Britain silently defaulting on its debts

The Deflation Boogeyman is back

By Dan Atkinson

Many years ago, in the run-up to the Easter bank holiday weekend, MPs were told of a terrifying terrorist threat and were asked to vote more powers to the police. They did so.

Little more was heard of the terrifying threat, though the powers are presumably still in existence.

More recently, we heard an awful lot  about another terrifying threat – deflation, or falling prices. 

In normal times, currencies inflate, which is to say that things – whether a bar of chocolate or a family home – rise in price. Deflation sees the reverse happen, so money becomes more valuable in relation to goods rather than less valuable. 

The official line is that deflation is worse than inflation because it makes existing debts harder to pay. To exorcise the deflationary spectre, central banks globally have cut interest rates close to zero and engaged in money-printing operations on a gargantuan scale. 

Presumably they would point to the remarkable absence of deflation as proof that this has worked as intended. 

Britain’s latest inflation data is due out on Tuesday and the annual rate as measured by the Consumer Prices Index is expected to have fallen from 2.6 per cent in the year to July to about  2.4 per cent in that to August.

Not much deflation there, although the ‘need’ to battle this menace continues to inform official thinking, so that ‘everyone’ agrees that inflation does not matter, just as 20 years ago today, ‘everyone’ agreed that Britain should do whatever it took to stay inside Europe’s Exchange Rate Mechanism. 

Greenmail Madness

Critics Say California Law Hurts Effort to Add Jobs

By IAN LOVETT

Environmentalists in this greenest of places, call the California Environmental Quality Act the state’s most powerful environmental protection, a model for the nation credited with preserving lush wetlands and keeping condominiums off the slopes of the Sierra Nevada.

But the landmark law passed in 1970 has also been increasingly abused, opening the door to lawsuits — sometimes brought by business competitors or for reasons unrelated to the environment — that, regardless of their merit, can delay even green development projects for years or sometimes kill them completely.

With California still mired in what many consider its worst economic crisis since the Great Depression, the law, once a source of pride to many Californians and environmentalists across the country, has turned into an agonizing test in the struggle to balance environmental concerns against the need for jobs and economic growth.

“Something is broken,” said Leron Gubler, the president of the Hollywood Chamber of Commerce. “A lot of jobs could have been saved if not for these lawsuits, as well as new jobs once these projects were completed.”

Mr. Gubler said lawsuits and the threat of litigation had delayed at least seven recent projects in Hollywood, costing the area more than 6,000 jobs.

In one of those Hollywood projects, the developers of a mixed-use retail and residential project won a lawsuit over its building plans, but the owners declared bankruptcy and sold before the ruling. Work has finally begun under new ownership, but another lawsuit has been filed.

U.S. will always have enemies

The real lesson from embassy attacks

By Andrew Coyne

Violent protests outside American embassies, first in Egypt and Libya and now across the Muslim world, have provided a rare moment of agreement for partisans of the right and left: the right, for whom everything is President Obama’s fault, and the left, for whom everything is America’s fault.

The protests, both agree, are not merely expressions of whatever was on the minds of those who showed up on the day, but a broad indictment of American policy in the Middle East, notably in its support (temporizing as it sometimes was) for the so-called Arab Spring. While American indulgence of western-friendly dictators like Egypt’s Hosni Mubarak was once a bone of contention between the two sides, today there is an odd new entente in favour of letting sleeping Muslims lie.

This is what you get, the right says, for forsaking our allies: not western-style democrats, but implacably hostile Islamists, whether of the Muslim Brotherhood or al-Qaeda strain. Obama’s conciliatory gestures early in his term, they claim, communicated weakness; his passivity in the face of provocation confirmed it.

This is what you get, the left says, for meddling in other countries’ affairs. (Sample Guardian headline: “The west has once again started a fire it cannot extinguish.”) Unless it’s for not meddling soon enough. Or is it for meddling in the wrong way? No matter. Remember, whatever happens, it’s always America’s fault.

Bernanke on the Brink

Ben is in panic mode

By Robert Samuelson 

WASHINGTON -- We are reaching -- or may already have passed -- the practical limits of "economic stimulus." Last week, the Federal Reserve adopted an open-ended bond-buying program of $40 billion a month to goad the economy into faster growth. But even before the announcement, there was skepticism that it would do much to lower the unemployment rate, which has exceeded 8 percent for 43 months. The average response of 47 economists surveyed by The Wall Street Journal was that a similar program might cut the jobless rate 0.1 percentage point over a year.

At a news conference, Fed Chairman Ben Bernanke explained what the Fed hopes will happen. By buying mortgages, the Fed would push interest rates down. They're already low (3.6 percent in August for a 30-year fixed-rate mortgage) and would fall further. Lower rates would stimulate more homebuying and construction. Greater housing demand would raise home prices. Fewer homeowners would be "underwater" (homes worth less than mortgages). Banks would refinance more existing mortgages at lower rates because the collateral -- the homes -- would be worth more. Feeling wealthier, homeowners would spend more and cause businesses to hire more.

Unemployment Still High

Not for Government Workers

by  Raven Clabough

While a record number of Americans are not currently in the labor force, according to the Department of Labor, unemployment for government workers drops to 5.1 percent, the lowest among all industries.

In a report issued by the Department of Labor, the number of Americans counted as “not in the civilian labor force” in the month of August reached a record high figure of 88,921,000.

CNS News explains, “The Labor Department counts a person as not in the civilian labor force if they are at least 16 years old, are not in the military or an institution such as a prison, mental hospital or nursing home, and have not actively looked for a job in the last four weeks.”

Those considered by the Department of Labor to be “in the civilian labor force” meet the same characteristics but either have a job or have been actively pursuing a job in the last four weeks.

Between the month of July and August, 368,000 Americans dropped out of the labor force and did not look for a job. In August, there were 119,000 fewer Americans employed then there were in the month of July. 

Meanwhile, some are celebrating a small drop in the unemployment rate from July to August, from 8.3 to 8.1 percent. But CNS notes, “That is because so many people dropped out of the labor force and stopped looking for work.”

The Unintended Consequences of Low Interest Rates

If capital is punished, there will be less of it

by  Bob Adelmann

Complaints from savers about low rates of return on their money have reached the business page of the New York Times. According to the Times, when Bill Taren, a retiree living near Orlando, Florida, learned that his credit union would pay just 0.4 percent interest on his savings, he decided to take the money out of the bank and put it into his mattress because, he said, “at least there we can see the cash.”

It was worse for Julie Moscove of Fort Lauderdale, Florida. Over the last four years, she has watched her interest income drop from $2,000 a month to $400 a month. She said, “It’s ridiculous. I cut coupons now.”

And Dorothy Brooks has been forced to go back to work in order to supplement what’s left of her retirement income, after being retired for the last 10 years:

I got hit a couple of years ago pretty badly in the stock market, so now my savings are weighted mostly toward bonds. Now both investments are terrible. And I can’t put my money in a money-market account because that’s crazy. That just pays nothing.

Keynesian economic policies allegedly designed (and sold to the American people) to stimulate the economy are actually having the perverse effect of stimulating government spending and putting off the inevitable day of reckoning when interest rates inevitably begin to rise.  As the Times writer Catherine Rampell noted:

Though bad for people trying to live off their savings, low interest rates happen to be quite good for anyone borrowing money, like governments themselves.

Thomas Szasz RIP

Misunderstanding Thomas Szasz

by Jesse Walker

It's hard to think of a writer who expressed himself as clearly as the late Thomas Szasz did, or who argued his points with such precision. You might fault his logic or disagree with his premises, but it ought to be hard to misunderstand what exactly he was saying. And yet he was constantly misunderstood. How many times, for example, has someone suggested that Szasz's argument against the idea of mental illness has been refuted by research on the biological basis of schizophrenia? The implications of that research are routinely overstated, but set that aside: Even if the most breathless pop-science coverage of those investigations were accurate, they wouldn't affect Szasz's distinction between metaphorical mental diseases and actual physical lesions. They would simply move schizophrenia from the first category to the second one. Far from being unable to process such scientific developments, Szasz wrote thoughtfully about something similar that had happened in the past, when the treatment of epilepsy moved from the dominion of the psychiatrists to the dominion of the neurologists.

Spain Destruction Was An Inside Job

Theory of Spain's political class

By CÉSAR MOLINAS

In this article I propose a theory of Spain's political class to make a case for the urgent, imperious need to change our voting system and adopt a majority system. A good theory of Spain's political class should at least explain the following issues:

1. How is it possible that five years after the crisis began, no political party has a coherent diagnosis of what is going on in Spain?

2. How is it possible that no political party has a credible long-term plan or strategy to pull Spain out of the crisis? How is it possible that Spain's political class seems genetically incapable of planning?

3. How is it possible that Spain's political class is incapable of setting an example? How is it possible that nobody - except the king and for personal motives at that - has ever apologized for anything?

4. How is it possible the most obvious strategy for a better future - improving education, encouraging innovation, development and entrepreneurship, and supporting research - is not just being ignored, but downright massacred with spending cuts by the majority parties?

In the following lines I posit that over the last few decades, Spain's political class has developed its own particular interest above the general interest of the nation, which it sustains through a system of rent-seeking. In this sense it is an extractive elite, to use the term popularized by Acemoglu and Robinson. Spanish politicians are the main culprits of the real estate bubble, of the savings banks collapse, of the renewable energy bubble and of the unnecessary infrastructure bubble. These processes have put Spain in the position of requiring European bailouts, a move which our political class has resisted to the bitter end because it forces them to implement reforms that erode their own particular sphere of interest. A legal reform that enforced a majority voting system would make elected officials accountable to their voters instead of to their party leaders; it would mark a very positive turn for Spanish democracy and it would make the structural reforms easier.

Introducing the Latin Euro

This is not the end of the crisis but rather the next stage

By SIMON JOHNSON and PETER BOONE

The verdict is now in. Traditional German values lost and the Latin perspective won. Germany fought hard over many years to include “no bailout” clauses in the Maastricht Treaty (the founding document of the euro currency area) and to limit the rights of the European Central Bank to lend directly to national governments.

But last week, the bank’s governing council – over German objections – authorized the purchase of unlimited quantities of short-term national debts and effectively erased any traditional Germanic restrictions on its operations.

The finding this week by the German Constitutional Court that intra-European financial rescue funds are consistent with German law is just icing on this cake, as far as those who support bailouts are concerned.

With this critical defeat at the E.C.B., Germany is forced to concede two points. First, without the possibility of large-scale central-bank purchases of government debt for countries such as Spain and Italy, the euro area was set to collapse.

The Entitlement Society

The Decline of the American Empire

Mr Blowback rising in Benghazi

"Daddy, what is blowback?" 

By Pepe Escobar

Here's a fable to tell our children, by the fire, in a not so-distant post-apocalyptic, dystopian future. Once upon a time, during George "Dubya" Bush's "war on terra", the Forces of Good in Afghanistan captured - and duly tortured - one evil terrorist, Abu Yahya al-Libi. Abu Yahya al-Libi was, of course, Libyan. He slaved three years in the bowels of Bagram prison near Kabul, but somehow managed to escape that supposedly impregnable fortress in July 2005. 

At the time, the Forces of Good were merrily in bed with Colonel Muammar Gaddafi in Libya - whose intelligence services, to the delight of the Bush administration, were doing their nastiest to exterminate or at least isolate al-Qaeda-style Salafi-jihadis of the al-Libi kind. But, then, in 2011, the Forces of Good, under new administration, decided it was time to bury the oh so passe "war on terra" and dance to a new, more popular groove; humanitarian intervention, also characterized as "kinetic military action".  So al-Libi was back from the dead - now fighting side by side with the Forces of Good to topple (and eventually snuff out) "evil" Col Gaddafi. Al-Libi had become a "freedom fighter" - even though he was openly calling for Libya to become an Islamic Emirate. 

The honeymoon didn't last long. 

In September 2012, for the first time in three months, al-Qaeda leader Ayman al-Zawahiri, aka The Surgeon, released a 42-minute video special to "celebrate" the 11th anniversary of 9/11, finally admitting the snuffing out of his number two. 

Marx had no monopoly

Austrian Exploitation Theory

By Sheldon Richman

Eugen von Böhm-Bawerk (1851-1914), the second-generation giant of Austrian economics, famously refuted the theory, most commonly associated with Marx, that the employer-employee relationship is intrinsically exploitative. Less well known is that Böhm-Bawerk had an exploitation theory of his own, which he expressed in his 1889 masterpiece, Positive Theory of Interest, volume two of his three-part Capital and Interest.

Shall We Not Revenge?

Though this be madness, yet there is method in it

by Mark J. Grant

The gentleman, Bernanke in this case, “protests too much” and in protest reveals the true meaning of his course which perhaps is a decline to bended knee and a supine position to his Master. It is scant days to the election and I cannot help but think that our continuing trip to the “presses of creation” is an act of contrivance to support “him that must be obeyed” while shameless in its purpose serves not the “greater good” but the lesser path of political contrivance. 

In reading the explanations and the rationale of the actions undertaken I am not swayed. In fact, there were too many reasons, too much offered of almost an apology that causes me to question the validity of the foundation of our present course. In a world where things are difficult and where our Central Bank rolls out the creation of money, once again, as the end all and be all of our supposed passage to financial Heaven; I mark the day and note the consequences. Down with the Dollar and up with equities and down with mortgage rates and all contrived and perhaps ill conceived and, unlike Europe, “all for one” but not one for all; for who does not wish to be named in any chapter of this ill-begotten play.

"Can one desire too much of a good thing?”

                                                                     -As You Like It

Why we work

Capitalism, autonomy, and education

By Will Wilkinson

JOE BIDEN's comments on the dignity of work at the Democratic National Convention last week (was it just last week?) inspired an interesting meditation on "What Work Is Really For?" from Gary Gutting, a professor of philosophy at the University of Notre Dame. Mr Gutting explains that philosophers from Aristotle to Bertrand Russell have taught that we work so that we can buy time for meaningful leisure. But Mr Gutting worries that capitalist, consumer cultures leaves their natives with fatuous desires and therefore ill-prepared to make good use of their free time. This thought leads Mr Gutting to propose that higher education function less to make us to better producers, and more to make us wiser consumers, thereby somewhat offsetting the insidious effects of capitalism on our desires and enhancing our autonomy by making us more reflective about our wants and about the contours of a good life generally.

Though I agree with Mr Gutting about the role of liberal education in widening our horizons and lending context to our choices, he stumbles along the way into several errors common in critiques of consumer culture. He writes:

[C]apitalism as such is not interested in quality of life. It is essentially a system for producing things to sell at a profit, the greater the better.  If products sell because they improve the quality of our life, well and good, but it doesn't in the end matter why they sell.  The system works at least as well if a product sells not because it is a genuine contribution to human well-being but because people are falsely persuaded that they should have it.  Often, in fact, it’s easier to persuade people to buy something that’s inferior than it is to make something that’s superior. This is why stores are filled with products that cater to fads and insecurities but no real human need.

Stimulus, to infinity and beyond

Sometimes you have to cut your losses if you want to survive

by DETLEV SCHLICHTER

There was a beautiful symmetry to last week’s policy announcement by the Fed. Precisely a week after the ECB had pledged its commitment to unlimited purchases of Euro Zone government bonds, the Fed declared that its new round of debt monetization – ‘quantitative easing’ or QE3 – would be open-ended.

Unlimited, open-ended. The concept of stimulus has certainly evolved since the crisis started.

This should give us reason to pause. ‘Unlimited’ is not a word that is used much in economics or in business-life. The only thing that is really unlimited is peoples’ wishes and desires. Everything else is very limited indeed. That is why we have markets and prices and competitive enterprise, in short, that is why we have capitalism: to make the best use of limited resources in the face of essentially unlimited demands on such resources. The market is all about allocating scarce means to chosen ends (chosen by the consumer), all about relative prices, about trade-offs. And the beauty of private enterprise is precisely that when things go wrong the losses are private and limited. Every businessman, every investor, even every gambler, knows that sometimes you have to cut your losses if you want to survive.

Not so in politics – and now central banking – where the stop-loss limit is evidently seen as an indication of lack of commitment. “We will do whatever it takes” was a phrase that was much used in the early part of this crisis, around 2008. No doubt it was meant to instil confidence, yet it is one of the scariest things a policymaker can say. If policies go wrong – or have unintended consequences, as they always do – the costs are born by society. We should be concerned if those who are entrusted with the privileges of state power declare that they will use these powers without limits – the power to tax, the power to regulate, the power to legislate, and the power to print money. On Thursday Bernanke declared that he would not stop his policy until it has the results that he believes it should have.

The Direction of the Compromise

To get to a real budget solution is going to take a compromise

By John Mauldin

We are often told that the current election is the most important in recent history. I think I have heard that in about ten presidential cycles, ever since I first voted, for McGovern, as a young man. And looking back, only about one of those elections actually qualified on that score. I think this election does have the potential to be one of those rare times, at least in terms of economic outcomes. Today, we cross that gray line, but at a somewhat different angle, as we look at the economic consequences of the political decision that will come with the choices we make in November in the US.

When it comes to school reform, the United States could learn a thing or two from Sweden

Breaking the Public Monopoly on K-12

by Herbert J. Walberg 

Many believe private schools generally achieve more than public schools. In big cities, as many as 80 percent of public school parents say they would send their children to parochial or independent schools if they could afford the tuition. Scholarships for poor families are heavily oversubscribed as are charter schools, which are government-funded but run by private boards. Do private schools deserve their reputations and consumer preference?

In 2007, I tried to track down all published and unpublished studies of this question and summarized the findings in the book School Choice: The Findings. Included in the findings were studies that compared students in private and nearby public schools that were similar in social class, other demographics, and achievement when the study began.

The most important studies considered were “randomized trials” in which children from a large applicant pool were assigned by lottery to a private school or to the public school they would normally attend. Particularly valuable in this respect were studies of my Koret Task Force colleagues: Paul Peterson studied students lotteried for scholarships to attend private schools of their choice and contrasted them with children who remained in public schools. Caroline Hoxby studied similarly selected students accepted to charter schools and those who remained in their neighborhood public schools.

The post-American world is being born

The Abhorrent Vacuum

By mark steyn

In the breast of the Western media, hopes of Arab Spring spring eternal. First we were told the Muslim Brotherhood would contest only a third of the seats in the Egyptian parliament, just to ensure they had some representation in the legislature among all those students, women, and Copts. Then we were told it would be half the seats, but don't worry, they had no plans to contest the presidency. Next we were told they were taking a run at the presidency, but most unlikely to win compared with all those far more appealing time-serving hacks from transnationalist bureaucracies like the Arab League and the International Atomic Energy Agency who were itching to jump in the race. And finally, after the Brothers took the presidency and swept the parliament, we were assured that they could govern only in a finely calibrated balance of power with the secularist military.

Great Moments in Government Regulation

Massage a Horse in Nebraska, Go to Jail for Up to 20 Years

By Institute for Justice editors

Massage a horse, go to jail.

That’s the absurd fate Karen Hough could face if she wants to continue her business in Nebraska. A certified instructor, Karen has been massaging horses for years. Massaging a horse is believed to deliver many health benefits, including relieving tension, improving circulation, and alleviating muscle fatigue.

Earlier this year, she applied for a license in equine massage but was told only veterinarians can become licensed. A 2007 memo from Nebraska’s Board of Veterinary Medicine and Surgery asserted that “no health professional other than licensed veterinarians and licensed veterinary technicians may perform services/therapies on animals.” This means Karen would need to spend thousands of dollars and seven years of her life just to acquire a government permission slip to do what she’s been doing for years.

A few weeks later, she received a letter from Nebraska’s Department of Health and Human Services ordering her to “cease and desist” from the “unlicensed practice of veterinary medicine.” In Nebraska, continuing to operate a business without a license after getting a cease and desist letter is a Class III felony. So Karen could face up to 20 years in prison and pay a $25,000 fine. By comparison, that’s the same penalty for manslaughter in the Cornhusker State.

Blaze wakes Pakistan to industrial realities

Another dystopia going down the drain

By Syed Fazl-e-Haider

KARACHI - The deaths of 289 people in a fire at a garments factory on September 11 in Pakistan's southern port city of Karachi is the country's worst industrial disaster and biggest human tragedy in the country's industrial hub. (blaze-hit-karachi-garment)

On the same day, at least 25 people lost their lives in a similar fire at a shoe-making factory in Lahore, in Punjab province. The two fires laid open in brutal fashion the extent of violations of Pakistan's Factory Act 1934 and the country's inadequate labor laws, rampant corruption, and criminal negligence regarding safety standards and monitoring authorities. 

Not least, the incidents expose the racket of official regulation and inspection under which the number of illegal industrial units in Karachi has grown. Factories with no proper fire-fighting arrangements and safety equipment and non-implementation of safety standards have become killing chambers for workers and money-making machines for owners who pay kickbacks to corrupt authorities responsible for monitoring factory safety.