Non-Template Becomes Template, Continued

Asmussen’s Musings and the Orwellian EU

By Pater Tenebrarum

We have previously written about the fact that the 'depositor haircut' in Cyprus has indeed become the 'template' for dealing with bank insolvencies in the EU. As we have pointed out at the time, this is in a fundamental sense a salutary event: it should finally open the eyes of depositors as to what risks they are exposed to when keeping money at fractionally reserved banks. Moreover, there is no reason why tax payers should foot the bill for bailing out insolvent banks.

So far, so good, if only it were that easy! This week a report made the rounds   regarding German ECB board member Jörg Asmussen informing a reportedly 'astonished' EU parliament in Strasbourg about the 'new template'. The original article can be found at 'Deutsche Wirtschaftsnachrichten' in German language (a Google translation should serve to get the drift). 'Savers must bleed', as the article states. Moreover, it points out that citizens will now be asked to so to speak pay up twice: once as tax payers funding the ESM, and in individual cases as savers keeping money at banks that happen to go under.

A major bone of contention remains however the fact that in order to avert bank runs, the EU wants to make sure that the deposit insurance for deposits of less than €100,000 remains in place. It is a bone of contention mainly for the reason that a number of countries could not possibly swing even that. Hence the urge to create the so-called 'banking union', because once it is in place, German tax payers and savers will be liable for insuring bank depositors in Greece and elsewhere just as they are now doing in Germany. France is very eager to get this banking union off the ground, as are understandably Spain and Italy. It is a good bet that none of these nations have the wherewithal to bail out their own banking systems if push really comes to shove. For instance, the three largest French banks hold assets worth 240% of GDP (with the assets of the banking system as a whole clocking in at over 400% of GDP).

Orwellian Language

An article at Reuters recently also discussed these topics. It reads almost like a satire in places. Consider the beginning of the article:

“Depositors should be the very last to suffer losses when a bank collapses, according to a proposal being discussed by European Union countries and seen by Reuters, which would shield savers from the kind of losses they face in Cyprus.” 

So in other words, depositors will be liable, but it won't be like Cyprus, promise! If they are to be 'shielded' from losses akin to those suffered by depositors and savers in Cyprus, something must be different. However, nothing actually is. 

“The idea comes as member countries finalize a new draft law for the European Union that could make losses for larger savers a permanent feature of future banking crises. EU officials, however, are nervous that such a regime will panic savers, prompting them to withdraw money.

IMF Admits Spain is Bankrupt

Read Between the Lines: Get Your Money Out While You Can

By Mike "Mish" Shedlock

It should be obvious to anyone reading this blog that Spain is in an economic depression as well as bankrupt. It is equally obviously that eurozone imbalances and a flawed treaty are to blame.

Finding mainstream organizations willing to admit Spain is bankrupt is another matter. Yet today, Jeremey Warner writing for The Telegraph says just that. 

Warner says Spain is officially insolvent: get your money out while you still can 

I'd not noticed this until someone drew my attention to it, but the latest IMF Fiscal Monitor, published last month, comes about as close to declaring Spain insolvent as you are ever likely to see in official analysis of this sort. Of course, it doesn't actually say this outright. The IMF is far too diplomatic for such language. But that's the plain meaning of its latest forecasts, which at last have an air of realism about them, rather than being the usual dose of wishful thinking.

Let's take the projected budget deficit first. This is expected to decline quite steeply this year to 6.6 per cent of GDP, but that's mainly because the cost of bailing out the banking sector fell substantially on last year's budget. On a like-for-like basis, there has in fact been very little fall in the underlying deficit. And nor on the present policy mix is there ever likely to be, for that's where the deficit is projected to remain until the end of the IMF's forecasting horizon in 2018.

Next year, the deficit is expected to be 6.9 per cent, the year after 6.6 per cent, and so on with very little further progress thereafter. Remember, all these projections are made on the basis of everything we know about policy so far, so they take account of the latest package of austerity measures announced by the Spanish Government.

The Red Queen Principle

The Failure of Democracy and the Rise of the Welfare State

By Camille Pecastaing 

Are political regimes fated to decay and die away, as everything in nature is?

Back in the eighteenth century, men in England, France, and the United States conceived of a new type of regime that would prevent the tyranny of the absolutist monarchies that reigned at the time. They put their hopes in a balance of power between various institutions of government, and in the periodical recourse to election to purge the system of excessive corruption and entrenched power. The democratic form of government established on those principles would work wonders for over two centuries.

But now, in its third century of existence, it is producing dysfunctional and potentially self-destructive forms of governance. The United States has been deadlocked in the monumental issue of its budget deficit and entitlements, unable to cut spending or raise taxes. Europe as a whole is no less fiscally bankrupt, and measures to restore its public finances are throwing the continent into economic depression and political upheaval. 

This is not the first test for democracies that, over the last 200 and some years, have weathered countless political crises. Throughout that period, democracies were able to mobilize so many resources, human and financial, that they won epochal wars against other regimes and were emulated on all continents. Yet, the diagnostic today is severe: with age, the democratic welfare state as we know it suffers from morbid obesity, and while the remedy is not hard to conceive—rebalancing the relationship between the public to private sector—it seems impossible to administer.

The etiology of the crisis points at the very design of the regime: the patient will not take the cure, voting out any government trying to cut public spending. Foreign donors who bail out bankrupt governments are often slapped in the face by the citizens of those countries. The recent woes of Greece and Cyprus show how the people can lack responsibility and gratitude.

Political theorists of ancient Greece were ambivalent about democracy. The Greek elite liked to rule its own affairs but, as a privileged minority in an expanding society, it had much to lose if a populist tyrant were to leverage the power of the masses. Accommodations were made with monarchy, hoping for a king powerful enough to keep the mob in check, and wise enough to protect the propertied classes.

The New European Revolt

Some young Europeans have given up on change

By tyler durden

One of the main benefits of forecasts based on demographics is the fact that they can be more precise and therefore more reliable than others. For example, the number of people aged 40 in the United States twenty years from now is roughly the same number of people aged 20 today, minus premature deaths plus new immigrants. A prediction that enjoys a similar inevitability is that welfare programs as currently defined will certainly be unaffordable a few years from now, given the aging of the population and concomitant rising dependency ratio.

It is a fair bet that one way or another, the current generation of young people will be unwilling and/or unable to pay for Social Security and Medicare as they presently stand. Of course, Western Europe has the same problem and President Hollande of France recently got a whiff of what is coming from an open letter addressed to him by a 20-year old student named Clara G.

In summary, Clara does not believe it fair that she and her generation should be saddled with the enormous debt accumulated by Mr. Hollande’s generation. As a remedy, she is considering leaving France for friendlier pastures. She says she is not alone and cites a recent poll by Viavoice which found that a shocking 50% of French people aged 18-34 wish to leave France. Forty-five years after the upheavals of Mai 68, half of the young of France are more interested in exile than in change.

Addressing the President directly, she writes:

“This will probably shock you, but it is mainly for fiscal reasons,… simply because I do not feel like working all my life to pay taxes, a large part of which will only service the 1.9 trillion Euros of debt that your generation has kindly left us. If these borrowings had at least been invested to prepare the future of the country, if I was getting a small benefit from them, it would not be a problem for me to help repay them. But this debt only helped your generation live above its means, and assure itself a generous social safety net which I will not have. (…)

The Inconvenient Truth About Benghazi

Did the Obama administration's politically expedient story cost American lives?

By PEGGY NOONAN

The Benghazi story until now has been a jumble of factoids that didn't quite cohere, didn't produce a story that people could absorb and hold in their minds. This week that changed. Three State Department officials testifying under oath to a House committee changed it, by adding information that gave form to a growing picture. Gregory Hicks, Mark Thompson and Eric Nordstrom were authoritative and credible. You knew you were hearing the truth as they saw and experienced it. Not one of them seemed political. You had no sense of how they voted. They were professionals. They'd seen a bad thing. They came forward to tell the story. They put the lie to the idea that all questioning of Obama administration actions in Benghazi are partisan and low.

What happened in Benghazi last Sept. 11 and 12 was terrible in every way. The genesis of the scandal? It looks to me like this:

The Obama White House sees every event as a political event. Really, every event, even an attack on a consulate and the killing of an ambassador.

Because of that, it could not tolerate the idea that the armed assault on the Benghazi consulate was a premeditated act of Islamist terrorism. That would carry a whole world of unhappy political implications, and demand certain actions. And the American presidential election was only eight weeks away. They wanted this problem to go away, or at least to bleed the meaning from it.

Because the White House could not tolerate the idea of Benghazi as a planned and deliberate terrorist assault, it had to be made into something else. So they said it was a spontaneous street demonstration over an anti-Muhammad YouTube video made by a nutty California con man. After all, that had happened earlier in the day, in Cairo. It sounded plausible. And maybe they believed it at first. Maybe they wanted to believe it. But the message was out: Provocative video plus primitive street Arabs equals sparky explosion. Not our fault. Blame the producer! Who was promptly jailed.

The Jobs Crisis: Bigger Than You Think

The "glorious old days of 9 to 5 at GM", may be gone forever

by WALTER RUSSELL MEAD

Of the Big Five questions facing America today, the most pressing and urgent is the question of jobs. This is more than the problem of recovering from the last economic slump; it is more than the impact of globalization and automation on manufacturing jobs. The American economy is shedding jobs, especially long-term, well-paying jobs with good benefits, and the jobs that replace them are often less secure and less well paid. The relentless transformation of the American labor market is changing the nature of American life, calling into question some of the basic assumptions and building blocks of the last fifty years, and generating a complex mix of political and social pressures that will shake the country to its foundations.

Essentially, the problem is this: automation and IT are moving routine processing, whether that being processed is information or matter, out of the realm of human work and into the realm of machines. Factory floors are increasingly automated places where fewer and fewer human beings are needed to transform raw materials into finished products; clerical work and many forms of mass employment in business, government and management are also increasingly performed more economically by computers than by trained human beings.

The transformation is only beginning to kick in. Self driving cars and trucks may reduce the need for human beings in the transportation and freight industries.  Information processing is beginning to change the nature of the legal profession and even as law school applications fall by almost 50 percent there is much more change to come. Computer assisted diagnosis is making itself felt in health care. MOOCs are likely to change the way much of higher ed works.

It is impossible to say now how far and how fast this process will move, but more and more Americans are experiencing the kind of upheaval that blue collar workers in manufacturing began to experience in the last generation and white collar workers and journalists have felt more recently. We are seeing the greatest wave of economic transition since the mechanization of agriculture reduced the percentage of the labor force engaged in farming from more than half the American labor force in 1890 to less than two percent today.

The Benghazi Lie

Politics as Usual

By Mark Steyn

Shortly before last November’s election I took part in a Fox News documentary on Benghazi, whose other participants included the former governor of New Hampshire John Sununu. Making chit-chat while the camera crew were setting up, Governor Sununu said to me that in his view Benghazi mattered because it was “a question of character.” That’s correct. On a question of foreign policy or counterterrorism strategy, men of good faith can make the wrong decisions. But a failure of character corrodes the integrity of the state.

That’s why career diplomat Gregory Hicks’s testimony was so damning — not so much for the new facts as for what those facts revealed about the leaders of this republic. In this space in January, I noted that Hillary Clinton had denied ever seeing Ambassador Stevens’s warnings about deteriorating security in Libya on the grounds that “1.43 million cables come to my office” — and she can’t be expected to see all of them, or any. Once Ambassador Stevens was in his flag-draped coffin listening to her eulogy for him at Andrews Air Force Base, he was her bestest friend in the world — it was all “Chris this” and “Chris that,” as if they’d known each other since third grade. But up till that point he was just one of 1.43 million close personal friends of Hillary trying in vain to get her ear.

Now we know that at 8p.m. Eastern time on the last night of Stevens’s life, his deputy in Libya spoke to Secretary Clinton and informed her of the attack in Benghazi and the fact that the ambassador was now missing. An hour later, Gregory Hicks received a call from the then–Libyan prime minister, Abdurrahim el-Keib, informing him that Stevens was dead. Hicks immediately called Washington. It was 9 p.m. Eastern time, or 3 a.m. in Libya. Remember the Clinton presidential team’s most famous campaign ad? About how Hillary would be ready to take that 3 a.m. call? Four years later, the phone rings, and Secretary Clinton’s not there. She doesn’t call Hicks back that evening. Or the following day.

The Two Moralities of Ebenezer Scrooge

The stock exchange is a poor substitute for the Holy Grail 

By Dwight R. Lee

Having read Charles Dickens' A Christmas Carol several times, I have concluded that Ebenezer Scrooge was a moral man, both before and after his Christmas Eve encounters with the ghost of his former business partner, Jacob Marley, and the three ghosts of Christmas. Yet readers of A Christmas Carol invariably despise the first Scrooge and admire the second. Why? My explanation begins by considering two moralities. The first morality has, for most people, little emotional appeal and is consistent with behavior that violates the universally admired second morality.

The first Scrooge satisfied only the requirements of the first morality, which I call mundane morality, while the second Scrooge enthusiastically embraced the second morality, which I call magnanimous morality. Economists who want to make a moral case for free markets need to take both moralities into account.1

Magnanimous Morality Trumps Mundane Morality

Dickens introduces Scrooge as "[a] squeezing, wrenching, grasping, scraping, clutching, covetous old sinner! Hard and sharp as flint from which no steel had ever struck out generous fire; secret and self-contained, and solitary as an oyster." Clearly not the type who lights up your life, but there is nothing in Dickens' description to suggest that Scrooge was not a moral man. Indeed, from what we learn about Scrooge's business success, his business behavior satisfies all the conditions of mundane morality.

Briefly stated, mundane morality requires abiding by accepted rules of behavior that are generally beneficial, such as being honest, keeping your promises, honoring your contractual obligations, and not intentionally violating the legitimate rights of others. Adam Smith's term for mundane morality was "mere justice." Smith wrote:

Mere justice is, upon most occasions, but a negative virtue, and only hinders us from hurting our neighbor. The man who barely abstains from violating either the person, or the estate, or the reputation of his neighbours, has surely little positive merit. He fulfills, however, all the rules of what is peculiarly called justice, and does everything which his equals can with propriety force him to do, or which they can punish him for not doing. We may often fulfill all the rules of justice by sitting still and doing nothing.2

As Smith indicates, the person who satisfies only the requirements of mundane morality does not deserve a ticker-tape parade, but we should acknowledge that many people violate those requirements at the expense of the rest of us. Dickens' story suggests that Scrooge satisfied those requirements.

Diversity Does It

In Praise of Diversity

by Anthony de Jasay

Every year for the last umpteen thousand years, a million or so gnus walk a thousand miles up and down again the East African savannas, eating grass. Grazing has remained their way of life without any discernible change in its manner from one millennia to the next. Their prosperity is expressed primarily in their numbers which grows or declines as wet years follow dry ones. Their society adapts itself to their habitat. Two randomly chosen gnus of the same age and gender are so much alike that for the inexpert eye they look identical, and this must have been the case many centuries ago as well.

Unlike the herd of gnus, a flock of Merino sheep does its grazing on a more or less confined area. It is kept there by shepherds and their dogs, and depends on some human assistance at lambing and for shelter and fodder when the winter is too hostile. Man repays himself with wool and meat with some breeds being better at furnishing wool, others meat. Two Merino ewes of the same age look much the same, but a Merino is very different from a Blue-Face Leicester and from other breeds of only a little less charming names. The two breeds, and others who bear less charming names, specialise in somewhat different products and are adapted to different habitats (though the Merino can put up with almost any climate and miserable pasture).

Neither the herds of gnu nor the flock of sheep has any social structure to speak of; all individuals of the same age and gender are of equal rank and have equal access to the available grazing. Packs of wolves do have a social structures of sorts, but few animals are hierarchical. Neither species is acting purposefully to create or improve its own habitat. Apart from moles, foxes and badgers who burrow underground lodgings where the environment above ground suits then, the only habitat-builder animal is the beaver who makes lakes.

On the whole, the animal kingdom is characterised by great homogeneity, physical and behavioural uniformity within each species. This is, of course, what the evolutionary origin of the species, demonstrated by Darwin and his successors, leads us to expect. It is much less clear whether we should also expect the passive adaptation of each species to its environment and the almost total absence (except in the beaver?) of deliberate attempts to alter and control it. Improving its environment by ploughing the waste land, clearing the bush, controlling and displacing the waters, and breaking paths for others to use, is typical only of one species: mankind. So is its tendency to have a social structure that is getting more elaborate as time passes.

The world is not running out of oil - but Europe is

The Old Lady Vanishes

Petroleum geologist Wallace Pratt said, "Oil is found in the minds of men". He was referring to the theory of making discoveries. In the case of Eurocrats, however, it’s more of a practical observation

By Peter Glover

If Europe thought it had a crisis on its hands in the eurozone, it’s nothing compared to the crisis a lack of oil would inflict. Thanks to the EU’s disastrous energy policies, while the world is proving to be awash with black gold in one form or another, Europe is fast losing the security of its oil supply.

And, just for good measure, a UK House of Lords report recently published concludes that the EU will need a trillion euros of new investment if it is to stave off an energy crisis – investment its “muddled” policies are currently failing to attract.

Contrary to popular belief, peak oil alarmists and Greenpeace propaganda, the world is still largely powered by oil. It will be for some time to come. And not just for transport. An endless number of consumer goods depend on a steady supply of petroleum products for their manufacture.

As Marin Katusa, chief energy investment strategist for Casey Research points out, “A country without oil simply cannot continue to expand or even be competitive on the world stage.” Katusa explains that most of Europe’s oil comes from the North Sea region – a source where production has dropped to less than half of what it was in 2002.

Much of the rest of it comes from countries such as Libya, Saudi Arabia and Nigeria, all countries threatened by political instability and social unrest. Europe could, of course, push development of its own potential oil resources. Or at least it could if the ludicrously inept EU Energy Road Map wasn’t studded with anti-fossil fuel pot holes and renewable energy cul-de sacs that are deterring investors.

Let me give you just a taste of the type of non-joined-up euro-think that drives EU energy policies.

We all know that the US shale gas revolution has cut US gas prices in half, rejuvenating the US manufacturing industry. It is even threatening to prove to be an economy-turner. But what many do not understand is that where there is gas there is often oil.

The EU and the spider in the Italian labyrinth

Giulio Andreotti was a role model for the European system of decision-making 

By Tom Gallagher

Giulio Andreotti, the man who symbolised the tortured politics of post-war Italy, died on May 6^th, aged 94. This great survivor had been elected to Italy’s constituent assembly in 1946 as the Christian Democrats were emerging as the main successors to the defeated Fascists of Benito Mussolini. After being Prime Minister on five occasions, he was made a Life Senator in 1991, continuing to influence the fate of governments well into his eighties.

He was an enigmatic figure, respected because of his uncommon political skills but feared due to his associations with the Mafia. These led him to spend years as a defendant in trials and in 2003, he was actually convicted of terrorist links, resulting in the issuing of a 24-year jail sentence, one that was later quashed on appeal.

His major domestic legacy was to defeat the reformist wing of post-war Christian Democracy (DC), associated with Alcide de Gasperi, the party’s founder. Andreotti helped build up a crony-ridden party that believed in little except staying near the centre of power. Bribery and corruption flourished, with the DC immoveable because most Italians distrusted the alternative, the Italian Communists.

One of his neatest tricks was to push the Social Democrats, under Bettino Craxi, down the same seedy path. The Christian Democrats felt able to stay in the background as the bombastic Craxi held sway in the 1980s.

But so unrestrained were the appetites of the Socialists that a crisis of the whole party system was triggered. Italy had been on the frontline in the Cold War but after the fall of the Berlin Wall, the DC and Craxi’s party were swept away in a tide of pent-up fury. Unfortunately, it would be Silvio Berlusconi who filled the resulting power vacuum and a genuine clean-up of a murky political world proved as far away as ever.

Andreotti was prime minister in August 1991 when he was informed that Mikhail Gorbachev had been topped by hardline enemies. Along with Francois Mitterand, his response indicated that he thought the West just had to learn to live with what was thankfully a short-lived power shift.

He had been foreign minister for much of the 1980s, devoting much attention to cultivating ties with a range of Arab regimes. It was from Andreotti that Colonel Gaddafi learned, a day in advance, of American plans to mount aerial attacks on Libya in April 1986 due to his promotion of terrorism.

Margaret Thatcher got to know Andreotti well at EU summits and she would later write how he projected “a positive aversion to principle, even the conviction that a man of principle is doomed to be a figure of fun”.

Argentina’s Deadbeat Special - Buy a 4% Bond or Go to Jail

Argetine's Dictators are Getting Desperate

By Pablo Gonzalez and Katia Porzecanski 

President Cristina Fernandez de Kirchner wants tax evaders hiding about $160 billion in dollars to help finance Argentina’s oil-producing ambitions. Her offer: Buy a 4 percent bond or face the prospect of jail time.

The tax authority announced the plan May 7, highlighting its information-sharing agreements with 40 nations and warning Argentines who don’t use the three-month amnesty window that they risk fines or arrest. Evaders have two options for their cash and the only one paying interest will be a dollar bond due in 2016 to finance YPF SA (YPF), the state oil company. The 4 percent rate is a third the average 13.85 yieldon Argentine debt and less than the 4.6 percent in emerging markets.

A year after seizing YPF, Fernandez is funneling more money into the nation’s energy industry as the government struggles to boost production from the world’s third-biggest shale oil reserves. With Argentina already committed to pumping $2 billion of central bank reserves into a fund for energy investments and the highest borrowing costs in emerging markets keeping it from issuing debt abroad, the government is eyeing the billions of undeclared dollars that Argentines hold to help shore up reserves that have dwindled to a six-year low.

“The authorities need to take steps to open up external resources in the energy sector and to finance the Treasury and local governments,” said Sebastian Vargas, a New York-based analyst at Barclays Plc. “The amnesty is not negative for markets but it’s disappointing because they do little to solve balance-of-payment difficulties.”

Hidden Assets

A press official from the federal tax agency declined to comment in an e-mail on how much the government expects to collect through the amnesty.

Al Gore is a very lucky man

Saving the world is not without its rewards

by Bob Doson

Mitt Romney's net worth of $250 million is well-known by virtually everyone in America: after all, it was the primary campaign offensive used by the Obama team against his presidential challenger in an election run largely down wealth, and social class lines, and whom "Democrats targeted in ads and speeches as being out of touch with most Americans." What many may not know is that staunch democrat Al Gore's own personal wealth, has soared from virtually nothing in 1999 to a staggering $200 million according to an analysis conducted by Bloomberg.

To wit: "The former senator, who spent most of his working life in Congress, had a net worth of about $1.7 million in 1999 and assets that included pasture rents from a family farm and royalties from a zinc mine, remnants of his rural roots in Carthage, Tennessee... Fourteen years later, he made an estimated $100 million in a single month. In January, the Current TV network, which he helped to start in 2004, was sold to Qatari-owned Al Jazeera Satellite Network for about $500 million. After debt, he grossed an estimated $70 million for his 20 percent stake, according to people familiar with the transaction. Two weeks later, Gore exercised options, at $7.48 a share, on 59,000 shares of Apple Inc. stock that he’d been granted for serving on the Cupertino, California-based company’s board since 2003. On paper, it was about a $30 million payday based on the company’s share price on the day he claimed the options."

Bottom line: "Whatever you think of Gore, one thing is indisputable: leveraging his aura as a technology seer and his political and climate work connections, Gore has remade himself into a wealthy businessman, amassing a fortune that may exceed $200 million. That’s close to the $250 million net worth of 2012 Republican presidential nominee Mitt Romney, whom President Barack Obama and Democrats targeted in ads and speeches as being out of touch with most Americans."

Such a designation is missing when it comes to Al Gore, about whom people indeed think many things:

Albert Arnold Gore Jr., 65, is a lot of things to a lot of people. Among friends and fans, he’s the progressive Democrat who should have been president, visionary author and Internet prophet, the man who more than anyone drove climate change to the center of public consciousness.

Detractors see Gore as a limousine liberal, tiresome pedant and climate alarmist who lives a jet-setting, carbon-profligate lifestyle while preaching asceticism for everyone else.

The Oil Price Enigma

Political developments can change any scenario almost overnight

By S. Fred Singer

Oil is the single most important commodity purchased today, and its price influences the fortunes of every nation on the planet in significant ways. Yet nobody can tell you with honesty that they know where the price is headed.

Thirty years ago (and much younger then), I imagined that I could construct a model to calculate the future price of oil—and even persuaded some others to accept this idea. Needless to say, the price never really performed as my model had predicted, except in very general terms; it did go higher. The experience left me with a deep appreciation of the importance of assumptions in models—in this case, extraneous political parameters Usefully also, I acquired a certain skepticism towards models generally.

The situation then was relatively simple: There was just an OPEC monopolist and the ‘rest-of-the-world’ producers. Today, the situation is much more complicated and I’m not sure I know how to predict a future price for crude oil.

In 1982, the world price was controlled by an OPEC core, mainly Saudi Arabia, which had excess production capacity and could also afford to cut their production in order to maintain a price. In fact, in the early 1980’s, Saudi Arabia cut its production from 10 million barrels per day (MBD) down to almost 2 MBD in order to sustain a high world price. Ultimately, they failed—probably because they needed the revenue (i.e., total number of barrels sold times the world price). The other world producers, including the rest of OPEC, were simply “price-takers,” selling as much as they could produce at whatever the world price happened to be.

Under those circumstances, the scenario was fairly simple. One assumed that the OPEC core acted rationally, which means they would try to maximize their ‘discounted profit stream’ by adjusting their production from year to year (or perhaps month to month) to obtain the optimum price path over time: not too low a price to cut profit per barrel—and not too high to cut the number of barrels sold.

The European Miracle

"Why Europe? Because Europe enjoyed a relative lack of political constraint."

By ralph raico

Among writers on economic development, P.T. Bauer is noted both for the depth of his historical knowledge, and for his insistence on the indispensability of historical studies in understanding the phenomenon of growth (Walters 1989, 60; see also Dorn 1987). In canvassing the work of other theorists, Bauer has complained of their manifest "amputation of the time dimension":

The historical background is essential for a worthwhile discussion of economic development, which is an integral part of the historical progress of society. But many of the most widely publicized writings on development effectively disregard both the historical background and the nature of development as a process. (Bauer 1972, 324–25)

Too many writers in the field have succumbed to professional overspecialization combined with a positivist obsession with data that happen to be amenable to mathematical techniques. The result has been models of development with little connection to reality:

Abilities and attitudes, mores and institutions, cannot generally be quantified in an illuminating fashion.… Yet they are plainly much more important and relevant to development than such influences as the terms of trade, foreign exchange reserves, capital output ratios, or external economies, topics which fill the pages of the consensus literature. (Ibid., 326)

Even when a writer appears to approach the subject historically, concentration on quantifiable data to the neglect of underlying institutional and social-psychological factors tends to foreshorten the chronological perspective and thus vitiate the result:

It is misleading to refer to the situation in eighteenth -and nineteenth-century Europe as representing initial conditions in development. By then the west was pervaded by the attitudes and institutions appropriate to an exchange economy and a technical age to a far greater extent than south Asia today. These attitudes and institutions had emerged gradually over a period of eight centuries. (Ibid., 219–20)[1] 

India reduced to a stumbling elephant

One cannot but marvel at the infinite capacity of the politicians to ruin a perfectly good growth story

By Kunal Kumar Kundu

Snatching defeat from the jaws of victory - will this define India and its future? For all the talk of favorable demography, a huge middle class and likely impetus being provided by rapid urbanization and concomitant consumption, India is failing itself where it hurts the most - in the quality of governance. 

The eulogies reserved for India, even a decade back, seems to have been turned on their head as the global media space is awash with stories of never-ending streams of corruption (mostly from the government and bureaucracy) and severe attacks on civil liberties, especially violence against women. 

More worryingly, India’s response to these has been endless sessions of debates and discussions and formation of committees but with very little real action on the ground. 

Not surprisingly, the International Monetary Fund, in its latest "Regional Economic Outlook" released on April 29, while expressing optimism about Asian growth prospects, feels that emerging economies like India and China must improve government institutions and liberalize rigid labor and product markets if they wish to reach the level of developed countries. 

It clearly states that, "emerging Asia is potentially susceptible to the 'middle-income trap', a phenomenon whereby economies risk stagnation at middle-income levels and fail to graduate into the ranks of advanced economies." 

Just when we thought that the scandal over allocation of 2G telecom spectrum was behind us, came the coal-block allocation scandal, the Mahatma Gandhi National Rural Employment Guarantee Act, scandal and others. 

Rothbard versus Rothbard

A False Dilemma

by Joseph R. Stromberg

Scholars and critics who deal with the life work of a significant thinker tend to divide such a thinker’s work into periods. Even if the thinker’s ideas did not greatly change over the years, it still makes them feel better to do this. Sometimes there is a sufficient – even indecently large – reason to do this. One thinks of Friedrich Naumann, whom contemporary Germans imagine to have been their greatest "liberal", who went from Christian socialism, to Kaiser-worship, to navalism, to impatient "national-social" reformism, Central European hegemony for Germany, to New World Order internationalism. The only consistent thread is that everywhere and always Naumann was a Schwärmer for massive state intervention into everything. This great "liberal" never understood the first thing about markets, private property, and the lot. One is reminded of our own Max Lerner, whose ideological pratfalls set international standards. Our esteemed neo-conservatives have made the long march from Trotskyism through right-wing social democracy into their present eminence, whence they try to supply what "brains" there are to be found in the Republican Party’s "mainstream."

By such measures, the late Murray Rothbard never changed at all. There is, however, a tendentious standard whereby Rothbard, having observed that the outer world had changed a bit between, say, 1946 and 1992, is burdened with inconsistency or – much worse – a terrible descent into "conservatism." Some fifteen or twenty years ago, one participant in such discussions – Samuel Edward Konkin III of "agorist" fame – began distinguishing between "left-Rothbardianism" (his position) and "right-Rothbardianism" (allegedly Rothbard’s own position at that time). Now we have to hear about "early" versus "late" Rothbard or, even worse – from Chris Sciabarra writing in Critical Review and Liberty – the shocking "one-dimensionality" of Rothbard’s synthesis – Rothbard apparently having never gone to school with Herbert Marcuse. And, of course, there was the little sally from the contrarian editor of Liberty, Mr. Bill Bradford, about historians thinking Rothbard a good economist and economists thinking him a good historian. Anyone who has actually read Murray Rothbard comes away thinking he did rather well in both fields. Compared to the boring twits in history and the dry-as-dust technicians in economics, Rothbard was attempting something very bold: the shaping of an interdisciplinary science of liberty, giving real meaning, one might add, to the largely legless New Left demand for scholarly "relevance."

The Liberal Mind at 50

The liberal mind is profoundly impatient with intangibles

By Theodore Dalrymple

In his autobiography, John Stuart Mill relates the mental crisis that he experienced as a young man when he asked himself whether he would be happy if all the reforms that he thought necessary were granted or achieved. Would they necessarily fulfill him?

The answer, obviously, was ‘No,’ and Mill, having been nothing if not a man of the most complete integrity, suffered a nervous collapse. ‘The end had ceased to charm,’ he wrote, ‘and how could there ever again be any interest in the means? I seemed to have nothing left to live for.’

Few people, however, are as intelligent or scrupulous as Mill; but like him, they need something to live for. Indeed, the struggle for existence (or subsistence) having been more or less won – how, without a great deal of determination, do you starve in a modern society? – more people than ever before are in search of a meaning in life. In the absence of religious belief, one way of finding such a meaning in life is to attach yourself to a cause, the gaining of which is sufficiently distant to occupy you for years, and yet not totally impossible either. This imparts to you the pleasing glow of righteous transcendence, of doing good and feeling good at the same time.

Professor Minogue’s book, The Liberal Mind, first published fifty years ago this year and reprinted by the Liberty Fund, early recognized this mindset as a mass phenomenon. He appreciated sooner than most the role that victimhood would soon play in the national life of liberal democracies, even (or especially) among people who, objectively-speaking, suffered the least of any generation that had ever lived. The importance of what he calls ‘suffering situations’ is that ‘they convert politics into a crudely conceived moral battleground,’ with oppressors on the one hand and liberators on the other. It turns politics into a Punch and Judy show, the main question becoming who is Punch and who is Judy. Politicians vie to be not holier-than-thou but more-compassionate-than-thou, while continuing, of course, to indulge in all their accustomed knavish tricks.

The Bickering Genocides

Everyone loves Jews as victims. In other roles, not so much

By mark steyn

Justin Bieber, my successor as Canada's teen heartthrob, is currently touring Europe. Passing through Amsterdam, he was taken to visit the Anne Frank House and afterwards signed the guest book. "Anne was a great girl," he wrote. "Hopefully, she would have been a belieber" — the term used by devoted fans of young Justin. Miss Frank did not live to become a belieber because she was shipped off to Belsen concentration camp and died of typhus in 1945. But had she lived I feel it safe to say she would have regarded Justin's oeuvre as complete bilge: As a teenager, she liked Liszt, so she was a beliszter; she belonged to the franz club. Anyway, Justin's poignant message set off a Twitterstorm of criticism at what the Washington Post called "the insensitivity and the sheer ego" of it.

I'm inclined to cut him some slack here. As the years go by, Anne Frank's supposedly inspiring story makes me a little queasy. Europe venerates its dead Jews even as a resurgent anti-Semitism chases out its living ones. Everyone loves Jews as victims. In other roles, not so much.

The Climate’s Right for Whining

California’s wine scare isn’t the first and won’t be the last

by Steven F. Hayward

Climate change has become the all-purpose culprit for seemingly every problem, from AIDS to zoonotic diseases. Just this week, Democrats in the House of Representatives floated a resolution declaring that climate change could lead to increased prostitution. Meanwhile, in California, the press is trumpeting new research predicting doom for the state’s legendary wine industry. “Study: California Can Kiss Its Vineyards Goodbye,” a San Jose Mercury News headline blared last month. Apparently, climate activists think that if they threaten everyone’s favorite pinot noir, we’ll all roll over for their anti-energy agenda—though how much more rolling California can do is unclear, since it has already imposed a go-it-alone cap-and-trade program designed to solve global warming in one state.

The study, published recently in the Proceedings of the National Academy of Sciences (PNAS), is billed as the first worldwide analysis of climate change on wine production. It concludes that a warming world will produce a decline in wine-grape vineyards— as much as 75 percent by 2050—in regions including California, Chile, Argentina, southern Europe, and Australia. The study’s only points of distinction, though, are its purported global scope (which means the margin for error is larger) and its lack of rudimentary knowledge of contemporary winemaking. The great wine scare has been around for quite a while. Spain even hosted an annual “World Conference on Climate Change and Wine,” featuring that well-known climate scientist and oenophile Al Gore, along with former United Nations Secretary-General Kofi Annan, though the series seems to have lost its effervescence after its third meeting in 2011. The current PNAS study is not the organization’s first prediction of a dire future for California’s wine industry. “Climate Change May Bring Sour Grapes,” CBS News reported in 2009 of a similar PNAS study. Still another PNAS study from 2006 explored how “Extreme Heat Reduces and Shifts United States Premium Wine Production in the 21st Century.”