Assuming Away Reality

Often times the fix only makes things worse, because it was not the reality that needed fixing

By Predrag Rajsic

If you are taking or have taken some of the typical courses in economics, it is quite likely that you asked yourself questions like the following: If an economic model is not like the real world, why should I trust the results of that model? One of the answers I would often get when posing this question goes something like this: Of course the model is not like the real world; it is not supposed to be like the real world. If it were, then it would not be a model!

This response can leave one feeling intellectually inferior or incapable of abstract thinking. One may get the impression that there is something obvious that he or she is missing. Sometimes, the answer would go a bit further: models are simplified representations of reality that we use to better understand that reality. This answer is somewhat more polite, but it still does not tell us how we determined which features of reality were not important enough to be included in the model. Building a model in this way also seems to imply that we already understand the elements of reality and how they are interrelated.

Self-Inflicted Poverty

Why is it that Egyptians do well in the U.S. but not Egypt? 

by Walter Williams

We could make that same observation and pose that same question about Nigerians, Cambodians, Jamaicans and others of the underdeveloped world who migrate to the U.S. Until recently, we could make the same observation about Indians in India, and the Chinese citizens of the People's Republic of China, but not Chinese citizens of Hong Kong and Taiwan.

Let's look at Egypt. According to various reports, about 40 percent of Egypt's 80 million people live on or below the $2 per-day poverty line set by the World Bank. Unemployment is estimated to be twice the official rate pegged at 10 percent.

Much of Egypt's economic problems are directly related to government interference and control that have resulted in weak institutions vital to prosperity. Hernando De Soto, president of Peru's Institute for Liberty and Democracy (www.ild.org.pe), laid out much of Egypt's problem in his Wall Street Journal article (Feb. 3, 2011), "Egypt's Economic Apartheid." More than 90 percent of Egyptians hold their property without legal title.

De Soto says, 

"Without clear legal title to their assets and real estate, in short, these entrepreneurs own what I have called ‘dead capital’ -- property that cannot be leveraged as collateral for loans, to obtain investment capital, or as security for long-term contractual deals. And so the majority of these Egyptian enterprises remain small and relatively poor."

We Are Not Powerless

Resisting Financial Feudalism

It's comforting to think "I can't do anything to resist the Central State and its financial Plutocracy," but it's not true. There are many of acts of resistance you can pursue in your daily life; here are 12 perfectly legal ones.

BY CHARLES HUGH SMITH
That we are powerless is one of the key social control myths constantly promoted by the Status Quo. What better way to keep the serfs passive than to reinforce a belief in their powerlessness against the expansive Central State and its financial feudalism?

But we are not powerless. Our complicity gives the aristocracy its power. Remove our complicity and the aristocracy falls.

The pathway of dissent is to resist financial feudalism and its enforcer, the expansive Central State. Here are twelve paths of resistance any adult can legally pursue in the course of their daily lives:

A demoralizing commentary on the state of American democracy

Here’s what Washington really does

By Robert J. Samuelson

The Washington of conventional wisdom and the real Washington are two entirely different places. The Washington of conventional wisdom is overrun by well-paid insiders — lobbyists, lawyers, publicists — who systematically manipulate government policies to benefit corporations and the rich, defying the “will of the people.” The real Washington has government paid for by the rich and well-to-do. Benefits go mainly to the poor and middle class, while politicians of both parties live in fear that they might offend the “will of the people” — voters.

Recently, Ron Haskins of the Brookings Institution, a Washington think tank, testified before the House Budget Committee on the growth of the 10-largest “means tested” federal programs that serve people who qualify by various definitions of poverty. Here’s what Haskins reported: From 1980 to 2011, annual spending on these programs grew from $126 billion to $626 billion (all figures in inflation-adjusted “2011 dollars”); dividing this by the number of people below the government poverty line, spending went from $4,300 per poor person in 1980 to $13,000 in 2011. In 1962, spending per person in poverty was $516.

A battle to save France from her non-existent foes

The Republic is too fragile 

Far from representing a return of left and right, the French presidential campaign confirms the ascendancy of the politics of fear.

Brendan O’Neill 

Commentators go green with envy when they look upon the French presidential election campaign. Where most Western European political offices are stuffed with samey politicians, here’s a campaign which seems to pit right against left, even hard right against far left, in a teeth-baring battle for the soul of France. Observers distressed by the post-political era they find themselves plonked in see in France the resurrection of the left-right divide, the return of that familiar-feeling, old-world clash, which could define ‘the future of Europe’.

This is wishful thinking. Because what the French candidates share in common is far more important than what seems to distinguish them. Behind the fireworks, behind the self-conscious use of left-right rhetoric, the candidates are united in their belief that the French Republic is threatened by external actors and that it falls to them to defend France’s honour. In short, this campaign doesn’t signify the resuscitation of old principles – it confirms that the politics of left and right has been superseded by the politics of fear, and that modern politicians have developed a seriously bad habit of political displacement.

The New Class Warfare

California’s superwealthy progressives seem intent on destroying middle-class jobs.

by Joel Kotkin

Few states have offered the class warriors of Occupy Wall Street more enthusiastic support than California has. Before they overstayed their welcome and police began dispersing their camps, the Occupiers won official endorsements from city councils and mayors in Los Angeles, San Francisco, Oakland, Richmond, Irvine, Santa Rosa, and Santa Ana. Such is the extent to which modern-day “progressives” control the state’s politics.

But if those progressives really wanted to find the culprits responsible for the state’s widening class divide, they should have looked in a mirror. Over the past decade, as California consolidated itself as a bastion of modern progressivism, the state’s class chasm has widened considerably. To close the gap, California needs to embrace pro-growth policies, especially in the critical energy and industrial sectors—but it’s exactly those policies that the progressives most strongly oppose.

The horror and the pita

Egypt is in a classic pre-revolutionary situation

By Spengler

Egypt's national tragedy took a turn towards farce April 27, when Saudi Arabia closed its embassy and several consulates after demonstrations that "threaten the security and safety of Saudi and Egyptian employees, raising hostile slogans and violating the inviolability and sovereignty", according to a Saudi statement. Saudi Arabia and other Gulf States were supposed to anchor an international aid package that will forestall a disorderly financial crisis.

With a critical fuel shortage cutting into food supplies and essential services, Egyptians already have a foretaste of chaos. The two-for-a-penny pita, the subsidized flat bread that provides much of the caloric intake for the half of Egypt's population living on less than $2 a day, is at risk.

The vision of yesteryear

Is Europe Sailing on the Titanic?

By Patrick J. Buchanan

U.S. growth in the first quarter fell to 2.2 percent, a disappointment. But in Europe, that news would have caused general rejoicing.

For consider the gathering crisis on the old continent.

With negative growth now for six months, Britain has fallen back into recession. “I don’t think we’re anywhere near halfway through the eurozone crisis,” said Prime Minister David Cameron this weekend.

Romania’s government fell last week. The Czech government barely survived a vote of no confidence. In the capital cities of both countries, tens of thousands have angrily protested the new austerity.

The Dutch government also fell last week, when the Freedom Party of right-wing populist Geert Wilders abandoned the governing coalition.

Growth versus Austerity

A Phony Debate

by Pater Tenebrarum
The Aggregation Fallacy

We have recently mentioned an article in the WSJ that focuses on a point we have always regarded as very important.

The popular press continues to frame the debate over Europe's crisis in terms that suggest that 'austerity' is the antonym of 'growth'. In other words, if the government spends less, the economy cannot grow, or so the story goes. You can see similar thoughts expressed in this 'chart of the day' comment at Business Insider. 'This is what's crushing GDP!' Krugman fan Joe Weisenthal exclaims. 'This' being a reduction in government's consumption spending.

So let's get this straight: an economy can not grow unless the government spends more? Really?

The WSJ article notes:

“Growth or austerity? That's the choice facing Europe these days—or so the Keynesian consensus keeps saying. According to this view, which has dominated world economic councils since the 2008 crisis began, "growth" is mainly a function of government spending.

The Separation of Money and State

The state is the problem. It will not be part of the solution.

By Detlev Schlichter 

My conclusion is straightforward. There should be no policy. The existence of policy is already the problem. What we need is proper capitalism in money and finance. We do not have that now. What we have is limitless state fiat money, quantitative easing, systematic market manipulation, bailouts, regulations, the IMF, the World Bank, the FSA, FDIC, TARP and LTRO. We need proper markets, not more policy, not more manipulation, and not more bureaucracy. And not more fiat money. We need the state to exit the field of money and banking. Completely.

The main problem with monetary policy is that there is such a thing as monetary policy.

The state is the problem. It will not be part of the solution.
Before I tell you what I think should be done, let me give you another reason why I have been so reluctant to offer policy advice. The aim of my book Paper Money Collapse was to expose widespread fallacies and debunk erroneous common wisdom concerning money. It was not to provide a program for reform. The book is meant to be an eye-opener.

Almost the entire discussion on money and banking today is based on deeply flawed theories. This is true of the financial markets industry where I worked for 19 years. It is equally true of most of the discussion in the media and, as far as I can see, academia. The book was meant to debunk a lot of this misinformation.

My intention was to challenge the present consensus and the established orthodoxy. I think this is what needs to happen before we can even talk about the drastic changes that our system requires. Any policy debate of the type you read in The Economist or The Financial Times occurs within the boundaries of the established consensus. Questions of a more fundamental nature cannot be addressed in the context of policy debates.

But I am not going to evade the question about policy. So let me talk a bit about policy and reform.

The big mistake has already been made. The gold standard was abandoned, in a step-by-step process that began around the time of World War I and that culminated in Nixon’s closing of the gold window in August 1971. For more than 40 years, gold has played no official role in global monetary affairs. State paper money ruled. Everywhere.

In Defense Of The Corporation

Reclaiming the meaning of honorable words

by Keith Weiner

Today, the government of the USA is in an accelerating transition.  For the first 100 years (with a few exceptions) the government of the USA existed to set man free from men.  The rights of the people were respected by the law and by the courts.  And it is no coincidence that the USA grew from a small agrarian society in the 18th century to a wealthy superpower barely a century later.

But today, the government is taking control over every facet of the economy: sector by sector, law by law, regulation by regulation, court decision by court decision, czar by czar, presidential diktat by president diktat.

The Bizarre Attraction to Fascism

Call it "consumer protection."

By Charles Hugh Smith

This is truly Orwellian: the latest and greatest Executive Branch/Federal Reserve power grab is labeled "consumer protection." I am indebted to correspondent Jim S. who seems to be one of the few Americans to have actually sorted through this monstronsity and gleaned its true nature: an unprecedented extension of Executive (i.e. Imperial Presidency) and Federal Reserve power.

Let's start by recalling that the Federal Reserve is a consortium of private banks.Calling a private consortium of banks the "Federal Reserve" is the original Orwellian misdirection, for there is nothing "Federal" about the Federal Reserve. It is not a government agency.

Now guess who will fund and control this vast new bureaucracy of "consumer protection"? Yes, the private consortium known as the Federal Reserve. 

"The Consumer Financial Protection Bureau (CFPB) will be an independent unit located inside and funded by the United States Federal Reserve. It will write and enforce bank rules, conduct bank examinations, monitor and report on markets, as well as collect and track consumer complaints."

The west is not owed a living by the rest

Euro and the Decline of the West

Big government was harming Europe's prospects anyway, but the euro is making things much worse

By John Redwood

The rising strength of China and Brazil, of India and the Civets, is based on hard work and free enterprise. Economies which have been kept poor by too much state control and by bad government in past decades, are being progressively liberated.

As this occurs, so more businesses are set up, more jobs created, more people are better educated. A virtuous circle has been created.

The declining relative strength of the west, especially of Europe, is based on the opposite process. There is growing government interference in every aspect of economic life. The top down Euro scheme, little wanted by the German and French people, let alone the British, is doing untold damage to economic prospects.

Doubters, Traitors and Skeptics should be in jail for all eternity

The Rise of Eco-Fascism

By Peter Glover

Threats to life and limb, property destruction, public smears, curtailing free speech and imposing un-democratic regulatory laws are associated with totalitarianism. The green-shirts of eco-fascism fit neatly into this category

I read William Golding’s superb book Lord of the Flies as a kid. It had a lasting impact. Especially about how the thin veneer of civilization, democracy, liberty and prevailing morality can be swept away by a brutish elitist power grab. It’s the same philosophy that resorts to threats to life and limb, property destruction, public smears, vilifying dissent, curtailing free speech and imposing un-democratic regulatory ‘laws’ to get its way.  

The Disastrous Death of Common Sense

The unrelenting deconstruction of British values

By Charles Crawford

Over the centuries English property law has invented many ingeniously pragmatic ways in which property can be owned. One key distinction shows itself every time a couple take out a new mortgage. They are offered a choice: a ‘tenancy in common’ or a ‘joint tenancy’.

The difference is as simple as it is profound. Under a tenancy in common, the property is owned by A and B in specific shares (eg half/half, one third/two thirds); A’s share can be sold or bequeathed to someone else, so B now co-owns the property with that new person. By contrast, if A and B own under a joint tenancy there are no identifiable shares: if A dies, A’s share automatically goes to B.

Why Democracies Will Always Go Bankrupt

Bankruptcy is the inevitable, inexorable end

By Gonzalo Lira

When I was growing up, finance was mother’s milk to me, especially as I was a bit of a math geek. But for my formal education, I was trained—rather rigorously, and in spite of my laziness—as a philosopher and a historian. This odd combination is why I have such a jaundiced view of economics: I don’t find economics particularly intimidating, or even particularly challenging—it’s just finance’s snooty but poor (and slightly daft) older cousin. History’s surprisingly ignorant and blinkered accountant. Philosophy and Math’s lightly retarded, Puritanically rigid, and altogether rather embarrassing spawn.

Now, it’s all good and fine for me to rant about how useless economics is—but these aren’t empty complaints on my part: I can point to a single, specific, monumental failing of economics—a failure in the discipline which pretty much proves my point:

The United States is going bankrupt—and economics cannot explain why.

Approaching the Wall

How Long Before America Hits the Wall?

BY TERRY COXON

Decades of manipulation by the Federal Reserve (through its creation of paper money) and by Congress (through its taxing and spending) have pushed the US economy into a circumstance that can't be sustained but from which there is no graceful exit.

With few exceptions, all of the noble souls who chose a career in "public service" and who've advanced to be voting members of Congress are committed to chronic deficits, though they deny it. For political purposes, deficits work. The people whose wishes come true through the spending side of the deficit are happy and vote to reelect. The people on the borrowing side of the deficit aren't complaining, since they willingly buy the Treasury bonds and Treasury bills that fund the deficit. And taxpayers generally tolerate deficits as a lesser evil than a tax hike.

Wal-Mart, The Victim of Extortion

It’s easier and more efficient in Mexico

By Jeffrey Tucker

Over the weekend, we were treated to a preposterous display of hectoring of allegations that Wal-Mart Mexico (prepare yourself for a shock) paid bribes to public officials for the legal right to do business in that country.

You see, to do serious business in America requires vast campaign contributions to several layers of elected politicians, an army of lobbyists in Washington, retired government employees on your board and public devotion to the American civic religion. It goes on every year and restarts every election cycle.

Even then, it is hard to know if you are going to get what you pay for.

It’s easier and more efficient in Mexico. You pay bribes directly. The decision maker gets the money. He or she clears the path for you to do the thing. The facilitator takes a slice. People mostly keep their promises. The deal is done.

Apparently, bribe paying in the United States is a sign of a healthy, functioning democracy; doing the same thing in Mexico in a more streamlined way is a criminal violation of the standards of good corporate governance.

Debt and Drugs. Rock and Roll, not so much

Debt and the Prostitution of America

"The borrower is a slave to the lender." Proverbs 22:7

BY CRIS SHERIDAN

Our entire nation is largely indebted to a single private corporation! Yes, that's right, the Federal Reserve—a privately held bank that is closing in on being the 2nd largest holder of US debt. At the rate its going, the Fed may actually be the number 1 largest holder in just a few months, surpassing that of China and Japan. If the above verse from Proverbs is correct, America is (or is certainly becoming) a slave to both private banks and foreign nations.

Since America is the largest debtor nation in the world, its survival depends on borrowing other people's money in exchange for a temporary service. Really, this is a form of prostitution. You see, when someone lends money to another in exchange for debt, the debtor is now indebted to the lender to continually perform a service until paying them back in full. Since this arrangement carries a considerable amount of risk, the debtor will usually entice the other party to offer their cash with a show of interest. If the deal appears attractive, money is given and the services rendered. Normally, however, with debt-based arrangements, if the one taking the money—the debtor—doesn't pay up in return, the lendor has full rights to their personal property. In the past, this meant you became their slave and performed whatever services they required.

Now, in the case of America, you have one single nation that is servicing so many clients simultaneously that fear is starting to rise over the threat of STDs. These “Sovereign Treasury Defaults”—as we may refer to them—were largely unheard of, however, until America decided to no longer allow the use of protection in all of its service-based relationships. The gold standard, as this protection was known, was put in place to maintain the financial health of the debt-issuer and ensure against the temptation of debasement, or inflating one’s currency.

In transition from the world’s greatest lender to the world’s greatest borrower, the US realized that it could no longer honor its vows and issued, in essence, a bill of divorce to its partners abroad. This was a direct admission that America was no longer financially healthy, i.e. living below its means, and that it was, instead, going to engage in servicing as many people as it needed in order to finance a growing tower of consumption and debt. Thus, the world's most desired bride soon became a harlot.

The world’s fiscal system has been rigged by Europe

Leaving Ponzi In The Dust

“Ideas are indeed the most dangerous weapons in the world.”

                                                         -Justice William O. Douglas

By Mark Grant

I am about to walk into a highly speculative and somewhat dangerous place. I make the journey though because when all the options for explanation are exhausted whatever is left; must be the truth.  There have been a lot comments about Europe indicating various Ponzi schemes and Ponzi bonds but it is now evident to me that we have not looked hard enough; long enough. Our range has been diminished by the sheer size of Europe’s undertaking and we have not dared to regard all of the facts as one all-encompassing plan in the fear of what we might find by doing so. So today I square up and look into the maw of the Beast and describe what I think is staring back at me.