Sleight of Hand

And the Big Time Banksters Come Marching In

by Robert Wenzel

Here's what you need to know about the current crisis in the Eurozone. The big time banksters are getting direct hands on control:

Mario Drgahi has become president of the European Central Bank as of November 1. He was vice chairman and managing director of Goldman Sachs International and a member of the firm-wide management committee. He was the Italian Executive Director at the World Bank. He has been a Fellow of the Institute of Politics at the John F. Kennedy School of Government, Harvard University.

Lucas Papademos takes over today as Prime Miinster of Greece. He was an economist at the Federal Reserve Bank of Boston. He was a visiting professor of public policy at the Kennedy School of Government at Harvard University. And, he was previously a vice president of the European Central Bank. He has been a member of the Trilateral Commission since 1998.

Indications are that Mario Monti will succeed Silvio Berlusconi as prime minister of Italy, within in days. Monti completed graduate studies at Yale University, where he studied under James Tobin (see the Tobin Tax). He is a member of the European Commission. He is European Chairman of the Trilateral Commission and and member of the Bilderberg Group.

If you get the sense that the elitist banksters are going to take this financial crisis and push it in whatever direction they want, you are probably very right.

The ever expanding financial bubble

Why Is There a Euro Crisis?

by Philipp Bagus

On Thursday, October 28, 2011, prices of European stocks soared. Big banks like Société Générale (+22.54%), BNP Paribas (+19.92%), Commerzbank (+16.49%) or Deutsche Bank (+15.35%) experienced fantastic one-day gains. What happened?

Today's banks are not free-market institutions. They live in a symbiosis with governments that they are financing. The banks' survival depends on privileges and government interventions. Such an intervention explains the unusual stock gains. On Wednesday night, an EU summit had limited the losses that European banks will take for financing the irresponsible Greek government to 50 percent. Moreover, the summit showed that the European political elite is willing to keep the game going and continue to bail out the government of Greece and other peripheral countries. Everyone who receives money from the Greek government benefits from the bailout: Greek public employees, pensioners, unemployed, subsidized sectors, Greek banks — but also French and German banks.

Europeans politicians want the euro to survive. For it to do so, they think that they have to rescue irresponsible governments with public money. Banks are the main creditors of such governments. Thus, bank stocks soared.

The spending mess goes in a circle. Banks have financed irresponsible governments such as that of Greece. Now the Greek government partially defaults. As a consequence, European governments rescue banks by bailing them out directly or by giving loans to the Greek government. Banks can then continue to finance governments (the loans to the Greek government and others). But who, in the end, is really paying for this whole mess? That is the end of our story. Let us begin with the origin that coincides with beneficiaries of the last EU summit: the banking system.

The Origin of the Calamity: Credit Expansion

When fractional-reserve banks expand credit, malinvestments result. Entrepreneurs induced by artificially low interest rates engage in new investment projects that the lower interest rates suddenly make look profitable. Many of these investments are not financed by real savings but just by money created out of thin air by the banking system. The new investments absorb important resources from other sectors that are not affected so much by the inflow of the new money. There results a real distortion in the productive structure of the economy. In the last cycle, malinvestments in the booming housing markets contrasted with important bottlenecks such as in the commodity sector.

The Real Distortions Trigger a Financial Crisis

In 2008, the crisis of the real economy triggered a banking or financial crisis. Artificially low interest rates had facilitated excessive debt accumulation to finance bubble activities. When the malinvestments became apparent, the market value of these investments dropped sharply. Part of these assets (malinvestments) was property of the banking system or financed by it.

As malinvestments got liquidated, companies went bust and people lost their bubble jobs. Individuals started to default on their mortgage and other credit payments. Bankrupt companies stopped paying their loans to banks. Asset prices such as stock prices collapsed. As a consequence, the value of bank assets evaporated, reducing their equity. Bank liquidity was affected negatively too as borrowers defaulted on their bank loans.

As a consequence of the reduced bank solvency, a problem originating from the distortions in the real economy, financial institutions almost stopped lending to each other in the autumn of 2008. Interbank liquidity dried up. Add to this the fact that fractional-reserve banks are inherently illiquid, and it is not surprising that a financial meltdown was only stopped by massive interventions by central banks and governments worldwide. The real crisis had caused a financial crisis.

Conditions for Economic Recovery

Economic recovery requires that the structure of production adapt to consumer wishes. Malinvestments must be liquidated to free up resources for new, more urgently demanded projects. This process requires several adjustments.

First, relative prices must adjust. For instances, housing prices had to fall, which made other projects look relatively more profitable. If relative housing prices do not fall, ever more houses will be built, adding to existing distortions.

Second, savings must be available to finance investments in the hitherto neglected sectors, such as the commodity sector. Additional savings hasten the process as the new processes need savings.

Lastly, factor markets must be flexible to allow the factors of production to shift from the bubble sectors to the more urgently demanded projects. Workers must stop building additional houses and instead engage in more-urgent projects, such as the production of oil.

Bankruptcies are an institution that can speed up the process of relative price adjustments, transferring savings and factors of production. They favor a rapid sale of malinvestments, setting free savings and factors of production. Bankruptcies are thus essential for a fast recovery.

A Fast Liquidation Is Inhibited at High Costs

All three aforementioned adjustments (relative prices changes, increase in private savings, and factor-market flexibility) were inhibited. Many bankruptcies that should have happened were not allowed to occur. Both in the real economy and the financial sector, governments intervened. They support struggling companies via subsidized loans, programs such as cash for clunkers, or via public works.

Governments also supported and rescued banks by buying problematic assets or injecting capital into them. As bankruptcies are not allowed to happen, the liquidation of malinvestments was slowed down.

Governments also inhibited factor markets from being flexible and subsidized unemployment by paying unemployment benefits. Bubble prices were not allowed to adjust quickly but were to some extent propped up by government interventions. Government sucked up private savings by taxes and squandered them maintaining an obsolete structure of production. Banks financed the government spending by buying government bonds. By putting money into the public sector, banks had fewer funds available to lend to the private sector.

Factors of production were not shifted quickly into new projects because the old ones were not liquidated. They remained stuck in what essentially were malinvestments, especially in an overblown financial sector. Factor mobility was slowed down by unemployment benefits, union privileges, and other labor market regulations.

Real and Financial Crisis Trigger a Sovereign-Debt Crisis

All these efforts to prevent a fast restructuring implied an enormous increase in public spending. Government spending had already increased in the years previous to the crisis thanks to the artificial boom. The credit-induced boom had caused bubble profits in several sectors, such as housing or the stock market. Tax revenues had soared and had been readily spent by governments' introducing new spending programs. These revenues now just disappeared. Government revenue from income taxes and social security also dropped.

With government expenditures that prolong the crisis soaring and revenues plummeting, public debts and deficits skyrocketed.[1] The crisis of the real and financial economy led to a sovereign-debt crisis. Malinvestment had not been restructured, and losses had not disappeared, because government intervention inhibited their liquidation. The ownership of malinvestments and the losses resulting from them were to a great part socialized.

Sovereign-Debt Crisis Triggers Currency Crisis

The next step in the logic of monetary interventionism is a currency crisis. The value of fiat currencies is ultimately supported by their governments and central banks. The balance sheets of central banks deteriorated considerably during the crisis and with them the banks' capacity to defend the value of the currencies they issue. During the crisis, central banks accumulated bad assets: loans to zombie banks, overvalued asset-backed securities, bonds of troubled governments, etc.

In order to support the banking system during the crisis and to limit the number of bankruptcies, central banks had to keep interest rates at historically low levels. They thereby facilitated the accumulation of government debts. Consequently, the pressure on central banks to print the governments' way out of their debt crisis is building up. Indeed, we have already seen quantitative easing I and quantitative easing II enacted by the Fed. The European Central Bank also started buying government bonds and accepting collateral of low quality (such as Greek government bonds) as did the Bank of England.

Central banks are producing more base money and reducing the quality of their assets.

Governments, in turn, are in bad shape to recapitalize them. They need further money production to stay afloat. Due to their overindebtedness, there are several ways out for governments negatively affecting the value of the currencies they issue.

Governments may default on debts directly by ceasing to pay their bonds. Alternatively, they can do so indirectly through high inflation (another form of default). Here we face a possible feedback loop to the banking crisis. If governments default on their debts, banks holding these debts are affected negatively. Then another government's bailout may be necessary to save the banks. This rescue would likely be financed by even more debts calling for more money production and dilution. All this reduces the confidence in fiat currencies.

Conclusion

After crises of the real economy, the financial sector and government debts, the logic of interventionism leads us to a currency crisis. The currency crisis is just unfolding before our eyes. The crisis has been partially concealed as the euro and the dollar are depreciating almost at the same pace. The currency crisis manifests itself, however, in the exchange rate to the Swiss franc or the price of gold.

When currencies collapse, price inflation usually picks up. More units of the currency must be offered to acquire goods and services. What had started with credit expansion and distortions in the real economy, then, may well end up with high price inflation rates and currency reform.

It is now easy to answer our initial question: Who is paying for the mutual bailouts of governments and banks in the eurozone?  All holders of euros, via a loss of purchasing power.

Instead of allowing the market to react to credit expansion, governments increased their debts and sacrificed the value of the currencies we are using. The remedy to the distortions caused by credit expansion would have been the fast liquidation of malinvestments, banks, and governments. As the innocent users of the currencies are paying for the bailouts, it is difficult not to be a liquidationist.

The need for a common currency. Gold

The Euro Crackup

By Jeffrey Tucker |

Watching the euro melt has been like watching a train wreck in slow motion. You knew it was coming. You know which cars on the train are next line to be mashed. There is nothing you can do to stop it. You can only watch as it happens, with one car after another compressing like a tin can, and all you can do is say, “I told you so,” the entire time.

The whole European currency scheme was both brilliant and crazy. It was brilliant because Europe should have a united currency. In fact, the whole world should have a united currency. Once upon a time, it did. It was called the gold standard. National currencies were just another name for the same core thing — a nationalist spin on a global consensus. If some country had waved around an unbacked piece of paper and called it money, no one would have taken it seriously.

And the gold standard was internally policing. If one country debauched the currency, gold would flow out, the thing would lose credibility and capital would flee to places that took sound finance seriously. Governments were restrained, the hands of politicians were tied (they could only spend what they could overtly steal) and markets ruled the day. The politicians hated it, but markets were free, stable and growing.

So yes, there is a case for single currencies in regions, or even the entire world. Truly, why should people and multinational commercial institutions have to go through the ridiculous headache of changing currencies at the border? This is just pointless. Imagine if an inch meant something different in every country, and you had to come to a new understanding of its meaning in order to build on this, versus on that side of the border? Markets don’t like this kind of pointless exercise. The natural market tendency is toward unity in what matters (money) and disunity where it matters (competition and entrepreneurship).

So the European elites who cobbled together the euro after many decades of planning played to that sense, and developed a reasonable expectation of a wonderful Europe united with peace and free trade, all with a single currency. It seemed like a recreation of an older, freer, more-wonderful world. So why not?

Here’s why not: The gold standard no longer exists. It hasn’t existed since the politicians destroyed the last remnants of it in the early 1970s. And it was in 1970 that the idea of a single currency for Europe went from the dream stage to the planning stage. At the end of the gold standard, the idea should have been dropped, but it was not. The planning elites had it in their heads that this was the only way forward, and nothing would stop them.

A single currency seemed like a great idea to the relatively weak economies of Europe. The lira, peseta, escudo, franc and drachma would no longer suffer at the hands of traders who seemed to forever cling to the German mark. They could inflate without consequence. Knowing this to be a problem, the pro-euro planners cobbled together certain safeguards. There would be a single central bank, and sovereign countries would have to give up autonomous control over monetary policy. The same would apply to national finance: no more endless running of deficits, and no more free-spending legislatures.

As a condition of entering the currency union, countries would have to agree to all these terms and more, including harmonized regulatory systems. Governments would have to confess their prior sins and swear on a holy copy of the EU Constitution that they would be good from now on. Well, that didn’t happen, but the planners were so dead set on the notion of a single currency that they decided to look the other way. All these entered the union with debt and broken banking systems, all in a sort of collective hope that the whole could cover the sins of the parts.

Sure enough, the southern countries experienced a wonderful boon following the introduction of the euro. Interest rates on government bonds fell dramatically — not because their citizens were suddenly saving, and the banks were flush with capital. The reason was the new perception that the European Central Bank would operate as a guarantor of the debt of all eurozone countries. In other words, rates fell in Europe for the same reason they fell in the United States: The centralization was creating a moral hazard.

This set off a lovely economic boom that later led to bust, there just as here. The central bank, however, had already promised that it would not be involved in any bailout schemes, that it would only fight inflation. This was a strange repeat of history because this is precisely what the Fed had claimed when it was created too. Central banks always say this at the outset: We will sleep with the money, but we won’t actually do anything. We will resist every temptation!

The problems here are incredibly obvious. Countries had not actually given up all their fiscal authority. Most importantly, their banking systems still had control and, thanks to fractional reserve banking, they still could create money, and in a way that the central bank could not control. This too is a consequence of not being on a gold standard that automatically regulates and restrains the banking systems.

Now, each national banking system, and even each bank, ran its own discretionary policy, with the implicit (but never stated) guarantee from the central bank that it would never let the system fail. Worse, every country in Europe had to accept this money.

Economist Philipp Bagus of Juan Carlos in Madrid observes that the whole system embedded a kind of monetary imperialism from unsound economies to sound economies, dragging down economic structure and poisoning the whole system with the viruses of the worst states. If this story sounds familiar to Americans, it should. This is the same problem that gave rise to the crazy real estate boom in the U.S. and the subsequent meltdown. It’s our old friend Mr. Moral Hazard, but operating across the entire eurozone.

Hans-Hermann Hoppe, the economist who predicted this whole scenario in the early 1990s, observes that this centralization is the inevitable path of paper money regimes, as governments constantly seek higher and higher authorities to expiate their sins. With each step, the money gets qualitatively worse and the imposition of economic controls becomes ever more tyrannical.

What is the way out? Everyone is now talking about the restoration of national currencies, and while that is a better approach than standing by as the entire system collapses and the contagion spreads around the world, it is not as easy as it seems. Every country that wants to reassert its national currency will have to give up its debt addictions and clean up its fiscal house. The banking system will have to be deleveraged. Industries sustained by the euro subsidy will have to go belly up.

If this fantasy actually became true, it would be entirely possible for any one country (hint: Germany) to adopt an authentic gold standard, perhaps inspiring others to do the same. The end result — we are talking about a decade-long process here — could, in fact, be another single European currency, a sound currency rooted in reality and not the hallucinations of politicians and financial elites.

How much tolerance is there in the world today for such pain? You need only look at the U.S. situation to get an idea. The technocrats in charge today are completely unlike those of yesteryear. They will not permit wholesale deleveraging. They believe that they have the tools to prevent all pain, and the political systems of the world are structured to punish anyone who thinks about long-term gains over short-term pain. If you doubt that, take off an evening and watch the Republican presidential debates.

All booms bust. The only question is when

The Truth About China

By Tim Staermose 

There’s a key concept in economics called the law of diminishing returns. It sounds complex, but it’s actually very easy to understand.

Imagine for a moment that there are two towns cut off from each other by a vast river. Communications and trade are infrequent at best. But if you build a bridge, you’ll get a tremendous boost to the possibilities for trade and commerce.  Economic activity rises dramatically. 

Build another bridge a half-mile from the first one and you’ll ease congestion, speed up travel times, and create some further improvement in the region’s economy.  But the additional returns on investment for the second bridge pale in comparison with the first. 

So on and so forth for the third, fourth, fifth bridge that you build. Each successive bridge provides less and less of a boost to the regional economy.

What China has been doing for years now, is the equivalent of having built thousands of bridges, each one providing diminishing returns to its economy. Even more concerning, China has been building these economic bridges, so to speak, even though when they weren’t necessary.

Consider that the share of fixed asset investment in China, at more than 65%, is the highest for any major economy in modern history. What’s more, China’s own electricity authority recently reported that there are 64.5 million dwellings in China where absolutely no electricity is being used. The investments they’re making are producing little return.

When I was back in Wuhan this summer, I saw exactly this phenomenon.  You may never have heard of it, but Wuhan is an important commercial city of more than 10 million.

Barreling along one side of an 8-lane highway towards the airport with hardly another vehicle in sight, we passed apartment block after apartment block, sitting empty like a construction graveyard.

Eventually we crossed a gigantic new bridge over the Yangtze River.  Barely half a mile downstream, another equally vast and expansive bridge was nearing completion… and others further down the river.

I was astounded. There was no traffic. No commercial activity. No people. No tolls. Just empty space and a lot of ridiculously expensive bridges. It was something out of a bizarre zombie flick. 

There are thousands of similar projects all over China, many funded by debt.  And, with no direct cash flows earned back and the ongoing maintenance required, these infrastructure projects have become huge liabilities on the Chinese government’s balance sheet.

The conventional wisdom is that China’s economy will continue to grow 8% or 9% per year indefinitely. And a lot of people are drinking this Kool-Aid. It sounds a lot to me like the other old songs that we’ve heard over the past few years, like “real estate always goes up in value.” Famous last words.

I live by another rule:  “All booms bust.  The only question is when.”  And China has had one of the biggest economic booms in history over the past decades. In fact, per capita consumption of cement in China is at the same levels as Taiwan and Japan right before those infrastructure-boom economies hit a brick wall.

Absurd hysteria

Kindergartner Suspended Over Toy Gun

A gun in private hands represents the empowerment of the individual. This is why the Second Amendment was considered so crucial by the Founding Fathers — and why collectivist moonbats hate handguns with an unholy passion, causing them to once again give way to absurd hysteria:

A kindergartner has been suspended from Cheviot Elementary [in Cincinnati] after it was discovered he brought a toy gun to school.

Liam Adams, 5, was sent home Wednesday with a letter stating that he would be suspended for three days for possessing a “dangerous weapon or object.”

Dangerous? Gasps Liam’s mom,“[H]e’s a baby … and a little tiny toy gun not even the size of my hand, it’s just ridiculous.”

Actually, it makes total sense. Condition people from the age of 5 to regard firearms with horror and shame, and they will be less likely to grow up to understand or even deserve American liberty, much less be willing or able to fight for it.

Human Action

What Gives Rise to Society?

by Daniel James Sanchez

Robinson Crusoe is walking along the beach when he sees a little face looking up at him, half-buried in the sand. He digs it out, and finds that it is a little wooden statue of a pagan deity.

Friday is on the same beach, looking through a chest full of odds and ends that has washed up from a shipwreck. He finds a thick book with a cross on it. It is a King James Bible.

Later the two meet, see each other's finds, and agree to exchange them.

If the spirit of Aristotle were looking down from above, he might have (incorrectly) concluded from the exchange that the two goods were of equal value, reasoning that there would be no "exchange if there were not equality." [1]

On the other hand, the French statesman and economist A.R.J Turgot might have (correctly) concluded from the exchange that both parties must have considered the two goods to have been of unequal value: that Crusoe considered the Bible to be of higher value than the idol, and vice versa for Friday. This prerequisite for exchange is called a "reverse inequality of values."

As Turgot wrote,

Each would remain as he was … if, in his own mind, he did not consider what he receives worth more than what he gives. [2]

In other words, they would not have exchanged unless their respective scales of values looked like this:

Crusoe	Friday
I. Bible	I. Idol
II. Idol	II. Bible

Because with every voluntary exchange each party gives up a lower-valued good for a higher-valued good, every exchange is, by definition, mutually beneficial: a win-win situation.

Pleased by their increases in utility, Crusoe and Friday then look for other opportunities for exchange.

Both Crusoe and Friday have stores of timber and clay. Crusoe has five equal stacks of timber, and two equal piles of clay. Friday has the opposite: two equal stacks of timber, and five equal piles of clay.

We want our republic back

Eurocrisis: the politics of no-longer-great powers

The EU’s problems stem from a destructive attempt by its leaders to save out-of-date institutions.

By Bruno Waterfield 

Amid the uncertainty created by Europe’s sovereign-debt crisis, there is one thing we can be absolutely sure of: the Greeks won’t be getting to vote on the European Union’s ‘fiscal discipline’, the austerity medicine that is being rammed down their necks - and nor will anyone else. For the first time in the history of the EU, even governments that stand in the way of EU diktats have been toppled.

When the Greek government briefly floated the idea of standing against the EU orthodoxy, a coalition of Germany, France, the International Monetary Fund (IMF), the European Commission and the European Central Bank (ECB) threatened to plunge Greece into chaos. The result was that George Papandreou, the Greek prime minister, was summoned to Cannes last week to be told to step aside in favour of an unelected ‘national unity’ government.

The Greek leader had resisted strong behind-the-scenes EU pressure to suspend normal parliamentary democracy in favour of a unity government since June. But after his announcement that the Greek people would vote on the latest bailout plan, the campaign became open and explicit. Even after Papandreou abandoned his plan to hold a referendum, senior French, German and European officials demanded that he step down to allow for a ‘technical’ administration.

With a clear threat of economic force, José Manuel Barroso, the European Commission president, warned last Friday that unless the government was deposed by Monday, Greece would not be able get its next €8billion payment from the EU and the IMF, leading to national default and bankruptcy within a month. ‘What we expect to happen is to have a government of national unity’, he said. ‘What is the other option? Default and have real difficulties to pay wages to the public servants, to the schools, to the hospitals, which will lead to paralysis of the country. I am sure that the majority of the Greek people do not want this kind of chaos.’

Papandreou had to be overthrown for the mere suggestion that his government would allow voters, (especially in Greece, was the implication) to unpick decisions taken to uphold the common good of Eurozone financial stability. The EU’s demosphobia is based on experience. The question of referenda and referendum rejections has dogged the EU since the early 1990s, as its structures have become increasingly important to European governments. The Maastricht Treaty, which gave the European Union its name and created the euro, was only narrowly approved by a referendum in France known as the ‘Petit Oui’. The Danes voted No. In Britain, John Major’s Conservative government almost tore itself apart over the question of a British vote - a debate that is still haunting a new Tory-led coalition today.

In 2005, the EU was rocked when the Dutch and the French voted to reject the European Constitution, leading to a pact to make Europe a referendum-free zone (1). Only Ireland, due to a constitutional quirk, was allowed to vote on 2007’s Lisbon Treaty, the successor to the failed constitution. When that referendum was lost in 2008, the Irish people were told in no uncertain terms to think again by EU leaders. Ireland finally voted ‘Yes’ in October 2009 after being warned that if they rejected the treaty for a second time, the country would be destroyed by Europe’s deepening economic crisis. Just over a year later, the EU forced Ireland into a punitive EU-IMF austerity programme designed to help the central-bankers in Frankfurt rather than the people of Ireland, an irony that was not lost on millions of Irish voters (2).

It is worth taking a step back to look at how EU statecraft and institutions have come to give the current crisis its dynamic and severity. For the first time since the 1930s, a looming collapse of financial institutions holds out the real possibility of an economic crash alongside the reintroduction of force, or external compulsion, into European affairs as a political measure to ensure stability.

Uncharted waters and the compulsion of nations

The latest phase of the Eurozone crisis has taken European countries into uncharted and dangerous waters, where the EU openly talks of overthrowing or overriding elected governments and where compulsion has returned to relations between European states. The current crisis, manageable two years ago, has been made worse by the EU, whose institutions and decisions have generated and exacerbated tendencies that are now leading to a serious economic event.

The EU crisis is constitutional in origin. EU and Eurozone institutions are deliberately divorced from democratic pressures, including economic interests such as energy generators, manufacturing industry and research and development. As explained elsewhere (3), the EU has evolved as a mechanism for ordering politics in Europe, and relations between European countries, by insulating them from public accountability.

This development means that the entire European political order - established over the past two decades as a condition of German reunification, by the EU’s Treaty of Maastricht and by subsequent treaties - rests on a structure that is unable to deal with the practical exigencies of a real crisis.

Land and wealth

What Occupy Wall Street is getting totally wrong

The parallel fortunes of the 1 percent and the 99 percent

By Steve Chapman

If you want to know what motivates the people involved in Occupy Wall Street, you can get a good idea from Think Progress, a left-leaning website. It offers a map of the continental United States labeled, "If U.S. land were divided like U.S. wealth."

In this representation, 1 percent of the people hold title to most of the West and Great Plains area. Nine percent have a swath about the same size stretching from Minnesota south to Oklahoma and east to Maine. The other 90 percent of the population get only a narrow slice along the southern rim.

It's a stark, dramatic representation of the problem as OWS sees it. It's also a perfect illustration of the movement's economic misunderstandings.

Land, after all, is more or less fixed in supply. I can't obtain more of it unless someone gives up theirs. If the top 10 percent owned most of the land and barred everyone else from it, the rest would be pretty squeezed.

But wealth and income are not like land. To start with, they are not limited in supply — they can multiply many times over without end, and they have done just that. And, unlike with patches of soil, everyone can get more without anyone consigned to less.

There is not much more land in America than there was 50 years ago. But there is far more wealth. Since 1960, the total output of the U.S. economy, accounting for inflation, has more than quadrupled. Total physical assets have done likewise.

The conviction among OWS activists is that the rich have improved their lot by taking money from the not so rich — that wealth has been cruelly redistributed upward. What they overlook is that the real gains come from the creation of new wealth.

Steve Jobs did exceptionally well for himself, but he made the broad mass of consumers, here and abroad, better off in the process. Same for Sam Walton. What Oprah Winfrey created made her rich, but without her, those creations wouldn't have existed to entertain and gratify her audience.

Ten years ago, the richest person on Earth couldn't buy a device that does what the iPhone does. Today, anyone can get one free upon signing a two-year carrier contract. Entry-level cars are vastly better in amenities and reliability than your father's Cadillac decades ago.

Lifesaving and life-changing medicines and therapies once unknown are now commonplace. Food costs a fraction of what it once did. TV viewers used to have three channels to choose from. Now they have hundreds.

The wealthy are far better off than they used to be. But their improvement has not come at the expense of those down the economic ladder. Economists Bruce D. Meyer of the University of Chicago and James X. Sullivan of the University of Notre Dame find that over the past three decades, both the poor and the middle class have made substantial material progress.

"Median income and consumption both rose by more than 50 percent in real terms between 1980 and 2009," they reported last month in a paper for the conservative American Enterprise Institute in Washington. Those in the bottom tenth of the income ladder enjoyed comparable gains.

Not that everything is copacetic. The Great Recession has wrought havoc on the middle class and the poor — eliminating jobs, reducing income and slashing the value of homes.

But if it's any consolation, the rich have seen their take shrink as well. Between 2007 and 2009, notes Steven Kaplan of the University of Chicago Booth School of Business, the share of all income going to the richest 1 percent of Americans fell by a full quarter.

The miserable reality today is not that the many are doing worse because our capitalist system is set up to fleece them for the benefit of the few. They are doing worse because the economy went through a cataclysm from which it has yet to recover.

When the economy crashes, it's those with the least education, fewest options and slimmest resources who suffer most. That's true, by the way, in noncapitalist societies as well as capitalist ones. In either, people who have done nothing wrong often suffer.

At moments like this, it's not surprising that many Americans would resent the wealthy and feel the urge to punish them. But the OWS demand for action against them is the equivalent of honking your horn when you're stuck in a traffic jam. It makes a lot of noise, without getting you anywhere.

Immortal fallacies

Typical Example of Media Mis-Reporting Trade Data

WASHINGTON POST — "The U.S. trade deficit fell in September to the lowest point this year as foreign sales of American-made autos, airplanes and heavy machinery pushed exports to an all-time high. The deficit narrowed 4 percent to $43.1 billion, the third straight decline and the smallest imbalance since last December, the Commerce Department reported Thursday.

Through September, the deficit is running at an annual rate of $558.2 billion, up 11.6 percent from the imbalance for all of last year of $500 billion. A higher deficit acts as a drag on economic growth because it means fewer jobs for American workers."  

MP: The story from the Washington Post above (emphasis added) is a typical example of how the media frequently mis-reports international trade data, for the following reasons:

1. Once we account for all international transactions including:  a) purchases of goods and services, b) investment income payments and receipts, and c) purchases of financial assets, there is an overall balance of U.S. international transactions, and the "balance of payments" account equals zero.  That is, the only way the media can report a trade "imbalance" is to completely ignore investment income, financial transactions and capital flows.  

2. The assertion that fictitious "trade imbalances," or "trade deficits" for only goods and services, are associated with "fewer jobs for Americans" is not supported by the empirical evidence.  According to research at the Cato Institute by Dan Griswold:

"Trade deficits are routinely blamed for job losses, yet civilian employment grew a healthy 1.4 percent annually during periods of rising trade deficits while job growth was virtually zero during those periods when the deficit was declining. Ditto for the unemployment rate. The jobless rate ticked down 0.4 percentage points per year on average when the trade deficit was on an upward trend, and jumped a painful 1.0 point per year when the trade deficit was shrinking. In four of the five periods in which imports did outpace exports, the unemployment rate fell, and in every period in which imports grew more slowly than exports, or fell more rapidly, the unemployment rate rose."

The Tunis expedition

Myths of Individualism

By Tom Palmer

It has recently been asserted that libertarians, or classical liberals, actually think that "individual agents are fully formed and their value preferences are in place prior to and outside of any society." They "ignore robust social scientific evidence about the ill effects of isolation," and, yet more shocking, they "actively oppose the notion of 'shared values' or the idea of 'the common good.'" I am quoting from the 1995 presidential address of Professor Amitai Etzioni to the American Sociological Association (American Sociological Review, February 1996). As a frequent talk show guest and as editor of the journal The Responsive Community, Etzioni has come to some public prominence as a publicist for a political movement known as communitarianism.

Etzioni is hardly alone in making such charges. They come from both left and right. From the left, Washington Post columnist E. J. Dionne Jr. argued in his book Why Americans Hate Politics that "the growing popularity of the libertarian cause suggested that many Americans had even given up on the possibility of a 'common good,'" and in a recent essay in the Washington Post Magazine, that "the libertarian emphasis on the freewheeling individual seems to assume that individuals come into the world as fully formed adults who should be held responsible for their actions from the moment of birth." From the right, the late Russell Kirk, in a vitriolic article titled "Libertarians: The Chirping Sectaries," claimed that "the perennial libertarian, like Satan, can bear no authority, temporal or spiritual" and that "the libertarian does not venerate ancient beliefs and customs, or the natural world, or his country, or the immortal spark in his fellow men."

More politely, Sen. Dan Coats (R-Ind.) and David Brooks of the Weekly Standard have excoriated libertarians for allegedly ignoring the value of community. Defending his proposal for more federal programs to "rebuild" community, Coats wrote that his bill is "self-consciously conservative, not purely libertarian. It recognizes, not only individual rights, but the contribution of groups rebuilding the social and moral infrastructure of their neighborhoods." The implication is that individual rights are somehow incompatible with participation in groups or neighborhoods.

Such charges, which are coming with increasing frequency from those opposed to classical liberal ideals, are never substantiated by quotations from classical liberals; nor is any evidence offered that those who favor individual liberty and limited constitutional government actually think as charged by Etzioni and his echoes. Absurd charges often made and not rebutted can come to be accepted as truths, so it is imperative that Etzioni and other communitarian critics of individual liberty be called to account for their distortions.

ATOMISTIC INDIVIDUALISM

Let us examine the straw man of "atomistic individualism" that Etzioni, Dionne, Kirk, and others have set up. The philosophical roots of the charge have been set forth by communitarian critics of classical liberal individualism, such as the philosopher Charles Taylor and the political scientist Michael Sandel. For example, Taylor claims that, because libertarians believe in individual rights and abstract principles of justice, they believe in "the self-sufficiency of man alone, or, if you prefer, of the individual." That is an updated version of an old attack on classical liberal individualism, according to which classical liberals posited "abstract individuals" as the basis for their views about justice.

Those claims are nonsense. No one believes that there are actually "abstract individuals," for all individuals are necessarily concrete. Nor are there any truly "self-sufficient" individuals, as any reader of The Wealth of Nations would realize. Rather, classical liberals and libertarians argue that the system of justice should abstract from the concrete characteristics of individuals. Thus, when an individual comes before a court, her height, color, wealth, social standing, and religion are normally irrelevant to questions of justice. That is what equality before the law means; it does not mean that no one actually has a particular height, skin color, or religious belief. Abstraction is a mental process we use when trying to discern what is essential or relevant to a problem; it does not require a belief in abstract entities.

It is precisely because neither individuals nor small groups can be fully self-sufficient that cooperation is necessary to human survival and flourishing. And because that cooperation takes place among countless individuals unknown to each other, the rules governing that interaction are abstract in nature. Abstract rules, which establish in advance what we may expect of one another, make cooperation possible on a wide scale.