Friday, July 8, 2011

The Deal

Consent of the Governed?
By Robert Higgs
What gives some people the right to rule others? 
At least since John Locke's time, the most common and seemingly compelling answer has been "the consent of the governed." When the North American revolutionaries set out to justify their secession from the British Empire, they declared, among other things: "Governments are instituted among Men, deriving their just Powers from the Consent of the Governed." This sounds good, especially if one doesn't think about it very hard or very long, but the harder and longer one thinks about it, the more problematic it becomes.
One question after another comes to mind. Must every person consent? If not, how many must, and what options do those who do not consent have? What form must the consent take — verbal, written, explicit, implicit? If implicit, how is it to be registered? Given that the composition of society is constantly changing, owing to births, deaths, and international migration, how often must the rulers confirm that they retain the consent of the governed? And so on and on. Political legitimacy, it would appear, presents a multitude of difficulties when we move from the realm of theoretical abstraction to that of practical realization.
I raise this question because, in regard to the so-called social contract, I have often had occasion to protest that I haven't even seen the contract, much less been asked to consent to it. A valid contract requires voluntary offer, acceptance, and consideration. I've never received an offer from my rulers, so I certainly have not accepted one; and rather than consideration, I have received nothing but contempt from the rulers, who, notwithstanding the absence of any agreement, have indubitably threatened me with grave harm in the event that I fail to comply with their edicts.
What monumental effrontery these people exhibit! What gives them the right to rob me and push me around? It certainly is not my desire to be a sheep for them to shear or slaughter as they deem expedient for the attainment of their own ends.
Moreover, when we flesh out the idea of "consent of the governed" in realistic detail, the whole notion quickly becomes utterly preposterous. Just consider how it would work. A would-be ruler approaches you and offers a contract for your approval. Here, says he, is the deal.
I, the party of the first part ("the ruler"), promise:
(1) To stipulate how much of your money you will hand over to me, as well as how, when, and where the transfer will be made. You will have no effective say in the matter, aside from pleading for my mercy, and if you should fail to comply, my agents will punish you with fines, imprisonment, and (in the event of your persistent resistance) death.
(2) To make thousands upon thousands of rules for you to obey without question, again on pain of punishment by my agents. You will have no effective say in determining the content of these rules, which will be so numerous, complex, and in many cases beyond comprehension that no human being could conceivably know about more than a handful of them, much less their specific character; yet if you should fail to comply with any of them, I will feel free to punish you to the extent of a law made by me and my confederates.
(3) To provide for your use, on terms stipulated by me and my agents, so-called public goods and services. Although you may actually place some value on a few of these goods and services, most will have little or no value to you, and some you will find utterly abhorrent, and in no event will you as an individual have any effective say over the goods and services I provide, notwithstanding any economist's cock-and-bull story to the effect that you "demand" all this stuff and value it at whatever amount of money I choose to expend for its provision.

Human trafficking as practiced in Greece

Γλυκές στιγμές εθνικής αλληλεγγύης

ΜπλεΜήλοhttp://blemilo.blogspot.com/2011/07/blog-post_08.html
“Τον Αύγουστο ξεκινά η αποστολή των σημειωμάτων της ειδικής εισφοράς αλληλεγγύης στους φορολογούμενους με εισοδήματα άνω των 12.000 ευρώ.” Είναι ιδιαίτερα σημαντικό και ταυτόχρονα συγκινητικό που αυτές τις δύσκολες μέρες, η κυβέρνηση του Γιώργου λεφτά-υπάρχουν Παπανδρέου, αναλαμβάνει πρωτοβουλίες που θα φέρουν τους Έλληνες πιο κοντά περισσότερο από ποτέ.

Ο Θάνος Τσίρος στην Ελευθεροτυπία δημιούργησε έναν υποθετικό φορολογούμενο, τον Μιχάλη, “τίμιος φορολογούμενος, οικογενειάρχης με ένα παιδί. Μισθωτός στον ιδιωτικό τομέα με 20 χρόνια προϋπηρεσίας στην πλάτη του, κατόρθωσε να ανεβάσει το μισθό του στα 2.500 ευρώ μεικτά ή περίπου 1.770 ευρώ καθαρά”

Ο Μιχάλης θα έχει την ευκαιρία να σταθεί ιδιαίτερα αλληλέγγυος φέτος μιας και η εισφορά του αλληλεγγύης θα είναι 584,5 ευρώ. Μπορεί ο Μιχάλης να δυσανασχετεί, ειδικά τώρα που σαν μισθωτός του ιδιωτικού τομέα υπάρχει κίνδυνος να απολυθεί, αλλά αν το ξανασκεφτεί τα λεφτά του πιάνουν τόπο.

Όπως για παράδειγμα:

- Τα 604 εκ. ευρώ επιδότηση για τον Οργανισμό Ασφάλισης Προσωπικού της ΔΕΗ. Παρεμπιπτόντως, ο μέσος υπάλληλος της ΔΕΗ, έχει αποδοχές 50% υψηλότερες από αυτές του Μιχάλη.

- 800 εκ. για τις ζημιές του τα-τρένα-που-δεν-φύγαν ΟΣΕ.

- 173 εκ. για συντάξεις 250.000 “αντιστασιακών.” Εδώ να σημειώσουμε ότι το προσδόκιμο ζωής στην Ελλάδα είναι τα 79,92 χρόνια, που σημαίνει ότι αν όλοι, μα όλοι, οι 250.000 “αντιστασιακοί” ήταν 18 χρονών όταν ξέσπασε ο πόλεμος, τότε όλοι τους σήμερα είναι 89 χρονών...

- 80 εκ. ευρώ επιπλέον χρήματα που ζητούν πρώην βουλευτές - μεταξύ αυτών και ο Μίκης Θεοδωράκης.

Επίσης ο Μιχάλης θα πρέπει να πληρώσει το 35% ποσοστό κέρδους στο φαρμακοποιούς, τις συντάξεις που βγάζουν μετανάστες μετά από ένα χρόνο εργασίας στην Ελλάδα, τους συνεργάτες του πρωθυπουργού που λαμβάνουν 18 μισθούς, τα 800 ευρώ μηνιαίο επίδομα και ιατροφαρμακευτική περίθαλψη σε αλλοδαπούς φορείς του AIDS....

Είμαι σίγουρος ότι ο Μιχάλης θα αισθάνεται ιδιαίτερα αλληλέγγυος, εξάλλου η κυβέρνηση φροντίζει για αυτό. Όπως είπε ο Μπάμπης Παπαδημητρίου στο δελτίο του Σκάι “Πολύ φοβάμαι ότι κάποια στελέχη του Υπουργείου Οικονομικών επίτηδες εξαπατούν τους Ευρωπαίους, αλλά και τον Ελληνικό λαό, θέτοντας πολύ ψηλούς στόχους για τις εισπράξεις, στόχους που ξέρουν ότι δεν θα πετύχουν, αλλά τους βάζουν επίτηδες τόσο ψηλά, για να κρατήσουν και τις δαπάνες ψηλά.”

Εδώ να σημειώσουμε ότι ο Μιχάλης είναι ήδη αλληλέγγυος στο 52.3%. “Η συνολική φορολογική επιβάρυνση έφτασε ύστερα από 13 χαράτσια στο 52,3%. Αν συνυπολογιστούν και οι εργοδοτικές εισφορές, ανεβαίνουμε στο 63,18%.”

“Με τους φόρους και τις συνολικές ασφαλιστικές εισφορές (εργοδότη και εργαζόμενου) κοστίζει στην επιχείρηση 45.346 ευρώ ετησίως. Και ας παίρνει ο ίδιος στα χέρια του 24.208 ευρώ, καθώς 20.553 ευρώ πάνε σε φόρους και ασφαλιστικές εισφορές. (Σ' αυτά τα νούμερα φυσικά δεν περιλαμβάνονται οι έμμεσοι φόροι).

Που να ήξερε ο Μιχάλης ότι όταν ο νυν πρωθυπουργός έλεγε το “λεφτά υπάρχουν”, αναφερόταν στην αλληλεγγύη του Μιχάλη.

Θυμήσου Μιχάλη, σοσιαλισμός ή βαρβαρότητα.

In a fainthearted west, we're all asking for it - and we're going to get it, good and hard

ASKING FOR IT
By Mark Steyn July 2002
Last week in Sydney, the pack leader of a group of Lebanese Muslim gang-rapists was sentenced to 55 years in gaol. I suppose I ought to say “Lebanese-Australian” Muslim gang-rapists, since the accused were Australian citizens. But, identity-wise, the rambunctious young lads considered themselves heavy on the Lebanese, light on the Australian. During their gang rapes, the lucky lady would be told she was about to be “fucked Leb style” and that she deserved it because she was an “Australian pig”.
But, inevitably, it’s the heavy sentence that’s “controversial”. After September 11th, Americans were advised to ask themselves, “Why do they hate us?” Now Australians need to ask themselves, “Why do they rape us?” As Monroe Reimers put it on the letters page of The Sydney Morning Herald:
As terrible as the crime was, we must not confuse justice with revenge. We need answers. Where has this hatred come from? How have we contributed to it? Perhaps it's time to take a good hard look at the racism by exclusion practised with such a vengeance by our community and cultural institutions.
Indeed. Many’s the time, labouring under the burden of some or other discriminatory municipal policy, I’ve thought of pinning some gal down and sodomising her while 14 of my pals look on and await their turn. But I fear in my case the Monroe Reimers of the world would be rather less eager to search for “root causes”. Gang rape as a legitimate expression of the campaign for social justice is a privilege reserved only unto a few.
Mr Reimers, though, will be happy to know his view is echoed across the hemispheres. Five days before 9/11, the Norwegian newspaper Dagbladet reported that 65% of the country’s rapes were committed by “non-western” immigrants – a category which, in Norway, is almost wholly Muslim. A professor at the University of Oslo explained that one reason for the disproportionate Muslim share of the rape market was that in their native lands “rape is scarcely punished” because it is generally believed that “it is women who are responsible for rape”.
So Muslim immigrants to Norway should be made aware that things are a little different in Scandinavia, right?
Not at all! Rather, the professor insisted, “Norwegian women must take their share of responsibility for these rapes” because their manner of dress would be regarded by Muslim men as inappropriate. “Norwegian women must realize that we live in a multicultural society and adapt themselves to it.” Or to modify Queen Victoria’s wedding-night advice to her daughter: lie back and think of Yemen.
France? Well, I can’t bring you any ethnic rape statistics from the Fifth Republic because the authorities go to great lengths not to keep any. But, even though the phenomenon of immigrant gang rape does not officially exist, there’s already a word for it: the “tournante” – or “take your turn”. Last year, 11 Muslim men were arrested for enjoying a grand old tournante with a 14-year old girl in a cellar. It’s now a widely accepted communal “rite of passage” in the North African quartiers of French cities.
Whether or not certain cultures are more prone to rape is a delicate question. But what’s interesting is how easily even this most extreme manifestation of multiculturalism is subsumed within the usual pieties. Norwegian women must learn to be, in a very real sense, less “exclusionary”. Lebanese male immigrants, finding refuge in a land of peace, freedom and opportunity, are somehow transformed into gang rapists by Australian racism.
After September 11th, a friend in London said to me she couldn’t stand all the America-needs-to-ask-itself stuff because she used to work at a rape crisis centre and she’d heard this blame-the-victim routine a thousand times before: America was asking for it. Like those Norwegian women, it was being “provocative”. Even so, it comes as a surprise to find the multiculti apologists doing exactly the same to actual rape victims. In a fainthearted west, we're all asking for it - and we're going to get it, good and hard

A conspiracy in plain sight

UN reveals its master plan for destruction of global economy


By James Delingpole
Former US secretary to the United Nations John Bolton once famously said: “The [UN] Secretariat building in New York has 38 stories. If it lost ten stories it wouldn’t make a bit of difference.” 
But I’d say Bolton was being too modest in his aspirations. Far too modest. I’d suggest that if we lost all 38 stories the benefits to mankind would be almost incalculable. Right now, indeed, it’s likely that the United Nations poses a far greater threat to Western Civilisation and the world’s economic future than Al Qaeda does. Have a glance at its latest report World Economic And Social Survey 2011 – and you’ll see what I mean.
The report argues that over the next 40 years our governments must spend an annual minimum of $1.9 trillion – that’s an eyewatering $76 trillion – steering the global economy onto the path of “green growth.”
But “Green growth” – as the report more or less acknowledges – is an oxymoron. That’s why, even though it was supervised by an alleged economist, Dutchman Rob Vos, the report is not at all ashamed to advocate limiting economic growth through rationing, punitive taxation and other forms of government intervention. Why? To combat “Climate Change”, of course.
Here’s the kicker:
“Hence, if, for instance, emission reduction targets cannot be met through accelerated technological progress in energy efficiency and renewable energy generation, it may be necessary to impose caps on energy consumption itself in order to meet climate change mitigation in a timely manner. Proposals to put limits on economic growth can be viewed in this context.” (P.19)
And if shaving off $1.9 trillion from the world economy each year (that’s 3 per cent of the world gross product in 2010) results in further economic stagnation and a lower standard of living for our children and grandchildren, well what the hell. As the report primly tells us, none of us actually needs to earn more than $10,000 a year. Anything more is greedy:
“For example, taking life expectancy as an objective measure of the quality of life, it can be seen that life expectancy does not increase much beyond a per capita income of about $10,000. Similarly…cross-country evidence suggests that there are no significant additional gains in human development (as measured by the human development index) beyond the energy-use level of about 110 gigajoules (GJ) (or two tons of oil equivalent (toe) per capita.”
Are they seriously suggesting that developed economies should ration their people’s energy use? They surely are:
“The Survey estimates that the emissions cap would be equivalent to primary energy consumer consumption of 70 gigajoules per capita per year, which means that the average European would have to cut his or her energy consumption by about half and the average resident of the US by about three quarters.”

No global warming since 1998

There has been no global warming since 1998
Panic over: he's going to live!
By James Delingpole
The headline of this post really shouldn’t be controversial. It chimes perfectly with what Kevin “null hypothesis” Trenberth wrote in that notorious 2009 Climategate email to Michael Mann:
The fact is that we can’t account for the lack of warming at the moment and it is a travesty that we can’t.
And it’s what Phil Jones admitted in a BBC interview when he said that there had been no “statistically significant” warming since 1995.
Why then am I mentioning it now? W-e-l-l, because just as ze war is to the Germans, Chappaquiddick is to the Kennedy family and that Portland masseuse incident to Al Gore, so the recent lack of warming is to the, er, Warmists. They hate it. It’s an affront to everything they believe in. Damn it, if the world isn’t warming with the alacrity they’d prefer, how are they going to keep the funding gravy train going, and how are they going to persuade an increasingly sceptical populace that the “science” is “settled”, the debate over and the time for action is now? That’s why they can’t reminded of the truth often enough. It’s like salting the slugs that are ruining your garden: necessary, but also kind of fun too.
Consider their latest desperate effort in fudge, denial, and duplicity. It concerns a new report which – if you believe the Guardian and Michael Mann – confirms that man-made global warming is even more man-made and more happening and more dangerous than at any time ever.
Michael E Mann, at Pennsylvania State University and not part of the research team, said the study was “a very solid, careful statistical analysis” which reinforces research showing “there is a clear impact of human activity on ongoing warming of our climate”. It demonstrated, Mann said, that “the claim that ‘global warming has stopped’ is simply false.”
Actually the paper Reconciling anthropogenic climate change with observed temperature 1998-2008 [PDF] by a team led by Robert Kaufmann at the Department of Geography at Boston University demonstrates no such thing. What it shows – yet again and in excelsis – is the chutzpah and threadbare desperation of the “scientists” involved in the Great Global Warming Boondoggle. Rather than admit that their Ponzi scheme is dead in the water, they try to dazzle us with new imaginative theories which prove that, even though they’re wrong they are in fact right.
No global warming since 1998? Simple. All you’ve got to do – as Kaufmann et al have done – is apply the Even Though We’re Wrong We’re Right Panacea Get-Out Formula. In this instance the ETWWWRPGOF (as it’s snappily known) involves Blaming The Chinese. Yep, it turns out all that pollution that Chinese are pumping into the air thanks to their unhealthy obsession with economic growth and giving better lives to their children is actually counteracting the effects of Man Made Global Warming.
“Results indicate that net anthropogenic forcing rises slower than previous decades because the cooling effects of sulfur emissions grow in tandem with the warming effects greenhouse gas concentrations. This slow-down, along with declining solar insolation and a change from El Nino to La Nina conditions, enables the model to simulate the lack of warming after 1998,” the team explains.
In other words Man Made Global Cooling is cancelling out Man Made Global Warming.
Judith Curry is unimpressed:
Their argument is totally unconvincing to me.  However, the link between flat/cooling global temperature and increased coal burning in China is certainly an interesting argument from a political perspective.  The scientific motivation for this article seems to be that that scientists understand the evolution of global temperature forcing and that the answer is forced variability (not natural internal variability), and this explanation of the recent lack of warming supports a similar argument for the cooling between 1940 and 1970.   The political consequence of this article seems to be that the simplest solution to global warming is for the Chinese to burn more coal, which they intend to do anyways.
Tweaking computer models like this proves nothing. The real test is in the real world data. The temperature hasn’t increased for over a decade. For there to be any faith in the underlying scientific assumptions the world has to start warming soon, at an enhanced rate to compensate for it being held back for a decade.
Despite what the authors of this paper state after their tinkering with an out-of-date climate computer model, there is as yet no convincing explanation for the global temperature standstill of the past decade.
As indeed might you and I be. For years the Warmists have been telling us that they’re so sure of their computer models that they know, they just know, that CO2 has a forcing effect on global temperatures and that combined with positive feedbacks this is going to cause catastrophic warming. And now they’re saying, without a blush, “Well all right, some of those feedbacks might actually be negative and, er, completely cancel out the terrifying thing we were telling you to worry about. But don’t stop worrying, for God’s sake. Whatever is happening is still worrying, very worrying. And if you give us a bit more time we’ll come up with a paper explaining just why it’s worrying.”
Meanwhile, further evidence emerges that “science” informing the IPCC’s prognostications of Man Made Climate Doom is junk science. It comes courtesy of Nic Lewis, the man who helped expose the flaws in a paper about Antarctic temperature trends, who has now noticed another instance in which the IPCC has been torturing innocent data – sorry: made a perfectly innocent mistake quite accidentally with no bad intention whatsoever – to suit its twisted ends.
The IPCC Fourth Assessment Report of 2007 (AR4) contained various errors, including the well publicised overestimate of the speed at which Himalayan glaciers would melt. However, the IPCC’s defenders point out that such errors were inadvertent and inconsequential: they did not undermine the scientific basis of AR4. Here I demonstrate an error in the core scientific report (WGI) that came about through the IPCC’s alteration of a peer-reviewed result.  This error is highly consequential, since it involves the only instrumental evidence that is climate-model independent  cited by the IPCC as to the probability distribution of climate sensitivity, and it substantially increases the apparent risk of high warming from increases in CO2concentration.
Matt Ridley explains the significance of this better than I can:
This mistake is central to the IPCC’s case, not peripheral. It undermines the credibility of the case for urgent action against climate change and strongly supports the argument that, other things being equal, CO2 doubling will not cause more than a mild and net beneficial warming.
Now can we have our economy back, please?

A risky game

Building Boom in China Stirs Fears of Debt Overload
An empty lot in Wuhan, China, where developers intend to build a tower taller than the Empire State Building in New York.
By DAVID BARBOZA
WUHAN, China — In the seven years it will take New York City to build a two-mile leg of its long-awaited Second Avenue subway line, this city of nine million people in central China plans to complete an entirely new subway system, with nearly 140 miles of track.

And the Wuhan Metro is only one piece of a $120 billion municipal master plan that includes two new airport terminals, a new financial district, a cultural district and a riverfront promenade with an office tower half again as high as the Empire State Building.

The construction frenzy cloaks Wuhan, China’s ninth-largest city, in a continual dust cloud, despite fleets of water trucks constantly spraying the streets. No wonder the local Communist party secretary, recently promoted from mayor, is known as “Mr. Digging Around the City.”

The plans for Wuhan, a provincial capital about 425 miles west of Shanghai, might seem extravagant. But they are not unusual. Dozens of other Chinese cities are racing to complete infrastructure projects just as expensive and ambitious, or more so, as they play their roles in this nation’s celebrated economic miracle.

In the last few years, cities’ efforts have helped government infrastructure and real estate spending surpass foreign trade as the biggest contributor to China’s growth. Subways and skyscrapers, in other words, are replacing exports of furniture and iPhones as the symbols of this nation’s prowess.
But there are growing signs that China’s long-running economic boom could be undermined by these building binges, which are financed through heavy borrowing by local governments and clever accounting that masks the true size of the debt.

The danger, experts say, is that China’s municipal governments could already be sitting on huge mountains of hidden debt — a lurking liability that threatens to stunt the nation’s economic growth for years or even decades to come. Just last week China’s national auditor, who reports to the cabinet, warned of the perils of local government borrowing. And on Tuesday the Beijing office of Moody’s Investors Service issued a report saying the national auditor might have understated Chinese banks’ actual risks from loans to local governments.

Because Chinese growth has been one of the few steady engines in the global economy in recent years, any significant slowdown in this country would have international repercussions.

As municipal projects play out across China, spending on so-called fixed-asset investment — a crucial measure of building that is heavily weighted toward government and real estate projects — is now equal to nearly 70 percent of the nation’s gross domestic product. It is a ratio that no other large nation has approached in modern times.

Even Japan, at the peak of its building boom in the 1980s, reached only about 35 percent, and the figure has hovered around 20 percent for decades in the United States.
China’s high number helps explain its meteoric material rise. But it could also signal a dangerous dependence on government infrastructure spending.

“If China’s good at anything, it’s infrastructure,” said Pieter P. Bottelier, a China expert at the Johns Hopkins School of Advanced International Studies in Washington. “But right now it seems the investment rate is too high. How much of that is ill-advised and future nonperforming loans, no one knows.”

For the last decade, as economists have sought to explain China’s rise, a popular image has emerged of Beijing technocrats continually and cannily fine-tuning the nation’s communist-capitalist hybrid. But in fact, city governments often work at odds with Beijing’s aims. And some of Beijing’s own goals and policies can be contradictory.

As a result, China’s state capitalism is much messier, and the economy more vulnerable, than it might look to the outside world.

Friedman's curse

The Inevitable End
by Juraj Karpis
The political project of the euro is in deep trouble. It seems that Friedman's curse is beginning to materialize. Despite the European Union and International Monetary Fund's pledging three-quarters of a trillion of our euros to put out the debt-crisis wildfire, interest rates on troubled sovereign debts are even higher than before the announcement of the bailout funds. Not that this is a surprise to anyone.

Another loan to an already overindebted country is not a real solution to its problems — something private investors know very well. It's just a very expensive buying of time for those who happened to own the bonds and wonder what to do now. During this bought time, one can pretend that the problem will disappear thanks to sudden and miraculous economic growth. Ireland got bailed out. Portugal got bailed out. For Greece, one bailout was not enough.

Now, just a year later, Greece is asking again for the common European credit card in order to support a standard of living they became accustomed to thanks to the euro and with which it is very hard to part. Greece is a perfect example of the consequences of the implicit bailout guarantee from other EMU member states. A country on the edge of default with a debt-to-GDP ratio of over 150 percent — even after "radical" austerity measures — posted a public-finance deficit of 10.5 percent of GDP in 2010.

One troubling question keeps reappearing — What will happen to the patchwork safety net if the Italian or Spanish elephant falls into it? Will it hold? Or would Germany and the other countries holding it be better off letting go, so as to avoid being pulled over the cliff of default as well?

Today, we Slovaks are no longer just uninvolved bystanders, watching with interest as the euro drama unfolds. Since 2009, the euro's problems are our problems too, and now our chips are on the table. When you see press conferences announcing newer and bigger bailout packages, just divide the figures quoted by 100 to find out just how much European "solidarity" will cost us.

To mention solidarity while bailing out countries with irresponsible fiscal policy — and banks misled by the ECB's illusory easy-money policy — leaves a bad taste in Slovaks' mouths. This kind of "solidarity" is not permitted by the recently ratified Lisbon treaty. Moreover, the Slovak worker can only dream of a Greek-level pension, and Slovakia's own banking sector had to be restructured just a decade ago at a huge cost (over 10 percent of GDP). And now, as the second-poorest EMU member, we are expected to send money to pay Portuguese public workers and to save French banks after their unwise investments in Ireland?
There was not much of a discussion about euro adoption in Slovakia. The eagerness of politicians, experts, and the lay public to adopt the euro as soon as possible is easy to understand. The euro was supposed to protect us from our own politicians, who clearly showed what they are capable of in the late '90s. And it was flattering, too, to finally be a leader in at least something among our postcommunist neighbors. But this desire clouded our perception of the club we were about to join.

Yes, the common currency has its advantages, and monetary nationalism is costly and economically indefensible. But many ignore the key question of the currency's quality: What is the backing of the currency and who controls its production? In fear of another failure by our own political class, we forgot that the euro is not a gold standard lying outside the reach and control of politicians, but only a bigger and more complicated political project with all the ills that attend this sort of centrally planned structure. The fact that a politician speaks French or German doesn't make him a morally pristine agent free of any self-interest.

Thanks to its institutional character, the euro is a common resource utilized by the EMU countries. Control of money production, and all related benefits, has been moved from national governments into the platonically guarded supranational space of the eurosystem. Suddenly, it is possible to cover public-finance deficits with newly created euros, while the costs of this process — in the form of price inflation, various asset bubbles, and a deformed production structure — fall not just on the irresponsible country but on all members of the club.
Slovaks have a very intense historical experience with common resources. For them, the tragedy of the commons is not just an abstract economic concept, and the saying "He who does not steal, steals from his family" hints at an intimate public understanding of all the problems brought about by ill-defined or undefended property rights. The rules of the Stability and Growth Pact were supposed to police the euro commons, but the countries involved have simply ignored the rules, making the pact into an impotent manifesto.

With the onset of the financial crisis, the illusion created by newly created money and cheap loans not backed by savings evaporated. Losses from malinvestments — along with necessary reductions in standards of living or deep cuts in generous social benefits — are painful but inevitable. Changes in the rules of the euro game (the creation of the European Stabilization Mechanism by the addition of a new article to the Lisbon treaty) should allow a shifting of the losses from the places where they originated to taxpayers in other countries.

The European Union is changing into a wealth-redistribution mechanism between countries before our eyes. The potential default of one member state is automatically — and illogically — associated with the end of the union or even a potential war in Europe by EU representatives. However, hardly anything stirs nationalistic passion more than inequitable transfers of wealth. And an increase of indebtedness among the last relatively healthy countries left in the effort to avert the inevitable defaults doesn't add to the strength of the euro.

After 2013, as a part of the permanent European Stabilization Mechanism, Slovakia is projected to guarantee debts of up to almost six billion euros (one-fifth of the current government debt). You won't find risks like this in the official Slovak SWOT pre-EMU-entry analyses. Neither would you find discussion about possible government failures and fiscal free riding allowed by the institutional setup of the eurosystem there. We saw the euro as we wanted to see it, not as it really was. Ireland was presented as a role model for the positive effects of the common European currency, not as a Celtic Tiger on the steroids of irresponsible European monetary policy. The evidence of misuse of the euro for irresponsible fiscal policy was right in front of us, and in spite of the countless breaches of the Stability and Growth Pact, nobody held the fiscally unsound countries responsible. Nobody had to pay.

Even though we have already made the decision and the euro is already in our pockets, it's not yet too late in Slovakia to focus on the issues that didn't resonate enough in the pre-entry, euro-optimistic discussion. At least we will better understand what is happening to our money these days.

Thursday, July 7, 2011

New Deals don't work

China’s Ticking Debt Bomb
By Minxin Pei
China’s remarkable economic rebound after the global economic crisis in 2008-2009 has been a source of envy and puzzlement for the rest of the world. Instead of recession, the Chinese economy has recorded double-digit growth, and is actually showing signs of overheating – a sharp contrast with the stagnation in most Western countries. How did the Chinese do it?  Perhaps advocates of ‘Chinese exceptionalism’ are right after all: Beijing has found a secret formula of economic success that has eluded the West.

Part of the answer to this mystery was given in late June by the Chinese government. It turns out that Beijing has managed to keep its economy growing during the global slump by resorting to massive bank lending to local governments, which then went on an infrastructure spending binge that’s certain to haunt the country for years to come. If we remember the causes of the economic crisis that has ravaged the United States and Western Europe, the most important one is something euphemistically termed ‘credit boom’ – excessive lending and borrowing that fuelled housing bubbles and unsustainable consumption. China seems to have been afflicted with the same disease, with only one major variation: much of the debt incurred in China has gone into the infrastructure sector, not consumption. So much for Chinese exceptionalism.

Based on the figure released by the National Audit Office (NAO) at the end of June, local governments have accumulated debts totalling 10.7 trillion renminbi (RMB) or $1.65 trillion – about 27 percent of China’s GDP in 2010.  Because the NAO’s figure was based on a sampling of 6,500 local government-backed financial vehicles (out of more than 10,000 such vehicles nationwide), the actual magnitude of local government indebtedness is much greater. The People’s Bank of China, the central bank, recently estimated that local government debt totalled 14 trillion RMB (most of which was owed to banks), almost 30 percent higher than the NAO figure.

Several interesting questions are raised by the revelation of local government debt in China.  First and foremost, it has shown that public finance in China is in much worse shape than previously thought.  On paper, China’s debt to GDP ratio is under 20 percent, making Beijing a paragon of fiscal virtue compared with profligate Western governments.  However, if we factor in various government obligations that are typically counted as public debt, the picture doesn’t look pretty for China. Once local government debts, costs of re-capitalizing state-owned banks, bonds issued by state-owned banks, and railway bonds are included, China’s total debt amounts to 70 to 80 percent of GDP, roughly the level of public debt in the United States and the United Kingdom. Since most of China’s debt has been borrowed in the last decade, China is on an unsustainable trajectory at the current rate of debt accumulation, particularly when economic growth slows down, as it’s expected to do in the coming decade.
The second question to be asked here is whether local governments can service the debts and repay the loans.  If they have made sound infrastructure investments that generate income streams, debt accumulation isn’t a problem.  Unfortunately, that doesn’t appear to be the case for most infrastructure projects built by local governments.  Typically, such projects are highly leveraged, with local governments putting in little equity capital and borrowing nearly all the costs. This makes debt-servicing a huge burden.
There are only two sources of income to service such debts. One is to sell land controlled by local governments (land is used as collateral for securing bank loans). The other is to use the cash flow generated by these projects (power plants, ports, and toll roads).  With the frothy real estate teetering, local governments shouldn’t count on land sales to come to their rescue. The economic viability of their newly invested infrastructure projects is even more abysmal. One banking regulator revealed that only one third of these projects can produce enough cash flow to service their loans. This implies that local governments won’t be able to recoup the bulk of their infrastructure investments – or repay the banks.

So what about the economic consequences of this ticking debt bomb?
Because about half of the bank loans borrowed by local governments will come due in the next two years, we can expect a short-term repayment crisis. Chinese state-owned banks will have to roll over these loans, pretending that they are still performing. They may even have to lend local governments new money to pay the interests on these loans.  The net effects of such accounting gimmicks would be reduced profitability for Chinese banks, admittedly not a cause for real concern. But accounting tricks can only temporarily delay the inevitable.
The longer term effects of massive non-performing loans owed to state banks by local governments are likely to manifest not in the form of a banking crisis, but in other more insidious – yet equally – harmful ways.  Because the Chinese state owns trillions of RMB in assets (land, natural resources, state-owned monopolies, and $3 trillion in foreign exchange), Beijing should have enough resources to bail out local governments when these loans have to be repaid. But there’s no free lunch. Bailing out local governments with valuable financial resources in the coming decade – a decade in which China will experience the end of the demographic dividend, rising costs of healthcare and pensions, and slower economic growth – will mean China will have less capital to invest.  For an investment-led economy, this implies even more sluggish growth.
It’s tempting to blame irresponsible and corrupt local government officials for wasting the country’s precious capital. That would be unfair. While there are no doubt unscrupulous local officials who see Beijing’s bank-funded stimulus plan as a golden opportunity to line their pockets, the behaviour of local governments is perfectly rational: they would be fools if they hadn’t jumped on the gravy train of freely available bank loans in the last two years. From their perspective, China’s system of public finance is grossly unfair to local governments. Beijing collects the bulk of taxes (60 percent of all taxes), but spends little on social services, which local governments must fund. Unlike their Western counterparts, local governments can’t issue bonds to borrow money. So if they want to develop local infrastructure (which Beijing doesn’t fund, either), the only source of financing is bank loans.

For all practical purposes, bank loans borrowed by government entities are actually free money – they don’t have to be repaid even when they go sour. Beijing has always come to the rescue, something local government officials are fully aware of. But we all know what happens when people get to spend free money.

Make up your minds, will you?


California’s long-term cooling trend cited as evidence FOR global warming



Want to know why global warming alarmists and climate scientists in general have lost credibility with the American public? Consider a new study released today — and the unintentionally hilarious weasel words of its author — as Exhibit A.
As reported in the San Francisco Chronicle today, a meteorologist did a 30-year survey of temperature and precipitation data for most of the largest cities up and down the state of California. Conclusion? In 75% of the sites, the weather has grown colder and rainier than it used to be:

(To see the complete illustration from which this graphic was excerpted, see the SF Chronicle‘s version here.)
Of course, this “inconvenient truth” was not what either the study’s author nor the Chronicle‘s reporter wanted to see, so the spin cycle goes into overdrive right from the headline, which manages to use the word “warmer” first despite there being only two warmer cities in the entire study: “CA climate: inland warmer; coast cooler and wetter.” Uh-huh. But that’s just the aperitif. How does the author, a meteorologist named Jan Null who also happens to be on the global warming bandwagon, explain away the trend he uncovered? Behold:
The data may appear to bolster the arguments of global warming skeptics, but Null said the findings actually fit in with the predictions of scientists who believe the climate is changing as a result of human-caused carbon emissions.
“People say, ‘Wait a minute, what about global warming? Shouldn’t it be warmer?’ ” Null said. “Well, if you have more warm days in the Central Valley, you are going to have a stronger sea breeze so you will cool off the coastal areas. That certainly does not contradict any of the models about global warming. This is what is to be expected.”
They always say that: Whenever evidence of cooling is found in the data, it somehow magically becomes confirming proof of global warming, because cooling is “expected” in the forecasts. Of course, whenever localized warming trends are found, those too are cited as evidence of global warming.
Which leads me to my Global Warming Spin Axiom:
Hot we win, cold you lose!
What’s most astounding is that Null, who claims to be a world-class expert on California meteorology, uncorked the whopper “if you have more warm days in the Central Valley, you are going to have a stronger sea breeze so you will cool off the coastal areas,” which as anyone who lives in Northern California knows is complete balderdash. Hot days in the Central Valley are generally caused by high-pressure systems settling over the area, which also cause off-shore (i.e. reverse of normal) winds and higher temperature at the coasts. Incoming low-pressure fronts cause cold temperatures at the coasts and cooling inland. To say that warm temperatures inland somehow induce cold and rain on the coast is wrong in more ways than I can count. And Jan Null knows that, so he must be purposely obfuscating to undermine the conclusions of his own unfortunate study.
One thing I will say in Null’s favor, though: At least he released the stats he uncovered, rather than burying them once he realized that they undermined his favored thesis (as other researchers have done, we now know). But he would have been wiser to just release them and make no further comment, because every time a climatologist cites cooler temperatures as proof of global warming, another angel dies in heaven and another thousand Americans lose faith in the global warming mania.

Crackpots

Asia pollution blamed for halt in warming
Smoke billows from chimneys at an industrial district near Tokyo February 28, 2011. REUTERS/Kim Kyung-Hoon
By G. Wynn
Reuters) - Smoke belching from Asia's rapidly growing economies is largely responsible for a halt in global warming in the decade after 1998 because of sulphur's cooling effect, even though greenhouse gas emissions soared, a U.S. study said on Monday.
The paper raised the prospect of more rapid, pent-up climate change when emerging economies eventually crack down on pollution.
World temperatures did not rise from 1998 to 2008, while manmade emissions of carbon dioxide from burning fossil fuel grew by nearly a third, various data show.
The researchers from Boston and Harvard Universities and Finland's University of Turku said pollution, and specifically sulphur emissions, from coal-fueled growth in Asia was responsible for the cooling effect.
Sulphur allows water drops or aerosols to form, creating hazy clouds which reflect sunlight back into space.
"Anthropogenic activities that warm and cool the planet largely cancel after 1998, which allows natural variables to play a more significant role," the paper said.
Natural cooling effects included a declining solar cycle after 2002, meaning the sun's output fell.
The study said that the halt in warming had fueled doubts about anthropogenic climate change, where scientists say manmade greenhouse gas emissions are heating the Earth.
"It has been unclear why global surface temperatures did not rise between 1998 and 2008," said the study published in the Proceedings of the National Academy of Sciences of the United States.
A peak in temperatures in 1998 coincided with a strong El Nino weather event, a natural shift which brings warm waters to the surface of the Pacific Ocean every few years.
Subsequent years have still included nine of the top 10 hottest years on record, while the U.N. World Meteorological Organization said 2010 was tied for the record.
A U.N. panel of climate scientists said in 2007 that it was 90 percent certain that humankind was causing global warming.
COAL
Sulphur aerosols may remain in the atmosphere for several years, meaning their cooling effect will gradually abate once smokestack industries clean up.
The study echoed a similar explanation for reduced warming between the 1940s and 1970s, blamed on sulphur emissions before Western economies cleaned up largely to combat acid rain.
"The post 1970 period of warming, which constitutes a significant portion of the increase in global surface temperature since the mid 20th century, is driven by efforts to reduce air pollution," it said.
Sulphur emissions are linked to coal consumption which in China grew more than 100 percent in the decade to 2008, or nearly three times the rate of the previous 10 years, according to data from the energy firm BP.
Other climate scientists broadly supported Monday's study, stressing that over longer time periods rising greenhouse gas emissions would over-ride cooling factors.
"Long term warming will continue unless emissions are reduced," said Peter Stott, head of climate monitoring at Britain's Met Office.