A postmortem of the British riots

Barbarians on the Thames

By Theodore Dalrymple

Complex human events have no single or final explanation. The last word on the outbreak of looting and rioting that convulsed large parts of England, including London, in August will therefore never be heard. But some of the first words were foolish, or at least shallow, reflecting the typical materialistic assumptions of the intelligentsia.

An August feature story on the riots in Time offered a particularly striking example. The author suggested that to understand the riots, we should start with “something called the Gini co-efficient, a figure used by economists to indicate how equally (or unequally) income is distributed across a population.” In this traditional measure, the article notes, Britain fares worse than almost every other country in the West.

This little passage is interesting for at least two reasons. First is the unthinking assumption that more equality is better; complete equality would presumably be best. Second is that the author apparently did not think carefully about the table of Gini coefficients printed on the very same page and what it implied about his claim. Portugal headed the list as the most unequal of the countries selected, with a 0.36 coefficient. Next followed the U.K. and Italy, both with a 0.34 coefficient. Toward the bottom of the list, one found France, with a 0.29 coefficient, the same as the Netherlands. Now, it is true that journalists are not historians and that, for professional reasons, their time horizons are often limited to the period between the last edition of their publication and the next. Even so, one might have expected a Time reporter to remember that in 2005—not exactly a historical epoch ago—similar riots swept France, even though its Gini coefficient was already lower than Britain’s. (Having segregated its welfare dependents geographically, though, France saw none of its town or city centers affected by the disorder.)

As it happened, when I read the Time story, I had an old notebook with me. In it, among miscellaneous scribblings, was the following list, referring to the riots in France and made contemporaneously:

Cities affected 300

Detained 2,921

Imprisoned 590

Burned cars 9,071

Injured 126

Dead 1

Police involved 11,200

Average number of cars burned per day before riots 98

And all this with a Gini coefficient of only 0.29! How, then, could it have happened? It might also be worth mentioning that the Netherlands, with its relatively virtuous Gini coefficient, is one of the most crime-ridden countries in Western Europe, as is Sweden, with an even lower Gini coefficient.

At least Time does not go in for the theory that what caused the riots was the coalition government’s reduction in spending, which my Polish publisher tells me is the almost universally accepted view in the Polish press. This Ping-Pong theory of youthful misdemeanor, as one might call it, suggests that if only the state provided enough services for potential rioters—including such amenities as leisure centers with Ping-Pong tables and other diversions—they would behave better. (In the U.S., the theory would promote midnight basketball.) Apart from the empirical unlikelihood of the Ping-Pong tables’ exerting the hoped-for prophylactic effect, the theory suggests that it is government’s duty not merely to keep the peace but to keep the population happy and amused. It is hardly surprising, then, that when people claim that service reductions provoked the riots, they are unable to see that if this were so, the problem would be not the removal of services, but dependence on them in the first place. In any case, as Time pointed out, the effects of the proposed—and economically inevitable—spending reductions have yet to be felt (and few of the reductions have been implemented to date).

But Time also proposed, perhaps without fully realizing it, a more plausible explanation of the riots: that “some of the disaffection with Cameron and his government has more to do with who they are than what they’ve done.” And what they are is upper-class. This theory implies that the rioters’ “disaffection” was more self-consciously analytical than was probably the case; but it does capture a characteristic of the rioters and, indeed, of many British intellectuals: resentment.

Resentment is a powerful, long-lasting emotion that usually is self-serving and dishonest (I have never heard a criminal complain that his defense lawyer is upper-class, as he often is), as well as useless. Resentment is undoubtedly part of everyone’s psychology, at least potentially, and few of us have never heeded its siren song. A population’s general level of resentment, however, is not a natural phenomenon that one can analyze in purely mechanical terms, as if it increased geometrically with the Gini coefficient. Britain itself has been far more unequal in the past without widespread riots’ breaking out, so it is clear that we cannot understand people’s behavior without referring to the meanings that they attach to things.

John Maynard Keynes famously observed that “practical men, who believe themselves to be quite exempt from any intellectual influences, are usually the slaves of some defunct economist.” But why should this servitude apply only to the kind of men whom Keynes regarded as practical—businessmen, for instance? After all, for every 1,000 people who intone that the only purpose for which power can be rightfully exercised over any member of a civilized community against his will is to prevent harm to others, only one has actually read John Stuart Mill (they never seem to quote Mill’s contention that a father who abandons his children may rightfully be put to forced labor). And when Keynes goes on to say that madmen in authority are distilling their frenzy from some earlier academic scribbler, he does not explain why this should apply only to madmen in authority. Why not to madmen who loot and commit arson?

There is reason to think that it should so apply. One rioter told a journalist that his compatriots were fed up with being broke all the time and that he knew people who had absolutely nothing. It is worth pondering what lies behind these words. It is obvious that the rioter considered being broke not merely unpleasant, as we all would, but unjust and anomalous, for it was these qualities that justified the rioting in his mind and led him to suggest that the riots were restitution. Leave aside the Micawberish point that one can be broke on any income whatever if one’s desires fail to align with one’s financial possibilities; it is again obvious that the rioter believed that he had a right not to be broke and that this right was being violated. When he said that he knew people with “nothing,” he did not mean that he knew homeless, starving people left on the street without clothes to wear or shoes on their feet; none of the rioters was like this, and many looked only too fit for law-abiding citizens’ comfort. Nor did he mean people without hot and cold running water, electricity, a television, a cell phone, health care, and access to schooling. People had a right to such things, and yet they could have them all and still have “nothing,” in his meaning of the word. Somehow, people had a right to something beyond this irreducible “nothing” because this “nothing” was a justification for rioting. So people have a right to more than they have a right to; in other words, they have a right to everything.

Tangible benefits, on this view, come not as the result of work, effort, and self-discipline: they come as of right. This inflated doctrine of rights has turned into a cargo cult as primitive as that in New Guinea, where the natives thought, after a laden airplane crashed in the jungle, that consumer goods dropped from the sky. Apparently, all that is necessary for people like the rioters to live at a higher standard of living, equal to that of others, is for the government to decree it as their right—a right already inscribed in their hearts and minds.

This doctrine originated not with the rioters but with politicians, social philosophers, and journalists. You need only read Henry Mayhew’s nineteenth-century account of the laboring poor in London to realize that the notion of having rights to tangible benefits was once unknown to the population, even during severe hardship. But the politicians, social philosophers, and journalists transformed things evidently desirable in themselves—decent housing, for example—into rights that nothing, including the behavior of the rights holders, could abrogate. It clearly never occurred to the well-meaning discoverers of these “rights” that their propagation might influence the human personality, at least of that part of the population destined to become increasingly dependent on exercising them; and it required only an admixture of egalitarianism to complete the dialectic of ingratitude and resentment.

What about unemployment as a cause of the riots? If there are no jobs, there is no opportunity for self-advancement. And as Time points out, unemployment for Britons between 16 and 24 years old has increased from 14 percent to 20 percent over the last three years and is much higher in the areas where most of the rioting took place.

Here, too, the explanation is superficial. The current British unemployment rate, to start with, is not especially high by European standards, though perhaps it is too early to say that similar riots could not happen elsewhere in Europe. More to the point, in the boom days before the financial crash, Britain already had high levels of unemployment among the unskilled young, even as the country imported large numbers of unskilled immigrants to work. For every 20 unskilled jobs created in the run-up to the crash, 19 immigrants found work in Britain, while millions of natives remained in state-subsidized idleness.

Three reasons explain this seeming paradox. In the first place, foreigners, initially without British welfare entitlements, found the wages for the jobs on offer sufficiently enticing to accept them. For natives on welfare, however, the financial difference between working and not working—especially when they could supplement their welfare benefits with a little trafficking or casual work in the black market—was insufficient to get them into the workforce. A locution that welfare recipients frequently use is revealing: “I get paid on Friday,” they say, referring to getting their welfare funds. Their work, apparently, is existence.

Second, many of the young foreigners possessed qualities superior to those of their British counterparts, making them more attractive to employers. Few are the jobs, especially in the service economy, in which such characteristics as punctuality, reliability, politeness, and helpfulness are not important; but these qualities were not much in evidence among the young British population. While in France, one can run a good hotel with young French employees, it would be impossible in Britain with young British employees; in Britain, hotels and many other services are good in proportion to their employment of foreigners. And while educational standards may have fallen elsewhere, it is rare that young migrants to Britain are as uneducated as young Britons. The foreigners, unlike the Britons, can do simple calculations, and they often speak an English that, if not more fluent, is more refined than that of the young Britons.

Finally, the existence of subsidized public housing, or “social housing,” as we term it in the U.K.—it would be more accurate to call it “antisocial housing”—discourages recipients from moving to find work. Because the benefit is not transferable from one location to another, moving would mean that the tenant would have to pay rent at an unsubsidized rate. At the age when young people should be most geographically flexible, many become attached to their lodgings by iron hoops of subsidy. That is why public housing in Britain so often resembles a prison without walls and without warders, and why the riots had some of the qualities of a prison riot.

The rioters and the social class to which they mainly belong thus have genuine reason to feel aggrieved, but that reason is not one that they often cite. In the name of equality and redistributionism, the state has provided them with an expensive education that is nearly useless, thanks to the implementation of pedagogical theories from whose practical effects the better-off and better-educated parents are, to some extent, able to protect their children; entrapped them in de facto prisons; and driven up the cost of their labor so far by means of welfare subsidy that it is worth no one’s while to employ it. At the same time, their minds have been filled with notions of entitlement that can only breed resentment.

The state has failed these Britons in one other respect, perhaps the most significant in helping to explain the riots: it has not repressed their propensity to crime. It has given criminally inclined Britons the (correct) impression of impunity. Consider that the British police catch the culprit of just one robbery in 12 and that just one in eight convictedrobbers goes to prison in the U.K. Since the number of robberies is much greater than the number of robbers—each robber tends to commit many such crimes—failure to imprison robbers, and to do so for a long time, is in effect to grant the state’s imprimatur to robbery.

When one bears in mind that leniency is shown toward criminals who have committed other serious offenses as well, it is no surprise that the young and criminally inclined should believe in their own impunity. They may not be able to do arithmetic, but they can certainly recognize long odds when they see them. They know, too, that they have respectable society on the run when successive lord chief justices have complained that too many Britons are sent to prison and that such sentences should not be administered to first-time burglars (meaning, of course, the first time that they get caught, not the first time that they burgle, a distinction that seems to have escaped their lordships). It would not be too much to say that recent lord chief justices of England are a major cause of the riots.

Crime, in short, has been normalized as a way of life. For further evidence of that proposition, recall that the pretext for the August orgy of looting and arson was the shooting of one Mark Duggan by the police, who thought that he had a gun and was going to shoot them. What Duggan’s friends and relatives said about him was highly revealing. Duggan’s girlfriend observed that if Duggan had had a gun and had seen the police, he would have run away. This is not exactly a paean to his peaceful and law-abiding way of life; she did not claim that it was unimaginable for him to have been carrying a gun. And if she knew that he might have been carrying a gun, she knew a lot more about him and his way of life than she was revealing. A sister said, yes, Mark was “involved in things,” but he was not violent. She delicately refrained from saying what those “things” were, but her way of putting it suggested that she was using a code that almost anybody of her milieu would be able to crack. A friend noted that she did not believe the original press reports, subsequently proved false, that Duggan had shot first at the police because “Mark is not so stupid to shoot at the police.” The word “stupid” implies only a prudential and not an ethical reason for Duggan’s behavior; presumably, there were others at whom it would not be stupid to shoot.

This impression could only be strengthened by a widely published photograph of Duggan in which he held one hand up as a gun, clearly in the pose of a gangster. It is possible that the gesture was only bravado; but at the very least, it suggests an admiration for gangsters not unconnected with the antinomial tendencies of most popular culture.

It is true that the British police have come to resemble not the force of uniformed citizens of which Sir Robert Peel (the founder of the modern police) dreamed, but a paramilitary occupier, feared mainly by the innocent and law-abiding. The police have become simultaneously bullying and ineffectual, the worst of all combinations, barking rudely at motorists who stop where they shouldn’t but disregarding manifestations of serious criminality entirely. The reasons for the degeneration of British policing are (again) complex, but one of them is the extreme leniency of the courts. For a long time, the police had little incentive to pursue criminals short of murderers, for the courts will impose a trivial punishment on them.

The riots might herald a positive change, at least in the official stance toward crime. In an implicit, maybe not even fully conscious, criticism of the last half-century’s criminal-justice policy, the magistrates have imposed much stiffer sentences on the rioters than anyone expected. A judge sent one woman to prison for four years (of which she will serve two and a half) for using Twitter and Facebook to incite rioting, for instance.

The liberal press viewed this sentence and others handed out after the riots as “disproportionate,” which, in a sense, they were. The Guardiannoted that two-thirds of those brought before the magistrates and accused of rioting were remanded into custody and that only 34 percent received bail; the “normal” figure was 10 percent in custody and 90 percent granted bail. Likewise, 45 percent of those found guilty of rioting got prison sentences; “normally,” only 12 percent of those found guilty of assault, robbery, burglary, or brawling in public were imprisoned. Few in the media seemed to recognize that if there was disproportion here, it was because the system was too lenient before, not too severe now.

It is therefore just possible that the rioters will, in the long run, have done a service to the country by awaking it to its past follies. But no one ever made much of a mistake by overestimating the pusillanimity of the British political class.

War on Alcohol Ended 78 Years Ago

War on Drugs Kills 61 Per Day in Mexico

Good News: Today marks the 78th anniversary of the repeal of America's "War on Alcohol" on December 5, 1933, after nearly 13 years of Prohibition.  

Bad News: Largely as a result of America's "War on Drugs," more than 22,000 people will die this year from drug-related violence in Mexico, bringing the total number of narco-related killings to almost 55,000 in the six years since 2006 (see chart above).  At the current rate of 61 drug deaths per day, the total number of Mexican casualties from the "War on Drugs" will reach 58,000 sometime around March 1, which will then match the the number of U.S. casualties in the Vietnam War (58,272). 

National Delusions

 ... and the Madness of Crowds
by Yuri Maltzev

The low-octane Democrats

The GOP Is Useless

by Paul Gottfried

Last spring GOP columnists were already urging their fellow party-members to nominate a centrist for the presidential race. Kim Strassel (April 5, 2011) and Peggy Noonan (April 29, 2011) in Wall Street Journal and Michael Barone and Jonah Goldberg in their syndicated columns all warned against reaching too far right for a presidential candidate. Noonan identified this practice with a "mood of antic cultural pique" and a tendency "to annoy the mainstream media" that came out of the Tea Party insurgency last year. She pointed to McCain, Dole, the two Bush presidents, and Romney as suitable candidates for a party that needs "the center where most of the voters are." On May 18 Goldberg announced that "already the conversation on the right is moving toward the all-important question of electability – which candidate can peel off the handful of independents needed to win an election that will be a referendum on Obama and his record." He knows his fellow "conservative voters" "barring a truly fringe nominee" can be counted on to "vote against Obama, no matter what."

Goldberg, Noonan and other Republican journalists were and are shoving their party toward the center even before the primaries get underway. Fortunately for them, the targets of their advice may already be where they want. Republican voters have usually favored presidential candidates who hug the "center." Unlike the Democrats, who in 2008 happily reached leftward to nominate and win with "the candidate of hope," Republicans try hard to avoid controversy.

They are happy with lackluster moderates like Jerry Ford, Robert Dole, and George H.W. Bush and perhaps they will soon be nominating that ultimate waffler Mitt Romney, who as governor of Massachusetts moved from the social and economic left to the center right, when he decided to seek the presidency in 2007. Once Romney sews up his party’s nomination, he’ll be expected to move a bit to the left, in order to pick up independents and perhaps a few stray black, Jewish and Hispanic voters from the Democrats. Stephen Baldwin, who is gathering information for a book The Manufactured Candidate, has argued that Romney holds no "coherent worldview" except for shameless flipping on issues to advance his career. Black Republican columnist Deroy Murdock complained as early as February 2007 that Romney is so "fine a thespian" that" no one knows where the performer ends and the character begins."

This may in fact be an exaggeration. In foreign policy Romney is a paradigmatic neoconservative who in his recent Iowa debate stated that "democracy is not defined by a vote. There has to be the underpinnings of education, health care…." According to the former governor’s website, his foreign policy will not only expand NATO and build closer alliances with Israel and Russia’s neighbors (thereby ringing Russia with enemies), but also "promote and defend democracy throughout the world." Here we have the makings of another George W. Bush in Barbie Doll form. Note a major complaint against Obama from Republican strategists Dick Morris and Karl Rove is that he won’t play by their rules. Obama won from the left and continues to rule from there. This president won’t be a "centrist," that is to say, a Republican president.

All of this is even truer of Romney’s latest rival Newt, who true to his centrist credit was instrumental in giving us the Martin Luther King festival and getting Confederate symbols removed from public places in Georgia. Gingrich in his centrist inclinations also pushed for sanctions against apartheid South Africa and has been even more strident than W in calling for a liberal internationalist foreign policy, built around cooperation with the Israeli government. With due respect for Israel and its oppressive security problems, does Gingrich really have to begin every discussion of the Middle East with the phrase "our fellow democracy Israel"?

Even a Republican leader now widely identified as a world-historical president, Ronald Reagan, played by the Morris-Rove rules. On the positive side, Reagan avoided tax increases and reduced marginal tax rates; and he helped topple the "evil empire" by placing military and financial pressures on the Soviets. But he failed, or perhaps didn’t even try, to abolish major departments of government; and while Reagan didn’t support quotas and set-asides, his attorney general’s office prosecuted more cases of discrimination in the private sector than any other administration had done until then. In 1987 Reagan supported an amnesty bill for illegals that opened the door to many of the problems that Congress is now (more or less) addressing. Undoubtedly Reagan nominated (or tried to nominate in the case of Robert Bork) far more conservative federal judges than his Democratic successor. But a survey of his record also shows that he brought others on board.

These were the Republican hangers-on who went to Washington supposedly to rid us of bureaucracy but who stayed on to become big-government conservatives. The Reagan-appointees would also include the neoconservatives, who during the Reagan years acquired a powerful foothold in the foreign policy establishment as well as in the department of education, national endowment for democracy, and national endowment for the humanities. The current attempts to depict Reagan as a "conservative" version of Wilson or FDR border on the ridiculous. At home Reagan was a transactional not transformational president, aside from the cataclysmic effects of his incorporation of neoconservative ideologues into his administration.

In 1994 the Reps focused on critical reductions in government and won both houses of Congress, but in 1996 they ran for president a centrist looking leftward, Bob Dole. Two achievements that candidate Dole boasted of having brought about, with encouragement from centrist Republican president George H. W. Bush, were the American with Disabilities Act and a 1991 Civil Rights Act, which reopened the door to racial quotas. Dole’s endorsement of the latter bill was appropriate, seeing that another centrist Republican Richard Nixon had introduced racial set-asides with his Philadelphia Plan in 1969. This may be a rule in American politics: Each time a Republican presidential candidate goes begging for minority votes, he loses a higher percentage of them than the centrist Republican presidential candidate who preceded him.

But why do Republicans expect their standard-bearers to display this center-mindedness? The answer most often given stresses strategic necessity. Although Republicans (allegedly, since there is no evidence of this) would like to run principled "conservatives" in presidential elections, the votes simply aren’t there. Elections are decided where Dick Morris, Karl Rove and Peggy Noonan indicate they are, somewhere in the center and among independent voters.

But Republicans aren’t likely to win by running low-octane Democrats. The more they imitate the opposition even while attacking it, the more likely it is they will drive the vital center of political debate toward the left. GOP candidates have been pursuing what is generally a no-win strategy for decades, by trying to sound like Democrats while throwing mud at the opposition. Equally silly has been their tendency to blame the other party for doing what Republican administrations have been doing almost as frenetically, engaging in massive deficit spending, monetizing wars and giving away lots of patronage. Listening to Fox-News and Republican politicians, one gets the impression that all runaway federal spending began the day Obama took office. Parties that market such moonshine, while offering little in the way of significant change are not likely to look believable. That may be why even with Obama in trouble, the Republicans have not been gaining in popularity.

There are two compelling reasons that the Republicans keep trotting out faceless moderates (usually turned leftward once the primaries are over). First of all, being Republican is a sociological more than ideological choice. The party is predominantly white Protestant; and according to the Pew survey, 81% of the Republican votes cast in the 2010 election came from churched white Protestants. On a good day a GOP candidate may be able to peel off 40 to 45 percent of the Catholic vote, 15 to 20 percent of the Jewish vote, 30 to 40 percent of the Hispanic vote and about 3 to 5 percent of the black vote. But this doesn’t change the recruiting problem. Only 5% of Hispanics and only 2% of blacks identify themselves as Republicans, and despite their often over-the-top Zionist rhetoric and neoconservative advisors, Republicans rarely pick up as much as 20% of the Jewish vote.

Party strategy has aimed at expanding this base, and the logical next step would be to work for increased Republican support among white Catholics. (Republicans obtained a majority of their votes in 2010). While some effort has gone toward this end by appealing to anti-abortion Catholics, more energy seems to be directed toward roping in black and Hispanic voters. This has taken the forms of waffling on illegal immigration, except in the case of Gingrich who openly supports amnestying illegals, and making public apologies for past expressions of white Protestant prejudice. Republican voters can generally live with these maneuverings. They are mostly people who hope to keep things as they are. They rarely undo (or expect their elected officials to undo) what the Dems have done, and their politicians pride themselves on managing the federal welfare state in a fiscally responsible way. Unlike the protesting minorities in the Democratic Party, Republicans were not inclined to manifest outrage before the Tea Party surfaced. They were delighted with the Bush-status quo before Obama and Obamacare came along, and they are still celebrating our government even in its present disarray as a shining and exportable example of "exceptionalism."

Republicans also want minorities to like them and the city on a hill their ancestors settled. And so they probably expect their leaders to be like George W. Bush, who on a visit to Senegal on July 8, 2003 condemned the transatlantic slave trade as "one of the greatest crimes in history." Needless to say, this terrible crime was not associated in any way with non-Westerners, whether African tribal chiefs or Arab slave-traders. Bush was placing the blame on the West, more specifically on white Americans. In his memoirs Bush noted that his most bitter presidential experience was having the radical black intellectual Cornell West call him a "racist." This kind of remark may be more hurtful for Republicans, whose desperate wooing of the blacks has been unsuccessful, than for Democrats, who can assume overwhelming black support. Moreover, presidential candidate McCain made a point of reproaching Southerners who fly Confederate flags, for upsetting black Americans. McCain could do this without having to worry about offending Southern white sensibilities. White Protestants who fancy Confederate battle flags will likely vote Republican no matter what.

Republicans who think their party has been about cutting back government are grossly mistaken. The GOP has only rarely been a friend of decentralized government or to limited, cautious intervention abroad. In the 1860s the party was for consolidated government and defeating the rebellious South; then Republicans gave us Reconstruction together with cozy deals between industrialists and the state. They were later the party of imperial expansion; and under TR, the Republicans became the promoters of a federal managerial state, even before the Democrats turned in this direction under Wilson. There was never a war until the 1930s that most Republican congressmen didn’t welcome; and the Spanish-American War and the War to End All Wars were more popular among Republicans than they were among Democrats. The liberal interventionist Council on Foreign Relations, created in 1919, boasted such Republican founders as Elihu Root, Herbert Hoover and Henry Cabot Lodge.

If some Republicans later protested the New Deal and were reluctant to get involved in the Second World War, such attitudes have not been the rule. Republicans have usually embraced both big government and foreign adventures and were ahead of the curve on women’s right when Democrats were still arguing for a single-family wage for the male breadwinner. Indeed down to the time of Woodrow Wilson’s presidency, the Democrats were generally perceived as the more conservative party, that is, the one that supported states’ rights and commanded the loyalties of fervently Catholic ethnics and the defeated South. What opposition there was to an interventionist foreign policy came typically from the Democratic side, represented by such heroic figures as William Jennings Bryan.

It is no surprise therefore that the Republicans today are crusading for democracy abroad. Discounting such constitutionally-minded leaders as Calvin Coolidge, the Republican opponents of European intervention before the Second World War and the anti-interventionists who survived briefly into the postwar era, the Republicans have a fairly consistent history of crusading for democracy. Bush II, McCain, Romney, and Gingrich are all in the Republican interventionist mold. Those who talk about the GOP’s going back to its small-government and isolationist past don’t have much to look back to.

A second factor for understanding why the GOP shuns rightwing presidential candidates is its present priorities. While the last Republican president did little to cut government expenses and made only scattered concessions to the Religious Right’s moral positions (mostly in Supreme Court appointments not always freely made), Bush was frenetic about launching wars to bring American-style democracy to other countries. The moral core of his administration could be found in the memorable speeches he made about a global democratic crusade, orations that we owe to David Frum and Michael Gerson. Such tropes reflect the vision of the heavily neoconservative GOP media, although for the advocates first things must come first. They have to attack Obama’s wasteful spending in order to capture the presidency. Then they’ll be able to stop Obama’s timid approach to foreign relations and address the continuing threat of an undemocratic "axis of evil." Can anyone think of a leading Republican presidential candidate, except for Ron Paul, who doesn’t march in lockstep on foreign policy with Charles Krauthammer, Bill Kristol, and the Wall Street Journal editorial page?

In a penetrating commentary for Amcon Online (May 18) "Has the Republican Party Left Reagan?" Jack Hunter quotes CPAC director Christopher N. Malagasi on the conservative "tripod" that Republican presidential candidates are believed to represent. Supposedly presidential candidate John McCain embraced all three legs of this tripod, because he was a fiscally responsible social traditionalist who favored "national defense." This three-pronged conservative world view, according to Malagasi, was putatively the legacy of Ronald Reagan, and it is one that GOP presidents and presidential candidates have continued to uphold. Therefore an isolationist like Ron Paul is not truly "conservative" but a "liberal Democrat" because he rejects the third, and perhaps most vital, of the three legs.

Hunter has no trouble shredding these assertions, first by showing that most Republican presidential candidates, and certainly the last Republican occupant of the White House, have not been conservatives at all, with due respect to misleading media labels. Republicans have allowed the "conservative" brand to be identified with a neoconservative foreign policy – not national defense, which Paul does not oppose. Adopting neoconservative rhetoric and policies and complaining about high federal budgets when the Dems are in power is what currently defines a "conservative" presidential candidate. Those who meet the foreign policy standard often get a pass on other things. Thus we saw Religious Right hero Bill Bennett support the pro-abortion- and gay rights advocate Joe Lieberman for president, because Lieberman was good on Middle Eastern affairs. Republican Evangelist Pat Robertson not only had kind words for Lieberman but in 2008 also backed for president another socially liberal Zionist and war hawk Rudy Giuliani. Obviously not all legs in the tripod are of equal importance, particularly with the neocons supplying the funding for "conservative" enterprises.

This brings up the question about what if any opposition will confront the neocon-Republican establishment as it tries to put one of its friends into the presidency in 2012. One group this establishment will not in any way have to fear is the Old Right. What there was of this opposition when the neocons were getting into the driver’s seat has been either coopted or professionally destroyed. And there is no chance that those who were removed from public view will be achieving belated prominence, seeing that most of its leaders are already senior citizens.

But the libertarians are another story. They are better funded and more of a media presence than the hapless paleos; and their presidential standard-bearer Ron Paul has already recruited multitudes to work in his campaigns and vote for him. Paul is not likely to gain the presidency but he can run as a spoiler against a Dole-like candidate in 2012. This 74-year old congressman can help keep Obama in the White House, if he siphons off enough votes as a third party candidate.

Unlike older-generation conservatives, who appeal to social traditions and inherited hierarchies and unlike the neocons advocating a neo-Wilsonian, Zionist foreign policy, libertarians take a relatively value-free position by opposing America’s centralized public administration. They view an aggressive missionary foreign policy as an extension of a constitutionally questionable government that has seized power at home. They therefore wish to avoid military commitments abroad while reducing the scope of government to a few constitutionally allowable tasks. Usually these tasks are negatively stated, for example, staying out of the affairs of other countries, not monetizing our debts, abolishing the Federal Reserve, and not allowing the federal government to go on infringing on the constitutionally delegated power of the states.

Finally it’s not true that libertarian political figures avoid taking stands on social issues. Ron Paul and Chuck Baldwin are devout Protestants, who strongly oppose abortion. What such libertarians stress is that moral questions should be settled by state legislature, not legislated by federal bureaucrats, and least of all by the Supreme Court. While libertarians of the Right, like Paul, hold no brief for homosexuality and the taking of mind-altering drugs, they also believe that the federal government has exceeded its constitutional powers by interfering in such matters. Further, the state’s attempts to ban drug-use, libertarians argue, has allowed police power to be used against property and other rights without solving the problem it was meant to remove.

Not surprisingly, Paul’s candidacy has picked up support from lifestyle liberals as well as from small-government conservatives. Although neoconservatives launched attacks on Paul during the 2008 campaign, accusing him of being a disguised racist and fanatical anti-Zionist (Paul opposes giving foreign aid to Israel or to any other country) the accusations didn’t stick. Unlike the neocon smears against the Old Right, which worked all too well, these attacks seem to go nowhere. Paul enjoys credibility even on the left, as someone who opposes military adventures and wants to legalize drugs. The libertarian problem is not about to go away for establishment Republicans or for their neoconservative PR-network. Although libertarians in the short run may not be able to keep Republicans from nominating a presidential candidate, they will continue to put pressure on the party, from without as well as from within. And let us remember that they are not entirely dependent on Republican votes. Libertarians can reach out effectively without promising government programs and without abjectly apologizing to Democratic minority-voters.

It's our money, damnit

The EU's Big Kazoo

As Europe insists on still more socialism as a solution to its ill, the U.S. Fed is doing its best to help out -- in deep secrecy, of course.

By Jed Babbin

Europe has no time for clichés, so Europe's currency crisis has skipped two cycles. Instead of allowing one cycle of history to complete itself before it is repeated -- first as tragedy and then as farce -- the Eurozone nations have decided to pass by the end of the current course, skip tragedy, and go directly to farce.

France's President is pressing hard on the trigger to fire the EU's "big bazooka" but he can't fire because Germany's PM has her finger stuck behind the trigger and isn't budging. Meanwhile, Mr. Radoslaw Sikorski, Poland's Foreign Minister, last week demanded German intervention to save Poland (and the euro). Sikorski said, "I demand of Germany that, for its sake and ours, it help the Eurozone survive and prosper. Nobody else can do it. I will probably be the first Polish foreign minister in history to save this, but here it is: I fear German power less than I am beginning to fear its inactivity."

A week before Sikorski's plea, EU Commission chief Jose Manuel Barroso said that the only way to save the world was to give more power to -- wait for it -- the EU Commission. If there isn't an increase in the EU's power to regulate national economies, Barroso warned, Europe would "hand sovereignty to markets."

Jacques Delors, one of the euro's creators, echoed Barroso's remarks saying that the euro wasn't created on a sound basis. The sound basis, according to Delors, would be centralized economic power in the EU.

There's not a lot to be learned from all this, given the fact that there's nothing but Keynesian economics going on here. But Barroso and Delors do prove redundantly that for socialists, success and failure are one and the same. They have to be because socialism never works. So when it fails, the reason can't be that socialism is a bad idea: it has to be that socialism wasn't tried hard enough.

The second lesson -- dispensed hilariously by Barroso -- is that markets are always sovereign. Dear Jose: read a little history in your spare time (which should be abundant when the euro collapses). Start with the fall of the Roman Empire (resulting in part from the devaluation of its currency), continue through the 1929 stock market crash and proceed to the 2008 banking crisis in which George Bush said we had to break the rules of the free market to save the free market. In those events we -- at least those of us who aren't Keynesians -- learned that financial markets will always respond to government policy. But the response will be on the markets' terms, not on whatever terms the government elites tried to impose.

For Sarko, the problem is that the EU's "big bazooka" can't go "boom." In reality, the "big bazooka" -- the idea that the European Central Bank will just print enough money to bail everyone out -- looks and sounds more like a marching band-sized kazoo. The European Central Bank's creators didn't give it the power to be the European lender of last resort. Merkel has said "nein" to that, because she knows the inflationary impact would disproportionately rob Germany and the euro would quickly become valueless.

On her side, Merkel wants to rewrite the EU treaty to provide unification of power over national budgets and spending, and a means of enforcement through the EU courts. It's a technocratic approach, a ten thousand-page repair manual written in German which, even if Greece and Italy promised solemnly to follow it, they couldn't because their citizens aren't, well, Germans.

What will happen this week is what has happened at every "last chance" summit before it: a lot of window dressing will be peddled without any solutions to the fundamental problems that beset the euro. There will be promises of future action and an attempt to again seduce the markets to not impose the proper penalties that capitalism, in a free market, demands.

This time, however, the markets won't buy it. And they won't buy the Eurozone nations' national bonds because the risks are just too high. Even German bonds proved unsellable in their latest round of offerings. The crisis will build, and will probably blow up in another three months or so when Italy, Spain, and Greece have to sell another major round of bonds.

If that were all we had to worry about, life would be easy. But we do have our Federal Reserve, and at its head Mr. Ben Bernanke. The Fed, under Bernanke and his predecessor -- Henry Paulson -- have had a penchant for lending out our money in trillions of dollars and keeping the loans secret.

A week ago, we learned that the Fed -- in concert with the Eurozone nations' banks and those of Japan, Canada, the UK, and Switzerland -- reduced the cost of borrowing dollars to Eurozone banks. This was, we were assured, just another "credit easing" maneuver. But "credit easing" means providing something to someone at below-market rates. It's a subsidy and someone has to bear the cost. In this case, the biggest "someone" was, apparently, the United States.

Right now, we don't know what the cost was, or how much it may grow if it's not repaid. And, even more dangerously, we don't know what else the Fed is doing.

A November 27 Bloomberg News report told us that the Fed -- acting without congressional knowledge -- gave endangered banks loans and guarantees that may have amounted to over $7.7 trillion in the last four years. In comparison, the now-infamous TARP program dispensed "only" about $700 billion.

Think about those numbers. In 2008, the United States gross domestic product -- all the wealth created and earned in the year by the entire nation -- was about $14.6 trillion. So without our knowledge, acting on its own, the Fed gave guarantees and loans in an amount of 53 percent of our GDP.

So now the Fed is in the process of "easing" European access to the dollar. Which means it is subsidizing the EUnuchs to keep doing what they do. Not even their own markets -- or their putative partner, Germany -- is willing to do that.

What's to prevent the Fed from throwing a TARP over Europe? At this point, not much.

Let's not dash out into the fever swamps of Ron Paulism. We need the Fed to be independent, and not subjected to the whims of the White House or Congress. But it needs to be trustworthy. When it gives loans and guarantees equaling 53 percent of our GDP to certain banks without disclosing them, it cannot be trusted. If it is designing a bailout for the Eurozone on our credit, it cannot be trusted.

Let's not seize the Fed or turn it into another vassal of the president or of Congress. But it needs to be entirely open and above board about what it is doing. Let's shine a bright spotlight into the Fed's darkest corners. We need to know what's going on. It's our money, damnit.

Find dark glasses that go black in the case of a crisis and a towel to suck on.

The Sovereign Debt Plane Wreck

Excerpt from the book 

“The Sovereign Debt Train Wreck – US Debt Is Still A Problem” 

by Satyajit Das

~~~

Greece and the other debt burdened European countries are merely the first carriages in the derailment of the “Sovereign Debt” Express train service.

The failure of the congressional super-committee to reach agreement on $1.2 trillion in budget cuts means that addressing the problem of US public finances is unlikely in the near term. The failure also casts doubts on the ability of US policy makers to overcome political differences to take actions to stabilise US government debt with potential consequences for the US and global economy

At Debt’s Door…

Ralph Waldo Emerson wrote: “The World owes more than the world can pay.” The US certainly owes more than it can repay. US government debt currently totals over $14 trillion.

The US Treasury estimates that this debt will rise to around $20 trillion by 2015, over 100% of America’s Gross Domestic Product (“GDP”). Even these dire forecasts rely on extremely robust assumption about US growth around 5-5.5% per annum. Lower growth will translate into higher debt levels.

There are other current and contingent commitments not explicitly included in the debt figures reported by the government. Since July 2008, the US government has supported Freddie Mac and Fannie Mae (known as government sponsored enterprises (GSEs)). This totals over $5 trillion in additional on or off-balance sheet obligations.

The debt statistics do not include a number of unfunded obligations – the current value of mandatory payments for programs such as Medicare ($23 trillion), Medicaid ($35 trillion) and Social Security ($8 trillion). Projections show that payouts for these programs will significantly exceed tax revenues over the next 75 years and require funding from other tax sources or borrowing.

In addition to Federal debt, US State governments and municipalities have debt of around $3 trillion.

US public finances deteriorated significantly over recent years. Pimco’s Bill Gross observed: “What a good country or a good squirrel should be doing is stashing away nuts for the winter. The United States is not only not saving nuts, it’s eating the ones left over from the last winter.”

In 2001, the Congressional Budget Office (“CBO”) forecast average annual surpluses of approximately $850 billion from 2009–2012. Instead, the US government has run large budget deficits of approximately $1 trillion per annum in recent years. The major drivers of this turnaround include: tax revenue declines due to recessions (28%); tax cuts (21%); increased defence spending (15%); non-defence spending (12%) higher interest costs (11%); and the 2009 stimulus package (6%). German finance minister Wolfgang Schäuble told the Wall Street Journal on 8 November 2010 that: “The USA lived off credit for too long, inflated its financial sector massively and neglected its industrial base.”

Drowning by Debt…

No borrower can incur debt on this scale without the complicity of its lenders.

The US government holds around 40% of the debt through the Federal Reserve ($1.6 trillion), Social Security Trust Fund ($2.7 trillion) and other government trust funds ($1.9 trillion). Individuals, corporations, banks, insurance companies, pension funds, mutual funds, state or local governments, hold $3.6 trillion. Foreigner investors hold the remainder including China ($1.2 trillion), Japan ($0.9 trillion) and “other”, principally oil exporting nations, Asian central banks or sovereign wealth funds ($2.4 trillion).

Until the global financial crisis, foreign lenders, especially central banks with large foreign exchange reserves, led by the Chinese, increased their purchases of US government debt..

These reserves arose from dollars received from exports and foreign investment that had to be exchanged into local currency. In order to avoid increases in the value of the currency that would affect the competitive position of their exporters, the exporting nations invested the reserves in dollar denominated investment, primarily US Treasury bonds and other high quality securities. By the middle 2000s, foreign buyers were purchasing around 50% of US government bonds.

During this period, emerging countries, such as China fuelled American growth, both supplying cheap goods and providing cheap funding to finance the purchase of these goods. It was a mutually convenient addiction – China financed customers creating demand for exports and America received the money to buy cheap Chinese goods. Asked whether America hanged itself with an Asian rope, a Chinese official told a reporter: “No. It drowned itself in Asian liquidity.”

Following the global financial crisis, foreign purchases have decreased to around 30% of new issuance. Around 70% of US government bonds (US$ 0.9 trillion) have been purchased by the Federal Reserve, as part of successive rounds of quantitative easing.

Foreign Alms…

Historically, America has been able to run large budget and balance of payments deficits because it had no problems in finding investors in US treasury securities. The unquestioned credit quality of the US, the unparalleled size and liquidity of its government bond market ensured investor support. Given its reserve currency and safe haven status, US dollars and US government bonds remained a cornerstone of investment portfolios.

The US dollar’s share of world trade and investment is extraordinary and out of proportion to its economic role. The dollar remains the principal currency for invoicing and settling trade. 85% of foreign exchange transactions involve the dollar. 50% of stock of international securities is denominated in US dollars. Central banks hold 60% of their foreign exchange reserves in dollars. All this is despite the fact that the US’s share of global exports is only 13% and foreign direct investment is 20%.

The US financing strategy is based on the “balance of financial terror”.

China, the major investor in US government bond investors, finds itself in the position that John Maynard Keynes identified: “Owe your banker £1000 and you are at his mercy; owe him £1 million and the position is reversed.” Over recent years, Chinese concerns about the US debt position has become increasingly shrill.

In 2010, Yu Yongding, a former adviser to China’s central bank, mused: “I do not think U.S. Treasuries are safe in the medium-and long-run…Only God knows how much value that China has stored in the U.S. government securities will be left in the future when China needs to run down its reserves.” In 2011, a Chinese government spokesperson could only “hope the US government will earnestly adopt responsible policies to strengthen international market confidence, and to respect and protect the interests of investors.” In 2010, US Treasury Secretary told a gathering of Chinese students that US government bonds were “safe” investments, eliciting derisive laughter.

But China has America right where America wants China!

Existing investors, like China, must continue to purchase US dollars and government bonds to avoid a precipitous drop in the value of existing investments. This allows America time to correct its deteriorating public finances and reduce its borrowing requirements. It also allows increases in domestic savings to reduce reliance on foreign investors. The US Federal Reserve remains a buyer of last resort, although the long term consequences of this “printing money” strategy remains uncertain.

For the moment, this tenuous strategy appears to be holding. Demand for Treasury securities from investors and other governments has continued. Domestic investment, primarily from banks who are not lending but parking cash in government securities, has been strong. US government rates remain low. The government’s average interest rate on new borrowing is around 1%, with one-month Treasury bills paying less than 0.10% per annum. This has allowed the US to keep its interest bill manageable despite increases in debt levels.

In effect, the US requires artificially low interest rates to able to service its debt. Federal Reserve Chairman Ben Bernanke told the House Financial Services Committee that the US faces a debt crisis: “It’s not something that is 10 years away. It affects the markets currently…It is possible that the bond market will become worried about the sustainability [of deficits over $1 trillion] and we may find ourselves facing higher interest rates even today.”

The current position is not sustainable in the longer term. Unless the underlying debt levels and budget deficits are dealt with the ability of the US to finance itself will deteriorate. The US treasury must issue large amounts of debt almost continuously – weekly auctions regularly clock in at $50-70 billion unimaginable a few years ago. America’a ability to finances its need may not continue. As English writer Aldous Huxley observed: “Facts do not cease to exist because they are ignored.”

Debt Calm…

The solution to the US debt problems lies in bringing budget deficits down, through spending cuts, tax increases or a mixture of both.

In 2011, the major categories of government spending were defence (24%), social services (44%), non-defence discretionary (25%) and interest (7%). Interest costs, currently around 7% of total spending, are expected to increase by as much as three times driven mainly by the increase in the level of debt. The major increase in spending will come from social service entitlement programs. If current policies are maintained, pensions and health care for the retired (Social Security and Medicare) and health care for the poor (Medicaid) will increase from 10% of GDP in 2011 to 18% by 2050.

Winding back military overseas commitments and also reduced stimulus spending, assuming the economy and employment improve, will help reduce the deficit. But any significant reduction in government spending requires decreased spending on defence and entitlement programs as well as tax increases. US Federal revenue is around 15% of GDP (down from 18-19%). Comparative levels of government tax revenues are Germany (37%) UK (34%) and Japan (28%).

The task is Herculean. Government revenues would need to be increased 20-30% or spending cut by a similar amount. In a nation where 45% of households do not pay tax (because they don’t earn enough or through credits and deductions) and 3% of taxpayers contribute around 52% of total tax revenues, it is difficult to see the necessary changes being made.

Reducing the budget deficit and reducing debt may also mire the US economy in a prolonged recession. In 2009, students at National Defence University in Washington, DC, “war gamed” possible scenarios for bringing the US debt under control. Using a model of the economy, participants tried to get the federal debt down by increasing taxes and reducing spending. The economy promptly fell into a deep recession, increasing the budget deficit and driving government debt to higher levels. This is precisely the experience of heavily indebted peripheral European nations, such as Greece, Ireland, Portugal, Spain and Italy.

As one participant in the National Defence University economic war game observed about the process of bringing US public finances under control: “You’ll never get re-elected and you may do more harm than good.”

Extortionate Privilege…

Given the magnitude of the US debt problem and the lack of political will, the most likely policy is FMD – “fudging”, “monetisation” and “devaluation”.

There is no shortage of creative ideas of financing government debts. Bankers suggested the US issue perpetual debt, that is, the government would not be obligated to pay back the amount borrowed at all. Peter Orzag, former director of the US Office of Management and Budget under President Obama and now a vice-chairman at Citigroup, suggested another creative way to correct the problem – lotteries. To encourage savings, banks should offer lottery-linked accounts offering a lower rate of interest, but also a one-in-a-million chance of winning $1million for each $100 deposited.

As governments printed money to service their debts, US Post issued 44-cent first class “forever stamps” that had no face value but were guaranteed to cover the cost of mailing a first class letter, regardless of how high that cost might be in the future. Between 2007 and 2010 the public bought 28 billion forever stamps. The scheme summed up government approaches to public finance – US Post was cleverly hiding its financial problems, receiving cash up-front against the uncertain promise to pay back the money somewhere in the never, never future.

Debt monetisation – printing money – is the second option. The US Federal Reserve is already the in-house pawnbroker to the US government, purchasing government bonds in return for supplying reserves to the banking system. Expedient in the short term, its risks debasing the currency and setting off inflation. The absence of demand in the economy, industrial over capacity and the unwillingness of banks to lend have meant that successive rounds of “quantitative easing” – the fashionable moniker for printing money – have not resulted in higher inflation to date. But the longer term risks remain.

Monetisation is inexorably linked to devaluation of the US dollar. The now officially confirmed zero interest rates policy (“ZIRP”) and debt monetisation is designed to weaken the dollar.

On 19 October 2010, US Treasury Secretary Timothy Geithner told the Financial Times: “It is very important for people to understand that the United States of America and no country around the world can devalue its way to prosperity and Competitiveness. It is not a viable, feasible strategy and we will not engage in it.” The facts show otherwise.

Despite bouts of dollar buying on its safe haven status, the US dollar has significantly weakened over the last 2 years in a culmination of a long term trend which with minor retracements. In 2007 alone, the US dollar weakened by about 8% improving America’s external position by $450 billion, as US foreign investments gained in value but its debt denominated in dollars were unaffected.

On a trade weighted basis, the US dollar has lost around 18% against major currencies since 2009. The US dollar has lost around 30% against the Swiss Franc, 25% against the Canadian dollar, 37% against the Australian dollar and 16% against the Singapore dollar over the same period.

US dollar devaluation makes it easier for the US to service its debt. In the balance of financial terror, it forces existing investors to keep rolling over debt to avoid realising currency losses on their investments. It also encourages existing investors to increase investment, to “double down” to lower their average cost of US dollars and US government debt. The weaker US dollar also allows the US to enhance its competitive position for exports – in effect, the devaluation is a de facto cut in costs. This is designed to drive economic growth.

Valery Giscard d’Estaing, French Finance Minister under President Charles de Gaulle, famously used the term “exorbitant privilege” to describe the advantages to America of the role of the US dollar as a reserve currency and its central role in global trade. That privilege now is not only “exorbitant” but “extortionate”. How long the rest of world will allow the US to exercise this “extortionate privilege” is uncertain.

No Exit …

The US is in serious, perhaps irretrievable, financial trouble. Peter Schiff president of Euro Pacific Capital, identified the state of the Union with characteristic bluntness: “Our government doesn’t have enough spare cash to bail out a lemonade stand. Our standard of living must decline to reflect years of reckless consumption and the disintegration of our industrial base. Only by swallowing this tough medicine now will our sick economy ever recover.”

There is a lack of political or popular will to take the action necessary to even stabilise the position. The role of US dollars and US government bonds in the financial system mean that the problems are likely to spread rapidly to engulf other nations. As John Connally, US Treasury Secretary under President Nixon, beligerently observed: “Our dollar, but your problem.”

Minor symptoms, often increasing in frequency and severity, can provide warning of a life threatening problem in a key organ, such as the heart. Since 2007, the global financial markets have been providing warnings of an impending serious crisis. Private sector credit problems have spread to sovereign nations. Debt problems of smaller nations have flowed on to larger nations. The problems are gradually working their way to the issue of US debt. Without rapid and decisive action, which seems to be unlikely, a major organ failure within the global economy is now inevitable.

The magnitude of the problem and its effects are so large, market participants would do well to heed Douglas Adams famous advice in The Hitchhikers Guide to the Galaxy. Find dark glasses that go black in the case of a crisis and a towel to suck on.

~~~

Real Change and some Hope

Super Awesome New Ron Paul Ad