The middle is shifting toward the bottom

Two Classes, Divided by ‘I Do’

By JASON DePARLE

Jessica Schairer has so much in common with her boss, Chris Faulkner, that a visitor to the day care center they run might get them confused.

They are both friendly white women from modest Midwestern backgrounds who left for college with conventional hopes of marriage, motherhood and career. They both have children in elementary school. They pass their days in similar ways: juggling toddlers, coaching teachers and swapping small secrets that mark them as friends. They even got tattoos together. Though Ms. Faulkner, as the boss, earns more money, the difference is a gap, not a chasm.

But a friendship that evokes parity by day becomes a study of inequality at night and a testament to the way family structure deepens class divides. Ms. Faulkner is married and living on two paychecks, while Ms. Schairer is raising her children by herself. That gives the Faulkner family a profound advantage in income and nurturing time, and makes their children statistically more likely to finish college, find good jobs and form stable marriages.

5 Signs of the Chinese Economic Apocalypse

From hog ratios to growing coal stockpiles, the Chinese economy is blinking red

BY TREFOR MOSS

The lights are flickering in the world's economic powerhouse.

Although China's outlook may still be positive by, say, European standards, the numbers show that the country's storied growth engine has slipped out of gear. Businesses are taking fewer loans. Manufacturing output has tanked. Interest rates have unexpectedly been cut. Imports are flat. GDP growth projections are down, with some arguing that China might already be in recession. In March, Premier Wen Jiabao put the 2012 growth target at 7.5 percent; then seen as conservative, it's now viewed as prescient. If realized, it would be China's lowest annual growth rate since 1990, when the country faced international isolation after the 1989 Tiananmen Square massacre.

What are the concrete indications that China is experiencing something more than just a spreadsheet slowdown? Here are five real-world signs of China's economic malaise.

Are Millennials the Screwed Generation?

‘Boomer America’ never had it so good

by Joel Kotkin  

Today’s youth, both here and abroad, have been screwed by their parents’ fiscal profligacy and economic mismanagement. Neil Howe, a leading generational theorist, cites the “greed, shortsightedness, and blind partisanship” of the boomers, of whom he is one, for having “brought the global economy to its knees.”

How has this generation been screwed? Let’s count the ways, starting with the economy. No generation has suffered more from the Great Recession than the young. Median net worth of people under 35, according to the U.S. Census, fell 37 percent between 2005 and 2010; those over 65 took only a 13 percent hit.

The wealth gap today between younger and older Americans now stands as the widest on record. The median net worth of households headed by someone 65 or older is $170,494, 42 percent higher than in 1984, while the median net worth for younger-age households is $3,662, down 68 percent from a quarter century ago, according to an analysis by the Pew Research Center.

The older generation, notes Pew, were “the beneficiaries of good timing” in everything from a strong economy to a long rise in housing prices. In contrast, quick prospects for improvement are dismal for the younger generation.

One key reason: their indebted parents are not leaving their jobs, forcing younger people to put careers on hold. Since 2008 the percentage of the workforce under 25 has dropped 13.2 percent, according to the Bureau of Labor Statistics, while that of people over 55 has risen by 7.6 percent.

“Employers are often replacing entry-level positions meant for graduates with people who have more experience because the pool of applicants is so much larger. Basically when unemployment goes up, it disenfranchises the younger generation because they are the least qualified,” observes Kyle Storms, a recent graduate from Chapman University in California.

A Gold Rush in the Abyss

The last redivision of the world

By WILLIAM J. BROAD

Tom Dettweiler makes his living miles down. He helped find the Titanic. After that, his teams located a lost submarine heavy with gold. In all, he has cast light on dozens of vanished ships.

Mr. Dettweiler has now turned from recovering lost treasures to prospecting for natural ones that litter the seabed: craggy deposits rich in gold and silver, copper and cobalt, lead and zinc. A new understanding of marine geology has led to the discovery of hundreds of these unexpected ore bodies, known as massive sulfides because of their sulfurous nature.

These finds are fueling a gold rush as nations, companies and entrepreneurs race to stake claims to the sulfide-rich areas, which dot the volcanic springs of the frigid seabed. The prospectors — motivated by dwindling resources on land as well as record prices for gold and other metals — are busy hauling up samples and assessing deposits valued at trillions of dollars.

“We’ve had extreme success,” Mr. Dettweiler said in a recent interview about the deepwater efforts of his company, Odyssey Marine Exploration of Tampa, Fla.

Skeptics once likened mining the deep to looking for riches on the moon. No more. Progress in marine geology, predictions of metal shortages in the decades ahead and improving access to the abyss are combining to make it real.

Environmentalists have expressed growing alarm, saying too little research has been done on the risks of seabed mining. The industry has responded with studies, reassurance and upbeat conferences.

The technological advances center on new robots, sensors and other equipment, some of it derived from the offshore oil and gas industry. Ships lower exploratory gear on long tethers and send down sharp drills that gnaw into the rocky seabed. All of this underwater machinery is making it more and more feasible to find, map and recover seabed riches.

Cheap at Any Price

At a billion dollars a year, it's a bargain for China to prop up its rogue state next door

BY ANDREI LANKOV

For those who worry about North Korea, the past few months can best be described as a time of quiet despair. Since North Korea reneged on the "Leap Day" food aid deal in March by announcing the test of a long-range rocket (the test later failed), it has become painfully clear that neither engagement nor sanctions will deliver what many in Washington still consider to be the only acceptable outcome: the denuclearization of North Korea. And China, long considered the best hope to push North Korea in the right direction, has spent the seven months since Kim Jong Un took power stepping up its efforts to maintain the status quo for its unstable neighbor, increasing aid and trade with Pyongyang.

China already controls approximately three-quarters of North Korea's foreign trade and is by far North Korea's largest provider of food aid -- possibly the only thing preventing North Korea from sliding back into famine. But instead of tweaking its aid in response to the North's bad behavior, China has demonstrated a remarkable willingness to spend money on keeping the Kim family regime afloat, quietly sabotage international sanctions in the process. Since the introduction of U.N. sanctions after the 2006 North Korean nuclear test, Sino-North Korean trade and aid have risen exponentially. Bilateral trade, much of it directly or indirectly subsidized by the Chinese government, has more than tripled, to $5.6 billion in 2011 from $1.7 billion in 2006. Beijing has also reportedly invited tens of thousands of North Korean guest workers into China; the assumption seems to be that the workers will provide needed hard currency to their home country while remaining safely isolated from ideas Pyongyang deems dangerous.

What Israel knows, and doesn’t know, will change the world.

The Israeli Dangers From Syria and Egypt

By Niall Ferguson

Israel is the land of argument. Each June its president holds a conference in Jerusalem to which people flock from all over the world to argue. Every weekday the prime minister has meetings with his cabinet colleagues at which they argue. There is even a white board in his office on which the latest argument is recorded. He could not get up to greet my wife and me because his leg recently had an argument with a soccer ball.

The old joke still applies: as soon as you bring together two Israelis, you have three arguments. And that is the other thing I love about Israel. It is also the land of jokes. The fact that Benjamin Netanyahu injured his leg in a soccer match with Jewish and Arab youths strikes even him as pretty funny.

Yet the situation of Israel today is no laughing matter. The phrase “Arab Spring” is now considered something of a joke as people nervously await the latest developments in neighboring Egypt, where the Muslim Brotherhood is poised to take power. The Israeli government is convinced the Iranian government is merely playing for time in the negotiations over its nuclear-arms program and that the timeline to an Iranian nuke is measurable in months.

A Fight To The Last Mexican

The Audacity of Despair

By David Simon 

"A long habit of not thinking a thing wrong gives it the superficial appearance of being right, and raises at first a formidable outcry in defense of custom. But the tumult soon subsides. Time makes more converts than reason.”

So wrote Thomas Paine against monarchy, the morally bankrupt ethos of his day.  But then, it was a less fearful time, and the political leaders of Paine’s moment were scarcely risk-adverse.  Indeed, they were willing to address the moral questions before them to the point of treason.

Not so today, when we can hold a national political contest and neither candidate — nor their respective parties — can find the courage to speak a word about the policy disaster and dishonorable fraud that is the American drug war.

So here, for the hell of it – and because it can never happen in American political discourse – let’s take a solitary moment to be honest with ourselves about why we remain addicted to drug prohibition.

Addicted is the precise word, too, because as any twelve-step survivor can relate, a sure sign of addiction is when one keeps doing the same self-destructive things and expecting a different result.

Surely, we can’t believe any longer that we are preventing much in the way of drug abuse.  After forty years and billions wasted, the drugs available on any American corner are purer, cheaper, more plentiful than ever.

The Day Your Life Fell Apart

How and why did we let them do this to us?

By Jeffrey Tucker

People tell me that I get overly worked up about small government regulations. But small matters. The building of civilization is revealed in small steps, tiny, bit-by-bit improvements in the things we have and do. In the same way, seemingly small government regulations can cause a reversal of the magnificent world that enterprise has built. Under the right conditions, these can create human catastrophes.

So I offer the following scenario, based on real events very recently in the northeast of the U.S.. It is a composite of cases where government regulation is more than just a menace; it becomes absolutely life threatening.

A summer storm comes and kills your electricity for days. A tree falls on your deck, and you need to cut it away just to get out the back door. You find your chainsaw, but it is out of gas. You reach for the gas can, but the new federal regulations make it nearly impossible to pour. You hack the can with a knife because the drill doesn’t work, and you transfer the gas to another bottle and adding the gas to the saw.

Still, the saw won’t work. The gas seems no better than water. Then you remember what you had read about the new gas. The ethanol mandates, stemming from 2005 legislation, have made gas difficult to store. The corn-based additives absorb water, and the mixture loses its ability to burn after a time, depending on climate. You had heard of buyrealgas.com, but you had thought that was a kooky service for preppers, maybe useful for boaters but not you.

So you hop in the car and set out for new gasoline. The storms have caused the usual anti-gouging mania. Station owners have been hauled before Congress in the past just for having raised prices in a storm — a time when they should be pricing prices. Stations fear bad PR and even laws against the practice, and so they can’t properly ration supplies.

You drive and drive, but every gas station in a 10-mile radius of your house is out of gas. In fact, after all this driving, you are nearly out of gas. You creep home and beg the neighbor for some gas, but he has the same problems: bad can, and the stored gas doesn’t work right.

Fortunately, he has another can left over from the old days with good gas in it. Together, you empty out the old gas from the saw and put in new gas. The engine starts, but only in fits, and the sound is uneven. Finally, it sputters to a halt.

What is it this time? It’s the carburetor. Just then, you remember another sad fact about corn-based ethanol. It leaves a sticky residue in your engine, kind of like corn syrup, which is not surprising given the makeup of ethanol. That’s why all the stores sell so many tank additives that promise to clean out the muck from your engine. But it’s too late for this one.

All these gas additive products weren’t even around 25 years ago. Why are they necessary now? It’s the same reason there are so many cleaning additives for laundry. The essential stuff that makes things work, whether gas or detergent, has been despoiled and degraded by federal regulations that mandate certain ingredients. Never mind performance: It’s all under the guise of saving the environment.

But your environment isn’t being saved right now. You have a tree all over your back porch, your electricity is out, you are nearly out of gas in your car and there’s no gas to be had anywhere. You can’t even charge your phone, and you have only 40% of its power remaining.

Forget the Internet. You have the ability to get online through a 3G network, but doing that would waste scarce power. You have about eight hours remaining on your phone at best, and that needs to be used for a more-serious emergency. Facebook, which would be a wonderful way to communicate with people you love, has to wait.

You look around and realize something ghastly. In a matter of hours and without much warning, the whole of your life has collapsed. There is no way out. You are completely dependent on city workers coming around to fix things. But they will fix only so much. Why? Because the city hopes that the federal government will declare the place a “disaster area” so that the city can get federal aid — aid you will never see. So the mess has to stay just as it is for days, maybe for weeks.

The kids are screaming. Fortunately, no one needs immediate medical help. You long ago stopped stocking up on medicines, because the regulations don’t allow it. Not even medicine to unclog noses can be hoarded. The federal government keeps a list of how much you have bought in the last month. And forget painkillers. Those are barely even available through prescription.

True, the aged person living in your house is lacking essentials. You hope that oxygen isn’t necessary, because the machine doesn’t work. You might have bought a generator, but that wouldn’t have helped. You have no fuel, little food and your means of communicating with the outside world are dwindling down by the minute.

You know that the pools of water in your backyard could quickly breed killer mosquitoes in a day, especially in this heat. But you also know that the insecticides you can get at the store now are weak and just short of worthless. The strong stuff was pushed out of the marketplace by more regulations some 10 years ago. You will just have to stay indoors, even though the temperature is hotter and hotter.

There’s only one thing left to do. Embrace your despair, and be happy that you can light a candle and read a physical book. You wait and hope to be saved.

Now consider all the ways in which the above scenario might have been different absent the central plan that has been imposed, allegedly with the goal of saving you. Without anti-gouging regulations, gas would have been more expensive, but at least it would have been plentiful. Even then, you probably wouldn’t have needed it, because both the gas line and the gas in the can would’ve worked (since it would have a vent, just as gas cans always had until the new mandates wrecked them).

This way, you could have used the gas in your car to keep your cellphone charged and working. You could have used Twitter and Facebook all you wanted, and everyone would have known your whereabouts and well-being.

The chainsaw would have been fully functional, with an engine that stayed clean and worked every time, even when not used in years. You could have cut your tree and helped your neighbors with theirs. City workers would have already been out on the job helping to clean things up. The absence of federal aid would have made them alone responsible for the results, and they would have a mayor breathing down their neck, rather than a mayor with his hand out to Washington.

All these seemingly small regulations may not seem like much in ordinary times. But in extraordinary times, they can make the difference between life and death. A natural disaster we can deal with. A man-made disaster such as that imposed by thick layers of crufty, enterprise-destroying regulations are a far greater problem because they are permanent, cumulative, and imposed at the point of a gun.

The regulators play with our products and our lives as if they know better than we do what’s good for us. To the political class, there’s nothing quite as satisfying as managing the lives and property of others. But when the unexpected happens, the mischief they do begins to reveal terrible things. Suddenly, the denial of our freedom to manage our own lives matters a great deal.

This is the point at which we slap our heads and ask ourselves, “How and why did we let them do this to us?” They wrecked our home appliances. They ruined the paint on our walls, making it dingy and unstable. They degraded makeup, detergent and unclogging agents. Insecticides don’t work. They ruined our toilets, our refrigerators, our lawn mowers, our water heaters, our showers and even our furniture by declaring sofa cushions to be too flammable.

Small things, right? They all add up to a giant thing. They set out to make an environmental utopia for us, a world of perfect safety that leaves no human footprint, and instead they created a hell of dependency in which we have no choice but to join the rest of the drones who sit and wait for the bureaucrats to bail us out of our troubles. And the bureaucrats take their own sweet time, unless you own a gun, in which case they will be right over to take it from you.

We look for someone to blame. The politicians who passed the laws are all out of office, while their legacy lives on in the concrete palaces inhabited by lifetime bureaucrats, who are never subject to any election and who make more money living off your income than you do by actually producing things that people want. The predatory class is destroying the host, yet no one has a clue about what to do to make it stop.

But there are things you can do. You can become aware. You can stop trusting them and stop deferring to them. If enough people do, history can turn on a dime. We can all decide that man-made catastrophe need not be our fate.

The Road to Recovery

As Hayek taught, freedom and the rule of law drive prosperity

By John B. Taylor

Burdened by slow growth and high unemployment—especially long-term unemployment—the American economy faces an uncertain future. We have endured a painful financial crisis and recession, the recovery from which has been nearly nonexistent. Federal debt is exploding and threatening our children and grandchildren. In my view, the reason for this predicament is clear: we have deviated from the principles of economic freedom upon which America was founded.

Few thinkers of the past century understood the importance of economic freedom better than the Austrian economist Friedrich Hayek did. As we confront our current situation, Hayek’s work has much to tell us, especially about policy rules, the rule of law, and the importance of predictability—topics that he discussed in his classic The Road to Serfdom (1944) and in greater detail in The Constitution of Liberty (1960). But his work in these areas goes beyond economics into fundamental issues of freedom and the role of government. That’s why reading Hayek is more important than ever.

As Hayek would insist, we need to be careful about what we mean by economic freedom. The basic idea is that people are free to decide what to produce, what to buy, where to work, and how to help others. The American vision, as I explain in my book First Principles, held that people would make these choices within a policy framework that was predictable and based on the rule of law, with strong incentives emanating from a reliance on markets and a limited role for government. Historically, America adhered to these principles more than most countries did, a major reason why the nation prospered and so many people came to these shores.

It's broken and we have to fix it

The Vanishing Point of Fiat Money

by Chris Martenson

Author and social critic James Howard Kunstler has been one of the earliest, most direct, and most articulate voices to warn of the consequences -- economic and otherwise -- of modern society's profligate wasting of the resources that underlie its growth.

In his new book Too Much Magic [7], Jim attacks the wishful thinking dominant today that with a little more growth, a little more energy, a little more technology -- a little more magic -- we'll somehow sail past our current tribulations without having to change our behavior.

Such self-delusion is particularly dangerous because it is preventing us from taking intelligent, constructive action at the national level when the clock is fast ticking out of our favor. In fact, Jim claims we are past the state where solutions are possible - instead, we need a response plan to help us best brace for the impact of the coming consequences. And we need it fast.

[We now live in] this weird, peculiar period in American history when the delusional thinking has risen to astronomical levels -- predictably, really -- in response to the stress levels that our society feels. And it is expressing itself as sort of "waiting for Santa Claus and the Tooth Fairy" to deliver a set of rescue remedies to us so that we can continue running Wal-Mart, Walt Disney World, Suburbia, the U.S. Army, and the Interstate Highway System by other means. That is the great wish out there. It is kind of understandable because that is the stuff that we have, and people tend to defend the stuff that they have in any given society and the systems and platforms that they run on.  But it is probably a form of collective behavior that is not really going to benefit us very much and really amounts to simply wasting our time, and wasting our dwindling resources, and even our spiritual resources when we could be doing things that are a lot more intelligent.

The jig is up

The Essence

By Bill Buckler

“What I was looking at was a tussle between two groups of mass-men, one large and poor, the other small and rich. As judged by the standards of a civilised society, neither of them any more meritorious or promising than the other. The object of the tussle was the material gains accruing from control of the State’s machinery. It is easier to seize wealth than to produce it; and as long as the State makes the seizure of wealth a matter of legalised privilege, so long will the squabble for that privilege go on.”

                               Alfred Jay Nock - Memoirs Of A Superfluous Man - 1943

Mr Nock published his memoirs after a lifetime of watching the state enhance and widen its means of making “the seizure of wealth a matter of legalised privilege.” He recognised the process as being exactly what it was far better than the vast majority of his fellow Americans and described it better still. Were he alive today, he would not be surprised at the state of the world. Nor would he be surprised at the degree of gullibility shown by the fact that most people still cling to the hope that the perpetrators of the mess can “fix” it if only the necessary power is invoked. He would, perhaps, be surprised that the entire structure has not yet fallen down around the ears of those who constructed it.

A Declining Power?

Here is a quote from the other “sophisticate” who runs the US financial system. A few days before Mr Bernanke’s speech, Treasury Secretary Tim Geithner was speaking at the Economic Club of Chicago. Among many other things, he said this: 

“Cutting government investments in education and infrastructure and basic science is not a growth strategy. Cutting deeply into the safety net for low-income Americans is not financially necessary and cannot plausibly help strengthen economic growth.”

Never A Dull Day In Euro-Land

Keynesian Ditch-Diggers

By Pater Tenebrarum

Ireland has been a model student of the bailout initiative so far, meeting its targets and implementing the 'Troika' devised austerity program very meticulously. However, since Spain is now getting 'special treatment' regarding the bank bailout, it was decided at the late June euro-group summit that Ireland would get special treatment as well. After all, the Irish bailout was primarily a banking system bailout too. Moreover, as Irish finance minister Noonan not unreasonably remarked, Ireland 'took one for the team' when it refrained from imposing losses on senior bank bondholders. The big fear at the time was that this would trigger 'contagion effects' across Europe (which were later triggered anyway by Greece).

In its summit statement the euro-group said:

„The Eurogroup will examine the situation of the Irish financial sector with the view of further improving the sustainability of the well-performing adjustment programme. Similar cases will be treated equally.“

Noonan is now hoping to clinch a deal on the €64 billion in bank debt in the course of this year, which would help bring Ireland's public debt back below 100% of GDP.

The FT reports:

“Mr Noonan said he was pressing for a deal with European authorities for relief on Ireland’s €64bn bank debts that would reduce the country’s sovereign debt below 100 per cent of gross domestic product and help the country to re-enter international bonds markets in early 2013.

"The Great Utopia"

Road to Freedom or Highroad to Servitude

F.A. Hayek

There can be no doubt that most of those in the democracies who demand a central direction of all economic activity still believe that socialism and individual freedom can be combined. Yet socialism was early recognized by many thinkers as the gravest threat to freedom.

It is rarely remembered now that socialism in its beginnings was frankly authoritarian. It began quite openly as a reaction against the liberalism of the French Revolution. The French writers who laid its foundation had no doubt that their ideas could be put into practice only by a strong dictatorial government. The first of modern planners, Saint-Simon, predicted that those who did not obey his proposed planning boards would be "treated as cattle."

Nobody saw more clearly than the great political thinker de Tocqueville that democracy stands in an irreconcilable conflict with socialism: "Democracy extends the sphere of individual freedom," he said. "Democracy attaches all possible value to each man," he said in 1848, "while socialism makes each man a mere agent, a mere number. Democracy and socialism have nothing in common but one word: equality. But notice the difference: while democracy seeks equality in liberty, socialism seeks equality in restraint and servitude."

The Man Who Predicted the Depression

Ludwig von Mises explained how government-induced credit expansions create the Boom and Bust cycles

By MARK SPITZNAGEL

Ludwig von Mises was snubbed by economists world-wide as he warned of a credit crisis in the 1920s. We ignore the great Austrian at our peril today.

Mises's ideas on business cycles were spelled out in his 1912 tome "Theorie des Geldes und der Umlaufsmittel" ("The Theory of Money and Credit"). Not surprisingly few people noticed, as it was published only in German and wasn't exactly a beach read at that.

Taking his cue from David Hume and David Ricardo, Mises explained how the banking system was endowed with the singular ability to expand credit and with it the money supply, and how this was magnified by government intervention. Left alone, interest rates would adjust such that only the amount of credit would be used as is voluntarily supplied and demanded. But when credit is force-fed beyond that (call it a credit gavage), grotesque things start to happen.

Government-imposed expansion of bank credit distorts our "time preferences," or our desire for saving versus consumption. Government-imposed interest rates artificially below rates demanded by savers leads to increased borrowing and capital investment beyond what savers will provide. This causes temporarily higher employment, wages and consumption.

Ordinarily, any random spikes in credit would be quickly absorbed by the system—the pricing errors corrected, the half-baked investments liquidated, like a supple tree yielding to the wind and then returning. But when the government holds rates artificially low in order to feed ever higher capital investment in otherwise unsound, unsustainable businesses, it creates the conditions for a crash. Everyone looks smart for a while, but eventually the whole monstrosity collapses under its own weight through a credit contraction or, worse, a banking collapse.

The system is dramatically susceptible to errors, both on the policy side and on the entrepreneurial side. Government expansion of credit takes a system otherwise capable of adjustment and resilience and transforms it into one with tremendous cyclical volatility.

The reformation of Islam

This youth movement has women covered

The mistake made by virtually the entire Western media during the Arab Spring was to assume that social progress is like technological progress.

By mark steyn

Media types like to talk about "the narrative": News is just another form of storytelling, and certain plot lines grab you more than others.

The easiest narrative of all is anything involving young people. "I believe that children are our future," as the late Whitney Houston once asserted. And, even if Whitney hadn't believed it, it would still, as a point of fact, be true. Any media narrative involving young people presupposes that they are the forces of progress, wresting the world from the grasping clutches of mean, vengeful old men and making it a better place.

Main Street Goes Broke

With local governments tapped out, the salad days of the public sector are over

By PATRICK J. BUCHANAN

San Bernardino, Calif., has now followed Stockton into bankruptcy.

Harrisburg and Scranton, Pa., and Jefferson County, Ala., home to Birmingham are already there to welcome them.

Detroit has been taken into receivership by Michigan. A plan under discussion is to level a fourth of the city and reconvert it into the pasture and farmland it used to be a century ago.

On the Web, one may find a pictorial tale of two cities: Hiroshima, a smoking flattened ruin in 1945, now a beautiful gleaming metropolis. And Detroit, forge and furnace of democracy in 1945, today resembling Dresden after Bomber Command paid its visit.

A Difficult Identity

Arab Citizens of Israel

by PETER BERGER

As a social scientist with broad cross-national interests, I subscribe to a number of periodicals that provide reasonably reliable information on what goes on in different parts of the world. But every couple of weeks or so I go to Harvard Square and browse for what looks interesting in the kiosk that sits in the middle there. Last week I picked up the international edition of The Jerusalem Post, the major English-language newspaper in Israel. Newspapers provide a flavor of everyday life that is often missed in the publications I normally read. In this instance I was intrigued by an advertisement in the real estate section for an apartment whose attractions include a health club and an automatic elevator running on the Sabbath, as well, under “Matchmaking”, an ad by a “wealthy, attractive and cultured widow” in her seventies who is willing to consider an offer from America. Much of this newspaper contains more or less ominous stories about the political upheaval in Egypt. It is somehow reassuring that, in the midst of all this, there may be an elderly religious lady about to use the automatic elevator to meet her American date in the health club.

There is one story in the newspaper that I found humanly intriguing in a somewhat similar way. Entitled “Love thy neighbor?”, it deals with young Arab citizens of Israel moving to Tel Aviv. Apparently this is an increasing phenomenon. Not only is Tel Aviv a good place to find a rewarding job, but it is the most cosmopolitan city in the country where young people, Jewish or Arab, can have a more exciting life than in the often provincial communities from which they come. The key character in the story is Areen Shahbari, a 28-year old woman from a “secular Muslim family” in Nazareth (the town with the highest Arab population in Israel). Ever since her teens she aspired to work as a television presenter. So she went to study communications at Tel Aviv University, in her third year there landed a job with the largest television production company, and worked herself up to heading a talk show devoted to women’s issues.

Plus ça Change—in the French Economy

If some things don’t change, everything will

Hollande has to do more than restore France's economy; he must recover its spirit of dynamism.

By NEIL ROGACHEVSKY

This year’s Bastille Day promises to be a very sombre affair.  In a move being billed variously as a “disaster”, “bloodbath” and “earthquake”, car marker PSA Peugeot-Citröen announced on July 12 that it would be laying off 8,000 workers throughout France and stopping auto production at one of its flagship plants at Aulnay-sous-Bois, not far from Paris in Seine-St Denis.

The subject of long speculation, the move prompted an outpouring of outrage amongst PSA employees, with many stating their intention to use the union to fight the decision. “This will be a war,” declared one employee. The socialist mayor of Aulnay-sous-Bois spoke in tones of emotional disbelief. “The government had done so much to make the area hospitable. Transportation links to Paris, including a stop just outside the factory,” he told French Radio. “This sends the wrong message.”

On the same day, Bloomberg reported that General Electric’s France division has been trying frantically to hire welders and cutters for an oil and nuclear valve factory in Western France but can’t find qualified employees. The head of the French Federation of Mechanical Industries Jerome Frantz said he expected a shortfall of about 15,000 workers for manufacturing positions over the next five years.  Pierre Berger CEO of one of France’s largest construction companies, Eiffage SA, also reported difficulty in recruitment. “Working with one’s hands in this country isn’t recognized,” he told Bloomberg, “except in luxury goods and for arty Parisian craftsmen.”

Just Wait Until It’s Free

“The state is the great fictitious entity by which everyone seeks to live at the expense of everyone else.”

J. R. Clark and Dwight R. Lee

The quip “If you think it’s expensive now, just wait until it is free” is funny because of the unfortunate truth it contains. The truth is unfortunate less because it’s impossible to provide benefits without costs than because politicians constantly try to convince voters otherwise. To paraphrase Thomas Sowell: 

"The first law of economics is that there’s no such thing as a free lunch; the first law of politics is to disregard the first law of economics."

Politicians convince only the naive that government can provide free benefits, but the political process creates a lot of naivety. This naivety in turn allows politicians to enact policies that make it rational for consumers to act as if they believe government has lowered the cost (often to zero) of goods even when they know better. As the joke suggests, however, the more the “as if” cost of a good is reduced, the more its real cost is increased. This can be explained by making use of the important distinction between the total cost consumers pay for a good and the marginal cost they pay—that is the additional amount they pay to buy one more unit of the good.

The most obvious way the government can make people act as if the cost of a good has been reduced is to lower its price. The most direct way to do that is by imposing a price ceiling below the market price. We mention a price ceiling briefly only to explain why we do not consider it in detail. When the price of a good is legally lowered, the amount supplied will decrease, so consumers cannot act as if the cost has been lowered by purchasing more, despite their desire to do so. Also, it quickly becomes clear to consumers, once the aggravation of longer lines, poorer service, and declining quality is considered, that the cost of the good has become higher, not lower.

A more lasting way for politicians to give the impression they have lowered the cost of a good is to subsidize its supply. This can be done by transferring an amount covering all or part of the cost to suppliers for every unit of a good sold to consumers. This per-unit subsidy would cause a corresponding drop in the cost of production and thus in the price of each unit of the good. We assume the supply curve is horizontal—that is, prices won’t rise to offset increased consumer purchases in response to the price subsidy.