The Social Purpose Of Tax Havens

Yet another attempt to send good money after bad to continue feeding the Leviathan

by Charles Gave

The Cahuzac affair in France has conveniently emerged just as the search for possible scapegoats to Europe’s quandary was intensifying. Thanks to the former French budget minister’s secret Swiss bank account, Europe can now move from its war against finance (Hollande declaring that finance was his enemy, the financial transaction tax, capping of bonuses, etc) to an outright war against tax havens (letting Cyprus sink, arm-twisting Luxembourg into abandoning its banking-secret policy, etc).

Leaving aside the EU’s increasing penchant for forcing members to adopt policies that blatantly go against national interests (like the Tobin tax in the UK), yesterday’s announcement by Luxembourg of an “open-book” policy raises the question of whether the EU is cutting off its nose to spite its face. If tax havens have existed and thrived for so long, they must have some sort of economic justification.

Beyond the debate on the "morality" of hiding one’s wealth, let us simply focus on the possible consequences of closing down havens. First assume that there are two kinds of deposits in these jurisdictions: the perfectly legal kind, and the illegal kind (such as the ones that Jerome Cahuzac had in Switzerland). For an economist, there is no reason to differentiate between the two. Combine them and the amounts get large. Large enough to offer both types of investors economies of scale, a large array of financial services needed, etc.

Now the reality for most tax havens is that their economies are far too small to absorb the excess savings that pour into their countries. Their banks thus end up being large buyers of assets outside of the country. All else being equal, this should be good news for “foreign assets”. If, for example, a Luxembourg bank decides to buy French or German bonds with the deposits of a Belgian dentist, then the yields in Germany and France will be lower than they would have otherwise been. If that account is now closed and moved to Singapore to buy SGD bonds (probably a smart trade anyway), then interest rates in France and Germany will move higher, while they fall in Singapore.

Europe’s welfare states are already on the brink...

Or to put it another way: when it comes to the illegal deposits, the economic net effect of Mr Cahuzac hiding his money in Switzerland was for this “gentleman” to have a lower tax rate. If the governments of the world now succeed in getting these deposits in the open, it will be equivalent to a tax increase, no more no less. And increasing taxes massively, when tax rates are already unbelievably high, would be a sure recipe for sending the struggling economies into a tailspin. Look at it this way: with their domestic economies already circling the drain, can the French, Italian or Spanish entrepreneurs stomach a tax increase? Once again, a war on tax havens is (at least for an economist without any moral compass) nothing but an attempt to increase taxes to prop up bankrupt welfare states; i.e., yet another attempt to send good money after bad to continue feeding the leviathan.

Pyongyang Machiavelli

All of Kim’s Men

Officials below the power circle of the Kim family may not play an overt role in N. Korea, but are vital to understanding the regime and its future

By Adam Cathcart

The man at the helm in North Korea today is an accident of history, surrounded by vestigial assertions of narcissistic genius that are de rigueur for North Korea's depiction of its own leaders. More than any time since the young Kim Il-song was surrounded by Soviet generals in the 1940s, the North Korean leader today is dependent upon advisors.

Advisors and officials below the rungs of the Kim family may not play an overt role in North Korea, but they are vital. And they need to be known, not least because they can be blamed, and possibly executed, when problems arise. The North Korean state marshaled the power of the North Korean rumor mill when it indicates that discord among advisors can be exploited by North Korea's adversaries, when in fact it cannot.

In terms of how he handles his own advisors, Kim Jong-un shows every indication that he is operating from manuals set down by his grandfather and father. Kim Jong-un is frequently likened to the young Kim Il-song, North Korea's guerilla fighter, Sovietized soldier, and state founder.

Kim Il-song's early experiences are particularly salient for his grandson: The elder Kim had been surrounded by older, more experienced advisors, most of whom happened to be Soviet Generals. (Kim Il-song also lacked strong fluency in the Korean language and a domestic powerbase, thanks to having spent long years abroad.) After the Korean War, Kim Il-song had been restless in purging his rivals from inside the Party. He was uncommonly successful. After 1956, there was no longer such thing as an internal opposition in North Korea. Assertions today of a possible internal resistance movement or factional opposition to Kim Jong-un akin to the Stauffenberg conspiracy in 1944 Germany or South Korea in the 1961 are simply off-base; such a movement would be not simply rootless, but completely ahistorical.

Kim Jong-un's advisors today are the descendants of the victorious elements in those purges. He is enabled by a web of advisors with a clear influence on the policy formation and implementation in Pyongyang.

Who are these advisors? How do they inflect the North Korean approach to governance, statecraft, culture, and diplomacy, which are all interwoven in the DPRK?

Bernanke is blowing new bubbles

Gold sell-off: There is only one question that matters

by DETLEV SCHLICHTER

Last Friday I participated in a (very short) debate on BBC Radio Four’s Today Programme on the future direction of gold. Tom Kendall, global head of precious metals research at Credit Suisse argued that gold was in trouble, I argued that it wasn’t. So yours truly is on record on national radio on the morning of gold’s two worst trading days in 30 years arguing that it was still a good investment.

Is it?

I still think that what I said on radio is correct and even after two days of brutal bloodletting in the gold market and two days of soul-searching for the explanations, I believe that this is the only question that ultimately matters for the direction of gold:

“Has the direction of global monetary policy changed fundamentally, or is it about to change fundamentally? Is the period of ‘quantitative easing’ and super-low interest rates about to come to an end?”

If the answer to these questions is ‘yes’ than gold will continue to be in trouble. If the answer is ‘no’, then it will come back.

Reasons to own gold

The reason for why I own gold and why I recommended it as an essential self-defense asset is not the chart pattern of the gold price, the opinion of Goldman Sachs, or the Indian wedding season but the diagnosis that the global fiat money economy has check-mated itself. After 40-years of relentless paper money expansion and in particular after 25 years of Fed-led global bubble finance, the dislocations in the global financial system are so massive that nobody in power dares to turn off the monetary spigot and allow market forces to do their work, that is to price credit and to price risk according to the available pool of real savings and the potential for real income generation rather than according to the wishes of our master monetary central planners.

The reason why for almost half a decade now all the major central banks around the world keep rates at zero and print vast amounts of bank reserves is that the system is massively dislocated and nobody wants the market to have a go at correcting this.

There are two potential outcomes (as I explain in my book): 1) This policy is maintained and even intensified, which will ultimately lead to higher inflation and paper money collapse. 2) This policy is abandoned and the liquidation of imbalances through market forces is allowed to unfold.

Gold is mainly a hedge against scenario 1) but it won’t go to zero in scenario 2) either. So far, I see little indication that central bankers are about to switch from 1) to 2) but we always have to consider the fact that the market is smarter than us and has its ears closer to the ground. What is the evidence?

Cyprus and EMU

Taken on their own, events in Cyprus were not supportive of gold, not because the island nation could potentially sell a smidgeon of gold into the market but because the EU masters decided to go for liquidation and deflation rather than full-scale bailout and reflation. Cyprus’ major bank is being liquidated not rescued and ‘recapitalized’ as in the bad examples of RBS, Northern Rock, Commerzbank, or more indirectly – via shameless re-liquification – in the case of Goldman, Morgan Stanley, Citibank and numerous others. The ECB’s balance sheet has been shrinking over the past 3 months, not expanding. Depositors in EMU (and even EU-) banks are being told that in future they shouldn’t rely on unlimited money-printing or on unlimited transfers from taxpayers in other countries to see the nominal value of their deposits protected. This is a strike for monetary sanity and a negative for gold. It should reduce the risk premium on paper money on the margin.

Culture and the Barbarians at the Gate

We are the barbarians we've been waiting for

By Jon N. Hall

A lot of attention is being paid to culture. We read about clashes of culture and culture wars. Concerning the Atlanta scandal of 35 educators indicted for inflating the test scores of their students, former Reagan budget director David Stockman on ABC's This Week said: "Cheating is symptomatic of a huge cultural problem we have. "Upon the death of Margaret Thatcher, Times columnist David Brooks wrote that she "was formed by her disgust with 1970s Britain," which she saw as a "moral shift... away from the culture of rectitude and toward the culture of narcissism."Something is wrong with the culture. But what exactly is culture?

The subtitle of David Mamet's The Secret Knowledge (2011) is: "On the Dismantling of American Culture." (Go to his website to read the first chapter or to order.) Mr. Mamet contends that "culture predates society." In Chapter 3 he writes:

The Culture, of a country, a family, a religion, a region, is a compendium of these unwritten laws worked out over time through the preconscious adaptations of its members --- through trial and error. It is, in its totality, "the way we do things here." It is born of the necessity of humans getting along. It does not come into being because of the inspiration, nor because of the guidance, of any individual or group, but it evolves naturally: those things which work are adopted, those which do not, discarded.

Mr. Mamet is writing about something deeper and more basic than what many think of as culture. In "Is the Nation-State Leaking Culture?" at Cato's Domain, Michael Booth writes:

Yet I contend the most fundamental of all the elements combining to create and sustain the nation-state is culture. It's culture that holds and focuses all of the others. [...] Culture is explosive. It's divisive. It's not contained by the nation-state but is a crucial glue binding the nation-state. When infused with historical grudges or religious "jihad" ... or even just a peaceful awakening sense of individualism and a desire for local control ... culture becomes a weapon with the power to shatter both the nation-state and the welfare state governments that ride along upon it.

Some nations are rather proprietary about their culture. France, for instance, has bemoaned the Americanization of its culture, (even while French suburbs fill up with Muslim émigrés who hate France and have no intention of being assimilated). American minorities speak of their own culture, as do American youth. (When young American barbarians are told they have their own culture, they're apt to express themselves with tattoos and nose rings.)

From Boston To Texas, It's Been A Freaky Week In America

It takes more than a bumper sticker

By MARK STEYN

This has been a strange and deadly week in America. On Monday, two bombs exploded at the Boston Marathon, the first successful terrorist attack on a civilian target on American soil since 9/11.

And yet a mere two days later, Boston's death toll was surpassed by a freak fertilizer accident at a small town in Texas.

In America, all atrocities are not equal: Minutes after the Senate declined to support so-called gun control in the wake of the Newtown massacre, the president rushed ill-advisedly on air to give a whiny, petulant performance predicated on the proposition that one man's mass infanticide should call into question the constitutional right to bear arms.

Simultaneously, the media remain terrified that another man's mass infanticide might lead you gullible rubes to question the constitutional right to abortion, so the ongoing Kermit Gosnell trial in Philadelphia has barely made the papers — even though it involves large numbers of fully delivered babies who were decapitated and had their feet chopped off and kept in pickling jars. Which would normally be enough to guarantee a perpetrator front-page coverage for weeks on end.

In the most recent testimony, one of the "clinic"'s "nurses" testified that she saw a baby delivered into the toilet, where his little arms and feet flapped around as if trying to swim to safety.

Then another "women's health worker" reached in and, in the procedure's preferred euphemism, "snipped" the baby's neck — i.e., severed his spinal column.

"Doctor" Gosnell seems likely to prove America's all-time champion mass murderer. But his victims are ideologically problematic for the media, and so the poor blood-soaked monster will never get his moment in the spotlight.

The politicization of mass murder found its perfect expression in one of those near parodic pieces to which the more tortured self-loathing dweebs of the fin de civilization west are prone. As the headline in Salon put it, "Let's Hope The Boston Marathon Bomber Is A White American." David Sirota is himself a white American, but he finds it less discomforting to his Princess Fluffy Bunny worldview to see his compatriots as knuckle-dragging nutjobs rather than confront all the apparent real-world contradictions of the diversity quilt. He had a lot of support for his general predisposition.

"The thinking, as we have been reporting, is that this is a domestic extremist attack," declared Dina Temple-Raston, NPR's "counterterrorism correspondent."

"Officials are leaning that way largely because of the timing of the attack. April is a big month for anti-government and right-wing individuals. There's the Columbine anniversary, there's Hitler's birthday, there's the Oklahoma City bombing, the assault on the Branch Davidian compound in Waco."

Miss Temple-Raston was born in my mother's homeland of Belgium, where, alas, there were more than a few fellows willing to wish the Fuhrer happy birthday back when he was still around to thank you for it. But it was news to me it was such a red-letter day in the Bay State. Who knew? At NPR, "counterterrorism" seems to mean countering any suggestion that this might be terrorism from you know, the usual suspects.

Biblical miserabilism disguised as science

Greens can't stand Earth's inhabitants

by Tim Black 

Environmentalist Andrew Simms, author of the posh grocers’ bible, Tescopoly, has a bit of a problem. And it is not just the nauseating, name-dropping self-obsession so evident in his new book, Cancel the Apocalypse: The New Path to Prosperity. (Of his changing perception of aeroplanes after 9/11, he writes: ‘Contrails behind disappearing jet engines meant something different also after a conversation I had with the author Philip Pullman, but I’ll come to that later.’ The tease.) No, Simms’ other problem is one that he shares with many other current environmentalists: an apocalypticism in want of an apocalypse, an environmentalist End of Days in want of a devastated, I-told-you-so terminus.

It’s getting ridiculous now. For the best part of a decade, prominent environmental types have been blithely telling us the end is nigh if we don’t change our producing and consuming ways. But have we listened to the terrifying drenched-then-scorched rhetoric? Have we met carbon-emissions targets? Have we stopped using aeroplanes, once handily likened by the Guardian’s leading environmental columnist to ‘child abuse’? Have we started to shun those Meccas of pre-packaged convenience, supermarkets, in favour of growing our own? Have we hell. And yet despite our unrepentant behaviour, despite our unwillingness to change our producing and consuming ways, we are still waiting for Gaia’s punishment, still awaiting the end which ought to be nigh.

You wouldn’t have thought it was possible given the kinds of headlines and commentaries that appeared routinely throughout the mid-Noughties. ‘“Almost too late” to stop a global catastrophe’, warned one UK broadsheet in 2006. An editorial in the Philadelphia Daily Inquirerstruck a similar dread note. ‘Now, the warning about the end of the world may yet become a grim and horrible reality, if not in our generation, then in our children’s or grandchildren’s generation.’ This, remember, was the era of ‘tipping points’, when climate change looked set to become ‘irreversible’ and ‘runaway’ unless WE ACT. NOW. Simms himself even started up a campaign in August 2008 with a rather specific deadline: ‘100 months to save the world.’

But 56 months down the line, things have changed somewhat. The apocalypticism, the catastrophism, so marked in recent environmentalist discourse, is losing what little real purchase it had. Doomsday increasingly looks like it has been postponed.

Even the scientific white noise is no longer providing a suitable soundtrack for the environmentalist disaster movie. For example, the UK’s official weather forecasters, the Met Office, released a forecast in December suggesting that global temperatures have not risen for over a decade and are unlikely to rise significantly in the period up to 2017. NASA’s James Hansen, the Godfather of contemporary greens, noted recently that the ‘five-year-mean global temperature has been flat for the last decade, which we interpret as a combination of natural variability and a slowdown in the growth rate of net climate forcing’. Which is bad news for the Panglooms out there.

The Reinhart – Rogoff Study Controversy

The Study and its Critics

By Pater Tenebrarum

In 2010, Carmen Reinhart and Kenneth Rogoff released an empirical study entitled 'Growth in a Time of Debt'. After crunching a long list of historical data series, they came to the conclusion that:

“..median growth rates for countries with public debt over 90 percent of GDP are roughly one percent lower than otherwise; average (mean) growth rates are several percent lower." Countries with debt-to-GDP ratios above 90 percent have a slightly negative average growth rate, in fact.”

Our first objection to the sentence above is that 'GDP' is a very poor 'measure' of economic growth in the first place. It omits the entire production structure preceding the final goods stage ex 'durable' capital investment; it uses 'hedonic indexing' in its calculation; and it actually counts government spending as contributing to 'growth'. A more useless economic statistic is really hard to imagine as far as we're concerned.

We suspect that in an unhampered free market economy no-one would get the absurd idea of going to the trouble of actually calculating it or something akin to it. The main reason why governments calculate such data is that they need a justification for meddling with the economy. Also, macro-economists need something to do. Again, in an unhampered free market economy many of today's macro-economists would have to compete in the private sector and offer skills to employers that are useful, or alternatively become entrepreneurs themselves and create products consumers actually want. It is a good bet very few consumers would be eager to purchase 'GDP' calculations.

It is quite different with the government – hence the intellectual output of most of today's economists, indeed of most intellectuals, is, to quote Hans-Hermann Hoppe, 'viciously statist'.

Reinhart and Rogoff are not outside of the mainstream – by dint of being monetarists, they are merely as close to free market thought as one is today 'allowed' to be by the establishment. In the 1940s, the Chicago School was regarded as part of the 'leftist fringe' (Hoppe), today they are considered the standard bearers of 'conservative economic thought', as evidenced by the fact that the Republican party cited their study frequently when urging to lower the deficit.

Now, we actually believe that Reinhart and Rogoff have detected a number of effects in their study that are very real and we also believe that cutting deficit spending would be an agreeable policy. In fact, doing away with the State altogether would be the most agreeable policy of all (it would be the very last act of 'public policy'), but let's not stray too far from the topic at hand.

Recently a number of economists based at the University of Massachusetts (a state that is incidentally also known by the nickname 'Taxachusetts') have taken a closer look at the study and discovered a few spreadsheet errors, weighting biases and coding errors (apparently nothing major that would actually invalidate the study's main conclusions, as the response of Reinhart and Rogoff indicates). In the wake of this discovery,  the 'howling of the Keynesians' immediately ensued. Even an at first glance fairly objective report on the errors discovered at the 'Roosevelt Institute' exudes, as a friend of ours put it, a 'strong Keynesian smell' – as evidenced by quotes such as this one:

 “The debt needs to be thought of as a response to the contigent circumstances we find ourselves in, with mass unemployment, a Federal Reserve desperately trying to gain traction at the zero lower bound, and a gap between what we could be producing and what we are. The past guides us, but so far it has failed to provide an emergency cliff. In fact, it tells us that a larger deficit right now would help us greatly.”

Chronicling The Decline And Fall Of Entitlement Democracy

America has now hurtled past the dependency tipping point

By Bill Frezza

It’s been a week of sober reflection, accompanied by a self-imposed news fast, during which I’ve struggled to understand the deeper meaning of our recent electoral catastrophe. Doing so undistracted by a thousand voices required strict electronic disengagement. I recommend this as one would take a purgative after eating a batch of bad oysters.

Many of us of the libertarian persuasion who had never previously voted Republican made an exception this time because the stakes were so high. In a purposeful departure from our usual  “pox on both their houses” approach, we waded into the partisan fray naively believing we could make a difference, ignoring the stink on those with whom we made common cause simply because the alternative was so much worse.

All for naught. After approaching it for decades, America has now hurtled past the dependency tipping point. We have scrapped the last vestiges of our constitutionally limited republic of strictly enumerated powers and replaced it with an unconstrained entitlement democracy neither better nor worse than any of the others whose failures have dotted the course of history—all over weighty issues such as who should pay for condoms.

Heeding the cry, Forward!, an electoral majority happily voted for itself unlimited benefits that will supposedly be paid for by a productive minority—even as the nation careens toward bankruptcy and said productive minority starts eyeing the exits. With demographic changes reinforcing a permanent ethnic tribalism that abjures the melting pot, the likelihood that our country will ever recover its founding values has vanished as thoroughly as our respect for the dead white men who pledged their lives, their fortunes, and their sacred honor to make our way of life possible.

So be it. Mourn, if you choose. But when you’re done you still have to pay the rent.

Making one’s way in a country increasingly falling under the spell of slogans used so effectively by Vladimir Lenin and his fellow travelers requires a new strategy, lest one fall into chronic despair. This is necessary because nothing is worse than becoming that one species of ideologue that no one can abide—a bore.

What should that new strategy be?

I searched for the answer as I reassessed my own mission as an opinion columnist. Today, that is a calling, not a true profession. The going rate for opinion pieces has dropped from $1.50 per word—eagerly paid by hungry editors back when magazines had business models that actually worked—to zero in today’s content-glutted, balkanized blogosphere. Let’s face it, as traditional publishing slowly perishes and is replaced by an electronically enabled mediocrity made possible by the removal of all barriers to entry, those of us who write do so solely to entertain what micro-audiences we can gather—a sorry business to be sure, yet one with deep cultural roots.

The Second Coming Of Kim Dotcom

Inside Mega 

By Andy Greenberg

Kim Dotcom, a.k.a. Kim Tim Jim Vestor, a.k.a. Kim Schmitz, doesn’t act much like a man with a net worth in the negative.

At 11 a.m. on a Tuesday he’s driving me around on a golf cart “safari” of his 60-acre estate outside of Auckland, New Zealand. He weaves among a grove of olive trees with alarming speed–he’s removed the speed regulator in his fleet of electric buggies, and they can clock up to 19 miles per hour. We swing past his 2,000-bottle-a-year vineyard and barrel down a hill toward his $30 million mansion, complete with a hedge maze, a five-flatscreen Xbox room and a 75-foot cascading water display.

Given that he owes millions of dollars to defense lawyers and now has to raise his five children on a $20,000-a-month government allowance meted out from his frozen bank accounts, wouldn’t it be wise to live a slightly simpler life?

“No way,” he says, leaning his massive 6-foot-7, 300-plus-pound body onto the cart’s steering wheel. “That would be allowing them to get away with this stunt. I won’t accept that. By staying here I’m saying, ‘Eff you! You can’t defeat me!’”

The “stunt” Dotcom refers to is the police helicopter raid on his compound that made global headlines 15 months ago, timed to coincide with the U.S. indictment that shut down his ultrapopular constellation of Mega-branded websites under charges of hosting half a billion dollars’ worth of pirated movies and music. Overnight Dotcom went from an underground entrepreneur to one of the most public and controversial figures on the Internet. His site domains, including the flagship Megaupload.com, are now the property of the U.S. government. His servers have been ripped out of data centers around the world and sit in evidence warehouses. He’s had to let go of 44 of his 52 house staff as well as Megaupload’s hundreds of employees. All but 2 of his 18 cars have been seized or sold.

Argentina embraces ‘Flexible Justice’

Argentines Protest Fernandez’s Bid to Increase Grip on Courts

By Eliana Raszewski

Argentines packed the streets of Buenos Aires last night to protest against President Cristina Fernandez de Kirchner’s proposals that would increase state control over courts. The bills are set to be approved by Congress next week.

Protestors banging pots and holding Argentine flags and banners saying “Enough,” “No to Impunity,” gathered in central avenues of the country’s capital and sang the national anthem. Thousands gathered at the Plaza de Mayo square, in front of the presidential palace, brandishing banners urging “Independent Justice” and “Stop Corruption.”

“The government wants to domesticate justice, to get more control on judges and that’s a risk for all of us,” said Gustavo Alvarez, a 50-year-old lawyer who attended the rally with his son and wife. “We are here to force Cristina to listen to us, it’s all we can do.”

Fernandez, 60, sent a bill to Congress on April 8 to restrict court injunctions against the government and would limit any injunction to a period of six months. The bill would leave citizens and companies unprotected in their attempts to seek an injunction against state action to protect their finances or assets, said Gregorio Badeni, a professor of Constitutional Law at University of Buenos Aires.

“The idea of injunctions was to strengthen the position of people and companies to confront the strongest actor, which is the state,” Badeni said in a telephone interview. “This means a step back of 70 years.”

Million Marchers

Yesterday’s demonstrations in the streets of major cities represented the third nationwide protest against Fernandez’s government in eight months.

Mayor of Buenos Aires Mauricio Macri said in message on his Twitter account that there were more than 1 million people out on the streets taking part in the protests in the capital. TN television network showed rallies in cities of Salta, Cordoba and La Plata as well.

Fernandez’s proposal also seeks to expand the council of magistrates, a body that selects, monitors and evaluates the nation’s judges, to 19 from 13.

The planned changes to the justice system come four months after the government failed to impose a deadline for Grupo Clarin SA, the country’s largest media group, to sell assets that exceed limits set in a 2009 media law.

When Fernandez announced the proposed changes, she said the goal was to “democratize” and increase transparency in hiring attorneys for the judicial branch, justice workers’ wealth declarations and in selecting new members of the council of magistrates.

How Does This End?

The fleecing of the American public continues

by Monty Pelerin

The theft takes different forms, but it all serves one purpose — to transfer wealth from the average Joe to the crony corporatists and their political lackeys. Here are but a few examples of how this has been accomplished:

• Bailouts for the wealthy and well-connected are paid for by the unconnected middle class.

• Subsidies are provided for unworkable schemes submitted by political donors and favorites. These schemes inevitably fail and the tax-payer is left holding an empty bag.

• Laws are routinely ignored when “friends” need help. In identical circumstances, would you receive the same treatment as Jon Corzine?

• Despite the biggest theft in world history, no one was prosecuted. The Savings and Loan crisis in the 1980s was trivial in comparison to the recent financial crisis. More than a thousand S&L executives were prosecuted.

• Ever-increasing sacrifices in the form of higher taxes from the productive sector are demanded to continue the plush living of the ruling class.

Capitalism and free markets depend upon trust, integrity, property rights and the rule of law. Without these, there are no advantages to free markets. Nor are there any incentives to create wealth. Instead, an economy becomes little more than a massive plunder scheme where the powerful exploit the weak. No economic recovery is possible under such circumstances.

When Suckers Revolt

As people recognize what is happening, they alter their behavior. Three reactions are to be expected:

1. Some will become discouraged when they realize the game is stacked against them. They will diminish their efforts to succeed, even perhaps dropping out of the game altogether. Given the enhanced returns to not working, it should not be surprising that this alternative has become popular.

2. Others will adopt the same behavior as the ruling class. They will exploit those lower on the food chain than themselves.  Justice Brandeis warned of the implications of government misbehavior:

In a government of laws, the existence of the government will be imperiled if it fails to observe the law scrupulously. Our government is the potent, the omnipotent teacher. For good or ill, it teaches the whole people by its example. If government becomes a lawbreaker it breeds contempt for law: it invites every man to become a law unto himself. It invites anarchy.

Daniel Patrick Moynihan described the process of declining moral values as “defining deviancy down.”

3. Others may resort to acts of violence. These reactions could be isolated domestic terrorist acts against government and corporations seen as the exploiters. Or the acts might be broader based where the poor see fit to attempt to take from the wealthy. They also could manifest in wide civil unrest against the government if it is seen as the cause of misery or if it is seen as intending to default on promises made. 

All of this behavior is anti-social and it is unproductive. It reduces the output of the economy, further exacerbating the problems. 

We Can't Save Capitalism Unless We Denounce Its False Prophets

The battle we are in is actually a three-sided struggle

By Bill Frezza

A debate is raging among free market advocates regarding the proper posture to take with respect to Too Big to Fail (TBTF) banks. This has become an increasingly important issue as the financial sector has grown to take up an unprecedented share of our economy. While cleaving to tried-and-true libertarian defenses of finance as vital to the economy, some of us fear that the machinations of the crony capitalists running the TBTF banks—in cahoots with their allies in the Treasury Department and the Federal Reserve—will result in not only another global financial collapse, but a populist anti-capitalist backlash that could destroy what’s left of our free enterprise system.

But before we can tackle this problem, we must figure out what is really going on. In all public policy debates, perceptions matter, and public perceptions are often driven by the leading narratives that gain cultural acceptance. Let’s look at what these are.

The prevailing narrative on the left is that we are locked in a two-sided conflict pitting greedy capitalists against the working man. Within this narrative noble legislators and wise regulators must accumulate power unto themselves in order to: 1) rein in the capitalists’ depredations; 2) balance the playing field to offset “market failures;” and 3) “invest in the future” to compensate for the shortsightedness of profit-seeking investors. Success requires waging a permanent campaign against corrupt political opponents doing the dirty work of the wicked 1 percent—who if left to their own devices would accumulate all the wealth leaving the 99 percent destitute.

The prevailing narrative on the right is that we are locked in a two-sided conflict pitting American business against ham-handed legislators and clueless regulators whose well-intentioned but misguided laws, regulations, taxes, and mandates threaten to kill the goose that lays the golden eggs. Within this narrative, free market advocates must fight every attempt by tree-hugging Luddites and their socialist fellow travelers to interfere in the free flow of information, goods, and services that are responsible for driving innovation and creating all the wealth the left is trying to redistribute. Failure will leave the working man unemployed, American businesses crippled, and the global economy in perpetual recession.

Both of these narratives are oversimplifications, and both contain elements of truth. How can that be? Because they both miss the key point that the battle we are in is actually a three-sided struggle. Why is this important to realize? Because attempts to defend capitalism strictly within the bounds of a two-sided dialectic can only accelerate the emergence of a populist regime that fuses the centralized economic controls of fascism with the income redistribution of socialism. We are already more than halfway there with today’s “mixed economy”—a pale shadow of the laissez faire system that serves as the libertarian ideal.

So, who are the three constituencies battling over America’s economic soul?

The Untold Story of Antiwar Conservatives

And how the truth about invading Iraq was suppressed by laptop bombardiers

By JON BASIL UTLEY

What’s missing from reminiscences of the War on Iraq is how and why the war propaganda was spread so effectively, particularly among Republicans. In fact, the refusal of most conservative media to publish contrary information was one of the reasons this magazine was founded. The American Conservative provided an outlet for many respected conservatives who couldn’t get antiwar views published.

Over and over we hear that U.S. allies believed that Iraq had WMDs. Well, sure, our CIA and British intelligence fed them misinformation, which they then repeated back to us—especially Eastern Europeans, who wanted to strengthen military relations with Washington. Even so, Germany, France, and the UN Security Council refused to support the war. There was also widespread opposition inside the U.S. military and by former U.N. inspectors, which was given little publicity by major conservative media. The big push for war came from neoconservatives and the Religious Right, evangelical fundamentalists who believed God wanted war to hurry up the second coming of Christ. Indeed, former French President Chirac wrote in his memoirs about the born-again George W. Bush telling him how God wanted war.

Conservatives opposed to empire and war included Pat Buchanan, Scott McConnell, Charley Reese, Paul Craig Roberts, Paul Gottfried, myself, Doug Bandow, Bill Kauffman, Sheldon Richman, Leon Hadar, Allan Brownfeld, Martin Sieff, Phil Giraldi, as well as other respected leaders such as congressmen John Duncan and Ron Paul and future senator James Webb.

Neither Buchanan nor any other anti-war writer could get published by The Washington Times. The Wall Street Journal op-ed would not accept any article opposing the war until one by Brent Scowcroft, who was too big a name to block. National Review, the Heritage Foundation, and the American Enterprise Institute’s publications and conferences would only promote pro-war opinions and propaganda. Fox News was a solid barrage of war promotion and panic-mongering. Human Events, the Cold War bulwark, had lost its great editor, Allan Ryskind, after which it just parroted the Bush administration.

The seeds and theories of American empire-wishers were planted after the collapse of Communism. Well before 9/11, I had tried to get National Review to publish my article “America Is not Rome.” I still remember how Bill Buckley, who was the godfather of my first child, waved my article off with an outstretched arm when I sat with him in the lobby of the Hay Adams in Washington. Later he changed his views and become an early defector over the Iraq War, though by then he had delivered National Review to the neocons. Similarly, when I wrote to the Heritage Foundation’s foreign-policy staff urging that they at least allow an occasional non-empire speaker at their Washington conference, I was told that those ideas could be heard at the Cato Institute. I knew most of the major conservative leaders from my years as an anti-Communist writer and donor to conservative causes and from my 17 years as a commentator on Third World issues for the Voice of America. My mother, Freda Utley, had been one of the earliest anti-Communist writers in America, and many knew her work.

Funding the welfare state by vast borrowing and regulatory taxation hides the costs from the public

What's behind the funding of the welfare state

By George F. Will

The regulatory, administrative state, which progressives champion, is generally a servant of the strong, for two reasons. It responds to financially powerful and politically sophisticated factions. And it encourages rent-seekers to exploit opportunities for concentrated benefits and dispersed costs (e.g., agriculture subsidies confer sums on large agribusinesses by imposing small costs on 316 million Americans).

Such government inevitably means executive government and the derogation of the legislative branch, both of which produce exploding government debt. By explaining these perverse effects of progressivism, the Hudson Institute’s Christopher DeMuth explains contemporary government’s cascading and reinforcing failures.

Executive growth fuels borrowing growth because of the relationship between what DeMuth, in a recent address at George Mason University, called “regulatory insouciance and freewheeling finance.” Government power is increasingly concentrated in Washington, Washington power is increasingly concentrated in the executive branch, and executive-branch power is increasingly concentrated in agencies that are unconstrained by legislative control. Debt and regulation are, DeMuth discerns, “political kin”: Both are legitimate government functions, but both are now perverted to evade democratic accountability, which is a nuisance, and transparent taxation, which is politically dangerous.

Today’s government uses regulation to achieve policy goals by imposing on the private sector burdens less obvious than taxation would be, burdens that become visible only indirectly, in higher prices. Often the goals government pursues by surreptitious indirection are goals that could not win legislative majorities — e.g., the Environmental Protection Agency’s regulation of greenhouse gases following Congress’s refusal to approve such policies. And deficit spending — borrowing — is, DeMuth says, “a complementary means of taxation evasion”: It enables the political class to provide today’s voters with significantly more government benefits than current taxes can finance, leaving the difference to be paid by voters too young to vote or not yet born.