income taxes from the constitutional requirements regarding direct taxes, after income taxes on rents, dividends, and interest were ruled to be direct taxes in the court case of Pollock v. Farmers’ Loan & Trust Co. (1895). The amendment was adopted on February 3, 1913.”

Taxes in principle give true believers all the money in the world.

This leaves only the problem of time. Jonathan Zimmerman, professor of history and education at New York University, argues in aWashington Post guest op-ed that President Obama should be allowed to run for more than two terms to accomplish his important work.

In 1947, Sen. Harley Kilgore (D-W.Va.) condemned a proposed constitutional amendment that would restrict presidents to two terms. “The executive’s effectiveness will be seriously impaired,” Kilgore argued on the Senate floor, “ as no one will obey and respect him if he knows that the executive cannot run again.”

I’ve been thinking about Kilgore’s comments as I watch President Obama, whose approval rating has dipped to 37 percent in CBS News polling — the lowest ever for him — during the troubled rollout of his health-care reform. …

Or consider the reaction to the Iran nuclear deal. Regardless of his political approval ratings, Obama could expect Republican senators such as Lindsey Graham (S.C.) and John McCain (Ariz.) to attack the agreement. But if Obama could run again, would he be facing such fervent objections from Sens. Charles Schumer (D-N.Y.) and Robert Menendez (D-N.J.)?

Probably not. Democratic lawmakers would worry about provoking the wrath of a president who could be reelected. Thanks to term limits, though, they’ve got little to fear. …

Ratified by the states in 1951, the 22nd Amendment was an “undisguised slap at the memory of Franklin D. Roosevelt,” wrote Clinton Rossiter, one of the era’s leading political scientists. It also reflected “a shocking lack of faith in the common sense and good judgment of the people,” Rossiter said. …

Barack Obama should be allowed to stand for re election just as citizens should be allowed to vote for — or against — him. Anything less diminishes our leaders and ourselves.

That solves the problem of time.

True believers live in their version of Eternity, a state in which they are simultaneously in a hurry but never in any rush. Should Obamacare fail, try and try again. Should the deals with enemies fall through, try and try again. Progress is measured by the peculiar metric of socialist metaphysics.

Random Thoughts

Random thoughts on the passing scene 

By Thomas Sowell

Many people take pride in defying the conventions of society. Those conventions of society are also known as civilization. Defying them wholesale means going back to barbarism. Barbarians with electronic devices are still barbarians.

After the government shutdown crisis, the one thing that Congressional Democrats and Republicans finally agreed on was to kick the can down the road a few more months, so that we can go through all this again -- and perhaps again after that.

One of the best peace speeches I ever read was one delivered back in the 1930s -- by Adolf Hitler! He knew that peace speeches would keep the Western democracies from matching his military buildup with their own, or attacking him to prevent his buildup from continuing. Peace speeches by Iran today serve the same purpose of buying time -- until they can create a nuclear bomb.

President Obama really has a way with words, such as calling the problems that millions of people have had trying to sign up for ObamaCare "glitches." When the Titanic sank, was that a "glitch"?

Among the painful signs of our time are TV programs built around paternity tests. Apparently the way these women live, it is anybody's guess who their child's father might be.

Don't you love it when a politicians says, "I take full responsibility"? Translated into plain English, that says, "Now that I have admitted it, there is nothing more for me to do (such as resign) and nothing for anyone else to do (such as fire me)." Saying "I take full responsibility" is like a get-out-of-jail-free card in the Monopoly game.

No one seems as certain that they know what the Republicans need to do to win presidential elections as those Republicans who have lost presidential elections, such as Mitt Romney, John McCain and Bob Dole. Moreover, people take them seriously, and seem not to notice that what the losers advocate is the opposite of what won Ronald Reagan two landslide election victories.

If you believe in equal rights, then what do "women's rights," "gay rights," etc., mean? Either they are redundant or they are violations of the principle of equal rights for all.

Is There An Obama Doctrine?

By our count, commentators have identified at least ten.

By David Corbin and Matt Parks

Six days before completing his negotiations with Iran, Secretary of State John Kerrytold a somewhat confused assembly of Latin American diplomats that “the era of the Monroe Doctrine is over.” Greeted with (as the transcript has it) “tentative applause,” Kerry left his script to assure the audience “that’s worth applauding–that’s not a bad thing”–and accidentally to provide, as we’ll see, the best summary yet of the President’s foreign policy.

The uncertainty of Mr. Kerry’s audience should be excused, since the Monroe Doctrine as represented in his speech is wildly different from the historical original–and in all the ways we’ve come to expect from the Obama Administration. Monroe’s speech was a bold pronouncement by a still-young republic that European nations seeking to expand their empires should look elsewhere than the Americas. It was anti-colonial and explicitly reciprocal:

Our policy in regard to Europe, which was adopted at an early stage of the wars which have so long agitated that quarter of the globe, nevertheless remains the same, which is, not to interfere in the internal concerns of any of its powers; to consider the government de facto as the legitimate government for us; to cultivate friendly relations with it, and to preserve those relations by a frank, firm, and manly policy, meeting in all instances the just claims of every power, submitting to injuries from none.

The actual Monroe Doctrine protected American independence and, by extension, the self-determination of the newly-independent South American republics. It was, in other words, the opposite of the imperialistic policy Mr. Kerry (perhaps ignorantly) repudiated and implicitly apologized for. One can never expect accuracy to get in the way when this Administration has an opportunity to score cheap political points (“that’s worth applauding”) at the expense of its always benighted predecessors.

For 190 years, American presidents had been guided by the common sense of the Monroe Doctrine: that great powers seeking colonies or client states in the Americas pose a dangerous threat to our security. Over time, they added additional “Doctrines” to the American foreign policy tradition, some better than others, summarizing essential policies or particular commitments: from Truman’s pledge to support all free peoples resisting communist subversion or conquest, to Nixon’s narrower promise to defend allies and friends from the same, to Reagan’s support for third world populations attempting to overthrow communist regimes; from Carter’s announcement that no hegemon would be tolerated in the Persian Gulf region, to Clinton’s and Bush 43’s efforts to promote democratization and freedom (respectively) at the intersection of American interests and “values.”

Is there an Obama Doctrine? By our count, commentators have identified at least ten. Why so many? President Obama might tell us that he’s authored multiple doctrines (or perhaps no doctrine at all) because he’s not doctrinaire, in the same way he claims not to be ideological. The truth, however, is that there is an Obama Doctrine, grounded in pragmatism, a philosophy both doctrinaire and ideological. Theatrically presented, it’s a powerful force, at least among the transnational elites who populate the alphabet soup of international agencies–capable of securing a Nobel Peace Prize for nothing more than causing a (political) climate change in America and abroad.

The Obama Doctrine, it turns out, isn’t so much a policy as a posture: that the United States will applaud good things, scorn bad things, and instruct others to do the same.The Administration, of course, serves as the oracle of good and bad, occasionally requiring an intervention like Mr. Kerry’s to interpret the otherwise ambiguous signs among the entrails of its foreign policy chickens.

From protector to destroyer

Overreaching regulators are squeezing liberty out of existence

By Richard W. Rahn

Did you ever buy a game or device for which the rule book or instruction manual was so thick and detailed that you were not able to comprehend it in a reasonable period of time, so you either discarded or failed to use the product?

Have you noticed that many government regulations are so complex and vague that it is impossible to know if you are in compliance? Examples are the 70,000-plus pages of Internal Revenue Service regulations and the reported 30,000-plus pages of Obamacare regulations. Who do you think has a self-interest in all this complexity and vagueness?

Food and Drug Administration Commissioner Margaret Hamburg does not think you have the right to get a reading of your own DNA by sending a sample of your saliva to 23andMe, a company that has developed a genotype screening test. The following is from a letter the FDA sent to 23andMe: “The Food and Drug Administration (FDA) is sending you this letter because you are marketing 23andMe Saliva Collection Kit and Personal Genome (PGS) without marketing clearance or approval in violation of the Federal Food, Drug and Cosmetic Act (the FD&C Act).” The FDA is unable to cite one example of users being harmed by voluntarily obtaining information about their own bodies. Still, the company was ordered to cease marketing its highly beneficial product last month.

The Food and Drug Administration was set up to protect us from consuming bad food or drugs. It has morphed into an agency that keeps potentially beneficial drugs from us, and now is even banning our ability to know what diseases to which we may be prone, and thus, blocking our ability to take potential corrective or preventative action. The FDA has gone from being a protector to a destroyer of health and liberty.

The IRS was set up to collect taxes. It now has become a government agent to deny the right of free and protected speech, as shown not only in the harassment of Tea Party groups, but in last week’s sleazy action of demanding that certain (but not all) traditionally tax-exempt groups start providing their contributor lists to the IRS. Groups that most often stand for liberty and less government are the primary targets. What a coincidence.

One of the basic functions of money is to serve as a “store of value,” which the U.S. dollar did from 1789 until 1913 (despite occasional ups and downs, there was very little change in the wholesale-price level over that 125-year period). However, with the advent of the Federal Reserve in 1914, the dollar no longer serves as store of value, now being worth only about one-twenty-third of what it was worth in 1914.

No, America Doesn’t Have Too Many Banks

But it does have far too many pundits who have absolutely no clue what they're talking about

By Sean Davis

“America has 6,891 banks,” Slate blogger and certified financial non-expert Matthew Yglesias writes in his Moneybox column. “And that’s too many.”

Why is that? According to Yglesias, it’s because small banks are poorly managed, unregulated, and can’t compete. It’s an interesting argument, to the extent that 2+2=7 is an interesting argument, but Yglesias fails to support a single assertion with a verifiable fact or source citation. Not one. Of the seven assertions made in the first two paragraphs (spanning a whole five sentences), not one has a supporting citation.

It’s no wonder, as the very first assertion made by Yglesias — that there have been no new bank charters in the U.S. in “quite a few years” — isn’t even true, as a simple FDIC search reveals that 

four new banks have been chartered so far in 2013. But don’t let that dissuade you from the notion that Yglesias is an expert on financial regulation.

The complete lack of citations almost leads one to wonder whether the school Yglesias attended as a child banned “Show and Tell” in favor of “Tell, Don’t Show.” Oh, you got a pony for Christmas but don’t have any pictures? You’d totally introduce us to your supermodel girlfriend if she weren’t on a photo shoot in Fiji? Cool. His simple citation of the number of banks in the U.S. isn’t even backed up with a link to a source document (e.g., his figure includes the 5,937 commercial institutions and 954 savings institutions in the U.S., but excludes the 6,620 credit unions throughout the country).

But let’s look at each of his arguments about the utter uselessness and moral depravity of small community banks to see how they measure up.

First, Yglesias argues that small banks are poorly managed. How does he prove this? He starts by suggesting that the best and brightest go to Wall Street, while the “less-bright” and “not-as-good guys” end up working for small banks in cities that aren’t Manhattan. Then he assumes that they must suck at their jobs. Or as the underpants gnomes from South Park might put it: “Phase 1: Assume that only stupid people work for small banks. Phase 3: Assume bank failures.”

Now, a better writer whose abilities qualified him to work for a major publication like the Wall Street Journal (remember, the smartest people all go to work for Wall Street firms) might have gone with the alliterative and far less awkward “dumbest and dimmest” to contrast with the clichéd  ”best and brightest.” Yglesias is not that writer. And we’ll ignore for the moment what Yglesias’ little dig about where the truly smart people end up says about his career as a blogger for Slate, or as Jeff Bezos likes to call it, “The Center For Kids Who Can’t Write Good And Who Wanna Be Less Not-As-Good At Other Stuff Too.”

Pettiness aside, does his argument have any merit?

Not even close. Compared to big banks (defined as those with more than a billion dollars in assets), small commercial banks (those with under $100 million in assets) have a higher ratio of equity-to-assets, a lower ratio of volatile liabilities-to-assets, a lower percentage of non-current loans and leases, and next to zero derivatives. As of September 30, 2013, derivatives totaled a mere 0.15 percent of the cumulative assets of small banks. But for the biggest banks, derivatives were nearly 2,000 times higher than their cumulative asset base (1,960.53 percent of assets, to be precise). In the words of Vice President Joe Biden, the difference between those derivative numbers is a big f—ing deal.

The Global Retirement Dilemma

Very Slowly and Then At Once

by Barry Ritholtz

What The Pope Gets Wrong About Capitalism

Hint: Just about everything

By David Harsanyi

Pope Francis’s first apostolic exhortation, Evangelii Gaudium (“The Joy of the Gospel”) is a beautiful document and a joy to read. I’ll leave its theological implications to those who live in the Church. What’s got many people praising the Pope today, though, isn’t his plea for good works, but rather his critique of capitalism. Ed Morrissey argues that many in the media misunderstood the Pope’s point. And Bishop James D. Conley tells us that The Joy of the Gospel was a rejection of “idolatry of any economic system as a panacea” rather than a specific rejection of capitalism and consumerism.

Maybe.

As fascinating as the context of Pope’s message might be, there is — or seems to be — something new about this rhetoric. You could always detect a pinch of socialistic seasoning in the Church’s theological stew. This, no doubt, is why God saw fit to create Robert P. George and Robert Sirico. In this case, the Pope didn’t simply point out that the wealthy weren’t doing enough to help alleviate poverty. He used the recognizable rhetoric of the Left to accuse free-market systems of generating and nurturing that poverty. And these platitudes — things that run wild in the liberal imagination like unfettered capitalism and “trickle-down” economics — were clearly aimed at the United States.

The Pope condemns the “new tyranny” of “idolatry of money,” not only reasonably arguing that economic systems should not be accepted with blind faith, but that “as long as the problems of the poor are not radically resolved by rejecting the absolute autonomy of markets and financial speculation and by attacking the structural causes of inequality, no solution will be found for the world’s problems or, for that matter, to any problems.”

For starters, it’s troubling that the Pope fails to make any genuine distinction between Western poverty (terrible) and the poverty of the Third World (unimaginably terrible). But is it really true that “absolute autonomy of markets and financial speculation” arethe driving reasons for poverty and inequality? People in places like Congo, Burundi, Eritrea, Malawi, or Mozambique live under corrupt authoritarian regimes where crippling poverty has a thousand fathers — none of them named capitalism. The people of Togo do not suffer in destitution because of some derivative scheme on Wall Street or the fallout from a tech IPO.

“While the earnings of a minority are growing exponentially,” the Pope goes on to say, “so too is the gap separating the majority from the prosperity enjoyed by those happy few.”

In truth, global inequality has been dropping for years. The World Bank estimates global poverty was halved from 1990 to 2010. In fact, according to the World Bank, the United Nations’ “millennium development goal” of cutting world poverty in half by 2015 came in five years ahead of schedule despite a major global recession. The decline in poverty coincides, not coincidentally, with developing nations embracing more market-based systems.

Moreover, the Pope falls into the trap of conflating inequality and poverty. Some countries enjoy income parity because most citizens are rich and others because most citizens are poor. Put it this way:  Egypt, Pakistan, and Mongolia all enjoy more economic equality than the United States. The GDP per capita here is $49,800. In a country like Argentina, the Pope’s homeland, a place where wealth is more fairly distributed, it’s $18,200.

Now, no reasonable person believes any economic system is a cure-all. But how many reasonable people argue that market-based economies — and the underlying morality that drive them — haven’t done more to alleviate poverty worldwide than any other system? For the most part, in fact, the more unfettered a nation’s economic system is the prosperous the population becomes, and consequently the more it spends on charity and safety net programs. When we match up the Cato Institute’s Index of Economic Freedom with the World Bank’s measure of per capita income, we find that the countries with the most unencumbered systems and the most financial “speculation” usually have the least of amount of poverty:

Hong Kong — $51,946

Singapore — $61,803

Australia — $44,598

New Zealand — $32,219

Switzerland — $53,367

Canada — $42,533

Chile — $22,352 (Chile’s score has jumped considerably since unfettered capitalism took over)

Mauritius — $15,649

Denmark — $42,086

Rather than credit those who do their best to balance this imperfect system that lifts millions out of impoverishment, the Pope attacks them for the prevalence of imaginary economic Darwinists who callously keep equality from blooming. “Consequently,” these people “reject the right of states, charged with vigilance for the common good, to exercise any form of control,” Pope Francis contends.

Any form of control? Really? The Federal Registry of the United States regularly comes in over 60,000 pages. Or, to put it another way, it’s longer than all 46 books of the Old Testament, the 27 books of the New Testament and every gospel the Council of Nicaea decided to toss, combined. And the United States, a place teeming with these economic Darwinists, also happens to be one of the most charitable places on the planet — even before we begin counting per capita spending on safety nets.

Theorists lose the plot

If poor economic performance produces even worse politicians, the downside risk to living standards is essentially unlimited

By Martin Hutchinson 
Add Milton Friedman to the list of economists whose solutions have come under fire. Predictors - including this column - have been confounded by strange economic behavior in the five years since the 2008 downturn. 

For monetarists, whether Friedmanite or Austrian like me, the strangest feature has been the failure of inflation to re-emerge, in spite of massive overstimulation of the money supply and prolonged negative real interest rates. For others of different persuasions, the Great Recession has surprised by failing to produce results from massive Keynesian stimulus, by the prolonged failure of labor force participation to return to its pre-recession levels and by the persistent decline in real wages even in a time of economic recovery. Existing economic theories of all political shades have failed to predict the course of reality. 

The biggest casualty of the last few years should surely be Friedmanite monetarism. M2 money supply in the United States is currently expanding at 6.5% over the last year and 11% over the past two months, and has been expanding at a steady 7% over the past five years, much faster than nominal GDP. Yet, rising consumer price inflation is nowhere to be seen. 

Add to that Friedman's own apostasy in the last few years of his life, when he praised then Federal Reserve chairman Alan Greenspan's mad expansion of the money supply, at a time when he could really have helped sound-money believers, and the man's credibility is shot. (Maybe not as badly shot as Maynard Keynes's, but dented nevertheless.) 

Friedmanites will make two responses to this. First, they will claim that we should be looking at M4, which has been expanding much more slowly than narrower measures, rather than any of the narrower measures of money supply. While the Fed has been expanding the monetary base like madmen, the banking system has not been making business loans aggressively, but instead has placed over US$1 trillion of extra reserves on deposit with the Fed. 

There is a certain amount of truth to the above claim, but there is a lot more to the Friedmanites' second claim, that inflation has been rampant over the last five years, but has manifested itself in asset prices and (until 2011) commodity prices. 

There is no question US stocks, in particular, are in a major bubble that shows increasing similarities to that of 1997-2000, while the prices of such assets as farmland and collectibles are reaching levels never before dreamed of. But to some extent this isn't a very helpful response; arithmetically, the gigantic money creation has to go somewhere, and it isn't clear at first glance whether rising prices of miscellaneous assets are particularly significant or damaging. 

Karzai’s India visit is a defining moment

A leap of faith is necessary

by M K Bhadrakumar

The visit to New Delhi by Afghan President Hamid Karzai on December 13 will be taking place against an ominous backdrop of regional and international security.

India has not reacted to the flare-up of tensions in the Asia-Pacific over the past week. It didn’t have to. India could anticipate the developments.

Prime Minister Manmohan Singh said with remarkable prescience last week in his address to the Combined Commanders’ Conference in New Delhi that “just as the economic pendulum is shifting inexorably from west to east, so is the strategic focus, as exemplified by the increasing contestation in the seas to our east and the related “pivot” or rebalancing” by the US in this area. This, to my mind, is a development fraught with uncertainty. We don’t yet know whether these economic and strategic transitions will be peaceful.”

Clearly, the US’ “pivot” has destabilized the Asia-Pacific. The “pivot” devolves upon a diplomatic and military build-up throughout the Asian region centrally aimed at isolating and encircling China and checking its growing challenge to American dominance in East and Southeast Asia.

The US is encouraging its key allies such as Japan and the Philippines to take a tougher stance toward Beijing and the latter has begun reacting to the calibrated escalation of the military provocations and pressure from Washington.

The stage is set for risky military confrontations, encounters or even outright war through miscalculation or deliberation. The year is 2013 and it bears an uncanny resemblance to 1913 when, too, the deepening crisis of capitalism culminated in war.

It may seem the US has lost the panache for wars but Washington is only extricating itself from overstretch in the Middle East so that it can focus optimally on the “pivot” to Asia. Of course, this is not a “strategic retreat,” as the Saudis and Israelis allege, but is a reorientation of global priorities even as the timeline is shortening by the day when China would overtake America as the world’s number one economy.

The Pentagon’s vast military assets in the Persian Gulf are integral to the “pivot” to Asia as they operationally mesh with the US’ presence in Diego Garcia, its control of the Malacca Straits and its dominance of the Indian Ocean sea lanes. The logic of the deployment of the US missile defence system in the Persian Gulf region is also obvious.

War On Democracy

Spain And Japan Move To Criminalize Protests 

By Michael Krieger

As might be expected as political and economic policy failures pile up and citizens become increasingly mad, the status quo is becoming increasingly authoritarian (recall blogger “Mish” was just fined 8,000 euros for a blog post).

In the latest disturbing news from a desperate power structure, the conservative government in Spain has passed an Orwellian bill titled the Citizens’ Security Law, which allows for fines of up to 600,000 euros ($816,000) for “unauthorized” street protests, and a 30,000 fine for merely having signs with “offensive” slogans against Spain or for wearing a mask.

This law is a perfect example of the increasing neo-feudalism being implemented across the globe by a corrupt, decadent and depraved status quo. Such laws must be immediately resisted or they will only get worse, much worse. It is quite obvious what the power structure in Spain in trying to do. It is putting into place an egregious punishment framework that could bankrupt a person by merely protesting. Such a threat is intended to make people not even consider their rights as human beings to express grievances to a crony government.

Instead of eye for an eye, it is like 25 eyes and a limb for an eye. If this does’t tell the Spanish people all they need to know about their government I don’t know what will. Below are some excerpts from a Reuters story covering the law:

(Reuters) – Spain’s conservative government agreed on Friday to toughen penalties for unauthorized street protests up to a possible 600,000 euro ($816,000) fine, a crackdown that belies the peaceful record of the anti-austerity protests of recent years. 

Street protests and strikes have became increasingly frequent in recent years following huge cuts to education and health spending aimed at shrinking Spain’s public deficit to adhere to European Union demands. 

But in contrast to Greece and elsewhere, where many similar protests have turned violent, Spain’s have remained largely peaceful, despite unemployment of 26 percent, rising poverty, and changes in labor laws that make firing easier. 

Among other measures, protesters who cover their faces at demonstrations could be fined up to 30,000 euros while “offensive” slogans against Spain or its regions could reap a similar sanction. 

The Pope's Rhetoric

Ignorance is not always an excuse 

I see that the pope has decided to weigh in on economic issues:

“Some people continue to defend trickle-down theories which assume that economic growth, encouraged by a free market, will inevitably succeed in bringing about greater justice and inclusiveness in the world,” Francis wrote in the papal statement. “This opinion, which has never been confirmed by the facts, expresses a crude and naive trust in the goodness of those wielding economic power and in the sacra­lized workings of the prevailing economic system.”

A few reactions:

First, throughout history, free-market capitalism has been a great driver of economic growth, and as my colleague Ben Friedman has written, economic growth has been a great driver of a more moral society.

Second, "trickle-down" is not a theory but a pejorative used by those on the left to describe a viewpoint they oppose.  It is equivalent to those on the right referring to the "soak-the-rich" theories of the left.  It is sad to see the pope using a pejorative, rather than encouraging an open-minded discussion of opposing perspectives.

Third, as far as I know, the pope did not address the tax-exempt status of the church.  I would be eager to hear his views on that issue. Maybe he thinks the tax benefits the church receives do some good when they trickle down.

Second, "trickle-down" is not a theory but a pejorative used by those on the left to describe a viewpoint they oppose.  It is equivalent to those on the right referring to the "soak-the-rich" theories of the left.  It is sad to see the pope using a pejorative, rather than encouraging an open-minded discussion of opposing perspectives.

Third, as far as I know, the pope did not address the tax-exempt status of the church.  I would be eager to hear his views on that issue. Maybe he thinks the tax benefits the church receives do some good when they trickle down. 

2013: The End of History Ends

The ‘axis of weevils’

By WALTER RUSSELL MEAD

Sometime in 2013, we reached a new stage in world history. A coalition of great powers has long sought to overturn the post Cold War Eurasian settlement that the United States and its allies imposed after 1990; in the second half of 2013 that coalition began to gain ground. The revisionist coalition hasn’t achieved its objectives, and the Eurasian status is still quo, but from this point on we will have to speak of that situation as contested, and American policymakers will increasingly have to respond to a challenge that, until recently, most chose to ignore.

Call the challengers the Central Powers; they hate and fear one another as much as they loathe the current geopolitical order, but they are joined at the hip by the belief that the order favored by the United States and its chief allies is more than an inconvenience. The big three challengers – Russia, China and Iran — all hate, fear and resent the current state of Eurasia. The balance of power it enshrines thwarts their ambitions; the norms and values it promotes pose deadly threats to their current regimes. Until recently there wasn’t much they could do but resent the world order; now, increasingly, they think they have found a way to challenge and ultimately to change the way global politics work.

This is not, yet, a pre-war situation. The Central Powers know that they can’t challenge the United States, the EU, Japan and the various affiliates and associates of what we might call the Maritime Association head on. The military and economic facts on the ground would make such a challenge suicidal. But if they can’t challenge the world system head on, they can chip away at its weak spots and, where the maritime powers leave a door unlatched or a window open, they can make a quick move. They can use our own strategic shortsightedness against us, they can weaken the adhesion of our core alliances, and they can use the mechanisms of the international system (above all, the United Nations Security Council where Russia and China both wield the veto) to throw bananas in our path.

Lacking the strength for a head on confrontation, they are opportunistic feeders. They look for special circumstances where the inattention, poor judgment or domestic political constraints of the status quo powers offer opportunities. Russia’s strike against Georgia was one such move; both Russia and Iran have skillfully exploited the divisions among the Americans and their allies over the horror in Syria.

Think of the Central Powers as an ‘axis of weevils’. At this stage they are looking to hollow out the imposing edifice of American and maritime power rather than knock it over. This is not the most formidable alliance the United States has ever faced. Not everything the Central Powers want is bad; like all revisionist powers, they have legitimate grievances against the status quo. They don’t always agree, and in the long run their differences with one another are profound. But for now, they have not only agreed that they have a common interest in weakening the United States in Eurasia and disrupting its alliances; increasingly, with the United States government still largely blind to the challenge, they are pushing ahead.

Economic Science and the Underworld

The individual needs freedom and the free market. The socialist alternative threatens to blot him out of the equation.

BY JR NYQUIST

While economics depends on man’s rational side, humanity nonetheless clings to the irrational. We want to have our cake and eat it. We want a free lunch, free health care, free schools, and free retirement. But nothing is free. Someone must pay. Economic science says so.

When we say economics is a science, the ordinary man thinks of physics and biology. But economics is a different kind of science. According to the Austrian school, economics is an a priori science which assumes that purposeful behavior can alleviate a “felt uneasiness.” The process by which the greatest alleviation is made possible is called capitalism, or the free market. Whatever anyone wishes to say against market freedom, there is no workable alternative.

According to Mises, writing in his book The Anti-Capitalist Mentality, 

“The emergence of economics was one of the most portentous events in the history of mankind. In paving the way for private capitalistic enterprise it transformed within a few generations all human affairs more radically than the preceding ten thousand years had done.” 

Yet more amazing still, economic science and the capitalist transformation of human life was accomplished by a very small number of authors whose books influenced a similarly small number of statesmen. As Mises explained, 

“Not only the sluggish masses but also most of the businessmen who, by their trading, made the laissez-faire principles effective failed to comprehend the essential features of their operation. Even in the heyday of liberalism only a few people had a full grasp of the functioning of the market economy.”

It was a freak of history that a handful of thinkers began to understand economic science. It was rarer still, in terms of politics, that a handful of statesmen were able to make use of that understanding. As Mises explained, 

“Western civilization adopted capitalism upon [the] recommendation … of a small elite.” 

As such, capitalism has always hung by a slender thread. For how often do we find sufficient intelligence within ruling elites? How often does genius go unrecognized? After all, every man is a genius in his own mind. Consider how the many geniuses who produce so little of worth from their swollen egos today must naturally malign anyone whose thinking stands on higher ground. In fact, the grim history of humanity suggests that a true and worthy social science (or economic science) is as unlikely as a mouse chasing a cat. For that which touches on society and institutions must necessarily fall victim to powerful interests and political passions.

Yet economic science performed its miracle. Wonders of technology and wealth now abound. Our ancestors could hardly imagine the modern world. At the same time, a dark cloud approaches. The intelligent few seem to have been overwhelmed by the many-too-many. None should be naïve enough to imagine that history is only a story of progress. If we have been paying close attention, we might remember the saying, “What goes up, must come down.”