Public Power, Private Gain

The Abuse of Eminent Domain

By John Kramer

The Current Issue

For most of her 36 years in Atlantic City, Vera Coking, an elderly widow, ran a tidy little boarding house just off the Boardwalk. She convinced her husband to buy the property because she loved the house, the beach and Atlantic City. There, long before gambling was legalized and towering casinos rose up around her, she greeted guests from around the world with one of the six languages she speaks. She raised three children in the house, and one daughter still lives with her.

Retired now, the house is her only residence and only asset. But if tycoon Donald Trump has his way, a New Jersey government agency will use its power of eminent domain to condemn Vera's property, take it away from her at a bargain-basement price, then transfer the ownership to Trump for a fraction of the market value. Trump then plans to park limousines where Vera's bedroom, kitchen and dining room now stand. In short, New Jersey will take from one private owner and transfer that property to another private owner for his exclusive gain.

Unfortunately, Vera Coking is not alone in this battle. Other private property owners in Atlantic City and nationwide find their property rights under attack from unethical marriages of convenience between developers, local governments and state agencies. The result is an erosion of a fundamental constitutional right. And the legal landscape-especially at the federal level-is stacked against the land holders.

On December 13, 1996, the Institute for Justice joined Vera's attorney, Glenn Zeitz, in asking the New Jersey Supreme Court to reverse an appellate decision allowing the condemnation of Vera's property and to hold that the condemnation violated the New Jersey and federal Constitutions

Inconceivable Complexity

A market economy is indescribably vast and complex

By Donald J. Boudreaux

We’ve all seen old photos and film clips of people trying to fly like birds. Each of these aspiring aviators has wing-like things strapped to his arms. But no amount of flapping, however furious, ever gets him airborne like the birds he’s trying to imitate.

The man dressed in wings observes a flying bird and then analogizes his own limbs and muscle movements to what he supposes, from his observations, are those of the bird. But the human is misled into thinking that because he’s intelligent and has some body parts that are more or less analogous to a bird’s body parts, he can easily enough mimic the bird’s body and movements and thereby achieve flight.

Of course this man is deeply mistaken. Despite our smarts, we humans can observe only a tiny fraction of the details that enable birds to fly. We can with our naked eyes observe only the most obvious, large, “macro” details (“bird flaps limbs that extend from bird’s upper torso”; “bird’s flapping limbs are made of lightweight, flexible, overlapping things that we call ‘feathers’ ”). But the amount of detail that we don’t—that we cannot—observe through simple observation is overwhelming. The bird’s musculature; its cardiovascular system; the weight, positioning, and minuscule maneuverings of its tail—these and countless other relevant details aren’t observed.

We see only an animal extending itself horizontally, flapping its limbs, and then, voila!, it is safely and gracefully airborne!

The illusion of the frictionless State

The Unnoticed Deficit That Makes Us $6 Trillion Poorer

By James L. Payne

Politicians are busy these days trying to fix deficits, trying to close the gap between what government spends and what it takes in. It’s a difficult task, but it is assumed that in the long run some combination of spending cuts and tax increases will bring us to balanced budgets. If that day ever arrives, the politicians will toast each other for their maturity and leadership, and assume that the country’s fiscal problems have been solved.

Unfortunately, this self-congratulation would not be justified. In this balanced budget situation, with taxes fully covering expenditures, there would still be a huge negative number eating at the heart of national finances. This other “deficit” consists of the overhead costs, or waste, in government tax-and-spend systems. Though there is an element of redistribution in many spending programs, basically government is taxing people and then trying to return the money to them as some benefit they could have bought for themselves, such as education, housing, art, pensions, medical care, and so on. This cycling of funds through government involves enormous waste. My estimate of this loss puts it at $5.7 trillion.

Merkel wedded to euro and guilt

Long gone is the time when long-term thinking was still possible in Western Europe

By Gunnar Beck 

"If the euro fails, Europe fails." German Chancellor Angela Merkel's words remind one of her predecessor Helmut Kohl's dictum that "European integration is the other side of the coin of German reunification." And just as one set of words is reminiscent of the other, so both are equally devoid of logic. 

Yet, they signify a deep-seated and abiding commitment to European Union integration and the defense of the single currency which is not readily understood outside Germany. Merkel will defend the euro to the hilt, to her own peril, that of her country, and that of the euro itself - and the same holds for any mainstream German politician who might replace or succeed her. The reasons for this are many, but they all relate to Germany's historical guilt complex and the triumph of short-term calculus over long-term evaluation that is symptomatic of our Western democracies. 

First, Chancellor Merkel, like Helmut Kohl and indeed almost any mainstream German post-war politician outside Bavaria, is a convinced pro-European and pro-integrationist. For better or worse, that means she is committed to the euro. It also means that she will defend it for its own sake, not because it may be in Germany's narrow economic self-interest, debatable as even that no doubt is.

France to Hire 150,000 Subsidized Workers With Zero Qualifications

Why Stop There?

By MIKE SHEDLOCK

Looking for a loony idea to address unemployment in France? Look no further because I have a doozie.

Via Google Translate from El Economista, France will create 150,000 jobs for young people without qualifications

The French Government has today adopted a draft law providing for the creation of 150,000 subsidized jobs for young people with little or no qualifications, which are most affected by unemployment and employability harder.

The beneficiaries of these so called "jobs of tomorrow" will work for municipalities, hospitals, schools, social organizations, associations or, exceptionally, in private companies, and will receive a grant of up to 75% of their compensation.

The estimated cost is 500 million euros in 2013 and "more than 1,500 million" next year by the state budget, said Labor Minister Michel Sapin, at a press conference.

Frédéric Bastiat on Legal Plunder

The State is the mechanism by which a small privileged group of people lives at the expense of everyone else

By David Hart

Frédéric Bastiat’s unwritten History of Plunder ranks alongside Lord Acton’s History of Liberty and the third volume of Murray Rothbard’s Austrian Perspective on the History of Economic Thought as the greatest libertarian books never written. Had he lived to a ripe old age, instead of dying at the age of 49 from throat cancer, Bastiat might have finished his magnum opus,Economic Harmonies, and completed his history of plunder. It should be noted that Karl Marx published the first volume of his magnum opus, Das Capital(1867), when he was 49 but lived another 16 years. Given the chance, Bastiat might well have fulfilled his great promise as an economic theorist and historian and become the Karl Marx of the nineteenth-century classical-liberal movement.

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.