Y2Kyoto: The Final Solution

And everything old is new again

The flat-earth theory of job creation

We need to move beyond this primitive view

By Robert J. Samuelson

Who creates most jobs? Hint: It’s not the government. Almost everyone seems to grasp that the private sector is the true jobs machine. But here’s a notable exception to the consensus: the editorial page of The New York Times. The other day, its lead editorial was “The Myth of Job Creation: The government does in fact create jobs, important jobs, millions of them.” In 35 years, I can’t recall ever writing a column refuting an editorial. But this one warrants special treatment because the Times’ argument is so simplistic, the subject is so important and the Times is such an influential institution.

Let’s examine the Times’ argument. First, it quotes both Mitt Romney and President Obama as embracing the consensus. Obama says: “This notion that I think government creates jobs, that that somehow is the answer. That’s not what I believe.”

Completely wrong, says the Times. Government does create jobs, including “teachers, police officers, firefighters, soldiers, sailors, astronauts, epidemiologists, antiterrorism agents, park rangers, diplomats. ...” There are 22 million federal, state and local workers, notes the Times.

All Pain, No Gain

Retail Sales in Spain Plunge 10.9%, Largest Drop on Record

by Mike "Mish" Shedlock

In a seriously misguided effort to balance its budget, In early September Spain Passed Largest VAT Hike In History.

I wrote at the time, "Stunning Ineptitude Will Make History Books".

Spain's unemployment rate is over 25% and the youth unemployment rate is near 53% yet the fools in the Spanish government hiked taxes yet again, this time by the largest amount in history.

Spain's handling of this economic implosion is sure to make the history books as a prime example of complete ignorance in how to deal with a fiscal crisis.

History in the Making

That prediction took a single month to pan out. Reuters reports Spain retail sales decimated by VAT hike.

Spanish retail sales fell at their fastest pace on record in September as already battered consumer confidence took another hit from a hike in value added tax, driving many shoppers to trade down to cheaper products.

Sales fell 10.9 percent year on year, Monday's National Statistics Institute data showed, reflecting an economy struggling through its second recession in three years and plagued by chronically high unemployment.

Inequality Is The Child Of Fiat Money

Finance’s share of GDP has gone up one and a half times since we went off gold

By Brian Domitrovic

For a while there, it looked like the 2012 election was going to be a referendum on economic inequality. This would have been weird, in that economic growth and its twin, employment, are the clear issues of choice in these years of torpid economic recovery. Had President Obama succeeded in making the election about inequality, which it appears now he will not, it would have amounted to one of the great examples of changing the subject in recent political history (as I pointed out a few months ago in a talk at the Cato Institute).

But let it be clear that there are serious issues of economic inequality that deserve a hearing in our politics today. We are not likely to have them aired by an opportunistic presidential campaign, the Occupy Wall Street movement, or those academics who have made a career of dilating on the “top 1%.” Rather, we should turn our attention to that be-all and end-all of the contemporary economy—the fiat money system so beloved by the Federal Reserve.

One of the most shocking statistics of recent economic history is the change, since the 1960s, in the share of the economy taken up by the financial sector. That share has at least doubled, from 4% to probably about 10% today. People wonder what happened to manufacturing (and its generally high wages) in this country. One of the answers is alluded to in the subtitle of Judith Stein’s 2010 book, “How America traded factories for finance in the 1970s.”

The Quest for Certainty

The Economics of Assumptions

By John Mauldin

“As far as the laws of mathematics refer to reality, they are not certain; and as far as they are certain, they do not refer to reality.”  – Albert Einstein

“To trace something unknown back to something known is alleviating, soothing, gratifying and gives moreover a feeling of power. Danger, disquiet, anxiety attend the unknown – the first instinct is to eliminate these distressing states. First principle: any explanation is better than none… The cause-creating drive is thus conditioned and excited by the feeling of fear …"   – Friedrich Nietzsche

“Very few beings really seek knowledge in this world. Mortal or immortal, few really ask. On the contrary, they try to wring from the unknown the answers they have already shaped in their own minds – justifications, confirmations, forms of consolation without which they can't go on. To really ask is to open the door to the whirlwind. The answer may annihilate the question and the questioner.”  – Anne Rice, The Vampire Lestat

The last two weeks we have been looking at the problems with models. First we touched on what I called the Economic Singularity. In physics a singularity is where the mathematical models no longer work. For example, models based on the physics of relativity no longer work if one gets too close to a black hole. If we think of too much debt as a black hole of sorts, we may understand why economic models no longer work. Last week, in “The Perils of Fiscal Cliff,” we looked at the use of fiscal multipliers by economists in order to argue for or against governmental economic policies. Do you argue for austerity, or against it? There is a model that will support your case, most likely using the same data that your adversary uses.

These letters have generated a great deal of positive response and conversation. While I very rarely suggest to readers to go back and read previous letters, but reading these may help you appreciate why it is so difficult to understand what is happening in the global economy today.

A police state created by ‘anti-fascists’

In their enthusiasm to clamp down on ‘hate speech’, anti-fascists have become an unofficial arm of the state

by Patrick Hayes 

Given that the key thing about twentieth-century fascism was its extreme authoritarianism, you might reasonably expect those who describe themselves as ‘anti-fascist’ to be anti-authoritarian. You might imagine that these campaigners, more than most, would know the dangers of giving the state too much power and trusting it to determine who may speak and who may not, who is a ‘decent’ person and who is not.

But you would be wrong – certainly if the events in the north-east London district of Walthamstow this weekend were anything to go by. There, anti-fascists campaigning against a protest planned for Saturday by the right-wing, allegedly fascistic English Defence League (EDL) demonstrated that they are uncritically pro-state, and unabashedly pro-authoritarian, trusting the powers-that-be to police public protest and political discourse more broadly.

The modern anti-fascist left has provided plenty of justification for increased state control over political to and fro in modern Britain. It has strengthened the use of public-order laws over political freedom, and it has empowered the state to govern all forms of political speech. That control extends not just to the statements and actions of ‘fascist’ groups, but also to the statements and actions of left-wing groups and anti-fascists, too.

France’s Quiet Bank Rescues Top $78 Billion With Peugeot

"Free Market" Socialism in France 

By Fabio Benedetti-Valentini 

France’s aid to PSA Peugeot Citroen SA (UG)’s troubled finance arm brings the state’s backing for the nation’s banks to more than 60 billion euros ($78 billion).

The government yesterday said it will guarantee 7 billion euros in new bonds by Banque PSA Finance, the consumer-finance unit of Europe’s second-largest carmaker. The aid comes on top of support for Dexia SA (DEXB), the French-Belgian municipal lender, and for home-loans company Credit Immobilier de France.

“These bank rescues on the quiet should be getting more critical market attention,” said Bill Blain, a strategist at Mint Partners Ltd. in London. “We don’t know what’s next, but it certainly demonstrates that some of the specialized financial institutions remain very, very weak.”

The third such French bailout in the past year coincides with President Francois Hollande’s push for a European banking union and a common euro-area bank supervisor to break the link between lenders and governments. It also comes as the French government struggles to keep a pledge to cap its budget deficit at 3 percent of gross domestic product next year.

U.S. risks falling off a global cliff

A fiscal-gap serial offender

By William H. Gross

The popular TV series “Breaking Bad” may be an appropriate analogy for the U.S. “fiscal cliff” and ongoing debt crisis. In the show, a chemistry teacher is lured into producing crystal meth. As the title indicates, his middle-class life turns from a temporary high into something much worse, the conclusion of which viewers will learn next year.

Washington, it seems, has a similar story. Hooked on the temporary high of tax cuts and increased entitlements over the past several decades, the nation’s capital is approaching the end of the line traveled by most addicts: Reform, or suffer the consequences.

At first blush, the comparison to a methhead might seem a bit of a stretch. Despite approaching the edge of the fiscal cliff with a deficit equivalent to 8 percent of gross domestic product, the United States is still considered the “cleanest dirty shirt” in global financial markets. Whenever an authentic crisis (Lehman Brothers in 2008) or a minor aftershock occurs, investors buy U.S. Treasury bonds, the dollar rises and this country’s reserve-currency status is reaffirmed. The United States still seems to be the first destination of global capital in search of safe (although historically low) prospective returns.

Mugging our descendants

Plundering our descendants’ wealth to finance the demands of today’s entitlement mentality

By George F. Will
The election-eve mood is tinged with sadness stemming from well-founded fear that America’s new government is subverting America’s old character. Barack Obama’s agenda is a menu of temptations intended to change the nation’s social norms by making Americans comfortable with the degradation of democracy. This degradation consists of piling up public debt that binds unconsenting future generations to finance current consumption.

So argues Nicholas Eberstadt, an economist and demographer at American Enterprise Institute, in “A Nation of Takers: America’s Entitlement Epidemic.” This booklet could be Mitt Romney’s closing argument.

Beginning two decades after the death of Franklin Roosevelt, who would find today’s government unrecognizable, government became a geyser of entitlements. In 2010, government at all levels transferred more than $2.2 trillion in money, goods and services to recipients — $7,200 per individual, almost $29,000 per family of four. Before 1960, only in the Depression years of 1931 and 1935 did federal transfer payments exceed other federal expenditures. During most of FDR’s 12 presidential years, income transfers were a third or less of federal spending. But between 1960 and 2010, entitlements exploded from 28 percent to 66 percent of federal spending. By 2010, more than 34 percent of households were receiving means-tested benefits. Republicans were more than merely complicit, says Eberstadt:

The real problem with Iran is history

When History is Lost We Are Truly Blind

By Aaron Hesse

What is missing from the narrative surrounding Iran and its nuclear program is a discussion of history and identity that might help to clarify why the US-Iranian relationship is so dangerous today. 

Why does Iran want or need a nuclear program in the first place? Is it to threaten the US or its allies, to end Western influence in the Middle East, to support terrorist activities, or to project Iranian power and export the revolution? Or is it much deeper than that? 

Iran's history is ancient. Names like Cyrus the Great, Xerxes, and Darius leap from the pages, as immortal figures integral to the formulation of Iranian national identity that link today with the glory and resplendence of its past. 

The E.U., Neofeudalism and the Neocolonial-Financialization Model

An intrinsically unstable private-capital/State arrangement 

By Charles Hugh Smith

Forget "austerity"and political theater--the only way to truly comprehend the Eurozone is to understand the Neocolonial-Financialization Model, as that's the key dynamic of the Eurozone.

In the old model of Colonialism, the colonizing power conquered or co-opted the Power Elites of the region, and proceeded to exploit the new colony's resources and labor to enrich the "center," i.e. the home empire.

In Neocolonialism, the forces of financialization (debt and leverage controlled by State-approved banking cartels) are used to indenture the local Elites and populace to the banking center: the peripheral "colonials" borrow money to buy the finished goods sold by the "core," doubly enriching the center with 1) interest and the transactional "skim" of financializing assets such as real estate, and 2) the profits made selling goods to the debtors.

Rise of the Tiger Nation

"Perils" of Immigration

Asian-Americans are now the country's best-educated, highest-earning and fastest-growing racial group. 

By LEE SIEGEL

Last March, an interviewer archly asked President Barack Obama whether he was aware that he had been "surpassed" by basketball phenomenon Jeremy Lin "as the most famous Harvard graduate." The question was misformulated. If there was any surpassing going on, it was that Mr. Lin had become, briefly, more famous than Mr. Obama as the country's most exemplary figure from a hitherto marginalized minority.

Asian-Americans are now the country's best-educated, highest-earning and fastest-growing racial group. They share with American Jews both the distinction and the occasional burden of immigrant success. WSJ's Stu Woo talks to author Lee Siegel.

German Lawmakers Shift Toward Extending Greek Aid

It is only a matter of time

By MARY M. LANE

Passing a more-generous bailout for Greece through Germany's parliament could prove easier than expected for Chancellor Angela Merkel, after most of her coalition appeared willing on Friday to give Greece more time and financing to repair its economy.

Senior lawmakers in Ms. Merkel's conservative-led coalition signaled that the chancellor would likely face limited resistance in parliament against an expanded aid package for Greece, belying fears that Germany's legislature would balk at a third bailout deal for Athens since 2010.

The shift in the mood in the Bundestag, Germany's lower house of parliament, makes it more likely the euro zone will agree to release urgently needed aid for Greece in November, while easing the onerous timetable of Greece's austerity program.

The EPA’s Planned Destruction of the U.S. Economy

The Killing of US Economy

by Alan Caruba

If there was no other reason to defeat President Obama in November, it would be the planned destruction of what is left of the U.S. economy by the Environmental Protection Agency.

In “A Look Ahead to EPA Regulations for 2012” the minority staff (Republican) of the U.S. Senate Committee on Environment and Public Works has issued a chilling review of a massive rise in the costs of living for all Americans, massive layoffs in all sectors of the economy, and the destruction of the nation’s energy and manufacturing sectors.

The report provides a nightmarish look at the regulations that EPA plans to initiate, having put them under cover prior to Election Day in order to hide President Obama’s agenda of attacking the energy sector and businesses large and small.

Here’s a list of the regulations:

Drunkenness as therapy and social service

Dead Drunk for Tuppence

by Theodore Dalrymple

Britain is the only country known to me in which drunkenness is an ideology: that is to say in which people believe in an abstract way that, in getting drunk, they are doing good to themselves and performing an almost philanthropic service. The mass public drunkenness that appals foreigners when they come to our shores is actually thought by young drunks to be a form individual therapy and social prophylaxis rolled into one. 

I have spoken to quite a lot of these young drunks both when they are inebriated and when they are sober. Their argument goes as follows:

   Every person has things inside him that need outward expression. If not expressed, these things will turn inward cause a kind of emotional septicaemia. People with emotional septicaemia become miserable, ineffective and anti-social. Unfortunately there are many inhibitions of the things that need outward expression. Drunkenness removes these inhibitions.Therefore drunkenness is healthy to the individual and prevents the baleful social consequences of emotional septicaemia.

Light Entertainment

Child abuse and the British public

By Andrew O’Hagan

On 23 May 1949, Lionel Gamlin, producer of the Light Programme’s Hello Children, wrote to Enid Blyton to ask whether she would be willing to be interviewed about the best holiday she could remember. ‘Dear Mr Gamlin,’ Blyton wrote the next day. ‘Thank you for your nice letter. It all sounds very interesting but I ought to warn you of something you obviously don’t know, but which has been well known in the literary and publishing world for some time – I and my stories are completely banned by the BBC as far as children are concerned.’

From Room 432 at Broadcasting House, Gamlin later received a memo addressed to him by Derek McCulloch, the producer and presenter of Children’s Hour. McCulloch was known to every child growing up between the mid-1930s and 1950 as ‘Uncle Mac’ and was as famous to them as anyone could be. The memo was marked ‘Enid Blyton Stories’ and, in red, ‘strictly confidential and urgent’. ‘I will be grateful,’ McCulloch wrote, ‘if you would first discuss with me should you be considering the inclusion of material by the above author. I am most anxious that no conflicts in policy shall get loose, not only to our embarrassment, but to yours also.’ Gamlin was a company man and he clearly got the point. ‘In spite of the desire voiced by some of the children who wrote,’ Gamlin replied, ‘I have no intention of using any material by the above author, as I think I mentioned to you after I had first approached her without knowing your policy in the matter. Have no fear, there will be No Orchids for Miss B. at any time.’ The BBC brass didn’t like Blyton’s work – ‘there is rather a lot of the Pinky-winky-Doodle-doodle Dum-dum type of name’ – and Gamlin, glad to have a job, didn’t hesitate to overrule what children wanted in order to please Room 432.

Putin Is the New Global Shah of Oil

A dark Energy Future For Europe

by Marin Katusa

Exxon Mobil is no longer the world's number-one oil producer. As of yesterday, that title belongs to Putin Oil Corp – oh, whoops. I mean the title belongs to Rosneft, Russia's state-controlled oil company.

Rosneft is buying TNK-BP, which is a vertically integrated oil company co-owned by British oil firm BP and a group of Russian billionaires known as AAR. One of the top-ten privately owned oil producers in the world, in 2010 TNK-BP churned out 1.74 million barrels of oil equivalent per day from its assets in Russia and Ukraine and processed almost half that amount through its refineries.

With TNK-BP in its hands, Rosneft will be in charge of more than 4 million barrels of oil production a day. And who is in charge of Rosneft? None other than Vladimir Putin, Russia's resource-full president.

TNK-BP has been an economic dream, producing many billions in dividend payments for its owners – but it has been a relations nightmare. The partners have fought repeatedly. In 2008 Russian authorities arrested two British TNK-BP managers amid a dispute over strategy that forced then-CEO Bob Dudley (who now heads BP) to flee Russia – and that is just one of many partnership scandals.

Argentinians still crying for Argentina

Pesos Go Underground as Dollar Ban Backfires

By Katia Porzecanski 

Argentine President Cristina Fernandez de Kirchner’s foreign-exchange controls are driving pesos underground.

A quarter of Argentines are keeping their pesos at home, up from 19 percent a year ago, according to a survey conducted in September by theCatholic University of Argentina and TNS Gallup. The increase reflects how people are shifting money out of banks to trade dollars in a cash-dominated black market where the cost of the U.S. currency has surged 35 percent this year, according to Buenos Aires-based research company EconViews.

The migration of cash out of the financial system is stripping banks of funding and undermining Fernandez’s efforts to hold down interest rates and bolster an economic rebound. The 30-day deposit rate has jumped 1.8 percentage points in the past four months to 14.8125 percent. A three-day decline of 0.8 percentage point that pared the increase in the benchmark rate will prove short-lived as annual inflation of 24 percent drives more Argentines to move money into the underground economy, said Eric Ritondale, an economist at Econviews.

French Are Freaking Out After Rumored Plan To Attack Their Sacred Cow

Other People's money have run out already

By Wolf Richter
References to the financial crisis are piling up in France’s economic data. The latest was housing.

The total amount that banks granted for mortgages plummeted by 30.5% so far this year from the same period in 2011—despite the low rates. For all of 2012, an estimated €115 billion in mortgages will be granted, versus €162 billion in 2011.

“We have never before seen a drop of this magnitude at this speed,” said Michel Mouillart, author of the study. What took two years during the crisis of 2008-2009, he said, is now happening in one year.

The government has been flailing about to counter economic trends that started while Nicolas Sarkozy was still president. And one of the most bandied-about catchwords these days is “competitiveness”—entailing among others the cherished and untouchable 35-hour workweek, equally untouchable wages, and sky-high employer-paid payroll taxes and social security charges. An explosive mix.

Another State Down the Drain

Illinois Debt Takes Toll, Study Finds

By MARY WILLIAMS WALSH

For years, Illinois has racked up billions in public debt to plug budget holes, pay overdue bills, and put money into its mismanaged pension funds. And for the people who live there, this has resulted in decrepit commuter trains and buses, thousands of unsound bridges, 200 hazardous dams and one of the most inequitable public school systems in America.

Those are the conclusions of a new examination of Illinois’ finances by the State Budget Crisis Task Force, which was released Wednesday.

The group, led by the former Federal Reserve chairman, Paul A. Volcker, and the former New York lieutenant governor, Richard Ravitch, recommended an overhaul of Illinois’ budgeting practices, to make it harder to kite money from year to year and raid special-purpose funds. It also warned that tax increases may be in store.