A Phalanx of Lies

Remember that health insurance you could keep?

By  Mark Steyn

CNN has been pondering what they call “a particularly tough few days at the White House.” “Four out of five Americans have little or no trust in their government to do anything right,” says chief political analyst Gloria Borger. “And now Obama probably feels the same way.” Our hearts go out to him, poor wee disillusioned thing. We are assured by the headline writers that the president was “unaware” of Obamacare’s website defects, and the NSA spying, and the IRS targeting of his political enemies, and the Justice Department bugging the Associated Press, and pretty much anything else you ask him about. But, as he put it, “nobody’s madder than me” at this shadowy rogue entity called the “Government of the United States” that’s running around pulling all this stuff. And, once he finds out who’s running this Government of the United States rogue entity, he’s gonna come down as hard on him as he did on that videomaker in California; he’s gonna send round the National Park Service SWAT team to teach that punk a lesson he won’t forget.

Gloria Borger and CNN seem inclined to swallow the line that the president of the United States is not aware that he is president of the United States: For the media, just a spoonful of bovine manure makes the Obamacare medicine go down. It remains to be seen whether the American citizenry will be so genially indulgent. Hitherto, most of what the president claims to be unaware of, they are genuinely unaware of: Few people have plans to vacation in Benghazi, or shoot the breeze with Angela Merkel on her cell phone. But Obamacare is different: Whether or not the president is unaware of it, the more than 2 million Americans (at the time of writing) kicked off their current health-care plans are most certainly aware of it.

Politics of Prohibition

The Effects Of Prohibition Of Tobacco By Excessive Taxation

by Dušan Petrovski

When societies grow opulent life becomes more precious to the living. People have a good reason to want to live longer lives as more of the promises of Paradise become Earthly. As a result, the ever growing body of evidence of the harmful effects of tobacco products to human health has, not surprisingly, been met with alarm. 

Cigarettes, the most common tobacco product, have been discovered to not only cause harm to the direct user, but also to bystanders, as a result of so-called second-hand smoke. In response, anti-tobacco advocates and governments have lead a three-decade long charge which has seen smoking in most public places turn from familiar sight to a thing of the past. Likewise, tobacco advertizing and the selling of tobacco products to minors have become outright outlawed in North America and the European Union (EU). Further, the EU has exerted pressure on candidates for membership to adopt its laws regarding tobacco advertizing and smoking in public places. As these measures failed at their stated goal on the one hand; and as governments grew in need of more revenues to pay for social programs on the other hand, a new approach was introduced in the War on Smoking: Prohibition-By-Taxation. 

While anti-tobacco activists have the best of intentions in mind, through an application of analysis of the economics of prohibition, this paper will demonstrate that prohibition-by-taxation is an unwise course of action since it encourages organized crime in the form of smuggling, fails to curb people’s tobacco consumption habits, and adversely impacts low income communities. For these reasons government efforts to dissuade people from consuming tobacco ought to be abandoned. Despite the author’s awareness of dissenting arguments concerning the actual harmfulness of tobacco products, this view will be completely ignored, for the express purpose of analyzing the effectiveness of prohibition-by-taxation.

Anti-Semitism Now Mainstream in France

No laughing matter

By Guy Milliere

A few weeks ago, when French Jewish actor Elie Semoun was a prime-time guest on one of the main French television channels, Canal Plus, the words of Sebastian Thoen, a standup comedian who introduced him may have been meant to be to be laudatory, but took quite a different turn: "You never plunged into communitarianism [Jewish activism] ... You could have posted yourself in the street selling jeans and diamonds from the back of a minivan, saying 'Israel is always right, f*** Palestine, wallala.' You show that it is possible to be of the Jewish faith without being completely disgusting."

Semoun was obviously ill-at-ease, but did not react. A couple hours after the show, the Representative Council of Jewish Institutions of France (CRIF) issued a statement denouncing a "dangerous trivialization of anti-Semitism." The President of the TV channel responded by saying that the Jewish community had "no sense of humor." The incident occurred, however, in a context where the French Jewish community has no reason to have a sense of humor.

At the end of 2012, Jewish France was republished. The book is a tirade of extreme anti-Semitism, originally published in 1886 by the author Edouard Drumont, and reprinted repeatedly until after World War II and the fall of the Vichy regime.

Egypt's dark tunnel of violence

So far over 1,000 protesters from the Brotherhood's "anti-coup" alliance have been killed

By Adil E Shamoo
The Egyptian people face a very difficult choice. They must choose a path that does not lead toward greater violence, further economic decline, dictatorship, or even civil war. Egypt must somehow avoid the fate of Syria (a civil war with over 100,000 civilian casualties), Iraq (a confessional conflict that produces over 10,000 deaths a year), and Libya (an anemic government and rampant lawlessness). Egypt is the heartbeat of the Arab world, and the path it chooses will have a profound influence on all Arabs.

Unfortunately, Egypt's current path may take the country into a dark tunnel with unknown and dire consequences.

On July 3, 2013, the Egyptian military agreed with the demands of nearly 20 million Egyptians who had demonstrated for the ouster of the elected president of Egypt, Mohamed Morsi of the Muslim Brotherhood. At the time, I refused to call the military intervention a coup, since the military was responding to the overwhelming desire of the Egyptian people. I, too, hoped that the military rule would be temporary and followed by a more secular constitution along with free and fair elections.

The current status indicates otherwise. The events since the ouster of Morsi have been ominous for democracy and Egypt.

Cracking down on the Brotherhood
The leader of the military coup, General Abdel Fattah al-Sisi, has led a fevered charge against the Muslim Brotherhood. The continuous, fervent pro-Morsi demonstrations by the Muslim Brotherhood have been met with reactions ranging from arrests to slaughter of demonstrators. There have been larger and equally fervent pro-al-Sisi demonstrations, with frequent clashes between the two groups. Car bombs against government officials and the military are also on the rise. Government supporters accuse the Muslim Brotherhood of terrorism while the Muslim Brotherhood accuses the government of killing innocent people and terrorizing the opposition.

Obamacare’s Pyrrhic Victory

“Nothing is lost save honor.”

By PATRICK J. BUCHANAN

So said Jim Fisk after he and Jay Gould survived yet another scrape in their corrupt and storied careers in the Gilded Age

Fisk’s dismissal of honor came to mind while watching Barack Obama in Boston smugly explain how his vow—”If you like your health care plan, you can keep it!”—was now inoperative.

All along, it had been a bait-and-switch by the first hustler.

In Boston, Obama could no longer evade the truth. Hundreds of thousands of Americans who had purchased health insurance in the private market were getting notices their plans were being canceled.

That this revelation had blown a hole in his credibility did not seem to trouble Obama. Indeed, the president appeared impatient with the complaints. These were “substandard” plans anyhow, he said, the lousy offerings of “bad-apple insurers.”

“So if you’re getting one of those letters (canceling your insurance plan), just shop around in the new marketplace. … You’re going to get a better deal.”

Behind the arrogance is the reality: Obama has the veto power. No alteration of Obamacare, except for changes he approves, can be made before the winter of 2017. And by then, Obamacare will be so deeply embedded in law and practice it will be beyond repeal.

We won, you lost, was written across Obama’s face.

Yet, Obama’s victory calls to mind that of King Pyrrhus of Epirus over the Romans at Asculum as described by Plutarch. Counting up his dead friends, dead commanders and dead soldiers, the king remarked, “Once more such victory and we are undone.”

The price Obama will be a long time paying for this victory is historic and huge.

Third-Party Statism

Freeborn Americans may not gaze upon their presidents without the permission of the bureaucracy

by Mark Steyn

There's a certain amount of lingo that comes with the provision of health care. In most developed countries, these words are "doctor," "nurse," "scalpel," "appendix," that sort of thing. But American health care has its own unique vocabulary: "co-pay," "HMO," "COBRA," "doughnut hole" . . . And we're always adding to it. The latest word is "exchanges." A mere twelve months ago "exchanges" were something to do with stocks or trying to get a larger size when you're given a too-tight thong for Christmas. Now, suddenly, it's the new health-care buzzword. You go to the federal website for the "exchanges," if you can get through, and they redirect you to the state websites for the "exchanges," if they're working. In Oregon, there are some 1,700 different rules that determine eligibility for the new "exchange." In Maryland, you're advised that "we may share information provided in your application with the appropriate authorities for law enforcement and audit activities." But we're used to all that by now, aren't we? The point is it's going to be complicated, time-consuming, and in breach of almost any elementary understanding of privacy. That's what makes it quintessentially American.

Most developed nations have a public health-care system and a private health-care system — of variable quality, to be sure, but all of them far simpler to navigate than America's endlessly mutating fusion of the worst of both worlds. Obamacare stitches together the rear ends of two pantomime horses and attempts to ride it to the sunlit uplands. Good luck with that. But we should remember that this disaster has been a long time incubating. The Democrats' objection to the pre-Obama "private" health system is that Americans wound up spending more than any other country for what they argued were inferior health outcomes. But the more telling number is revealed by Avik Roy elsewhere in this issue: In 2010 (in other words, before Obamacare), U.S. government expenditures on health care were higher than those in all but three other countries in the world. Quick, name a European social democracy full of state-suckled wimpy welfare queens: France? $3,061 per capita in public-health expenditures. Sweden? $3,046 per capita. Belgium? $3,000. In 2010 the United States spent $3,967 in public-health expenditures per person — more than anywhere on the planet except Norway, the Netherlands, and Luxembourg. I am confident that, under Obamacare, we'll be outspending even the Norwegians. But in reality our so-called private system was a public system in all but name.

Chronicling The Decline And Fall Of Entitlement Democracy

Hoping that x times y is less than y

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 un-distracted 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?

From Bismark to Schaeuble

The endgame of socialism and central planning is always the same

By Wolfgang Schaeuble’s own admission , Europe has an intractable problem.

“We need to be more successful in our fight against youth unemployment, otherwise we will lose the battle for Europe’s unity,” Schaeuble said.

If U.S. welfare standards were introduced in Europe, “we would have revolution, not tomorrow, but on the very same day,” Schaeuble told a conference in Paris.

Uh, Mr. Schaeuble? Welfare causes unemployment. Its voracious apetite for capital defunds productive enterprise. Its perverse incentive encourages sloth and discourages work. Skyrocketing budget deficits crowd out private borrowers, and force central banks to lower the rate of interest to keep the budget deficit from exploding.

And now you have reached the endgame. You cannot provide employment to the youth. And you will soon fail to be able to provide welfare. The endgame of socialism and central planning is always the same. 

Theory of Interest and Prices in Paper Currency Part V (Falling Cycle)

The falling cycle is a cycle of capital churn

by Keith Weiner

In Part I, we looked at the concepts of nonlinearity, dynamics, multivariate, state, and contiguity. We showed that whatever the relationship may be between prices and the money supply in irredeemable paper currency, it is not a simple matter of rising money supply à rising prices.

In Part II, we discussed the mechanics of the formation of the bid price and ask price, the concepts of stocks and flows, and the central concept of arbitrage. We showed how arbitrage is the key to the money supply in the gold standard; miners add to the aboveground stocks of gold when the cost of producing an ounce of gold is less than the value of one ounce.

In Part III, we looked at how credit comes into existence via arbitrage with legitimate entrepreneur borrowers. We also looked at the counterfeit credit of the central banks, which is not arbitrage. We introduced the concept of speculation in markets for government promises, compared to legitimate trading of commodities. We also discussed the prerequisite concepts of Marginal time preference and marginal productivity, and resonance.

In Part IV, we discussed the rising cycle. The central planners push the rate of interest down, below the marginal time preference and unleash a storm whose ferocious dynamics are more than they bargained for. The hapless subjects of the regime have little recourse but they do have one seeming way out. They can buy commodities. The cycle is a positive feedback loop of rising prices and rising interest rates. Ironically, their clumsy attempt to get lower interest results in rising interest. Alas, the cycle eventually ends. The interest rate and inventory hoards have reached the point where no one can issue more bonds or increase their hoards.

Theory of Interest and Prices in Paper Currency Part IV (Rising Cycle)

What happens if the central bank pushes the rate of interest below the marginal time preference?

by Keith Weiner

In Part I, we looked at the concepts of nonlinearity, dynamics, multivariate, state, and contiguity. We showed that whatever the relationship may be between prices and the money supply in irredeemable paper currency, it is not a simple matter of rising money supply à rising prices.

In Part II, we discussed the mechanics of the formation of the bid price and ask price, the concepts of stocks and flows, and the central concept of arbitrage. We showed how arbitrage is the key to the money supply in the gold standard; miners add to the aboveground stocks of gold when the cost of producing an ounce of gold is less than the value of one ounce.

In PartIII, we looked at how credit comes into existence via arbitrage with legitimate entrepreneur borrowers. We also looked at the counterfeit credit of the central banks, which is not arbitrage. We introduced the concept of speculation in markets for government promises, compared to legitimate trading of commodities. We also discussed the prerequisite concepts of Marginal time preference and marginal productivity, and resonance.

Part III ended with a question: 

“What happens if the central bank pushes the rate of interest below the marginal time preference?”

To my knowledge, Antal Fekete was the first to ask this question[1]. It is now time to explore the answer.

We are dealing with a cycle. It is not a simple or linear relationship between quantity X and quantity Y, much to the frustration of students of economics (and central planners).

The cycle begins when the central bank pushes the rate of interest down, below the rate of marginal time preference. Unlike in the gold standard, under a paper currency, the disenfranchised savers cannot turn to gold. Perhaps it has been made illegal as it was in the U.S. from 1933 to 1975. Or it could merely be taxed and creditors placed under duress to accept repayment in irredeemable paper. Whatever the reason, the saver cannot perform arbitrage between the gold coin and the bond[2], as he could in the gold standard. He is trapped. The irredeemable paper currency is a closed loop system. The saver is not entirely without options, however.

He can buy commodities or finished goods.

Theory of Interest and Prices in Paper Currency Part III (Credit)

We are on a roller-coaster ride plunging the world into zero-velocity of money and into barter

by Keith Weiner

In Part I, we looked at the concepts of nonlinearity, dynamics, multivariate, state, and contiguity. We showed that whatever the relationship may be between prices and the money supply in irredeemable paper currency, it is not a simple matter of rising money supply –> rising prices.

In Part II, we discussed the mechanics of the formation of the bid price and ask price, the concepts of stocks and flows, and the central concept of arbitrage. We showed how arbitrage is the key to the money supply in the gold standard; miners add to the aboveground stocks of gold when the cost of producing an ounce of gold is less than the value of one ounce.

In this third part, we look at how credit comes into existence (via arbitrage, of course) with legitimate entrepreneur borrowers. We also look at the counterfeit credit of the central banks (which is not arbitrage). We introduce the concept of speculation in markets for government promises, compared to legitimate trading of commodities. We also discuss the prerequisite concepts. Marginal time preference and marginal productivity are absolutely essential to the theory of interest and prices. That leads to the last new concept resonance.

Theory of Interest and Prices in Paper Currency Part II (Mechanics)

The withdrawal of the gold bid on the dollar will bring about the collapse of the dollar 

By Keith Weiner

In Part I, we looked at the concepts of nonlinearity, dynamics, multivariate, state, and contiguity. We showed that whatever the relationship may be between prices and the money supply in irredeemable paper currency, it is not a simple matter of rising money supply à rising prices.

Here is a fitting footnote for Part I. I just bought a pair of Levis jeans at Macy’s for $45. I remember buying a pair of Levis Jeans in Macy’s in 1983 for $50. In 30 years, the price of Levis Jeans has fallen by 10%. By any conventional theory based on the money supply, the price should have risen by several hundreds of dollars.

In this part, we look at some mechanics, the understanding of which is a prerequisite to the theory of interest and prices. To truly understand anything, you have to know what happens in reality step by step. This is even more important in an abstract field like monetary science. We discuss stocks vs. flows, how prices are formed in a market, a broad concept of arbitrage, spreads, and how money comes into and goes out of existence.

Let’s drill down into a point I made in passing in Part I.

It is worth noting that money does not go out of existence when one person pays another.  The recipient of money in one trade could use it to pay someone else in another.  Proponents of the linear QTM[1] would have to explain why prices would rise only if the money supply increases.  This is not a trivial question. Prices rise whenever a buyer takes the offer, so no particular quantity of money is necessary for a given price (or all prices) to rise to any particular level.

Theory of Interest and Prices in Paper Currency Part I (Linearity)

“Two ways. Gradually, then suddenly."

By Keith Weiner

Under gold in a free market, the theory of the formation of the rate of interest is straightforward.[1] The rate varies in the narrow range between the floor at the marginal time preference, and the ceiling at the marginal productivity. There is no positive feedback loop that causes it to skyrocket (as it did up until 1981) and subsequently to spiral into the black hole of zero (as it is doing now). It is stable.

In irredeemable paper currency, it is much more complicated. In this first part of a multipart paper presenting my theory, we consider and discuss some of the key concepts and ideas that are prerequisite to building a theory of interest and prices. We begin by looking at the quantity theory of money. In our dissection, we will identify some key concepts that should be part of any economist’s toolbox.

This theory proposes a causal relationship between the quantity of money and consumer prices. It seems intuitive that if the quantity of money[2] is doubled, then prices will double. I do not think it is hyperbole to say that this premise is one of the cornerstones of the Monetarist School of economics. It is also widely accepted among many who identify themselves as adherents of the Austrian School and who write in critique of the Fed and other central banks today.

The methodology is invalid, the theory is untrue, and what it has predicted has not come to pass. I am offering not an apology for the present regime—which is collapsing under the weight of its debts—but the preamble to the introduction of a new theory.

Culture Of Ignorance - Part I

A nation of takers, fakers and blamers will not last long

 By Jim Quinn

“Five percent of the people think; ten percent of the people think they think; and the other eighty-five percent would rather die than think.”- Thomas Edison

The kabuki theater that passes for governance in Washington D.C. reveals the profound level of ignorance shrouding this Empire of Debt in its prolonged death throes. Ignorance of facts; ignorance of math; ignorance of history; ignorance of reality; and ignorance of how ignorant we’ve become as a nation, have set us up for an epic fall. It’s almost as if we relish wallowing in our ignorance like a fat lazy sow in a mud hole. The lords of the manor are able to retain their power, control and huge ill-gotten riches because the government educated serfs are too ignorant to recognize the self-evident contradictions in the propaganda they are inundated with by state controlled media on a daily basis.

“Any formal attack on ignorance is bound to fail because the masses are always ready to defend their most precious possession – their ignorance.” - Hendrik Willem van Loon

The levels of ignorance are multi-dimensional and diverse, crossing all educational, income, and professional ranks. The stench of ignorance has settled like Chinese toxic smog over our country, as various constituents have chosen comforting ignorance over disconcerting knowledge. The highly educated members, who constitute the ruling class in this country, purposefully ignore facts and truth because the retention and enhancement of their wealth and power are dependent upon them not understanding what they clearly have the knowledge to understand. The underclass wallow in their ignorance as their life choices, absence of concern for marriage or parenting, lack of interest in educating themselves, and hiding behind the cross of victimhood and blaming others for their own failings. Everyone is born ignorant and the path to awareness and knowledge is found in reading books. Rich and poor alike are free to read and educate themselves. The government, union teachers, and a village are not necessary to attain knowledge. It requires hard work and clinging to your willful ignorance to remain stupid.

The youth of the country consume themselves in techno-narcissistic triviality, barely looking up from their iGadgets long enough to make eye contact with other human beings. The toxic combination of government delivered public education, dumbed down socially engineered curriculum, taught by uninspired intellectually average union controlled teachers, to distracted, unmotivated, latchkey kids, has produced a generation of young people ignorant about history, basic mathematical concepts, and the ability or interest to read and write. They have been taught to feel rather than think critically. They have been programmed to believe rather than question and explore. Slogans and memes have replaced knowledge and understanding. They have been lured into inescapable student loan debt serfdom by the very same government that is handing them a $200 trillion entitlement bill and an economy built upon low paying service jobs that don’t require a college education, because the most highly educated members of society realized that outsourcing the higher paying production jobs to slave labor factories in Asia was great for the bottom line, their stock options and bonus pools.

How Indians keep themselves poor

Reality and perception

By Jiwan Kshetry

The Global Slavery Index released by the Walk Free Foundation on October 16 claimed India is home to nearly half the world's modern-day slaves caught headlines. Its unlikely the findings surprised close observes. 

Consider the findings alongside the fact that India is home to estimated one-third of world's poor, with 32.7% of Indians surviving on a meager US$1.25 a day and a 68.7% living on $2 a day, according to a 2010 World Bank report, and an ominous picture of the state emerges. 

How are these statistic possible in a country that see itself as an aspiring world power? How do high GDP growth rates of the past 15 years square with the appalling living conditions of so many? 

The index listed India as the country with by far the most slaves, with an estimated nearly 14 million, followed by China (2.9 million) and Pakistan (2.1 million). The presence of Nepal in fifth place in the ranking makes South Asia the deepest and most recalcitrant pocket of poverty and slavery in the world. 

Amid the persistently high poverty and slavery, it seem the Indian middle and upper classes are living in denial about their role in sustaining the status quo. 

While the people actually suffering from perpetual hunger and misery can't afford to think about lofty things such as India's image abroad, the middle and upper class seem to think of little else. 

Though not exactly balanced, a section of the Indian media has been paying increasing attention to the plight of the poor and the downtrodden. Western media have also robustly covered these issues. A series of documentary films have explored different facets of the life of the poor people of various kinds in India. Movies like the Oscar-winning Slumdog Millionaire, did a lot to present the dark side of India's story. 

America: A threat to liberty?

Voting is the illusion of influence in exchange for the loss of freedom

 by DETLEV SCHLICHTER

“Politics, as hopeful men practice it in the world, consists mainly of the delusion that a change in form is a change in substance,” as the incomparable H.L. Mencken observed more than 80 years ago. His observation applies to the United States of today in two ways. On one level, and the level Mencken intended, it reminds us of the fact that any form of government, whether democratic- republican or monarchical, is ultimately oppressive at heart. Every state is, qua state, a central depository of legalized violence, and thus stands in direct and unending opposition to individual freedom. Or, in the words of Ludwig von Mises: Government is essentially the negation of liberty.

But Mencken happened to use the words ‘hopeful’ and ‘change’ in this sentence, and the choice of words brings us quickly to the administration of Barack Obama and his promise – proclaimed particularly noisily for his first term – that his policies would mark a distinct change from the policies of his predecessor, George W. Bush. Assessing the situation now at the start of his second term, there is no escaping the fact that whatever change Obama brought was predominantly in appearances rather than in fundamentals, and that the most worrisome and offensive trend that characterized the Bush administration not only continued under President Obama, it even accelerated.

This trend is the rise of the American leviathan, the rapid expansion of state power and the ubiquitous curtailment of individual rights, whether they are rights to fair and open trial, property rights, or rights to privacy. The trend, everywhere in U.S politics, has been and still is towards big and interventionist government. While the media keep droning on about the apparently insurmountable divisions in US politics, the fact remains that a substantial de-facto consensus exists in Washington when it comes to giving the state more power. The increasingly expansive and expensive warfare-welfare state has been growing under Republican and Democrat presidents alike and is the one project that enjoys vast support across ‘the aisle’. The idea of limited government under the rule of law, historically a defining feature of America’s image of itself, lies dying, critically wounded by Baby Bush and now finished off by Obama. What Americans are destined for is an increasingly unconstrained government largely accountable to nobody but itself.

Leviathan rises

After 9/11, the Bush-Cheney White House considerably expanded the powers of the executive branch, mainly via the Patriot Act, arguing that the nation was now at war and that specific war-powers had to be granted, among them detention without trial and surveillance without warrants. These enlargements of state authority coupled with the hyper-interventionist economic policy that began after the financial crisis hit in 2007, have fundamentally changed the relationship of the American state with its citizenry.

Anatomy of the End Game

Markets cannot arbitrage fiat money, but can repudiate the sovereign debt that backs it

by Martin Sibileau

About a month ago, in the third-quarter report of a Canadian global macro fund, its strategist made the interesting observation that “…Four ideas in particular have caught the fancy of economic policy makers and have been successfully sold to the public…” One of these ideas “…that has taken root, at least among the political and intellectual classes, is that one need not fear fiscal deficits and debt provided one has monetary sovereignty…”. This idea is currently growing, particularly after Obama’s re-election. But it was only after writing our last letter, on the revival of the Chicago Plan (as proposed in an IMF’ working paper), that we realized that the idea is morphing into another one among Keynesians: That because there cannot be a gold-to-US dollar arbitrage like in 1933, governments do indeed have the monetary sovereignty.

Is this true? I will try to show why it is not, and in the process, it will also describe the endgame for the current crisis. Without further ado…

After the fall of the KreditAnstalt in 1931, with the world living under the gold-exchange standard, depositors first in central Europe, and later in France and England, began to withdraw their deposits and buy gold, challenging the reserves of their respective central banks. The leverage that linked the balance sheet of each central bank had been provided by currency swaps, a novelty at the time, which had openly been denounced by Jacques Rueff. One by one, central banks were forced to leave the gold standard (i.e. devalue) until in 1933, it was the Fed’s turn. The story is well known and the reason this process was called an “arbitrage” is simply that there can never be one asset with two prices. In this case, gold had an “official”, government guaranteed price and a market price, in terms of fiat money (i.e. schillings, pounds, francs, US dollars). The consolidated balance sheets of the central bank, financial institutions and non-financial sector looked like this before the run:

The Brilliant but Confused Radicalism of George Orwell

Animal Farm and Nineteen Eighty-four, have earned him a place in the libertarian tradition

by Jeff Riggenbach

Eric Arthur Blair, who is best known under his pseudonym, George Orwell, was born 107 years ago this month in India, where his father was a British civil servant. His father’s job, according to Orwell biographer Gordon Bowker, “was to oversee the growing of opium, mainly for export to China.” Though young Eric’s mother had herself grown up in Burma, the daughter of yet another British civil servant, she had long since tired of Asia; and when her son was only a year old she successfully lobbied her husband to ship her and their two children — Eric and his older sister, Marjorie — back to England. Eric did not see his father again for eight years, until he was nine years old and had come home for Christmas vacation from his “prep school,” St. Cyprian’s.

Here in the States, a “prep school” is a high school; it preps — that is, it prepares — its students for college, which, on this side of the Atlantic is something that comes after high school and comprises, in effect, grades 13 through 16. In the England Eric Blair grew up in, however, a “prep school” was for children 8 to 13. What it was preparing these children for was what we would call “high school,” but what Eric grew up thinking of as “college.” College, in turn, prepared you for university.

Eric was sent to St. Cyprian’s when he was 8 years old and remained there until he was 13, whereupon he transferred for another five years to Eton College — a very famous and very expensive private high school, long favored by the British upper classes. After Eton graduated him in 1921, he never went to school again. Why? Orwell answered that question in an autobiographical essay called “Such, Such Were the Joys,” written in the early 1940s but never published until the early ’50s, a few years after his death, and then only in the United States. It was not published in England until nearly 20 years after his death.

In this essay, Orwell judged the education he had received at St. Cyprian’s to be inferior. “The whole process,” he wrote,

The 1930s All Over Again?

Centralization of powers and the thinning of capital can lead to destruction

Then, as today, societies were uncertain about which model of society to strive for and how to repair monetary systems. Societies bet on the wrong ideas; we may be committing similar mistakes now.

By Reuven Brenner
Many people draw parallels between today and the 1930s, labeling this the Great Recession. They note the high unemployment rate, referring not to the mismeasured, official statistic, but to the number more than double that rate, which also accounts for those who dropped out from the labor force and are no longer counted as “unemployed.” Others worry about the deflationary risk, the dollar devaluation, and the status of the U.S. dollar as reserve currency. Still others worry that the “vital few” — those with high scientific aptitudes and entrepreneurial drive — no longer come to or stay in the United States, but stay in or go back to the many countries whose Iron Curtains have been punctured since 1989.

Yet the most worrying parallel with the 1930s is one that is not discussed. Then, as today, societies were uncertain about the model of society they should strive for and about how to repair domestic and international monetary systems after wildly varying expansions of credit during and after World War I in the different countries. In addressing these two questions, societies ended up betting on the wrong ideas, which had long-term, disastrous consequences. We may be committing similar mistakes now.

Recall the 1920s and 1930s: Germany, Hungary, Austria, and Italy all destroyed their middle classes and financial markets with hyperinflation — a destruction that has always been a recipe for both political instability and predictable centralization of power. After all, once financial markets are destroyed, even if inadvertently, governments and central banks become financial intermediaries — by default.

Action, Time, and the Market

The Market integrates all the factors affecting human action into a systematic whole

by Jeffrey M. Herbener

The wellspring of all economic theory is the reality of the human condition. As a finite being, man makes a distinction between ends and means. He cannot attain his ends by an act of will alone, but must apply means to attain his ends. Man lives in an orderly but finite world. Using means produces only limited effects in attaining ends. Endowed with reason, man is able to perceive the causal connection between the use of means and the attainment of ends. 

Any action toward the attainment of an end requires surrendering the attainment of another end with the same means. And any action using a set of means requires foregoing using another set of means to attain the same end. Action, therefore, requires choice. As a purposeful being, man selects what he perceives to be higher-valued ends to pursue and what he perceives to be lower-valued sets of means to employ. 

Choice, therefore, requires a judgment of the mind. Since attaining the end is the purpose of an action, the value a person attaches to the attainment of the end is primary. A person attaches only derivative value to the means used in action since they are merely aids to the attainment of the end. Means have no value independent of the value a person attaches to the end they help attain. The human mind imputes value to the means according to the aid they render in attaining a valuable end. The technical properties of each of the means that combine to attain an end can be valued differently by different persons or by the same person at different times and, therefore, have no causal impact on choice and action independent of the judgment of the mind.