On doing the right thing in a centrally planned economy

We're Wiping Out The Savings Class Globally, To Terrible Consequence

Jim Rogers decries the growing uncertainty and recklessness of global central planners as the world enters unchartered financial markets:

For the first time in recorded history, we have nearly every central bank printing money and trying to debase their currency. This has never happened before. How it’s going to work out, I don't know. It just depends on which one goes down the most and first, and they take turns. When one says a currency is going down, the question is against what? because they are all trying to debase themselves. It’s a peculiar time in world history.

I own the dollar, not because I have any confidence in the dollar and not because it’s sound – it’s a terribly flawed currency – but I expect more currency turmoil, more financial turmoil. During periods like that, people, for whatever reason, flee to the U.S. dollar as a safe haven. It is not a safe haven, but it is perceived that way by some people. That’s why the dollar is going up. That’s why I own it. Will I own it in five years, ten years? I don't know. 

It makes it extremely difficult for the investor looking for acceptable risk/reward, or the saver looking to protect their purchasing power; as in Rogers' view, all options have their problems:

I own gold and silver and precious metals. I own all commodities, which is a better way to play as they debase currencies. I own more agriculture than just about anything else in real assets because of the reasons we discussed before. We were talking before about the risk-free or worry-free investment. Even gold: the Indian politicians are talking about coming down hard on gold, and India is the largest buyer of gold in the world. If Indian politicians do something -- whether it’s foolish or not is irrelevant -- if they do something, gold could go down a lot. So I own it. I’m not selling it. But everything has problems.

To Rogers, the bigger danger that concerns him is the hollowing out of the 'saving class' resulting from this situation. Central planners' policies are punishing the prudent in favor of rescuing the irresponsible. This has happened before in world history, and the aftermath has always had grievous economic, social -- and often human -- costs:

Throughout our history – any country’s history – the people who save their money and invest for their future are the ones that you build an economy, a society, and a nation on.

Beguiled by “Europe”

The E.U.’s supporters seem blind to its dangers and likely dissolution

By Theodore Dalrymple

After speaking recently in Belgium, I declared, in response to an audience member’s suggestion that the European Union’s purpose was the preservation of peace, that “Europe”—in the peculiar, Soviet-style usage of the word now so common—does not mean peace, but conflict, if not outright war. We are building in Europe not a United States, I said, but a Yugoslavia. We shall be lucky to escape violence when it breaks apart.

I passed over the fact that Europe is, so far, the consequence of peace, and not its cause; that multilateral agreements between countries have always been possible without the erection of giant and corrupt bureaucratic apparatuses that weigh like a peine forte et dure on most Western European economies; that the maintenance of peace does not require or depend upon regulating the size of bananas sold in the marketplace; and that the notion that were it not for the European Union, there would be war, is inherently Germanophobic—because no one believes, for instance, that Estonia would otherwise attack Slovenia, or Portugal Slovakia.

It always seems strange to me that in Belgium, of all countries, people should be unable to see the European Union’s dangers. After all, the country is composed of only two main national communities—the French-speaking Walloons and the Dutch-speaking Flemish—and the division between the two is now sharper than at any previous time, to such an extent that the country recently had no government for more than 500 days. (Honesty compels me to admit that Belgium seems to have come to no great harm during that period.) No one in Belgium explains, or even asks, why what has not proved possible for 189 years—full national integration of just two groups sharing so much historical experience and a tiny fragment of territory—should be achievable on a vastly larger scale with innumerable national groups, many of which have deeply ingrained and derogatory stereotypes of one another.

I also pointed out that “Europe” lacks almost all political legitimacy, which will make it impossible to resolve real and growing differences. The results of the subsequent Italian general election—wherein two anti-European demagogues collected between them more than half of the votes—would seem to confirm my prognostication. Anti-German feeling runs high in Italy, and not only there. Matters weren’t much improved by the insensitive remarks of the German minister of labor in a recent edition of Der Spiegel, to the effect that the ongoing economic crisis is lucky for Germany because, with high youth unemployment elsewhere on the continent—50 percent in Spain, for example—young people, especially the best-qualified, will increasingly seek jobs in Germany. “And that,” she said, “will rejuvenate the country, making it more creative and international.” In other words, the continent’s high unemployment is the solution to Germany’s demographic decline.

After I finished speaking, a man approached and told me that he was not particularly attached to democracy as a solution to our problems. He put his faith, instead, in technocracy, wherein lay our salvation. That he was clearly an intelligent, cultivated, and decent man made what he said more frightening, not less.

‘Educrats’ now outnumber teachers in 25 states

Taking Over America’s public schools

STATE	PUBLIC SCHOOL TEACHERS, 2010	NON-TEACHING STAFF, 2010	NON-TEACHING STAFF PER 100 TEACHERS, 2010
Virginia	70,947	130,100	183.4
Indiana	58,121	80,681	138.8
Kentucky	42,042	57,183	136.0
Wyoming	7,127	9,296	130.4
Oregon	28,109	35,493	126.3
Alaska	8,171	9,931	121.6
Ohio	109,282	131,930	120.7
Vermont	8,382	10,103	120.5
Michigan	88,615	104,872	118.3
Connecticut	42,951	50,137	116.7
New Hampshire	15,365	17,590	114.5
Maine	15,384	17,165	111.6
Arkansas	34,273	37,912	110.6
Mississippi	32,255	35,611	110.4
Colorado	48,543	52,883	108.9
Louisiana	48,655	52,225	107.3
New Mexico	22,437	24,082	107.3
Minnesota	52,672	56,322	106.9
South Dakota	9,512	10,033	105.5
Pennsylvania	129,911	136,884	105.4
Utah	25,677	26,664	103.8
Nebraska	22,345	23,164	103.7
California	260,806	269,531	103.3
Georgia	112,460	114,728	102.0
Iowa	34,642	34,973	101.0
United States	3,099,095	3,096,113	99.9

By Mark Perry
At the Division of Labour blog, Frank Stephenson points to a new study by Ben Scafidi at The Friedman Foundation for Educational Choice that finds (according to Frank) “Educrats Outnumber Teachers in 21 States.” The study is titled “The School Staffing Surge: Decades of Employment Growth in America’s Public Schools, Part II.”  (Here’s a link to the companion study, Part I.) From the Executive Summary of Part II:

America’s K-12 public education system has experienced tremendous historical growth in employment, according to the U.S. Department of Education’s National Center for Education Statistics. Between fiscal year (FY) 1950 and FY 2009, the number of K-12 public school students in the United States increased by 96 percent, while the number of full-time equivalent (FTE) school employees grew 386 percent. Public schools grew staffing at a rate four times faster than the increase in students over that time period. Of those personnel, teachers’ numbers increased 252 percent, while administrators and other non-teaching staff experienced growth of 702 percent, more than seven times the increase in students.

The new era of fossil fuels

Advanced technologies are opening up new sources of oil and gas all over the world

by Mark J. Perry

Thanks to revolutionary, breakthrough drilling technologies, we have entered a new era of fossil fuels according to this article in The Pacific Standard, and the energy revolution is reshaping global economics and politics—and the planet:

In 1922, a federal commission predicted that “production of oil cannot long maintain its present rate.” In 1977, President Jimmy Carter declared that world oil production would peak by 1985.

It turns out, though, that the problem has never been exactly about supply; it’s always been about our ability to profitably tap that supply. We human beings have consumed, over our entire history, about a trillion barrels of oil. The U.S. Geological Survey estimates there is still seven to eight times that much left in the ground. The oil that’s left is just more difficult, and therefore more expensive, to get to. But that sets the invisible hand of the market into motion. Every time known reserves start looking tight, the price goes up, which incentivizes investment in research and development, which yields more sophisticated technologies, which unearth new supplies—often in places we’d scarcely even thought to look before.

One thing we do know: there are plenty of fossil fuels left. And sooner or later we’ll get to them. Human beings are not going to stop driving or using plastic. The mushrooming middle classes in China, India, and elsewhere want their cars and air conditioners, too. Petroleum consumption in China alone has doubled in the past decade, making it the world’s second largest consumer behind the U.S. In the next 20 years, barring unforeseen economic calamity, world energy demand is expected to increase by anywhere from a third to a half—and most of the increase will be met with oil and natural gas. Wind, solar, and other renewable sources have miles to go before they make up a major part of the world’s energy mix, and they are having a harder time than ever competing now that natural gas is dirt cheap. 

Rise of the Nuclear Greens

Some environmentalists see atomic energy as the answer to global warming

By Robert Bryce 

In theory, the March 11, 2011, disaster at the Fukushima Daiichi nuclear plant should have bolstered environmentalists’ opposition to new nuclear-energy projects. But in the wake of the worst nuclear accident since Chernobyl, some of the world’s leading Greens have done just the opposite: they have come out in favor of nuclear power. Perhaps the most prominent convert is British activist and journalist George Monbiot, who even cites the disaster as one reason for his change of heart. Just ten days after Fukushima, in a column for the Guardian, Monbiot called the use of solar energy in the United Kingdom “a spectacular waste of scarce resources” and declared that wind energy was “hopelessly inefficient” and “largely worthless.” Moreover, he wrote, “on every measure (climate change, mining impact, local pollution, industrial injury and death, even radioactive discharges) coal is 100 times worse than nuclear power.” He concluded: “Atomic energy has just been subjected to one of the harshest of possible tests, and the impact on people and the planet has been small. The crisis at Fukushima has converted me to the cause of nuclear power.”

A number of prominent British and American environmentalists were pronuclear before Fukushima. Among the Americans are longtime environmental activist and publisher Stewart Brand, as well as Ted Nordhaus and Michael Shellenberger, founders of the Oakland-based Breakthrough Institute, a center-left think tank. The Brits include environmentalist Mark Lynas, former British prime minister Tony Blair, and scientist and environmentalist James Lovelock. There’s also a Canadian in the group: Greenpeace cofounder Patrick Moore.

The emergence of the pronuclear Greens represents an important schism in modern environmentalism. For decades, groups like the Sierra Club and Greenpeace have pushed an antinuclear agenda and contended that the only energy path for the future is the widespread deployment of wind turbines and solar panels. But fear of carbon emissions and climate change has catalyzed a major rethinking. As Brand puts it in a new documentary, Pandora’s Promise, which explores the conversion of antinuclear activists to the pronuclear side: “The question is often asked, ‘Can you be an environmentalist and be pronuclear?’ I would turn that around and say, ‘In light of climate change, can you be an environmentalist and not be pronuclear?’ ”

Newfound support can only help the nuclear-energy sector, but it remains to be seen whether nuclear will play a major role in the burgeoning global electricity market, which has grown by about 3 percent per year since 1985. It’s already clear that the Greens’ pronuclear stance won’t have a significant impact on the American electricity market over the next decade or so, for a simple reason: the shale-gas revolution here has produced abundant supplies of low-cost natural gas. In 2010, one of the largest electric utilities in the country, Exelon, said that for new nuclear projects to be economically viable, natural gas would have to cost at least $8 per million Btu. Today, the price is about $3.50, and the shale-gas boom means that a price anywhere near $8 is exceedingly unlikely for years to come. Four nuclear reactors are now being built in the United States—the Vogtle 3 and 4 reactors in Georgia and the Summer 2 and 3 reactors in South Carolina—but the projects are going forward only because regulators in those states have allowed the utilities that own them to recover costs from ratepayers before the projects are finished.

Nuclear advocates may have more influence in Asia and Europe, where natural gas remains relatively expensive. For instance, in Japan, where the nuclear industry is fighting to stay alive after Fukushima, natural gas must be imported in liquefied form, and it currently costs about $17 per million Btu. In Western Europe, imported, liquefied natural gas costs nearly $12 per million Btu. When natural gas is that expensive, nuclear reactors can make economic sense. According to the World Nuclear Association, a trade group, some 62,000 megawatts’ worth of new reactors are now being built—58,000 in Europe and Asia and the remainder in South America and the Middle East. (The WNA figures don’t count all 4,400 megawatts of capacity under construction in the United States.)

Capitalism vs. the Free Market

When the catastrophe finally occurs, most people will want a knight on a white horse to save them, not a free market

BY IVAN PONGRACIC

 “Greedy bankers, overpaid executives, anaemic growth, the stubbornly high unemployment—these are just a few of the things that have lately driven protesters on to the streets and caused the wider public in the developed world to become disgruntled about capitalism. The system, in all its different varieties, is widely perceived to be failing to deliver.”

This is how, in January of 2012, the Financial Times started its series “Capitalism in Crisis” (italics are mine). Even worse, the introductory article then continued, the above mentioned villains simply bought the politicians and “bought themselves protection from proper societal accountability.” So for the next four weeks, economists, politicians, editorial writers, and just about anybody else, attacked or defended something called “capitalism,” trying to offer explanations for what we have experienced in the last several years.

Two books reviewed here are, in a way, the continuation of this same battle. The Morality of Capitalism: What Your Professors Won’t Tell You is a short book edited by Tom G. Palmer, of the Cato Institute but also of Atlas Network and Students for Liberty. It consists of his Introduction and fourteen essays by fourteen different writers, all of them categorically defending capitalism as the best and most moral system of all economic systems tried so far. The book, unapologetically, offers the reader the Truth: “Capitalism is a system of cultural, spiritual, and ethical values. . . . Indeed, capitalism rests on a rejection of the ethics of loot and grab . . . [It is in other economic systems where] predatory elites use [a] force to gain monopolies and to confiscate the produce of others through taxes.”

As a professor, I must admit, I have no problem with defending a system so defined, but the question I pose is, has capitalism really proved itself so pure in the real life? We’ll come back to this in a moment.

Defending the Free Market: The Moral Case for a Free Economy, by Father Robert Sirico, president of the Acton Institute, has the same goal but a different approach. Through a personal story, Father Sirico tells us how he came to discover the Truth—actually two truths: economic and spiritual. Realizing that our country has a huge problem, he warns that “when a people surrenders their [sic] freedom to government—the freedom to make moral, economic, religious, and social choices and then take personal responsibility for the consequences—virtue tends to waste away and faith itself grows cold.” Only responsible people can save America. “Philanthropy, charity, voluntarism, activism, and care for the family and the poor are all related to the same impulses that drive the market economy: the peaceful and free association of people in the service of others.” Again, no problem in defending such a system, but is such a system possible at all?

The Worm and the Rotten Apple

Dennis Rodman’s cluelessness shouldn’t obscure the heroic struggle of the North Korean people

by Sokeel Park

In the space of a few days, former NBA star Dennis Rodman has flown into Pyongyang, enjoyed a basketball game with Kim Jong-un, and wormed his way into the headlines by calling the country’s supreme leader “awesome.” Never a stranger to controversy, Rodman now finds himself in the unlikely position of being the Westerner who has spent the most time with one of the world’s least understood leaders. But if we’re going to listen to the former Chicago Bull’s insights on North Korea, such as they are, we must also pay attention to the North Korean people’s voices. In my work for Liberty in North Korea, a nonprofit that works to bring North Koreans to freedom, I have met refugees who escaped the country since Kim Jong-un took power. From their testimony and other sources, it’s abundantly clear that Kim’s rule in North Korea falls well short of “awesome.”

Unlike Rodman, ordinary North Koreans risk their lives if they try to leave the country without state permission. North Korean refugees and people who work in the border regions say that getting out of the country has become much more dangerous since Kim Jong-un assumed power. Both sides of the border with China have seen major expansions of physical security, including man traps and electrified fencing, along with efforts to root out the corruption that enables those with money or connections to leave. (Refugees say that the regime justifies the massive security increase with false reports of terrorists sent by Seoul to blow up North Korean statues.) Punishments for attempted escapes may also be harsher under Kim Jong-un. The number of North Korean refugees arriving in South Korea in 2012 was down 44 percent from 2011, the last year of Kim Jong-il’s rule.

Inequality and the Decline of Labor

Inequality has many sources, but political and technological dynamics are key factors

by Charles Smith

You may have seen this video on Wealth Inequality in America, which has gone viral. I have shown the same data for years in charts and discussed it at great length: Made in U.S.A.: Wealth Inequality (July 15, 2011).

The bottom 80% of American households held a mere 7% of these financial assets, while the top 1% held 42.7%, the top 5% holds 72% and the top 10% held fully 83%.

Here is a snapshot of total assets by category:

"Other assets" include Treasury and corporate bonds, favored holdings of pension funds and the wealthy due to their relative safety and guaranteed yield.

Here is a snapshot of stock ownership:

No surprise there: the top 1% owns roughly 40% of all stocks, and the top 10% own 81%.

Wealth comes from earned and unearned (rent, dividends, etc.) income and capital appreciation, so it's no surprise that the income of the wealthiest segment has also far outpaced the lower 95%:

I have long held that the greatest source of wealth inequality is political: those with great wealth have captured the for-sale machinery of governance, and "persuaded" the Central State to carve out quasi-monopolies and cartels that enable artificially high premiums. They also buy subsidies, exceptions and tax breaks for their income streams.

This is the result of a dominant Central State and an electoral process that lives and breathes cash and lobbying.

A 'Politically Explosive' Secret

Italians Are More Than Twice As Wealthy As Germans

By Wolf Richter
In December 2006, the ECB established the HFSC network of survey specialists, statisticians, and economists from its own ranks, national central banks of the Eurozone, and statistical institutes. The acronym stood for Household Finance and Consumption Survey.

It would collect “micro-level structural information” on household wealth. A massive bureaucratic undertaking. Surveys went out in 2010. Results are now ready. No one in Europe had ever done a survey on that scale before.

And no one might ever do it again. Because, in the era of bailouts and wealth-transfers, the results are so explosive that the Bundesbank is keeping its report secret—and word has leaked out why.

The surveys were conducted on a national basis, with each central bank publishing its own report. They would then be combined and summarized by the ECB into a cohesive picture of how wealthy—or how poor—people in various parts of the Eurozone were. A number of countries already published their reports, including Italy and Austria.

What the Austrian National Bank found was not pretty (20-page PDF). The considerable wealth in Austria was very unevenly distributed. The wealthiest 5% owned nearly half of the country’s wealth. Their median wealth was €1.7 million in diversified assets. The lower 50% owned only 4% of the country’s wealth. Of them, 83% rented their homes. Their median wealth was a measly €11,000 consisting usually of a car and a savings account. That’s half of the people! And 10% had a net wealth of less than €1,000.

This unequal distribution of wealth created a huge gap between median income (half the people earned more, the other half less) of €76,000 and average income of €265,000 (pushed up by a small number of extremely wealthy households). And that’s why some countries don’t even publish average income values. Too much truth would hurt.

Germany’s data is likely to be similar—but the Bundesbank is treating its report like a secret. Because the results are, let’s say, awkward for two reasons.

The highly unequal distribution of wealth is one of them. The German government already went through wild gyrations late last year, and now again, over its Poverty Report that exposed some inconvenient facts that were then edited out—something that was leaked immediately, and it caused a ruckus [read.... Censored: Poverty Report in Germany].

Italy is the other issue. But it may be too hot for the Bundesbank to touch. Italy’s report (142-page PDF) finds that median household net wealth has increased 56% since 1991. And from 2008 to 2010, it increased by about 5% annually, despite the crisis!

But the wealth of German households stagnated during much of that time while they paid taxes out of their noses. And now they might learn that Italy’s median household wealth is €163,875—while Germany’s is closer to Austria’s, around €76,000. Less than half!