The Cargo Cult Economy

No Shortcuts On the Path to prosperity

by Gregory Cummings

Last week, I heard about a particularly tragic example of the post hoc, ergo propter hoc logical fallacy, which Frederic Bastiat, the great 19th-century economist, called “the greatest and most common fallacy in reasoning.”

After the outbreak of World War II, many isolated islands located in the Pacific Ocean became staging grounds for Japanese and Allied forces. This development unfolded before the primitive indigenous peoples, including those on the island of Tanna, Vanuatu. According to Wikipedia:

The vast amounts of military equipment and supplies that both sides air-dropped (or airlifted to airstrips) to troops on these islands meant drastic changes to the lifestyle of the islanders, many of whom had never seen outsiders before. Manufactured clothing, medicine, canned food, tents, weapons and other goods arrived in vast quantities for the soldiers, who often shared some of it with the islanders who were their guides and hosts.

Sadly, this arrangement came to an abrupt end with the end of the war, when the Allied forces abandoned these temporary airbases. Once again, the islanders no longer had access to the myriad of consumer goods provided by visitors from distant advanced economies.

As a result, on Tanna island and elsewhere, local inhabitants formed so-called “cargo cults” in order to restore their lost prosperity:

In an effort to get cargo to fall by parachute or land in planes or ships again, islanders imitated the same practices they had seen the soldiers, sailors, and airmen use. Cult behaviours usually involved mimicking the day to day activities and dress styles of US soldiers, such as performing parade ground drills with wooden or salvaged rifles. The islanders carved headphones from wood and wore them while sitting in fabricated control towers. They waved the landing signals while standing on the runways. They lit signal fires and torches to light up runways and lighthouses. 

In a form of sympathetic magic, many built life-size replicas of aeroplanes out of straw and cut new military-style landing strips out of the jungle, hoping to attract more aeroplanes.

The indigenous peoples of Tanna island observed that material goods arrived after the presence of landing strips and aeroplanes. This led them to falsely conclude that material goods arrived because of the presence of landing strips and aeroplanes. They failed to consider other causal factors, such as the war, and based their conclusion solely on the order of events. This is the essence of the post hoc ergo propter hoc logical fallacy.

The boom and bust cycle

There is no means of avoiding a final collapse of a boom brought about by credit expansion

As is clear to all with half a brain the production of un-backed fiat money distorts the economic system. Simply told, when an entity in society is given monopoly to manufacture medium of exchange at its own discretion they will harness this power. Slowly at first, unsure about its effects, but always testing the limits of the privilege bestowed upon them.
As always, they will overexploit the power. They will manufacture money and give it to the masters that coercively secure the continuation of the power. The masters will obviously spend the money, creating a transaction in which nothing is payment for something. These transactions are by definition unsustainable because they violates Say`s law. We call them “bubbles”
In a free market supply is used to create its own demand. When people spend fiat money they exercise demand without providing supply. Said in other words, spending fiat money is tantamount to capital consumption and makes society poorer.
While the boom that follows money spending feels good, it must inevitably come to an end because the economic system cannot maintain the constellation that was induced by the money printing in the first place. Within the boom lays the seed for the necessary bust.
We have made a metric that sums up fiat money in its purest sense and compared that to the underlying trend growth of nominal GDC.
Our hypothesis is simple: if money growth exceeds the GDC metric a deflationary busts will inevitably come. If authorities refuse to accept reality and print more fiat money at the first sign of bust, they may “save the day” but they will “ruin tomorrow”!
For every action taken there will be an equal and opposite reaction! When the fiat masters go too far they create the set-up for an imminent deflation.
We looked at this relationship and as the chart below show, a boom-bust cycle based on monetary expansion is clearly visible.

 

Source: Federal Reserve of St. Louis (FRED), own calculations

Our main concern is obviously what happens when the equal, but opposite reaction comes as a consequence to the monetary experiment dubbed the “Bernanke-put”.

Central Planning for All

Germany Plans to Ban 'Flat-Rate' Offers in Brothels

Germany's biggest political parties have agreed to ban so-called flat-rate sex offered by some brothels in the country, reports AP.

They view as exploitative the special offers in some brothels where men can have unlimited sex for 100 euros ($136).

Anja Strieder, spokeswoman for the center-left Social Democrats, confirmed a report Monday by Germany's Frankfurter Allgemeine Zeitung that a ban was agreed during coalition talks with Chancellor Angela Merkel's conservative Union bloc. 

Understanding the Enemy

Republicans, Islam and Martin Luther King

by Stewart Baker 

The latest Snowden leak story is in the Huffington Post.  It says that NSA thought about exposing the hypocrisy of Islamic extremist recruiters by revealing their financial greed or predatory sexual habits.  I’m quoted in support of considering such tactics, but the backstory of the interview may be more interesting.

When one of the authors, Ryan Grim, called me for comment, he said that while Glenn Greenwald was transitioning to his new Omidyar-funded venture he was temporarily publishing his Snowden leaks with HuffPo. So when he asked for my take on the NSA story, pretty much the first words out of my mouth were, “Why wouldn’t we consider doing to Islamic extremists what Glenn Greenwald does routinely to Republicans?”  The story quotes practically everything I said to Grim except that remark, even though I returned to the point a couple of times and emphasized that it summed up my view.

I don’t think HuffPo cut the quote because they ran out of electrons.  The article itself is so tediously long that I defy anyone to read every word in a single go.

Nor because my remark was inaccurate.  It turns out that Glenn Greenwald has written an entire book devoted to exposing the contradiction between Republicans’ ideology and their private lives.  In Greenwald’s words,  “While the right wing endlessly exploits claims of moral superiority … virtually its entire top leadership have lives characterized by the most decadent, hedonistic, and morally unrestrained behavior imaginable …[including] a string of shattered marriages, active out-of-wedlock sex lives, and highly ‘untraditional’ and ‘un-Christian’ personal lives [endless detail omitted].” His book certainly makes the NSA memo sound restrained and cautious, but both are motivated by the same idea.

Grim and Greenwald very likely cut the quote because it would have undermined the narrative of the piece, which combines solicitude for the poor Islamists whose sexual and financial hypocrisy might be exposed with outrage at the NSA for even considering such a tactic.  The quote would have made them look like, well, hypocrites.

The incident makes me wonder what else Greenwald leaves out of his stories. And why we should continue to trust snippets of documents selected by someone who thinks that the difference between Islamist extremists and Republicans is that one is an enemy that deserves no quarter and the other is sort of like Martin Luther King, except for the part about wanting to kill us. 

How Peugeot and France ran out of gas

PSA's fate is now intimately wrapped up with China

BY SOPHIE SASSARD, MARK JOHN AND GILLES GUILLAUME

The rush to Paris's Charles-de-Gaulle airport for flights to China began on Friday, October 11. A first set of bankers booked onto the 10-hour overnight Air China Flight; over the next 48 hours, they were followed by top management from PSA Peugeot Citroën and the French Finance Ministry.

Peugeot was ailing - and it had just started talks about selling a stake to state-owned Chinese automaker Dongfeng.

"There's a big exodus to China right now," a bemused trade unionist at the Paris-based company told Reuters that weekend.

For the bankers, it would be just another deal, but for the car-maker, it could be a lifeline. Dongfeng and the French state are contemplating a joint investment to prop up the 200-year-old firm, which is struggling to contain losses that burnt 3 billion euros ($4 billion) of cash last year.

PSA gave the world its first series-manufactured car in 1891 - 22 years before Ford took mass manufacture to a new level with the Model "T". It has survived two world wars and become an emblem of France. After years watching its position eroded by rivals and now hit by the financial crisis, it has reached a critical point.

Its rich history and current difficulties in many ways mirror those of France, a former global power also fighting to define its role in a world of harsher economic and political forces. The parallels between Peugeot's decline and France's economic malaise are startling. Today, both the automaker and the country are struggling to bring down heavy debt and adapt to global markets. In PSA's case, the company is at stake; France's economy is a mounting worry for investors in the euro zone.

Once known worldwide for the reliability and ruggedness of its cars, Peugeot - which has also owned the Citroën brand since the 1970s - has in recent years watched rivals spot global opportunities and snatch them from under its nose.

Both France and PSA must find a way - if there is one - of competing in world marketswhile funding the labor and welfare provisions that make up the country's cherished social model. France's share of euro zone exports has fallen by a third since 2000 to just over 12 percent, while PSA's share of the Western European car market has fallen to just over 11 percent from a peak of 15 percent in 2002.

Earlier this year there were signs America's General Motors, which already has a seven percent stake in PSA, might be interested in a wider tie-up to help put the French firm back on its feet. Those talks cooled. Now China is key.

"It is the only card they have left to play," said Patrick Fridenson, car historian at France's EHESS institute.

PLUS CA CHANGE...

The group is no stranger to crisis - or to escaping it.

In the 1980s, debts accrued after an ill-starred takeover of Chrysler's European operations were about to send the company to the wall when it produced the Peugeot 205 - a first-generation "hot hatch." The car sold millions and helped save the company.

"Every time there is a crisis, people say it's worse than last time," said Jean-Louis Loubet, author of "The House of Peugeot", charting the history of the firm which after its 1810 launch made everything from saws to corsets.

The challenges facing PSA now are bigger than ever. Like many in France, the company must overcome entrenched resistance to change.

Papal Bull

Why Pope Francis Should Be Grateful For Capitalism

By Louis Woodhill

Progressives are gleeful over Pope Francis’ recent “Apostolic Exhortation,” Evangelii Gaudium.  And, why shouldn’t they be?   The Pope’s passages on economics sound like they were copied and pasted out of The Nation or Mother Jones.  Here is an example:

“Today everything comes under the laws of competition and the survival of the fittest, where the powerful feed upon the powerless. As a consequence, masses of people find themselves excluded and marginalized: without work, without possibilities, without any means of escape.”

Rather than as an “Apostolic Exhortation,” Evangelii Gaudium, should have been issued as a Papal Bull, because, at least when it comes to economics, that is what it is a load of.

While his great predecessor, Pope John Paul II, helped defeat a real tyranny, communism, Pope Francis has lent the prestige of the Catholic Church to leftist/socialist whining about the “new tyranny” of “inequality,” “exclusion,” and “marginalization.”  Obviously, the Pope is counting on the media not reminding the public about the Catholic Church’s track record in the area of economics.

For the better part of 1000 years, the Catholic Church was the government of the western world.  And, during this period, the world remained firmly mired in absolute poverty.

Absolute poverty is considered to be an income of $2/day.  This is just barely enough to buy the food necessary to sustain life.  In 1 A.D., real GDP per capita ($2012) was about $2.50/day.  By 1000 A.D., when the Catholic Church was approaching the zenith of its temporal power (which it reached circa 1200 A.D., under Pope Innocent III), real GDP per capita had declined to about $1.85/day.

In 1500 A.D., right after Pope Alexander VI granted Spain exclusive colonial rights over most of the New World, real GDP per capita was $3.32/day.  The world economy did not really get moving until the Reformation, which started when Martin Luther posted his 95 Theses in 1517.

As Jude Wanniski outlines in his classic book, The Way the World Works, the driving force behind Protestantism was economics.  The world had just grown weary of the poverty imposed upon it by Catholic economic doctrine.

Catholic economics has always stressed redistribution, rather than economic growth, as the solution for the problem of poverty.  Although arithmetic has been in use since 2000 B.C., it didn’t seem to occur to the Church that redistribution can’t do much about poverty when real GDP per capita is only $3.32/day.

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