Redistributing Poverty

The Fallacy of Redistribution

By Thomas Sowell 

The recently discovered tape on which Barack Obama said back in 1998 that he believes in redistribution is not really news. He said the same thing to Joe the Plumber four years ago. But the surfacing of this tape may serve a useful purpose if it gets people to thinking about what the consequences of redistribution are.

Those who talk glibly about redistribution often act as if people are just inert objects that can be placed here and there, like pieces on a chess board, to carry out some grand design. But if human beings have their own responses to government policies, then we cannot blithely assume that government policies will have the effect intended.

The history of the 20th century is full of examples of countries that set out to redistribute wealth and ended up redistributing poverty. The communist nations were a classic example, but by no means the only example.

The New Con: Three-Card-Mario

The Red Ink in Europe

by Mark J. Grant

Sometimes you look at different stories and your focus is on the particular tilt of the headline. Recently there have been posts about the declining exports in both China and Japan and the slant has been on these two countries; some further consideration, however, also tells another story.

The exports by China to Europe were down almost 18% last month and, in some cases such as Italy, the decline was almost 38%. Today Japan reported out its export numbers and their shipments to Europe declined by 28% with Germany off 18% and the UK off 42%. These are quite steep declines and not insignificant numbers from two of the major economies in the world. Then if you consider the recent contractions in Europe, which are fairly minor, you begin to add up numbers that do not jibe. The discrepancy cannot be defended based upon internal demand or demand from other European nations or from America so, unless there is a significant lag time which would mean that the upcoming GDP numbers in Europe are going to horrid, something is amiss. While, in the past, I have calculated more accurate debt to GDP figures for a number of countries in Europe including all of their liabilities, current and contingent; I have never questioned the accuracy of their GDP data before and I have accepted it prima facie as provided. Now, however, I am beginning to wonder if that was a mistake.

A pact with the devil

Monetary Schizophrenia in Germany

By Wolf Richter   

A pact with the devil—that’s now the official metaphor for the “unlimited” bond purchases that the European Central Bank has promised in order to bail out the holders of decomposing Eurozone debt. Bundesbank President Jens Weidmann himself referred on Tuesday to Goethe’s Faust, a play based on the ancient tale of a scholar who sells his soul in exchange for knowledge and pleasure. Part Two of that play—and it ends tragically—sketched “the core problem of today’s paper money-based monetary policy,” Weidmann said, and the “potentially dangerous correlation of paper money creation, state financing, and inflation.”

But it’s too late. Germany has cracked in two—and part of it has eagerly embraced that pact with the devil. The ZEW Indicator, which measures investor sentiment, jumped by 7.3 points, the first increase after four months of sharp declines. And the ECB’s promise? It “contributed to the improvement,” said the press release. Even German investors love all that money sloshing through the system—look at the stock market!

Waging war: A US monopoly

War: it's what we do the most and attend to the least

By Tom Engelhardt

It's pop-quiz time when it comes to the American way of war: three questions, torn from the latest news, just for you. Here's the first of them, and good luck!

Two weeks ago, 200 US marines began armed operations in .. ?:

(a) Afghanistan  (b) Pakistan  (c) Iran   (d) Somalia  (e) Yemen  (f) Central Africa (g) Northern Mali (h) The Philippines  (i) Guatemala

If you opted for any answer, "a" through "h", you took a reasonable shot at it. After all, there's an ongoing American war in Afghanistan and somewhere in the southern part of that country, 200 armed US marines could well have been involved in an operation. In Pakistan, an undeclared, CIA-run air war has long been under way, and in the past there have been armed border crossings by US special operations forces as well as US piloted cross-border air strikes, but no marines. 

So Much for the Good War

It's time to admit that Obama's Afghanistan strategy is a total failure

BY ARIF RAFIQ

In the wake of the 9/11 attacks, the plight of the Afghan woman was a minor, but important part of the narrative that shaped the U.S.-led war in Afghanistan. Girls, for the first time in years, headed to schools, and women -- at least in Kabul -- were able to move without the blue shuttlecock burqas that symbolized their bondage under the Taliban.

So it is with great irony that this week, one of the worst ever for coalition forces in Afghanistan, foreigners were killed in Kabul by a suicide bomber who was neither male nor linked to the Taliban. The perpetrator was a young woman affiliated with the Hezb-i-Islami (HIG) militant group led by Gulbuddin Hekmatyar, a bitter foe of the Taliban and former U.S. proxy who on 9/11 was self-exiled in Iran.

The ever pragmatic Hekmatyar is a weather vane, indicating the trajectory of the conflict in Afghanistan and the ever shifting domestic and regional power game. His role in the Sept. 18 bombing shows that the insurgents have the upper hand, their fight against the United States and Kabul government will continue, and Afghanistan is headed toward a messy, full-scale civil war.

Turkey’s Fight against Kurdish Militants Gets Bloody

New Strike Shows Fray Worsening Between Turks, Kurds

Smoke rises from a bus that was attacked by members of the Kurdistan Workers' Party on Tuesday in Bingol.

By JOE PARKINSON and AYLA ALBAYRAK

At least 10 Turkish soldiers were killed and more than 70 were wounded in a rocket attack by Kurdish militants in Turkey's eastern province of Bingol, government officials said, in the latest of a series of brazen attacks on Turkey's security forces that underline how the region's three-decade-old conflict is deepening.

A Turkish military convoy of some 200 soldiers, riding in three buses and accompanied by armored vehicles, was hit by rockets fired by members of the outlawed Kurdistan Workers' Party, or PKK, at around noon local time Tuesday, according to officials in Bingol governorate.

Ten soldiers were killed in the resulting explosion. Scores of wounded were ferried to nearby hospitals for treatment, some in critical condition, the officials said. Turkish television showed the smoldering carcass of a bus that had been mangled and charred by the strike.

“The rocket was launched far from the convoy by the militants. According to our information, this was an attack by the PKK," a governorate spokesman said. Kurdish news sources considered close to the PKK also reported that the group was responsible for the attack.

Turkish forces had already launched a "major operation" in response to the ambush, including deploying attack helicopters, to root out militants in the area, the Bingol governorate spokesman added.

Deposit Flight From Europe Banks Eroding Common Currency

Who pays for all this ?

By Bloomberg
An accelerating flight of deposits from banks in four European countries is jeopardizing the renewal of economic growth and undermining a main tenet of the common currency: an integrated financial system.By Yalman Onaran

A total of 326 billion euros ($425 billion) was pulled from banks in Spain, Portugal, Ireland and Greece in the 12 months ended July 31, according to data compiled by Bloomberg. The plight of Irish and Greek lenders, which were bleeding cash in 2010, spread to Spain and Portugal last year.

The flight of deposits from the four countries coincides with an increase of about 300 billion euros at lenders in seven nations considered the core of the euro zone, including Germany and France, almost matching the outflow. That’s leading to a fragmentation of credit and a two-tiered banking system blocking economic recovery and blunting European Central Bank policy in the third year of a sovereign-debt crisis.

“Capital flight is leading to the disintegration of the euro zone and divergence between the periphery and the core,” said Alberto Gallo, the London-based head of European credit research at Royal Bank of Scotland Group Plc. “Companies pay 1 to 2 percentage points more to borrow in the periphery. You can’t get growth to resume with such divergence.”

Lending Rates

The erosion of deposits is forcing banks in those countries to pay more to retain them -- as much as 5 percent in Greece. The higher funding costs are reflected in lending rates to companies and consumers. The average rate for new loans to non- financial corporations in July was above 7 percent in Greece, 6.5 percent in Spain and 6.2 percent in Italy, according to ECB data. It was 4 percent in Germany, France and the Netherlands.

Middle East Mess Part Two

Changing Strategies At The White House

by WALTER RUSSELL MEAD

None of President Obama’s big policies in the Middle East have worked out as he hoped. That whole “fix the peace process by pushing the Israelis” thing turned out to be an unmitigated disaster. Coming into office, President Obama was sure he’d be able to straighten this out; he’s been the least effective president in terms of the Arab-Israeli relationship since Kissinger launched his shuttle diplomacy back in the Nixon administration and his ill-considered approach achieved the unusual result of angering both sides.

The “reconciliation with the Muslim world” concept did succeed, for a while, in turning down the heat in the relationship, but the Cairo speech never had the kind of policy follow up that people in the Middle East were waiting for, and today there is precious little to show for what was once hailed (by the reflexively pro-Obama MSM, anyway) as a historic turning point, one of the greatest speeches ever, and on and on and on.

That “engagement with Iran” idea didn’t pan out, either. Kind words, soft pedaling their repression of protesters after Ahmadinejad’s shambolic “re-election” and otherwise making nice did not persuade the mullahs to drop their bomb plans and settle down. Iran diplomacy in many ways showed the Obama team at its best, though. The international coalition was strengthened and sanctions were progressively intensified. This is something that the polarizing Bush administration would have been hard pressed to accomplish, and it stands as a genuine achievement.

The Middle East Mess Part One

Over There

by WALTER RUSSELL MEAD

Coming in the middle of the American campaign season and timed to coincide with eleventh anniversary of the 9/11 attacks, the violence now shaking the Middle East has inevitably turned into a US domestic issue. I’ll write about that as the situation unfolds, but at the moment it seems most important to think about what is happening over there — and then to think about what this might mean for US policy or politics.

This is not a subject I can write about dispassionately. Many of the places now appearing in the headlines are places I’ve been: from the consulate in Chennai, where I attended an iftar event with a group of American diplomats and some leaders from the Islamic community in that storied and beautiful city last month to embassies in Cairo, Khartoum, Tunis and elsewhere that I’ve visited over the years. Many of the diplomats there are people I know, and in all these places I’ve gotten to know religious, intellectual and cultural figures and had the chance to talk to students and others about their concerns. Violence that takes place somewhere when you know people on both sides of the barricades is always painful to think about.

With images on TV of smoke billowing from US embassies and angry crowds assembled outside, more than ever, I am grateful all the time for the service of the brave people who voluntarily represent the United States in places where at any moment their lives can come under grave threat.

Could the Spanish State Fall Apart ?

An Unexpected Fracture Line – Catalonia Considers Secession

by Montserrat Guibernau

With 23% unemployment (rising to 40% among young people), the deepening of the economic crisis is hitting Catalans hard. Resentment against the Spanish government’s economic policies and dissatisfaction with politics prevail: In the Catalan society, those who are ‘dissatisfied with democracy’ rose to 49% in March. Catalonia, a traditionally prosperous region, sees its wealth and status downgraded as it looses competitiveness and lacks resources and saving for infrastructure while accumulating annual deficit of 8% of GDP due to the financial arrangements imposed by the Spanish state. In this context, support for Catalan fiscal autonomy (Pacte Fiscal) is rising fast and secession, for the first time in Catalan history, appears as a legitimate option.

Catalan nationalism emerged in the 1960s as a progressive social movement defending democracy and freedom against Franco’s dictatorship, demanding a Statute of autonomy for Catalonia and amnesty for the regime’s political prisoners. Franco’s death in 1975 allowed a transition to democracy led by members of his own regime. Catalonia played a key role in the democratization of Spain by strongly supporting EU membership; providing economic and industrial leadership and being committed to solidarity towards Spain. Vitally, Catalan nationalism was instrumental in overcoming the 1993 crisis and strongly supported Spain to fulfil the conditions to join the Euro. However, it was felt by many that Catalan loyalty and support did not pay off as Spain reinforced centralism.

The Organic Fable

Organic is a fable of the pampered parts of the planet — romantic and comforting

By ROGER COHEN

At some point — perhaps it was gazing at a Le Pain Quotidien menu offering an “organic baker’s basket served with organic butter, organic jam and organic spread” as well as seasonally organic orange juice — I found I just could not stomach the “O” word or what it stood for any longer.

Organic has long since become an ideology, the romantic back-to-nature obsession of an upper middle class able to afford it and oblivious, in their affluent narcissism, to the challenge of feeding a planet whose population will surge to 9 billion before the middle of the century and whose poor will get a lot more nutrients from the two regular carrots they can buy for the price of one organic carrot.

An effective form of premium branding rather than a science, a slogan rather than better nutrition, “organic” has oozed over the menus, markets and malls of the world’s upscale neighborhood at a remarkable pace. In 2010, according to the Organic Trade Association, organic food and drink sales totaled $26.7 billion in the United States, or about 4 percent of the overall market, having grown steadily since 2000. The British organic market is also large; menus like to mention that bacon comes from pampered pigs at the Happy Hog farm down the road.

In the midst of the fad few questions have been asked. But the fact is that buying organic baby food, a growing sector, is like paying to send your child to private school: It is a class-driven decision that demonstrates how much you love your offspring but whose overall impact on society is debatable.

If You Want to Help the Poor and the Middle Class, Encourage Deflation

Deflation is actually good

by Charles Hugh Smith

We have been brainwashed into believing that inflation is good and deflation is bad. The truth is that inflation is good for banks and bad for households, while deflation is bad for banks and good for households.

Since ours is a bank credit system enforced by the Central State, what’s bad for the banks is presumed to be bad for everyone.

This is simply not true. Inflation is “good” for borrowers, but only if their income rises while their debts remain fixed. For everyone with stagnant income--and that's 90% of the nation's households--inflation is just officially sanctioned theft.

The conventional view can be illustrated with this example. Let’s say a household earns $50,000 a year and they have a fixed-rate mortgage of $100,000. If they set aside 40% of their income to pay the mortgage, that’s $20,000 a year. This means they can pay off their mortgage in five years. (To keep things simple, let’s ignore interest.) Let’s say the household’s annual grocery bill is $5,000—10% of the annual income.

If inflation causes all prices and incomes to double, the household income rises to $100,000 and groceries cost $10,000--still 10% of the annual income. In this sense, inflation hasn’t changed anything: it still takes the same number of hours of work to buy the household’s groceries.

The Final Crisis of the Left

The descent of the Left into barbarism

    Today’s ideology of the Left is a boutique of fragments …. 
the ‘debris of dead Marxist galaxies’
                                                                                --Robert Wistrich

by Fergus Downie

If one had to identify those cultural trends which have done most to define the political terrain of the 21st century, the descent of the Left into barbarism must rank high on any conceivable list, and the alliances forged in the heat of the anti-war movement provide ample evidence of this intellectual and moral decay. If the left historically stood for anything it was the for the principles secularism, and the universal values of the enlightenment against the religious authoritarianism and blood and soil mysticism of the Reactionary Right. Nothing should have been less likely than the Red-Black alliance which, behind the scenes, has been the prime mover behind the mass protests and the political fronts spawned in their aftermath. Few individuals on the million plus marches organised by the Stop the War coalition, would have been aware the latter was a front movement dominated by the Socialist Workers Party and Islamist party the Muslim Association of Great Britain, or, with less excuse, that these parties are also the dominant force in the Respect Party. 

A certain ideological throat clearing was needed to justify this, and as is the nature with such things, necessity was to prove the mother of invention. Islamic fundamentalism might fall short of true class consciousness, but as with anti-Semitism for a previous generation of Marxist intellectuals, it might at least count as the socialism of fools¹ and the payoffs for the Left were obvious. Like most Trotskyite fringe groups, when deprived of a gullible moderate host to attach themselves to, the SWP would have been condemned to dissipate their energies in the obscure theological hatreds that Marxist are wont to take so seriously when they have only each other for company.

Can Centrally Planned Care be Reformed ?

China struggles to cure the violent ills of health system

By Tan Ee Lyn and Hui Li

Beijing is struggling to deal with an increasingly violent flashpoint of social unrest in its healthcare system, as its latest bid to cut costs is failing to ease tensions among millions of people who cannot afford basic treatment.

Violent attacks directed at hospital doctors and other healthcare workers in the form of beatings, threats, kidnappings, verbal abuse and even killings soared in recent years to 17,243 cases in 2010, alarming central policymakers who regard China's overhaul of its lumbering public healthcare system a top national priority.

Critics say China's efforts to cut treatment costs in public hospitals and defuse tensions do not go far enough and show little sign of reversing the violence of angry sufferers.

"The government is very worried about violence against doctors, especially when a few doctors and healthcare workers were attacked earlier this year. Some hospitals now have guards guarding them," said a health official in southern Guangdong province, speaking on condition of anonymity because of the sensitivity of the issue.

The applause of today may become the tears of tomorrow if the current course continues

The Spacious Sound Of Nothing

By Mark J. Grant

Liquidity

The world is awash in it. If you listen closely you can hear the giant slurping sound of it rushing the shores at home and continents away. The Fed is providing it and the ECB is providing it while China doesn’t need it but it is sloshing around anyway. The world’s problems, the financial mess in Europe, the global slowdown that is resplendent from sea to not-so-shining sea is all being addressed with liquidity.

There is nothing of substance to deal with the structural issues that is forthcoming from the American Congress and there will not be until after the elections are completed. Then it will be right or left, more social programs or a rather serious cut-back in governmental spending but for now; the spacious sound of nothing.

In Europe it is even worse. The ECB may well be the only functioning institution on the Continent and they promise and they bray and they talk of an unlimited response that is firmly tied to the political part of the equation, the European Union, making up its mind and deciding and approving and blessing the enterprise but with the lack of this divination; the spacious sound of nothing.

What’s motoring this ‘Muslim rage’?

We are seeing something new and dangerous developing

The Islamic world’s fury over a YouTube film speaks to something profound: the hollowing-out of the politics of state and diplomacy.

by Brendan O’Neill 

What is really motoring the ‘Muslim rage’, as Newsweek calls it, that has engulfed parts of the Middle East and North Africa following the appearance of a YouTube movie that criticises Islam? To those of a right-wing persuasion, it’s a simple case of Islamist intolerance, as hardline religious groups cynically use the YouTube clip to whip up Muslim anger and to try to increase their influence in the post-Arab Spring Muslim world. Apparently we must clamp down on these faraway radicals. To those of a more liberal, left-leaning mindset, it is the fault of ‘Islamophobes’ here in the West, particularly the maker of the blasphemous YouTube film, who committed an act of blatant provocation against the already war-battered inhabitants of the Muslim world. Apparently we must clamp down on these haters at home.

What both of these readings of the rage share in common is a remarkable willingness to take events at face value, to treat what is truly bizarre – war-like uprisings in response to a dumb internet movie – as the natural byproducts of various political machinations. Both conservative and liberal commentators assume that Muslims ‘over there’ are peculiarly sensitive, and so must be protected from being exploited by hardline Islamists or from being offended by Western ‘Islamophobes’. In truth, the so-called Muslim rage springs from and speaks to something far more profound than that. It is an expression of the hollowing-out of international relations and the withering of the diplomatic and state structures that governed the globe for the past two centuries or more. This rage is a glimpse into the vacuous, highly frustrated lashing-out against curious targets that can come to the fore at a time when the language and practice of realpolitik and statecraft have died.

"Central Banks Are Attempting The Grossest Misallocation And Mispricing Of Capital In The History Of Mankind"

End Game for Ben & Mario

By Bob Janjuah

When Money Dies

Before providing an update I wanted to refer readers to two items – which may in turn "give away" my thoughts "post-OMT" and "post-QEinfinity". First, readers may wish to reconsider a piece I wrote earlier this year in February entitled "Bob's World: Monetary Anarchy" (20 February). Secondly – and much more interesting in my opinion – all readers are urged to read the book When Money Dies by Adam Fergusson.

In terms of my thoughts, I think historically important events may be unfolding. I think that by their actions both Fed Chairman Bernanke and ECB President Draghi may have belied how deeply worried they are about our economies and the financial system. In short, I see fear in their actions. But what really concerns me is that their only responses are to effectively say "we give up", as they abandon the search for “real" solutions to our ills. Instead, by their actions, we can now clearly see that the only solutions that are offered by the Fed and the ECB are the extension of the same failed policies that got us into our financial and economic despair in the first place. Namely MORE debt, MORE bubbles and MORE monetary debasement. When future historians look back for the day that the West lost its status as global economic superpower, and for the day that the West lost its aspirational leadership in terms of sound economic and prudent financial system management, I feel that September 2012 may be seen as a significant pivot point.

The problem is what comes next

From Gaddafi to Benghazi

By George Friedman

Last week, four American diplomats were killed when armed men attacked the U.S. Consulate in Benghazi, Libya. The attackers' apparent motivation was that someone, apparently American but with an uncertain identity, posted a video on YouTube several months ago that deliberately defamed the Prophet Mohammed. The attack in Benghazi was portrayed as retribution for the defamation, with the attackers holding all Americans equally guilty for the video, though it was likely a pretext for deeper grievances. The riots spread to other countries, including Egypt, Tunisia and Yemen, although no American casualties were reported in the other riots. The unrest appears to have subsided over the weekend.

Benghazi and the Fall of Gaddafi

In beginning to make sense of these attacks, one must observe that they took place in Benghazi, the city that had been most opposed to Moammar Gaddafi. Indeed, Gaddafi had promised to slaughter his opponents in Benghazi, and it was that threat that triggered the NATO intervention in Libya. Many conspiracy theories have been devised to explain the intervention, but, like Haiti and Kosovo before it, none of the theories holds up. The intervention occurred because it was believed that Gadhafi would carry out his threats in Benghazi and because it was assumed that he would quickly capitulate in the face of NATO air power, opening the door to democracy.

That Gaddafi was capable of mass murder was certainly correct. The idea that Gaddafi would quickly fall proved incorrect. That a democracy would emerge as a result of the intervention proved the most dubious assumption of them all. What emerged in Libya is what you would expect when a foreign power overthrows an existing government, however thuggish, and does not impose its own imperial state: ongoing instability and chaos.

One way or the other, Germany will pay

Inflation or write-downs, its surplus will evaporate

By David Marsh

The core of the argument is this: Every classic account surplus country, with a permanent preponderance of exports against imports, constantly accumulates money claims on foreign countries. But loans to foreign buyers of German goods are never fully repaid; they are always written down, extended or rescheduled.

This means that the real net foreign assets of a surplus state like Germany is always well below the cumulative total of past current account surpluses. Within a monetary union, where the normal safety valve to reduce external imbalances through currency realignments no longer exists, the problem is particularly acute.

But sooner or later, one way or the other, the problem is solved. Theoretically, resolution could come by Germany running a high inflation rate, becoming uncompetitive, and running down its foreign assets through a string of current account deficits.

Alternatively, the deficit countries (or Germany itself) could leave EMU (ICAPC:EURUSD) . If we reject these two options, then the only way out is through lenders writing off loans and debtors stretching out redemptions.

The story of the rise and fall of Germany’s net foreign assets before and after monetary union illustrates these basic trends.

Utopian ideologies have a short lifespan

Muslim Rage & The Last Gasp of Islamic Hate

By Ayaan Hirsi Ali

It is a strange and bitter coincidence that the latest eruption of violent Islamic indignation takes place just as Salman Rushdie publishes his new book, Joseph Anton: A Memoir, about his life under the fatwa.

In 23 years not much has changed.

Islam’s rage reared its ugly head again last week. The American ambassador to Libya and three of his staff members were murdered by a raging mob in Benghazi, Libya, possibly under the cover of protests against a film mocking the Muslim Prophet Muhammad.

They were killed on the watch of the democratic government they helped to install. This government was either negligent or complicit in their murders. And that forces the U.S. to confront a stark, unwelcome reality.

Until recently, it was completely justifiable to feel sorry for the masses in Libya because they suffered under the thumb of a cruel dictator. But now they are no longer subjects; they are citizens. They have the opportunity to elect a government and build a society of their choice. Will they follow the lead of the Egyptian people and elect a government that stands for ideals diametrically opposed to those upheld by the United States? They might. But if they do, we should not consider them stupid or infantile. We should recognize that they have made a free choice a choice to reject freedom as the West understands it.

How should American leaders respond? What should they say and do, for example, when a spokesman for the Muslim Brotherhood, Egypt’s newly elected ruling party, demands a formal apology from the United States government and urges that the madmen behind the Muhammad video be prosecuted, in violation of the First Amendment? If the U.S. follows the example of Europe over the last two decades, it will bend over backward to avoid further offense. And that would be a grave mistake for the West no less than for those Muslims struggling to build a brighter future.