Friendly Societies

Voluntary Social Security and More

By John Chodes

In his retirement speech as Speaker of the House, Tip O’Neill contrasted the world of small government in the 1930s, when he entered politics, with today’s big government emphasis on social services, which he helped cre ate: “Health insurance was out of the question. For the elderly, life was filled with uncertainty, dependency and horror. Only the lucky few had pensions. There was no such thing as social security.”

O’Neill was wrong. Working class families had a “safety net” long before Uncle Sam became involved. Our grandparents and even great-grand-parents had benefit plans that protected them when they were sick, injured, out of work, or too old to work. Millions of workers belonged to “friendly societies.”

Allegory and Political Economy

Communication and Cooperation

By Daniel B. Klein

“We must look at the price system,” wrote Friedrich Hayek, “as . . . a mechanism for communicating information if we want to understand its real function.” Hayek’s talk of communication was a great advance in economic thinking. Talk of communication is common among market-oriented economists. In their textbook Tyler Cowen and Alexander Tabarrok write: “[P]rice signals and the accompanying profits and losses tell entrepreneurs what areas of the economy consumers want expanded and what areas they want contracted.” Such talk is both illuminating and beautiful.

But the price of eggs communicates, in a literal sense, nothing more than: Yours for $1.89. If we are to be literal, we must mind the element of communion, or community, in communication. Literally, communication is a meeting of minds. The knowledge communicated passes through us as commonly experienced ideas, images, or notions.

Ditch College for All

The obsessive faith in college has backfired

By Robert Samuelson

The college-for-all crusade has outlived its usefulness. Time to ditch it. Like the crusade to make all Americans homeowners, it's now doing more harm than good. It looms as the largest mistake in educational policy since World War II, even though higher education's expansion also ranks as one of America's great postwar triumphs.

Consider. In 1940, fewer than 5 percent of Americans had a college degree. Going to college was "a privilege reserved for the brightest or the most affluent" high-school graduates, wrote Diane Ravitch in her history of U.S. education, "The Troubled Crusade." No more. At last count, roughly 40 percent of Americans had some sort of college degree: about 30 percent a bachelor's degree from a four-year institution; the rest associate degrees from community colleges.

Too Big for Comfort

Why we need to break up the banks

BY JAMES PETHOKOUKIS

America needs to break up its biggest banks, but not for reasons likely to give a tingle to Occupy Wall Street’s remnant rabble (or its Great Everywhere Spirit, Senate candidate Elizabeth Warren of Massachusetts). This isn’t about some political exercise in election-year demonization. Bankers, as a class, aren’t villains. They’re not “banksters” grifting money from middle-income pockets. And they’re certainly not vampire squids on the collective face of humanity, as Rolling Stone writer Matt Taibbi has infamously described Goldman Sachs. And while it might be rhetorical overkill to say they’re “doing God’s work,” as Goldman boss Lloyd Blankfein has put it, bankers do fulfill a critical economic function. Bankers, not bureaucrats, are supposed to be the efficient allocators of capital in America’s market-based economy. They connect people who have spare dough to those who need a bit of spare dough, such as entrepreneurs looking to start a business or companies looking to grow one. We need lots of successful banks, and we need smart folks to run them.

'Meaningful Work'

Many people work "just for the money"

By Thomas Sowell

"Education" is a word that covers a lot of very different things, from vital, life-saving medical skills to frivolous courses to absolutely counterproductive courses that fill people with a sense of grievance and entitlement, without giving them either the skills to earn a living or a realistic understanding of the world required for a citizen in a free society.

The lack of realism among many highly educated people has been demonstrated in many ways.

When I saw signs in Yellowstone National Park warning visitors not to get too close to a buffalo, I realized that this was a warning that no illiterate farmer of a bygone century would have needed. No one would have had to tell him not to mess with a huge animal that literally weighs a ton, and can charge at you at 30 miles an hour.

We are each on our own.

The End Of The Euro: A Survivor’s Guide

By Peter Boone and Simon Johnson

In every economic crisis there comes a moment of clarity.  In Europe soon, millions of people will wake up to realize that the euro-as-we-know-it is gone.  Economic chaos awaits them.

To understand why, first strip away your illusions.  Europe’s crisis to date is a series of supposedly “decisive” turning points that each turned out to be just another step down a steep hill.  Greece’s upcoming election on June 17 is another such moment.  While the so-called “pro-bailout” forces may prevail in terms of parliamentary seats, some form of new currency will soon flood the streets of Athens.  It is already nearly impossible to save Greek membership in the euro area: depositors flee banks, taxpayers delay tax payments, and companies postpone paying their suppliers – either because they can’t pay or because they expect soon to be able to pay in cheap drachma.

Bread, Circuses, Debasement & Decline

This road leads to a dead end

"We are following the exact path of the Roman Empire and every empire that has existed in human history. Our decline is well under way. The only question is how long before the final collapse. I can guarantee you it won’t be centuries. History moves more rapidly and the weapons at the disposal of war pigs are much more lethal. First there will be financial collapse, then world war. In the meantime, enjoy the bread and circuses while your dollars are debased by the minute."

                                               - Rome Didn’t Fall In A Day

By  Chris Sullivan

Back in the ’70s, I used to expect the government to suffer a financial collapse at which time it would have to quit doing most of the things it’s doing because it would run out of money. That isn’t what has happened. Instead of  cutting spending it has printed more money and tried to increase taxes on various things. 

Greece Through the Looking Glass

We're Not In Wonderland Anymore, Alice!

"You may call it ‘nonsense’ if you like," she said, "but I've heard nonsense, compared with which that would be as sensible as a dictionary!"

                                                      -The Red Queen

By Mark Grant

With all of the talk of Greece leaving the Eurozone and forfeiting the Euro as its currency; what if it does not? That, my friends, is now the question. The current estimation of Greece’s GDP is $308.3 billion. All of the debt of Greece, direct, derivatives and guaranteed is $1.3 trillion giving the country an actual debt to GDP ratio of 421.67%. You may recall all of the talk, all of the pandering words spit out by the IMF and the European Union that the new austerity measures would take the Greek debt to 120%; all nonsensical and a nonfactual expression of a very fantastic and fairy tale imagination. If someone has actually stepped through the looking glass I suspect it is Christine Lagarde. Perhaps she is Alice’s granddaughter? In my estimation she must have eaten some of the cake because her reputation has dwindled as she and Greece fell down the rabbit’s hole.

Nazis from the Moon

Beware the rise of EU anti-populists

The EU elites’ fear of an imminent Fourth Reich reveals a great deal about their loathing of the European mob.

by Patrick Hayes 

Earlier this month, the sci-fi comedy Iron Sky was released in Britain, featuring the return to Earth of a band of vicious Nazis in flying saucers. ‘In 1945 the Nazis went to the moon’, goes the movie trailer, which shows a giant swastika-shaped base on the moon. ‘In 2018, they are coming back.’

You have to wonder, given his recent comments regarding the rise of the right across Europe, whether Britain’s deputy prime minister Nick Clegg thinks he is inhabiting the same fantasy world as Iron Sky. In an interview with Der Spiegel, where he reaffirmed the Lib-Con coalition’s commitment to the EU, Clegg claimed that there could be ‘a whole range of nationalist, xenophobic and extreme movements increasing across the European Union’. Warning of an imminent ‘disaster’, he implied that lessons need to be learnt from Europe’s history: ‘We know this much from our continent: the combination of economic insecurity and political paralysis is the ideal recipe for an increase in extremism and xenophobia.’

The Systemic Siesta

Pricing Labor Out of the Market

by Carolina Carmenes Cavia and David Howden

With victories over the Germans in the 2008 European Football Championship and during the 2010 World Cup, there is little doubt that the Spaniards have the upper hand on the soccer field. Yet while Spaniards have had much to cheer about in the soccer world over the last five years, the economic situation is a world removed.

Spanish unemployment is now hovering around 23 percent, with over 50 percent of youths jobless. Only around 6 percent of Germans are without work, almost the lowest level in the country since reunification. This divide solidifies Spain's position among the worst-performing economies of the continent, and Germany's vaunted position as among the best.

The "Race to the Bottom"

Value in Devaluation?

by Patrick Barron

The euro is in trouble. That is not news. What is news is that people with deep pockets are willing to pay for economists to provide a solution. Lord Wolfson has offered a £250,000 prize for the best way a country can exit the European Monetary Union (EMU). Five finalists for the prize were announced in March. The winner will be announced in June.

None of the five finalists — Neil Record, Jens Nordvig, Jonathan Tepper, Catherine Dobbs, and Roger Bootle — advocates a return to sound money; all assume that new, national fiat currencies will float; and all assume that unproductive countries will benefit from devalued new currencies. The theory is that a devalued currency will spur export-driven economic growth. Furthermore, they have little confidence that economic reforms — which they all, by the way, do recommend — will be achieved in the near term and see devaluation as a quicker alternative. But will this work? First a word about devaluation itself.

A Case For The Individual

The Case of Sherlock Holmes

By Maura Pennington,

For a character obsessed with details, Sherlock Holmes would be pleased with the ones that were preserved in the BBC modern adaptation whose second series concluded airing in America this past Sunday.  My favorite is John Watson’s puzzled amusement at the gaps in his friend’s prodigious knowledge. 

In the first novel, A Study in Scarlet, before he learns that Holmes is the world’s only consulting detective, Watson tries to make a list to determine his roommate’s occupation based on his apparent areas of expertise.  He finds that Holmes has only a feeble grasp on politics and no understanding of astronomy, the latter made evident by his ignorance of the fact that the earth revolves around the sun.  Both the literary and televised versions of Holmes give the excuse that it only makes sense to retain knowledge that is applicable to one’s own pursuits in life.  For him, the earth’s position in the universe has no bearing on the observation of the idiosyncrasies of men in order to outwit them.

Coming Together or Flying Apart?

The “Greek fatigue.”

By John Mauldin

The debate among very knowledgeable individuals and institutions as to the future of Europe is intense. There are those who argue that the cost of breaking up the eurozone, even allowing Greece to leave, is so high that it will not be permitted to happen. Estimates abound of a cost of €1 trillion to European banks, governments, and businesses, just for the exit of Greece. And that does not include the cost of contagion as the markets wonder who is next. Keeping Spanish and Italian interest-rate costs at levels that can be sustained will cost even more trillions, as not just government debt but the entire banking system is at stake. Not to mention the pension and insurance funds. If the cost of Greece leaving is €1 trillion, then who can guess the cost of Spain or Italy?

A total Greek default wipes out more than twice the ECB balance sheet. That means the remaining countries will have to put twice as much into the ECB as their present commitment, just to get the ECB back to where it technically stands today (because the assumption is still that Greek debt is good, and so the ECB is still lending money to the Greek Central Bank).

Europe continues to fight the wrong battle

Damned if You do, Damned if You Don’t

by Peter Tchir

It is clear that Greece has had a solvency issue now for over 2 years.  The ECB and Troika chose to treat it as a liquidity problem.  Maybe, they could have argued that in early 2010, but by the summer of 2011 it was obvious to any credit observer that the problem was solvency, yet they continued to treat it as one of liquidity.  That is scary because if they fail to see the problem correctly now, they will fail miserably.  Not only is the problem clearly solvency, but now forced currency conversion has been added to the mix. Any “solution” from the EU must now address that risk, and it is not the same as solvency.  Programs that can protect against solvency may do nothing for the redenomination risk.

'Greece is a Failed Corrupt State

From Head of Deutsche Bank - Purposely Inflammatory Statements to Force Greece Exit

By Mike Shedlock

Strong messages from the head or the IMF, the head of Deutsche Bank, and the president of the Bundesbank are highly likely to drive Greek voters away from New Democracy and Pasok in the June 17 elections.

The Guardian writes It's payback time: don't expect sympathy - Lagarde to Greeks.

The International Monetary Fund has ratcheted up the pressure on crisis-hit Greece after its managing director, Christine Lagarde, said she has more sympathy for children deprived of decent schooling in sub-Saharan Africa than for many of those facing poverty in Athens.

The last public intellectual?

The disillusion of the brightest of this generation.

by Neil Davenport 

Twenty-one years ago, an American-Japanese academic, Francis Fukuyama, wrote an essay called ‘The End of History’. His argument was that the collapse of Stalinist communism in Eastern Europe vindicated the supremacy of liberal-capitalist democracies. For Fukuyama, ‘this was it’ for human progress. Capitalist triumphalism, however, barely lasted 12 months, let alone a lifetime, as Western political elites ended up as disorientated and as demoralised as radical left-wingers. Incredibly, by the mid-1990s, Marx’s political economy was back in academic vogue in the United States, while Western politicians often flattered the moral grandstanding of ‘anti-capitalist’ protesters. From that point on, a consensus has emerged that says economic growth isn’t all its cracked up to be and the state is to be cherished and worshipped. In 2012, who would have thought that ‘The End of History’ would look like Sweden?

It is clear that Germany is already being placed on the hook

The Separation of Bank and State

By David Zervos

The euro monetary system is flawed. It is a system that was cobbled together for political purposes; and sadly it was set up in such a way that each member state retained significant sovereign powers – most importantly the ability to exit the system and default on debts in times of stress. There is virtually NO federal power in the Union, as witnessed by the complete breakdown of the Maastrict and Lisbon treaties. In fact, what we are seeing today is that the structure of the monetary system is so poorly designed, it actually creates perverse fiscal linkages across member states that incentivize strategic default and exit.

Our new leader of the Greek revolt, Mr CHE-pras, has figured this one out. And in turn he is holding Angie hostage as we head into June 17th!

The Revolution will not be Tweeted this weekend

Facebook also a loser in Egypt

By Mark Steyn

So how's that old Arab Spring going? You remember – the "Facebook Revolution." As I write, they're counting the votes in Egypt's presidential election, so by the time you read this the pecking order may have changed somewhat. But currently in first place is the Muslim Brotherhood candidate Mohammed Morsi, who in an inspiring stump speech before the students of Cairo University the other night told them, "Death in the name of Allah is our goal."

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In second place is the military's man, Ahmed Shafiq, Hosni Mubarak's last Prime Minister and a man who in a recent television interview said that "unfortunately the revolution succeeded."

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Greece should imitate Latvia

Latvia Shows the Way, Proving Some Famous Merchants of Doom Wrong

by Anders Aslund

Today, the Latvian government can claim victory. In the first quarter of this year, Latvia’s annualized GDP grew by 6.8 percent, the highest growth rate in Europe, and last year Latvia recorded a growth rate of 5.5 percent, the third highest in Europe. Four years ago, GDP plummeted by a total of 24 percent because of the sudden stop of international financing in September 2008. But that decline lasted only two years. Unemployment has fallen from 21 percent in early 2010 to 16 percent two years later.

How times can change. In December 2008, Paul Krugman claimed, “Latvia is the new Argentina.” In June 2009, Nouriel Roubini asserted that “devaluation seems unavoidable” and that the International Monetary Fund (IMF) and the European Union were “throwing good money after bad” in their support of Latvia’s stabilization program.

But Latvia did not devalue. Instead it carried out a vigorous “internal devaluation,” with large cuts in public expenditures and wages as well as structural reforms, while supported financially by the IMF and the European Union. Many argue that Latvia is special, but the Latvian government did exactly what it was supposed to do and the Latvian people understand that. Remarkably, Valdis Dombrovskis, who became prime minister in the midst of the crisis in March 2009 and led the cure, has been reelected twice in parliamentary elections since then.

The Greek Montenegro option

Endgame in Greece: Don’t Look for an Imminent “Grexit”

by Jacob Funk Kirkegaard

As the countdown toward a new Greek election heads toward June 17, most analysts predict an imminent Greek exit from the euro area. Almost anything can happen, but a few possibilities are worth considering. Any newly elected Greek government will have trouble implementing the current austerity program called for by euro leaders and the International Monetary Fund (IMF). A loss of funding at least from the IMF in 2012 appears likely. On the other hand, it is also likely that Greece will remain a member of the euro in the short run, through 2012. Prospects for an outright Greek Exit—a Grexit—are no more than 5 percent.

Two main scenarios for Greece in the coming weeks depend on politics and the elections.