Hollande’s Burden

The French president is blind to the contradictions of his philosophy

BY THEODORE DALRYMPLE

My late friend, the eminent development economist Peter Bauer, liked to complain that while knowledge had increased, mankind’s capacity for connected thought seemed to have decreased. François Lamy, France’s new minister of urban affairs, illustrated Bauer’s point nicely when he visited Amiens recently, a city in whose northern suburbs the week before his visit a small but nasty riot had broken out, causing millions of dollars’ worth of damage. As in all such French suburbs, the youth unemployment rate there is very high. The minister said that the government would carry out one of Socialist French president François Hollande’s election promises—namely to allow certain tax exemptions on companies that hired young workers from suburbs with high unemployment.

Whatever the merits of such a policy, Messrs. Hollande and Lamy clearly hope and expect that it will work. What they don’t notice is that this hope and expectation drives a coach and horses through their entire social philosophy.

What in effect such a policy acknowledges is that high payroll taxes on French companies discourages them from taking on new workers. This must be because the cost of their labor is, thanks to the taxes, higher than its economic value. Only by lowering the taxes can their labor be made economically worthwhile for an employer.

The European Tragedy

The inevitable result of the hubris of political actors

By Stephen Davies

People are closely watching the slow-motion train wreck that is the crisis of the eurozone—that is, the economic travails of Greece, Spain, Ireland, Portugal, and Italy (known collectively as the PIIGS). The problem with much of the discussion in the United States is that both of the main camps are right about some things but wrong about others because neither fully grasps the real nature and cause of the crisis in Europe.

One view holds up the Europeans as a warning to the United States of the consequences of government profligacy. The problem, so the argument goes, is crushing sovereign debt brought about by excessive government spending over many years funded by borrowing rather than taxation. The rising yields on sovereign debt reflect that investors now realize the European governments are bankrupt and cannot be relied on to service their accumulated debt, much less repay it. As yields rise the burden of debt becomes greater until the only ways out are either default or fiscal stringency with a combination of tax increases and cuts in government spending to bring stability. This is also the view, it would appear, of the German finance ministry and much of the German public.

The contrary view is that the European crisis is indeed a warning to the United States—of the dreadful consequences of austerity. For this camp the experience shows the folly of responding to the financial crisis of 2007–08 with cuts in government spending and efforts at balancing the books. These efforts are self-defeating because they will aggravate the economic contraction and reduce government revenues while increasing spending (because of “automatic stabilizers” such as unemployment benefits), worsening the government’s finances. The correct response to the economic slowdown in Europe, therefore, is a Keynesian one of increasing government spending and widening deficits, at least in the short term, until the economy recovers.

Germany is cornered

Germany is in the box and now Frau Pandora and not Frau Merkel owns the key

By Mark J. Grant

Several recent releases of data bring the problem into focus; a sharp focus. With Ms. Merkel in China trying to buoy the European position China announced that exports to the European Union declined 16.2% in July with sales to Italy falling off the cliff; down 35.8%. These are not small variations or figures just slightly off the consensus opinion but disastrous numbers that clearly indicate the deepening recession that is taking place on the Continent and there will be quite serious consequences that come from a fall-off of this magnitude.

This morning the Consumer Sentiment numbers were released for Europe and the number was 86.1 down from 87.9 in July and far worse than the median forecast of 87.5 and the worst number, in fact, since August 2009. In Germany, once thought to be almost invincible and somehow outside the recession that is raging in Europe, the crisis is just beginning but it has commenced and it is clearly indicated by the newest data which shows that Germany has begun the descent down the rabbit hole with the rest of its brethren.

Unemployment increased in Germany, which was reported out this morning, to 2.9mm people and it was a greater drop than had been forecast. German capital investment fell 0.9% in the second quarter, factory orders were down 7.8% from a year earlier, business confidence fell for the fourth straight month and growth slowed to 0.3% as all of the EU-17 reported a -0.2 contraction.

Nazi Economics

The Wages of Destruction

by Bill Bonner

Adam Tooze, a British historian, has written a marvelous book on the Nazi economy, The Wages of Destruction. He shows that, far from illustrating the success of intelligent central planning, the German economy of the Third Reich was a disaster. The National Socialists – or “Nazis” – had their plans for Germany. They were determined to put them into practice, regardless of what the Germans may have wanted for themselves. They fiddled with one sector after another. When one fix failed to produce the desired results, actually bringing unintended and undesired consequences, they tried to fix the fix with a new fix. Most of these fixes involved spending money – if not on actual output, then on bureaucracies that regulated output. And most of them were directed towards a goal that only a demagogue politician or a lame economist would find attractive – making Germany self-sufficient. Imports cost money, they reasoned. Besides, trade forced a nation to behave. Neither was attractive to the Nazis.

Of Mice and Men

Why progress remains stuck on the tarmac

The dithering over building a third runway at Heathrow, never mind new airports, exposes our leaders’ inability to seize control of the future.

by Tim Black 

Do you remember what one of the first, headline acts of the current coalition government was? That’s right, on 12 May 2010, just days after the Lib Dems and Conservatives false-smiled their way into a loveless marriage, the freshly conjugated coalition announced it was to abandon New Labour plans to build a third runway at Heathrow airport. So after the idea was first mooted in a government green paper in 2003, it appeared, after years of Labour dithering before a last-gasp decision in 2009, that the prospect of an improved Heathrow had finally been shot down.

But this is a twenty-first century British government. There is no decision that cannot be unmade, no action that cannot be delayed for years upon end. Uncertainty is near enough deemed an electoral virtue by the modern political party. So, nine years after the idea was first mooted, senior Tories are now, almost predictably, suggesting that plans for a third runway might be revived after all.

The leaked murmurings began earlier this year when chancellor George Osborne said that Britain needed to confront the problem of the lack of runways. Since then, several Tories have come out of the closet wearing ‘I love runway’ t-shirts. Just last week, voluble housing minister Grant Shapps came over all Victorian: ‘As a great trading nation we need to have sufficient numbers of ports to get people and goods in and out.’ And then, more memorably, came senior Tory Tim Yeo, chairman of the energy and climate change select committee. ‘An immediate go-ahead for a third runway will symbolise the start of a new era, the moment the Cameron government found its sense of mission. Let’s go for it’, chirruped Yeo in a piece for the Telegraph. He then challenged Cameron personally, asking him if he is ‘man or mouse’.

The Paramilitarized Bureaucracies

A dangerous contradiction

By mark steyn

I flew in to Montreal from an overseas trip the other day and was met by a lady from my office, who had kindly agreed to drive me back home to New Hampshire. At the airport she seemed a little rattled, and it emerged that on her journey from the Granite State she had encountered a "security check" on the Vermont–Quebec border. U.S. officials had decided to impose temporary exit controls on I-91 and had backed up northbound traffic so that agents could ascertain from each driver whether he or she was carrying "monetary instruments" in excess of $10,000. My assistant was quizzed by an agent dressed in the full Robocop and carrying an automatic weapon, while another with a sniffer dog examined the vehicle. Which seems an unlikely method of finding travelers' checks for $12,000.

Being a legal immigrant, I am inured to the indignities imposed by the U.S. government. (You can't ask an illegal immigrant for ID, even at the voting booth or after commission of a crime, but a legal immigrant has to have his green card on him even when he's strolling in the woods behind his house.) And indeed, for anyone familiar with the curious priorities of officialdom, there is a certain logic in an agency that has failed to prevent millions of illegal aliens from entering the country evolving smoothly into an agency that obstructs law-abiding persons from exiting the country.

IRAQ, Mission accomplished for Big Oil?

Well, not exactly 

By Greg Muttitt 

In 2011, after nearly nine years of war and occupation, US troops finally left Iraq. In their place, Big Oil is now present in force and the country's oil output, crippled for decades, is growing again. Iraq recently reclaimed the number two position in the Organization of the Petroleum Exporting Countries (OPEC), overtaking oil-sanctioned Iran. Now, there's talk of a new world petroleum glut. So is this finally mission accomplished? 

Well, not exactly. In fact, any oil company victory in Iraq is likely to prove as temporary as George W Bush's triumph in 2003. The main reason is yet another of those stories the mainstream media didn't quite find room for: the role of Iraqi civil society. But before telling that story, let's look at what's happening to Iraqi oil today, and how we got from the "no blood for oil" global protests of 200 to the present moment. 

Here, as a start, is a little scorecard of what's gone on in Iraq since Big Oil arrived two-and-a-half years ago: corruption's skyrocketed; two Western oil companies are being investigated for either giving or receiving bribes; the Iraqi government is paying oil companies a per-barrel fee according to wildly unrealistic production targets they've set, whether or not they deliver that number of barrels; contractors are heavily over-charging for drilling wells, which the companies don't mind since the Iraqi government picks up the tab. 

Meanwhile, to protect the oil giants from dissent and protest, trade union offices have been raided, computers seized and equipment smashed, leaders arrested and prosecuted. And that's just in the oil-rich southern part of the country. 

Why Everybody's Going To War in the Middle East

American soldiers are still fighting for the power elites and their favored industries

by Ron Holland

Iran Wants War

Although a peaceful nation for hundreds of years, Iran was invaded and occupied by the Allies in both World War One and Two. Then in 1980, at the urging of the United States, Saddam Hussein invaded them and used poison gas against both Kurds and Iran. Over 500,000 civilians, Iranian and Iraqi soldiers died in the longest war of the 20th century, which lasted until 1988.

Iran wants war because they believe they can withstand an Israel and US air assault and that unless they are invaded and occupied they can claim victory. No Middle East nation has ever been victorious against either the US or Israel and to declare victory against both will make Iran the leading nation across the entire region, at least for the people in the street. An Israel/US assault would also solve growing domestic political problems against the regime.

Israel

Bibi Netanyahu obviously believes Iran threatens the survival of Israel, as no major domestic political reasons to go to war are evident. The majority of Israel's population appears to be opposed to a military strike against Iranian nuclear facilities because of retaliation from Iran and Hezbollah. But as in the US, what the majority of the people want is of no consequence.

Berlin's Cozy New Relationship with Beijing

Merkel in China

By Markus Deggerich, Ralf Neukirch and Wieland Wagner

German Chancellor Angela Merkel and much of her cabinet are headed to Beijing on Thursday for a two-day diplomatic offensive. China has quickly become one of Germany's key partners, but several heated disagreements remained to be solved.

The quality of the relationship between two world leaders isn't revealed in official appearances, military parades and festive dinners that have been planned down the very last detail. Instead, it is reflected in the small gestures and conversations that take place on the sidelines of the main events, especially when unexpected problems arise.

That was the case in February, when German Chancellor Angela Merkel was last in China. The Chinese authorities had prevented human rights attorney Mo Shaoping from attending Merkel's reception at the German Embassy in Beijing. Merkel could have scored points with voters back home by issuing in sharp protest. But it would have also complicated her foreign-policy mission.

QE3 and the looming currency war

An unstable situation could worsen

By Michael Casey

First, let’s get this straight: The U.S. Federal Reserve’s Open Market Committee is composed of some very smart, sensible people.

But...for all the unreasonable accusations that are sometimes leveled at Chairman Ben Bernanke and his colleagues, there is one good reason to complain about the FOMC’s detachment from the world. It stems from the fact that the Fed’s mandate extends no further than U.S. borders. The committee members are under no legal obligation to consider the impact of their actions on foreign countries. And yet their decisions inevitably have a sweeping, disruptive influence on global money markets and, by extension, on the world economy.

Economic reality will reassert itself. Again.

Our fatally conceited elites are being confronted with reality

By ALLISTER HEATH

IT was FA Hayek, an economics Nobel prize winner of immeasurably greater distinction than Paul Krugman, who put it best. In his book the Fatal Conceit, he launched a devastating attack on those who believe that elites can mould and control humanity’s destiny. Central direction is impossible, a limitation those in authority never accept.

Past fatal conceits include the view that private property and markets can be abolished, and replaced by pure socialism and central planning, whereby a small group decides what is produced, what is consumed and who works where and gets what. But we remain plagued by many other, contemporary fatal conceits. Here are two especially pernicious ones.

The first is the belief that governments can endlessly create growth out of thin air by manipulating aggregate demand – cutting rates, printing money or borrowing and spending more. Of course, such actions can have a huge effect. Monetary policy can be extremely potent; the cost of borrowing is the most important price in the economy and the quantity of money, and the speed at which it circulates, is fundamental to the health of an economy, because money is used in every single exchange. It may well have made sense to cut interest rates in China, for example, as the Beijing authorities did yesterday for the first time since 2008. Varying public spending to manipulate GDP, however, is pretty useless at the best of times.

The Capture of the Professional Class

The Rot Runs Deep Part 3 

A rotten-to-the-core system continues grinding on because it has effectively co-opted (captured) the professional/managerial class with promises of phantom wealth and security.

by Charles Hugh

The Status Quo depends on the professional/managerial class to maintain order and keep the machine running. Since this class has more options in life than less educated lower-income workers, their belief in the fairness and stability of the Status Quo is essential: should their belief in the Status Quo weaken, so would their commitment to positions that require long work days and abundant stress.

I addressed this dependence on the professional/managerial class over four years ago in When Belief in the System Fades (March 12, 2008):

The corollary to this structural need for highly motivated, dedicated people to work the gears is that if their belief in the machine fades, then the machine grinds to a halt.

This belief is far more vulnerable than the Powers That Be seem to understand.

Poor In India Starve As Politicians Steal $14.5 Billion Of Food

Indian Socialism in Action

By Mehul Srivastava and Andrew MacAskill

Ram Kishen, 52, half-blind and half- starved, holds in his gnarled hands the reason for his hunger: a tattered card entitling him to subsidized rations that now serves as a symbol of India’s biggest food heist.

Kishen has had nothing from the village shop for 15 months. Yet 20 minutes’ drive from Satnapur, past bone-dry fields and tiny hamlets where children with distended bellies play, a government storage facility five football fields long bulges with wheat and rice. By law, those 57,000 tons of food are meant for Kishen and the 105 other households in Satnapur with ration books. They’re meant for some of the 350 million families living below India’s poverty line of 50 cents a day.

Bad Advice More Popular Than Ever

Quick Fixes for Complex Problems

By Jeff Harding

A BOOK advising married women to have affairs has sparked renewed interest in really bad advice. Experts say Catherine Hakim’s The New Rules of Marriage, which claims that having affairs makes relationships stronger, shows a demand for self-help advice that is not merely trite but actively harmful.

Publisher Julian Cook said: ‘The market for bad advice is huge, as can be seen from the success of books  like Eat Yourself  Smart,   She’s  Crying Because She’s  Happy and  Live  It Up, You Could Die Tomorrow.

Our latest title, Kill Your Inner Fat Pig, applies Sun Tzu’s The Art of War to dieting by regarding all types of food as a dangerous enemy, and is currently doing very well in the teenage market.

Basically people want quick fixes for complex problems, which bodes well for our forthcoming title Quick Fixes for Complex Problems.

Judgment Day For The Euro

The European Union can be based only on the rule of law

By Hans-Werner Sinn

Europe and the world are eagerly awaiting the decision of Germany’s Constitutional Court on September 12 regarding the European Stability Mechanism (ESM), the proposed permanent successor to the eurozone’s current emergency lender, the European Financial Stability Mechanism. The Court must rule on German plaintiffs’ claim that legislation to establish the ESM would violate Germany’s Grundgesetz (Basic Law). If the Court rules in the plaintiffs’ favor, it will ask Germany’s president not to sign the ESM treaty, which has already been ratified by Germany’s Bundestag (parliament).

There are serious concerns on all sides about the pending decision. Investors are worried that the Court could oppose the ESM such that they would have to bear the losses from their bad investments. Taxpayers and pensioners in European countries that still have solid economies are worried that the Court could pave the way for socialization of eurozone debt, saddling them with the burden of these same investors’ losses.

‘We are not forever chained to this planet’

Neil Alden Armstrong RIP

Three cheers for Neil Armstrong, the twentieth-century embodiment of man’s age-old yearning to explore and discover.

by Tim Black 

It is July 1999 – 30 years since the Apollo 11 moon landing – and Neil Alden Armstrong is doing a press conference at the Kennedy Space Centre in Florida. Someone asks him what he thinks is the legacy of that famous mission. His response is striking: ‘In my own view, the important achievement of Apollo was a demonstration that humanity is not forever chained to this planet, and our visions go rather further than that, and our opportunities are unlimited.’

In a few unrehearsed clauses, Armstrong did something unusual. He articulated a crucial and, today, often obscured aspect of our humanity. That is, he expressed our very human ability to surpass ourselves, to go beyond what is possible in the here and now and towards what might be possible in the future. Armstrong makes no mention of our limits, of our horizons. We are not ‘chained’ to extant possibilities, he is saying; we are forever in the process of discovering new opportunities. He’s right, but not just about space exploration. He’s right about human history: think of social and political revolutions; think of the immense material gains and development of the past couple of centuries; think of the explorers of the New World; and think, too, of man’s ventures into space. The list goes on. Human history, you see, is a tale of people unchaining themselves, of discovering that there are no limits which cannot be transcended.

The Dialectic of Destruction

From each according to his ability, to each according to his needs

by Murray N. Rothbard

Some might protest that, in our discussion of communism, we have not mentioned the feature that is generally considered the hallmark of that system: the slogan, 

"From each according to his ability, to each according to his needs." 

This phrase seems to contradict our view that the essence of the communist society is a secularized religion rather than economics. The locus classicus, however, of Marx's proclamation of this well-known slogan of French socialism, was in the course of his vitriolic Critique of the Gotha Program in 1875, in which Marx denounced the Lassallean deviationists who were forming the new German Social Democratic Party. And it is clear from the context of his discussion that this slogan is of minor and peripheral importance to Marx. In point 3 of his Critique, Marx is denouncing the clause of the program calling for communization of property and "equitable distribution of the proceeds of labour." In the course of his discussion, Marx states that inequality of labor income is "inevitable in the first stage of communist society, ... when it has just emerged after prolonged birth pangs from capitalist society. Right can never be higher than the economic structure of society and the cultural development thereby determined." On the other hand, Marx goes on,

In a higher phase of communist society, after the enslaving subordination of individuals under division of labour, and therewith also the antithesis between mental and physical labour, has vanished; after ... the productive forces have also increased with the all-round development of the individual, and all the springs of cooperative wealth flow more abundantly – only then can the narrow horizon of bourgeois right be fully left behind and society inscribe on its banners: from each according to his ability, to each according to his needs![1]

The central banks are digging themselves a deeper hole

More QE is on the way

by DETLEV SCHLICHTER

Last month we entered the sixth year of this crisis, although parts of the media seem determined to continue calling it a ‘recovery’. Wishful thinking. We have been in continuous crisis for half a decade. Doses of Valium and Prozac – called QE among central bankers – have calmed nerves occasionally and given the false impression of healing.

QE, or ‘quantitative easing’, is, of course, the creation of massive new quantities of monetary units and their targeted injection into financial markets for the purpose of manipulating asset prices and interest rates, and of flooding the banks with extra free reserves. QE is a dangerous drug. It is a hallucinogen. It can make you feel better for a while but it won’t cure the disease. In fact, it makes you sick. The global economy suffers from grave distortions that are the result of years and decades of artificially cheapened credit: Overstretched banks, too much debt, inflated asset prices, misallocated capital. Cheapening credit further – and manipulating asset prices further – is, however, the MO of QE. QE encourages additional borrowing and further balance sheet expansion.

A German Sovereign Wealth Fund to save the euro

The lesser evil

Daniel Gros, Thomas Mayer

Large German trade surpluses are ingrained in the Eurozone’s structure, but private sector mechanisms for dealing with the corresponding capital account deficit are broken. The unavoidable result has been large official capital account deficits by Germany (the bailouts) and the Eurosystem (Target2 balances). This column proposes the creation of a Germany sovereign wealth fund that would restart the private recycling of Germany’s excess savings – eventually cleaning out the Target2 imbalances and depreciating the euro in the process.

Since the early 1950s, German savings have tended to exceed investment with the inevitable result that that Germans have, on net, been investing in foreign assets.

·        Most of these excess savings have been intermediated by the domestic banking system.

The banks have difficulties investing German surpluses abroad given that they finance themselves through deposits in the national currency and thus cannot take exchange rate risk. The resulting exchange rate adjusted tended to keep the surplus under 1% to 2% of GDP most of the time.

Meaningless Words in Politics

We must attach concrete meanings to the words politicians use to deceive us

by Ron Paul

As we enter the fall political season, we will hear a great deal of rhetoric from both major political parties and their many candidates for office. It’s important for us to remember, however, that words can be made meaningless by misuse or overuse. And when we as citizens allow politicians to obscure the truth by distorting words, we diminish ourselves and our nation.?