ObamaCare — The Death of Liberalism?

While it represents the culmination of Liberalism’s dream, its failures present an existential threat to Liberalism itself

By Monty Pelerin

ObamaCare may accomplish what Republicans and Tea Party members could not. It may reverse the Road to Socialism that this country has been on for the better part of a century.

A recent post, No Cause For Celebration, argued that nothing has changed from an economic perspective as a result of the recent government shutdown. From a political perspective a major inflection, even turning point, may have occurred.

No Grand Bargain

Talk of a “Grand Bargain” before January 15 is delusional.

Simpson-Bowles provided a framework for a grand bargain early in the President’s first term. Obama and the Democrat Party ignored every recommendation of their own commission. The reaction to this effort suggests that the Democrats did not understand the mathematics of the revenue-spending-promises problem or that they didn’t believe it would blowup on their watch.

Now we are several years deeper into the hole. Today’s version of Simpson-Bowles would have to be substantially more painful to accomplish the same end.

Neither Obama nor his fellow Democrats have any stomach for revisiting this issue.

January 15 is not far away. Spending will continue to rise. Movement further down the Road to Ruin will occur.

There is one possibility, never dreamed of by Democrats that may alter dramatically the political equation. ObamaCare may do what the politicians were unable to — reverse the march toward ever bigger government.

ObamaCare — Political Implications

Politics and its practitioners have never been held in lower esteem. Both parties were diminished by the shutdown as was the President.

In terms of winners-losers, all lost. Most of the pundits believe the Republicans lost more than the Democrats. That may be so, but I am not sure this judgment holds over time. John Hayward provides his opinion on what may happen:

The Democrat “victory” is preserving a disaster that’s only going to get worse once more people can log into it and see their sky-high premiums. A party can be bled to death with “wins” like that. Hearings into the disastrous Healthcare.gov launch – a no-bid contract to a firm with cozy Obama connections – should be percolating right along as the midterm elections get under way. Remind voters, at every opportunity, that this is what Democrats shut down the government to protect.

The Ethanol Scam

Politicians are high on turning food into fuel 

by JEFF GOODELL

The great danger of confronting peak oil and global warming isn't that we will sit on our collective asses and do nothing while civilization collapses, but that we will plunge after "solutions" that will make our problems even worse. Like believing we can replace gasoline with ethanol, the much-hyped biofuel that we make from corn.

The Dark Lord of Coal Country

Ethanol, of course, is nothing new. American refiners will produce nearly 6 billion gallons of corn ethanol this year, mostly for use as a gasoline additive to make engines burn cleaner. But in June, the Senate all but announced that America's future is going to be powered by biofuels, mandating the production of 36 billion gallons of ethanol by 2022. According to ethanol boosters, this is the beginning of a much larger revolution that could entirely replace our 21-million-barrel-a-day oil addiction. Midwest farmers will get rich, the air will be cleaner, the planet will be cooler, and, best of all, we can tell those greedy sheiks to fuck off. As the king of ethanol hype, Sen. Chuck Grassley of Iowa, put it recently, "Everything about ethanol is good, good, good."

This article appeared in the August 7, 2007 issue of Rolling Stone. The issue is available in the online archive.

This is not just hype — it's dangerous, delusional bullshit. Ethanol doesn't burn cleaner than gasoline, nor is it cheaper. Our current ethanol production represents only 3.5 percent of our gasoline consumption — yet it consumes twenty percent of the entire U.S. corn crop, causing the price of corn to double in the last two years and raising the threat of hunger in the Third World. And the increasing acreage devoted to corn for ethanol means less land for other staple crops, giving farmers in South America an incentive to carve fields out of tropical forests that help to cool the planet and stave off global warming.

So why bother? Because the whole point of corn ethanol is not to solve America's energy crisis, but to generate one of the great political boondoggles of our time. Corn is already the most subsidized crop in America, raking in a total of $51 billion in federal handouts between 1995 and 2005 — twice as much as wheat subsidies and four times as much as soybeans. Ethanol itself is propped up by hefty subsidies, including a fifty-one-cent-per-gallon tax allowance for refiners. And a study by the International Institute for Sustainable Development found that ethanol subsidies amount to as much as $1.38 per gallon — about half of ethanol's wholesale market price.

A Code Red World

Central Bankers Gone Wild

BY JOHN MAULDIN

I wasn't the only person coming out with a book this week (much more on that at the end of the letter). Alan Greenspan hit the street with The Map and the Territory. Greenspan left Bernanke and Yellen a map, all right, but in many ways the Fed (along with central banks worldwide) proceeded to throw the map away and march off into totally unexplored territory. Under pressure since the Great Recession hit in 2007, they abandoned traditional monetary policy principles in favor of a new direction: print, buy, and hope that growth will follow. If aggressive asset purchases fail to promote growth, Chairman Bernanke and his disciples (soon to be Janet Yellen and the boys) respond by upping the pace. That was appropriate in 2008 and 2009 and maybe even in 2010, but not today.

Consider the Taylor Rule, for example – a key metric used to project the appropriate federal funds rate based on changes in growth, inflation, other economic activity, and expectations around those variables. At the worst point of the 2007-2009 financial crisis, with the target federal funds rate already set at the 0.00% – 0.25% range, the Taylor Rule suggested that the appropriate target rate was about -6%. To achieve a negative rate was the whole point of QE; and while a central bank cannot achieve a negative interest-rate target through traditional open-market operations, it can print and buy large amounts of assets on the open market – and the Fed proceeded to do so. By contrast, the Taylor Rule is now projecting an appropriate target interest rate around 2%, but the Fed is goes on pursuing a QE-adjusted rate of around -5%.

Also, growth in NYSE margin debt is showing the kind of rapid acceleration that often signals a drawdown in the S&P 500. Are we there yet? Maybe not, as the level of investor complacency is just so (insert your favorite expletive) high.

The potential for bubbles building atop the monetary largesse being poured into our collective glasses is growing. As an example, the "high-yield" bond market is now huge. A study by Russell, a consultancy, estimated its total size at $1.7 trillion. These are supposed to be bonds, the sort of thing that produces safe income for retirees, yet almost half of all the corporate bonds rated by Standard & Poor's are once again classed as speculative, a polite term for junk.

What are the social implications of economic collapse?

Since the US economy has been in a fantasy world for so long,  the collapse will be at freefall speed

By Simon Black

For the last few days, we’ve been having an important discussion about the magnitude of the economic challenges in the west; if you didn’t read yesterday’s letter, I really encourage you to do so before proceeding because it’s important to understand why the west has truly passed the point of no return.

Simply put, the United States and much of Europe are borrowing an extraordinary amount of money now just to pay interest on the money they’ve already borrowed. They cannot even self-fund their mandatory entitlement programs without going into the hole, and their options are limited:

Option 1: Continue borrowing, keep the party going.

As long as the government CAN do this, they WILL do this.  Regardless of their intentions, though, more debt only worsens the situation, creating higher borrowing costs in the long run, and even more debt. As this happens, the pool of buyers begins to dry up, especially from overseas.

Option 2: Inflation

The more buyers stop purchasing Treasury securities, the more the Federal Reserve will mop up the excess liquidity. In doing so, the Fed essentially conjures up money and loans it to the government.

No matter what the government monkey statistics say, this is inflationary, plain and simple. The more money they print, the greater the level of inflation in the long-term. Meanwhile, as foreigners simultaneously reduce their US dollar holdings, this inflation will become more acutely felt in the US.

Option 3: Austerity

There’s going to come a time when the US government is forced to face its economic reality and make some incredibly deep cuts that would be felt across society, from Wall Street and the military industrial complex to project housing on the other side of the tracks.

Option 4: Default

Eventually, the debt burden is simply going to be too much, and the most obvious solution will be to default. Politicians will make China out to be the enemy and they will probably invent a war just to have an excuse to default on Chinese owned debt. Americans will wave the flag and celebrate defaulting on their enemies.

Option 5: Economic Cannibalism

In the best traditions of Atlas Shrugged, the government will continue its persecution of the productive class– professionals, investors, entrepreneurs, and skilled workers. Existing taxes will rise, new taxes will be created, trade barriers will be enacted, and a maze of cost prohibitive regulations will be passed.

The first option (keeping the party going) is what has been happening for years. Politicians make small concessions to show they’re “serious” about fiscal discipline, cutting laughably small programs while dumping hundreds of billions of dollars into wars and entitlement programs.

The worse the debt situation becomes, though, the higher the borrowing costs become, and the worse the debt situation becomes. It’s not an enviable position. Existing lenders will continue backing away from the US Treasury market, giving option 1 a half-life measured in months at best.

Why Do Banks Keep Going Bankrupt?

Moral Hazard, Regulation, and a Century of Systemic Bank Insolvency

by KIRBY R. CUNDIFF

The banking industry is unstable. Banks are regularly going bankrupt. Crises in the banking industry have occurred in three distinct time periods during the twentieth century—during the Great Depression of the 1930s, during the Savings and Loan crisis of the 1980s and 1990s, and during the Great Recession from 2007 to present.

Why the banking industry is so vulnerable to bankruptcies and what can be done to correct this problem?

Debt to assets, or leverage, ratios vary significantly from industry to industry. They are typically under ten percent in most high tech industries and go up to forty percent for public utilities. Average debt ratios in the banking and financial services industry are in the fifty to seventy percent range, however, and many banks have much higher leverage ratios.

Firms attempt to minimize their total financing costs or Working Average Cost of Capital (WACC). The component costs of capital (cost of debt and cost of equity) are determined by investors’ perceptions of the risk and return possibilities associated with buying debt or equity in a given company or individual.

A credit card loan has a higher interest rate than a home loan because the credit card loan is riskier—i.e. there are no assets to seize if the money is not paid back. Similarly, a high-risk company normally pays a higher interest rate on its debt than a lower-risk company and increasing leverage is normally associated with increasing risk. Due to deposit insurance, however, this isn't the case with banks.

Moral Hazard

The Federal Deposit Insurance Corporation (FDIC) insures deposits up to $250,000 in the United States. Most of the European countries (including Cyprus) have similar organizations that insure deposits up to 100,000 EUR. (See Deposit Insurance.)

Generation Jobless

Spoiled by the Srate

By TOM SLATER

Britain’s unemployed youth need to develop greater self-reliance.

Last week, youth unemployment was once again at the top of the UK political agenda when labour-market statistics revealed that the Lib-Con coalition government’s flagship £1 billion scheme to help young people into work had proved a complete failure.

The Youth Contract aimed to create half a million new opportunities for so-called NEETs (people not in education, employment or training), by offering £2,275 in short-term subsidy to companies willing to take on and train a young person for an initial six months of on-the-job training. However, since launching in April 2012, only 21,000 applications were made out of the 160,000 subsidies allocated.

It’s easy to see why. The idea that cash-strapped businesses, otherwise unable to recruit new employees, much less inexperienced school-leavers, would take part is moronic. Despite the subsidy, one assumes many companies were naturally hesitant about taking on and training staff to whom they can’t offer long-term employment.

Unfortunately, rather than draw a line under the whole silly business, the government and the opposition are angling for new, perhaps more pervasive alternatives. The scheme’s initial advisers are urging the government to follow Labour’s proposals for a full ‘work guarantee’ for those leaving education and entering the world of work. Meanwhile, a report published by the Social Mobility and Child Poverty Commission suggested the creation of a new administrative system that would help allocate jobs to those leaving school – mirroring services like UCAS which serve prospective university students.

Despite the evident flaws of such schemes, this renewed focus on the issue of youth employment has been cheered on by commentators. One writer for the New Statesman celebrated the fact that at least now politicians of all stripes were taking it seriously. However, there’s no escaping the fact that the highlighting of this supposedly ‘jilted generation’ as unique victims of the economic crisis is constantly being spouted by commentators and politicians. Many bemoaned the fact that the vast majority of new apprenticeships created by the coalition have been taken up by those over 25, while there is constant talk of slashing winter fuel allowances for pensioners. This debate assumes that 16- to 24-year-olds, presented as the poor victims of an economy whose failure they had no hand in, are to be held up as worthy of our utmost sympathy and support.

Obamacare’s Magical Thinkers

Not even the coolest president ever can conjure up a national medical regime for 300 million people

By Mark Steyn

If you’re looking for an epitaph for the republic (and these days who isn’t?) try this — from August 2010 and TechCrunch’s delirious preview of Healthcare.gov:

“We were working in a very very nimble hyper-consumer-focused way,” explained Todd Park, the chief technology officer of the U.S. Department of Health and Human Services, “all fused in this kind of maelstrom of pizza, Mountain Dew, and all-nighters . . . and, you know, idealism. That kind of led to the magic that was produced.”

Wow. Think of the magic that Madison, Hamilton, and the rest of those schlubs could have produced if they’d only had pizza and Mountain Dew and been willing to pull a few all-nighters at Philadelphia in 1787. Somewhere between the idealism and the curling slice of last night’s pepperoni, Macon Phillips, the administration’s director of new media, happened to come across a tweet by Edward Mullen of Jersey City in which he twitpiced his design for what a health-insurance exchange could look like. So Phillips printed it out to show his fellow administration officials:

“Look, this is the sort of creativity that is out there,” he said. “One thing led to another and he left Jersey City to come to D.C. and helped push us through an information architectural process.”

Don’t you just love it! This is way cooler than the decline and fall of the Roman Empire: The only “architectural process” they had was crumbling viaducts. I think we can all agree that Barack Obama is hipper than all other government leaders anywhere, ever, combined. Unfortunately, the dogs bark and the pizza-delivery bike moves on, and, in the cold grey morning after of the grease-stained cardboard box with the rubberized cheese stuck to it, Obamacare wound up somewhat less hipper and, in fact, not even HIPAA — the unpersuasively groovy acronym for federally mandated medical privacy in America. Appearing before Congress on Thursday, the magicians of Obamacare eventually conceded that, on their supposedly HIPAA-compliant database, deep in the “information architectural process” is a teensy-weensy little bit of “source code” that reads, “You have no reasonable expectation of privacy regarding any communication of any data transmitted or stored on this information system.”

Democrat members of the House committee professed to be bewildered at why anyone would be either surprised or upset to discover that his information can be shared with anyone in the federal government, including a corrupt and diseased IRS that uses what confidential information it can acquire to torment perceived ideological enemies. And at a certain level the more blasé of the people’s representatives such as New Jersey’s Frank Pallone have a point: If Obama thinks nothing of tapping Angela Merkel’s cell phone (as she had cause to complain to him on Wednesday, in what was said to be a “cool” conversation, and not in the hepcat sense), why would he extend any greater privacy rights to your Auntie Mabel?

Longing for Dictatorship

Their political ideology is steeped in hatred for your liberty and property

by Llewellyn H. Rockwell Jr.

Politics brings out the worst in everyone, which is one good reason to completely depoliticize society. This way we can all busy ourselves in productive work or leisure, instead of wasting vast time watching these clowns on television promise the impossible to us.

What we are being offered on television is two flavors of dictatorship. One party imagines Athens, with fairness and justice for all, international brotherhood and sisterhood, a world free of hate and discrimination in which all wealth is shared and no wealth is made at the expense of nature.

Of course, this is an Athens of their own invention, since the original's culture and accomplishments depended on free trade, private ownership, sound money, and low taxes. What the Democrats are offering is a monstrously larger state that assumes control of all property, the crushing of private initiative, and an end to economic freedom.

Note that they don't talk about this. But that is the core of all their plans for fairness and justice: an increased use of violence in society, and an increased centralization of political power. Often the person who recommends this path imagines that he will be the dictator, and that his plans alone will prevail.

They don't consider that the state they advocate is also wholly capable of doing things that they do not like, like crushing civil liberties and starting wars all over the world. Note that the Left's critique of Bush's big government is not that it is crushing liberty; rather, they believe that government power is being used for the wrong purposes.

Another problem with these people: they can't stand capitalism. They resent the commercial society. They have not come to terms with the fact that without capitalism, most of the human race would starve to death.

Why do they hate it?

Because wealth under capitalism will always be unequally distributed.

They favor a different form of dictatorship.

Now to the Republicans, who imagine themselves creating a modern form of Sparta, with military strength and a disciplined citizenry unified in the drive to national greatness, courage, and heroism. Along with this comes support for national service (the draft) and a demand that Congress stop meddling in executive-branch matters.

Why Obama Should Keep Sebelius

There is something deeply wrong with our republic

By PATRICK J. BUCHANAN

The pots and pans are clanging for the ouster of Health and Human Services Secretary Kathleen Sebelius as the Obamacare website rollout takes on the aspect of that of the Edsel.

Yet, though it is a website that has America laughing, Obama’s legacy legislation itself could, in its entirety, be in peril. As ex-pilot George W. Bush used to say, this thing looks like a five-spiral crash.

Republicans are clamoring for Sebelius’s firing.

Herewith, a dissent. Why not leave her right where she is?

After all, Sebelius’s continuance testifies more eloquently than any attack ad just how far Obama’s beliefs about government and political philosophy are beyond the Middle American mainstream.

In most great U.S. corporations, if an executive had three years to roll out the product on which the company’s future might depend, and delivered this debacle, he would be gone. Panic would ensue. Emergency meetings of the board would be held to determine if more heads should roll and who should be brought in to save the company.

Outside of government, people routinely pay for their mistakes. Inside, there is often no penalty, no price, no punishment for failure.

To Obama, a mess that has members of his own party calling for suspending Obamacare for a year is just the result of “glitches.”

Still good enough for government work.

Here in D.C., many live outside the laws that rule the rest of America. Average salaries are higher and benefits superior to the private sector. Job security is greater. In-grade promotions and pay hikes are routine. And that ruthless meritocratic principle—success brings promotions, failure leads to demotions and departure—is suspended.

While no startup company, symphony orchestra, chess club, or hockey team would, a priori, insist that every racial and ethnic group, gender and sexual preference be represented at birth, such nonsense is serious business here.

Here in D.C., affirmative action comes first, before excellence, diversity before efficiency.

The boom and bust cycle

There is no means of avoiding a final collapse of a boom brought about by credit expansion

By Eugen von Böhm-Bawerk Blog

As is clear to all with half a brain the production of un-backed fiat money distorts the economic system. Simply told, when an entity in society is given monopoly to manufacture medium of exchange at its own discretion they will harness this power. Slowly at first, unsure about its effects, but always testing the limits of the privilege bestowed upon them.

As always, they will overexploit the power. They will manufacture money and give it to the masters that coercively secure the continuation of the power. The masters will obviously spend the money, creating a transaction in which nothing is payment for something. These transactions are by definition unsustainable because they violates Say`s law. We call them “bubbles”

In a free market supply is used to create its own demand. When people spend fiat money they exercise demand without providing supply. Said in other words, spending fiat money is tantamount to capital consumption and makes society poorer.

While the boom that follows money spending feels good, it must inevitably come to an end because the economic system cannot maintain the constellation that was induced by the money printing in the first place. Within the boom lays the seed for the necessary bust.

We have made a metric that sums up fiat money in its purest sense and compared that to the underlying trend growth of nominal GDC.

Our hypothesis is simple: if money growth exceeds the GDC metric a deflationary busts will inevitably come. If authorities refuse to accept reality and print more fiat money at the first sign of bust, they may “save the day” but they will “ruin tomorrow”!

Happiness is being able to wipe one's @$$ ...

A Happiness Bureau for the Bolivarian Paradise!

BY JORGE RUEDA

Americans may insist on the right to pursue happiness, but Venezuela now has a formal government agency in charge of enforcing it.

President Nicolas Maduro says the new Vice Ministry of Supreme Social Happiness will coordinate all the "mission" programs created by the late President Hugo Chavez to alleviate poverty.

Wags had a field day Friday, waxing sarcastic on Twitter about how happy they felt less than 24 hours after the announcement.

Oil-rich Venezuela is chronically short of basic goods and medical supplies. Annual inflation is running officially at near 50 percent and the U.S. dollar now fetches more than seven times the official rate on the black market.

In downtown Caracas, fruit vendor Victor Rey said he's now waiting for Maduro to create a vice ministry of beer.

"That would make me, and all the drunks, happy," he said.

A TV journalist whose show was recently forced off the air after he refused to censor political opponents of the ruling socialists, Leopoldo Castillo, called Maduro's announcement an international embarrassment.

Housewife Liliana Alfonzo, 31, said that instead of a Supreme Happiness agency she'd prefer being able to get milk and toilet paper, which disappear off store shelves minutes after arriving at stores.

"It's a Calvary getting the ingredients for any meal," she said.

Maduro blames the shortages on speculation and hoarding, but merchants say they would go broke if they adhered to government price controls.

Chavez spent billions on social programs, from benefits for single mothers to handouts of apartments and major appliances.

Maduro was elected April 14 as Chavez's chosen successor. 

How the Dollar Could Eventually Collapse

Chinese are building a financial infrastructure that would free the world from dependency on the dollar

By WILLIAM TUCKER

Two events last week were a reminder, as if any were still needed.

The great issue in Washington that divides Republican and Democrats is whether we can go on running deficits and piling up the national debt without some day reaching a point of reckoning.

Democrats adhere to the Keynesian/Paul Krugman school, which says that “deficits don’t matter,” “we owe it to ourselves,” and that printing money is the best and fairest way to stimulate the economy. (Actually, this viewpoint is adopted by whichever party happens to be in power. The Republicans argued the same thing when they controlled the government during the Bush and Reagan years.)

The Republicans and other green-eyeshade types argue that out-of-control deficit spending can’t go on. It’s like a household budget. Any country that runs up a negative account balance will eventually hit bankruptcy. If it tries to inflate its way out of debt, people will start to doubt the value of money and the currency will collapse. Savings will be wiped out and the nation will become penurious.

So far the neo-Keynesians seem to be winning. Federal Reserve Chairman Ben Bernanke has been pursuing his policy of “quantitative easing” (which just means printing more dollars) for five years without producing any negative consequences. Inflation has remained low and the dollar has actually strengthened against some currencies, particularly the Euro as European countries sink into their own financial crises. True, we have now run up a national debt of approximately 100 percent of GDP, which is exactly where Greece was when things started to fall apart. But as everyone observes, no one really thinks the United States is as vulnerable as a little country 11 million people that lives on olives and tourism.

Then there is the example of Japan. The Japanese have had a national debt of 200 percent of GDP for nearly a decade. True, their economy has been in the doldrums for almost two decades and no one talks about the Japanese overtaking the American economy anymore. But once again the Japanese experience seems to confirm that “deficits don’t matter.” You can run up a huge national debt without suffering any immediate consequences.

Two things happened in London last week, however, that indicate there might be a flaw to this argument after all. There won’t be any consequences next week or the week after, but in the long run they may point to the place where America’s house of cards — or paper dollars — could eventually collapse. As Kenneth Rogoff, co-author ofThis Time It’s Different, says, “Any country that sits with a historically large debt for too long is taking a chance that some out-of-the-box event will shake up markets and raise interest rates to the point where funding becomes very painful. Wars and unexpected catastrophes do happen and the historical transformations that follow can occur.”

So here’s what happened in London:

·   The British, faced with declining natural gas production in the North Sea and reluctant to embrace fracking, are facing power blackouts this winter. So they have decided to go with nuclear. They have quickly discovered, however, that America no longer has a nuclear industry and France, the one European country that has embraced nuclear, is bogged down in bureaucracy and political opposition. So they have turned to the country where nuclear construction and technology are making rapid progress — China. Last week Chancellor of the Exchequer George Osborne announced he would allow Chinese nuclear companies to invest in British reactor projects and eventually take ownership of them.

·   Almost simultaneously, the Exchequer announced that Britain will allow Chinese banks to set up branches for wholesale banking in London. The decision is part of an effort to steal a mark on Frankfurt and Paris to become the hub of trading in the Yuan, the Chinese currency, in Europe. Having Chinese banks operating in London will allow direct trading between the Yuan and the British pound, instead of going by way of the dollar as things are done now.

Your Tax Money At Work

Lines Of Code In Healthcare.Gov

SOURCES

1.      Google Chrome - https://www.ohloh.net/p/chrome

2.    Linux Kernel - https://www.ohloh.net/p/linux

3.    Windows XP - https://www.facebook.com/windows/posts/155741344475532

4.    Facebook.com (likely larger, does not include several backend components) - http://www.quora.com/Facebook-Engineering/How-many-lines-of-code-is-Facebook

5.     OSX 10.4 - http://www.engadget.com/2006/08/07/live-from-wwdc-2006-steve-jobs-keynote/

6.    Debian 5/packages - http://debian-counting.libresoft.es/lenny/index.php?menu=Statistics

7.     Healthcare.gov - http://www.nytimes.com/2013/10/21/us/insurance-site-seen-needing-weeks-to-fix.html?pagewanted=2&_r=0

A democratic nightmare

Seeking to confront the rise of Eurosceptics and fill the democratic deficit

By The Economist

TO ITS critics the European Union was born in sin: a project devised by and for the elites, lacking democratic legitimacy. All attempts to make good the “democratic deficit”, a term coined in the 1970s, have failed. Direct elections to the European Parliament (EP)? Turnout has fallen ever since they were instituted in 1979. Give the assembly real power? The parliament has never had more clout, yet trust in the EU is at an all-time low.

Europe’s economic crisis is making this chronic problem acute. One reason is that, particularly in the euro zone, Brussels is intruding ever deeper into national life, meddling in everything from budgets to pensions and wage-setting. Another reason is the expected backlash from voters in next May’s election to the EP. There will be big gains for anti-EU and anti-immigrant parties of all colours—from the sharp-tongued nativists of the UK Independence Party to the thuggish neo-Nazis of Golden Dawn in Greece. Eurosceptic parties could top the polls in France, Britain and the Netherlands; they will do well in Finland and Italy; and in milder guise they could win seats for the first time in Germany.

The sense of alarm is palpable. François Hollande, the French president, says the rise of nationalists and Eurosceptics would bring “regression and paralysis”. Enrico Letta, Italy’s prime minister, reckons Eurosceptics could win up to a third of the seats. Radicals and populists are a disparate bunch, preferring to give speeches than influence policy, so centrists should still be able to get parliamentary business done. Perhaps the bigger influence will be the poisoning of domestic politics, which would hamper decision-making by governments.

How to respond? Mr Letta is among those who want to galvanise pro-European forces by turning the European election into a contest for the next president of the European Commission. The main European political “families”, the broad coalitions of national parties that dominate parliament, say they will each campaign behind a “presidential” candidate. The Socialists seem likely to choose Martin Schulz, the feisty German president of the EP. The greens plan an open primary. The conservatives, likely to remain the biggest grouping, still seem to be in a quandary.

Advocates hope to inject excitement, strengthen the commission’s democratic mandate, focus the contest on European issues, and raise the stakes to avoid the ballot turning into a protest against unpopular national governments. Unless there is some blood-and-guts politics, they say, citizens will turn to populists.

Capital Accumulation Versus Capital Consumption

Economies are Not Destroyed in a Day

by Nicolás Cachanosky

Earlier this month, Argentina's leading conservative paper, La Nación published an unsigned editorial comparing the economies of Argentina and Venezuela. The editorial concluded that as economic freedom declines in Argentina, and as Argentina adopts more of what Chavez called “twenty-first century socialism,” it is becoming increasingly similar to Venezuela. Is this true? Will Argentina suffer the same fate as Venezuela where poverty is increasing and toilet paper can be a luxury?

The similarities of regulations and economic problems facing both countries are indeed striking in spite of obvious differences in the two countries. Yet, when people are confronted with the similarities, it is common to hear replies like “but Argentina is not Venezuela, we have more infrastructure and resources.”

Institutional changes, however, define the long-run destiny of a country, not its short-run prosperity.

Imagine that Cuba and North Korea became, overnight, the two most free-market, limited-government countries in the world. The two countries would have immediately gained civil liberties and economic freedom, but they would still have to accumulate wealth and to develop their economies. The institutional change affects the political situation immediately, but a new economy requires time to take shape. For example, as China opened parts of its economy to international markets, the country started to grow, and we are now seeing the effects of decades of relative economic liberalization. It is true that many areas in China continue to lack significant freedoms, but it would be a much different China today had it refused to change its institutions decades ago.

The same occurs if one of the wealthiest and developed countries in the world were to adopt Cuban or North Korean institutions overnight. The wealth and capital does not vanish in 24 hours. The country would shift from capital accumulation to capital consumption and it might take years or even decades to drain the coffers of previous accumulated wealth. In the meantime, the government has the resources to play the game of Bolivarian (i.e., Venezuelan) populist socialism and enjoy the wealth, highways, electrical infrastructure, and communication networks that were the result of the more free-market institutional realities of the past.

Eventually, though, highways start to deteriorate from the lack of maintenance (or trains crash in the station killing dozens of passengers), the energy sector starts to waver, energy imports become unavoidable, and the communication network becomes obsolete. In other words, economic populism is financed with resources accumulated by non-populist institutions.

Cuts succeeded where stimulus failed

America has shown that stimulus is pointless — how can a poor person spend himself to prosperity?

by Arthur B. Laffer

All the drama coming out of Washington in the last few weeks has obscured some seriously good news: federal government spending is falling. And not at a trickle: think the White Cliffs of Dover. Not since the economic boom following 1945 have Americans seen such a rapid decline in the government’s claim on the nation’s resources — falling by a welcome $94 billion over two years. You need to go back to the end of the Korean war to find a time when US government spending has actually declined over two years. If Republicans in the House stick to the sequester and future caps already built into current budget law, federal spending will stay at this low level for years to come.

For liberals who thought that Barack Obama’s second term would mean a new multi-trillion-dollar Great Society spending binge, such as we saw from 2009 to 2011, all this is a cold shower of fiscal reality. For Keynesians who believe that government spending cuts are ‘austerity’, this is also miserable news: they expect the worst. But the signs are that this contraction in the size of government is a big plus for the American economy. It’s now happening much more quickly here than it is in Britain. Americans are moving faster towards fiscal sanity — and are already feeling the benefit.

It is clear, now, that a massive stimulus administered was an abject failure. It condemned America to the worst recovery in its history — including the 1930s. But when politicians make decisions while either panicked or drunk, the consequences are rarely edifying or attractive. US Treasury secretary Hank Paulson hyperventilating before Congress to pass his three-page stimulus bill granting him total authority to spend $700 billion to save the economy was a sight to behold. Why, he even insisted the need was so urgent that there was no time for hearings, reviews or oversight. And passed it was — with some $2.8 trillion additional stimulus funds over the coming few years. And what happened? American unemployment levels soared.

Whose Islam?

It was a busy weekend for Nothing to Do with Islam

By mark steyn

The "war" part of the war on terror is pretty much over, and we're now fighting it culturally, rhetorically. Which is not something we do well. Take the British prime minister and his traditional nothing-to-do-with-Islam statement, issued in the wake of the Kenyan shopping-mall carnage:

These appalling terrorist attacks that take place where the perpetrators claim they do it in the name of a religion: They don't. They do it in the name of terror, violence and extremism and their warped view of the world. They don't represent Islam, or Muslims in Britain or anywhere else in the world.

Same with the Muslims who beheaded a British soldier, Drummer Rigby, on a London street in broad daylight. On that occasion, David Cameron assured us that the unfortunate incident was "a betrayal of Islam. . . . There is nothing in Islam that justifies this truly dreadful act."

How does he know? Mr. Cameron is not (yet) a practicing Muslim. A self-described "vaguely practicing" Anglican, he becomes rather less vague and unusually forceful and emphatic when the subject turns to Islam. At the Westgate mall in Nairobi, the terrorists separated non-Muslim hostages from Muslims and permitted the latter to leave if they could recite a Muslim prayer—a test I doubt Mr. Cameron could have passed, for all his claims to authority on what is and isn't Islamic. So the perpetrators seem to think it's something to do with Islam—and, indeed, something to do with Muslims in the United Kingdom, given that the terrorists included British subjects (as well as U.S. citizens).

It was a busy weekend for Nothing to Do with Islam. Among the other events that were nothing to do with Islam were the murder of over 85 Pakistani Christians at All Saints' Church in Peshawar and the beheading of Ricardo Dionio in the Philippines by BIFF, the aggressively acronymic breakaway faction (the Bangsamoro Islamic Freedom Fighters) from the more amusingly acronymic MILF (the Moro Islamic Liberation Front). Despite a body count higher than Kenya, the Pakistani slaughter received barely a mention in the Western media. You'd be hard put to find an Anglican church in England with a big enough congregation on a Sunday morning to kill 85 worshipers therein, but in Peshawar, a 99 percent Muslim city, the few remaining Christians are not of the "vaguely practicing" Cameron variety. Viewed from London, however, they've already lost: One day there will be no Christians in Peshawar and the city will be 100 percent Muslim. It may be "nothing to do with Islam," but it's just the way it is: We accept the confessional cleansing of Pakistan, as we do of Egypt, because it's part of "the Muslim world." Nairobi, on the other hand, is not, and a murderous assault on an upscale shopping mall patronized by Kenya's elite and wealthy secular expats gets far closer to the comfort zone wherein David Cameron "vaguely practices": In a "clash of civilizations" in which one side doesn't want to play, a shattered church has less symbolic resonance than a shattered frozen-yogurt eatery.